Johannesburg – Egg prices are expected to increase between 15% and 20% as suppliers have to cover the costs of lower production due to the Avian flu outbreak, according to an analyst.
In a statement this week Paul Makube, senior agricultural economist at FNB Business, shared on the impact of the highly pathogenic avian influenza (H5N8) on egg prices.
Earlier this year, producers warned that a shortage of poultry products would drive up prices.
Producers had to cull birds to curb the outbreak. Referring to statistics from the South African Poultry Association (SAPA), Makube said there was a 12% annual drop in egg production recorded for September 2017. Particularly in August 2017, SAPA data, which accounts for 22.5% of total egg production for the month, showed egg prices increased 1.9% since July 2017. Prices were up 12% from August 2016.
“The increase in egg prices is subject to demand and supply dynamics, with the influenza outbreak having a major influence on the recent spike,” explained Makube.
Data from Statistics South Africa shows that in October eggs were 8.5% more expensive than the previous year. Egg prices increased from an average of R36.96 for an 18-egg tray to R40.11.
Egg prices are expected to go up as much as 20% in the next few months, he warned. The December petrol hike of 71c per litre is also expected to impact egg distribution costs which will be passed on to consumers, he said.
“The upside is that the price increase will help producers to recoup losses as they are still servicing debt incurred during the last drought.
“It will further place them in a better position to repopulate and increase their production which will eventually benefit the consumer in terms of an affordable source of protein,” said Makube.
Lower maize prices will also benefit the profitability of the sector, with prices falling 53% for white maize and 38% for yellow maize over the past year, he explained. “Hopefully, they will pass on the benefit to the consumer towards the end of 2018 given that recovery may take up to a year, and staples such as eggs will start decreasing in price.”
“The impact on prices has been more pronounced in the Western Cape due to the culling of layer hens and the subsequent supply shortages on the region’s shelves,” said Makube. In October the Western Cape government indicated that more than two million birds had been culled or had died due to the avian flu.
The Western Cape accounts for 22% of poultry in South Africa, explained Dawie Maree, head of marketing and information for Agriculture at FNB Business.
“It is most likely to feel the pinch the hardest as it comes in the midst of water restraints,” he said in an article he authored on the impact of the avian flu on the consumer’s pocket.
“Eggs needed to be brought in from Bloemfontein into Western Cape, obviously at a huge cost, and that cost will most likely downstream to the consumer.”
The culling of birds would impact replacement layers for the future. “Industry experts indicated that there will at least be a 55-day lag in producing new layers, which mean that the replacement layers will only be available by Christmas,” he said.
The confectionery or baking industry in particular would feel the impact of higher egg process the most, with the impact being detrimental for small bakeries.
“The feed industry is also impacted as a decrease in bird numbers means less demand for feed,” said Maree. Broiler and layer feed consumption for the year-to-June was down 4% compared to the same period last year, he highlighted. The poultry feed accounts for 55% of total animal feed consumption, according to the Animal Feed Association, he said.
“Other related industries include people that clean the chicken houses. If there is no throughput from the chicken factories, it means nothing to clean, and therefore less work.”
* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.