South African poultry group Astral Foods said today (20 July) that it plans to introduce “further and more severe cutbacks in the poultry production chain” following tougher than expected trading conditions.

Astral said in a general operational update that the proposed cutbacks would lead to reducing working hours that will also “negatively impact” the group’s workforce.

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If the “devastating circumstances being experienced by the poultry industry” continue, Astral warned that it will have to consider a “more permanent downsizing of production”.

A statement posted on Astral’s web site said: “The prospects contained in the interim results for the six months to end March 2016, which were published on 16 May 2016, alerted shareholders to the negative impact that high feed costs, poultry imports and the weak consumer market would have on the results of the group. During the third quarter ended 30 June 2016, the above-mentioned factors have had a detrimental effect on the results of the group, with the impact more severe than originally anticipated.”

Feed costs have continued to escalate following the impact of drought conditions on domestic maize crops, Astral said. “This is expected to continue into 2017 until projections of a better maize crop for the new 2016-2017 planting season materialise.”

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Meanwhile, over the same period, “there were also record levels of poultry imports which added to the existing surplus of poultry stock in the country”, the company said. “This, together with a consumer market that is under pressure, resulted in downward pressure on selling prices in order to sell the ongoing production of chicken.”

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The tough trading conditions have already led to a number of mid- to large-sized independent poultry producers having severe financial distress and they “are either currently in the process of closing down their businesses, or are going into business rescue”, Astral said.

However, the group said it had implemented an import programme for maize “to mitigate the risk of physical shortages of the commodity, as well as to counter the continuous cost increases of local maize with the cost of this maize at import parity”.

Meanwhile, Astral said it could offer no guidance at this time on the impact of the situation on its results for the year.

Astral Foods, the South African poultry group, has reported lower first-half earnings.

In March, Astral Foods trimmed its forecast for half-year headline earnings per share, citing increased costs and lower demand.

In May, Astral posted headline earnings of ZAR299m (US$19.2m) for the six months to the end of March, down from ZAR387m a year earlier. Headline earnings per share were 774 cents, a fall of 23% year-on-year. The company said then that poultry feed prices had risen almost 14% during the period.