Poultry demand in Africa likely to continue growing, but not all local producers are benefitting

Poultry industry operators need the right business strategies to thrive in Africa.

At the time of writing I was sitting in the Chicken Inn fast food restaurant in a shopping mall in Ghana’s capital, Accra. For health reasons I normally try to stay away from fried chicken, but I was hungry with no time to wait to be served at a traditional restaurant.

Restaurants such as these have been growing throughout Africa. The Chicken Inn franchise has expanded across the continent. KFC also has ambitions for Africa and has boosted its footprint significantly.

Mr Bigg’s, a fast food chain with operations across Nigeria and Ghana, reportedly sells about 25,000 pieces of chicken every day. In addition, a growing number of hotels and modern supermarkets are also demanding a constant supply of poultry products.

However, it is demographics that are likely to boost demand for poultry on the continent. Popular wisdom says that as incomes rise, people generally start to consume more protein.

Increased demand

According to the Food and Agriculture Organisation of the United Nations (FAO), growing populations, economies and incomes are fuelling an ongoing trend towards higher consumption of animal protein in developing countries.

The FAO predicts that by 2050 the expanded world population will be consuming two thirds more animal protein, with meat consumption rising nearly 73%. Africa, with its growing population and rising middle class in many countries, is not likely to miss out on this trend.

In Ghana, the estimated consumption per person of poultry products has increased from 4kg in 2010 to 6.6kg in 2012. This assertion comes from a report by the USDA Foreign Agricultural Service, which also projects that per capita consumption may rise to 6.8kg in 2013.

In South Africa, the continent’s most developed economy, the average person consumes 37kg of chicken each year, clearly showing significant room for growth in Ghana.

Frederick Kwame Nyamekye, a Ghanaian poultry farmer, calls himself a small-scale producer and currently sells about 4,000 birds a month to a variety of customers, including restaurants, hotels, a supermarket and individual households. He had to work hard to get his current market.

He said hotels in Ghana will only do business with poultry producers that can guarantee continued supply. For many small-scale farmers, often operating without electricity, this is a huge challenge.

Local supply chains

When KFC first opened in Nigeria, one of its biggest hurdles was finding local producers to regularly supply the quantities required by the chain.

“The only limiting factor we’ve got in Nigeria right now is actually chicken supply, and finding suppliers who are able to meet our global quality standards in sufficient quantity. The commercial chicken industry is horribly underdeveloped,” said Keith Warren, MD of KFC Africa at the time.

Nyamekye says there is a sufficient market for him to sell 20,000 birds a month, if only he had the resources to boost production.

In addition to broiler production (chickens bred and raised specifically for their meat), companies are also seeing potential in table eggs.

Goldenlay is one of the top producers of table eggs in Zambia, supplying its products to the Copperbelt area as well as to the Democratic Republic of Congo. In 2012 the company attracted private equity investment from the African Agriculture Fund, managed by private equity fund management company Phatisa.

Fletcher Broad, Goldenlay’s operational director, told African Trader that competition for eggs in Zambia is “very aggressive”. He says 50% of Zambia’s egg production is from small-scale poultry units. The ability to obtain cheap loans has created more players bidding for the market.

Earlier this year, Christo Wiese, chairman of pan-African supermarket group Shoprite, said at a conference that “there are African countries where we have to import fresh eggs into the country. You can’t source [them] locally.”

Regional expansion

South African poultry companies have expanded into the rest of the continent. RCL Foods, formerly known as Rainbow Chicken, produces a range of poultry products and is a supplier to fast food outlets such as KFC. It has bought a 49% shareholding in Zam Chick, a subsidiary of Zambian agribusiness firm Zambeef.

Another South Africa firm, Astral Foods, has been operating a poultry feed business in Zambia for many years. In June 2010 the company opened Tiger Chicks, a state-of-the-art broiler breeding farm and hatchery in Zambia.

But this growing demand for poultry doesn’t necessarily mean that all African producers are benefiting. In South Africa, poultry producers say they are struggling to compete with imports from countries such as Brazil.

In its recent annual results announcement, RCL Foods highlighted record imports with dumping of product as the major issues facing the industry. “The poultry industry is at crisis point and anti-dumping protection will be key to the survival of the industry,” said the company in a statement.

The South African Poultry Association has called for higher import tariffs. In an article published on the company’s website, RE:CM analyst Faure Heymans recently wrote that South African poultry producers are facing significant headwinds because chicken prices have remained static for six years while feed costs have increased 18% and electricity costs have trebled.

However, he downplays the negative impact of imported chicken, saying the poor prices producers receive for their poultry is mainly due to oversupply and high capacity in the local market.

Competing with imports

According to the USDA Foreign Agricultural Service, only 10% of Ghana’s demand for broilers is supplied by the local market. Imported poultry from regions such as Brazil, the US and Europe are about 30%-40% cheaper.

The organisation says local producers are uncompetitive due to the high operating costs – feed, drugs and energy – and inefficient production methods. This has resulted in a shift from meat production towards the production of layer birds for eggs.

However, Nyamekye says despite the cheaper price of imported chicken he still finds a market for his broilers due to the fact that many chefs in Ghana prefer buying local produce.

“When you compare the price of our chicken versus the imported chicken, the imported chicken is cheaper than our chicken, but every chef will confirm that the chicken produced in Ghana is tastier, it is juicer than the chicken from the outside... What I’m supplying now, I slaughtered yesterday morning, I’ve frozen it, and this morning I’m delivering... Some of the chefs at hotels insist that we need local chicken... They always prefer local and it is also creating jobs for us,” he explains.

Cheap imports are also not a problem in every African country. Goldenlay’s Broad says “this is not an issue in that Zambia is land-locked and the poultry industry is safely guarded”.

Although it is likely that demand for poultry will continue to grow, it is difficult to generalise about a continent with more than 50 countries, different market conditions and diets. While some countries struggle with cheap imports, this is not a problem in others.

Large-scale producers also face different challenges than small-scale operators. However, what is true is that with the right business strategy, poultry industry operators can certainly find a lucrative market in Africa.

This article first appeared in African Trader.