(Bloomberg) -- The People First Piggery in the gritty South African mining city of Rustenburg used to slaughter 150 pigs each month. It’s now down to zero.
Three months after South Africa linked products from a factory owned by Tiger Brands Ltd., the country’s biggest food producer, to the world’s deadliest known listeriosis outbreak, pressure is building on pig farmers. The industry has cut at least 2,000 jobs, pork prices dropped to four-year lows and small farmers are at risk of closing down, industry groups say.
The People First cooperative, which buys piglets from larger piggeries and supplies local butcheries, doesn’t have any livestock left after co-owner Petrus Lepota decided against restocking because he was losing money by selling at current prices. He’s had to cut staff and is wary of predicting when things might improve.
“We can’t speculate,” Lepota said. “Ours is to pray.”
Health Minister Aaron Motsoaledi said March 4 that an outbreak of listeriosis that has now killed at least 208 people since the start of 2017 and infected 1,038 was traced to ready-to-eat processed meat products. Tiger Brands closed factories for cleaning and has recalled and incinerated more than 4,000 metric tons of products. It said May 24 the plants will probably stay shut most of the rest of the year. The company’s shares have declined 28 percent since reaching a peak on Jan. 25.
South Africans have been advised to avoid chilled ready-to-eat processed meat products like sausages and polony -- a local cheap and highly processed meat product that’s popular in lower-income households.
The resultant slump in demand for pork caused a nearly 40 percent plunge in pork prices. Yet farmers don’t have the luxury of delaying slaughter because of a risk that quality and flavor will deteriorate, said Richard Krige, who runs Desert Star Piggeries in the Western Cape town of Caledon.
“The crisis is forcing pig producers into financial suicide,” said David Osborne, founder of Number Two Piggeries, one of the country’s larger suppliers. “We are producing pigs at 2018 costs and selling at below 2014 prices.”
While livestock farming is a tiny part of South Africa’s economy, job losses anywhere are a blow in a country with 27 percent unemployment. And eventual meat shortages due to farmers scaling down could push food costs up even faster, adding to inflationary pressure.
Prices could nearly double in 12 to 18 months if expected shortfalls materialize and demand has normalized by then, according to projections from the South Africa Meat Processors Association.
“There is no incentive for producers to raise their level of production,” said Paul Makube, an agricultural economist at First National Bank Holdings Ltd. “When demand recovers, especially on the processed meat side, the supply will relatively be down.”
To be sure, some analysts predict that the industry will recover fairly quickly once the listeriosis threat subsides. The number of cases being reported has already dropped sharply, according to data reported by the National Institute for Communicable Diseases.
Once consumers realize that, prices should start to recover, said Wessel Lemmer, senior agricultural economist for Absa Bank Ltd.
For now, though, many farmers are staying cautious.
Desert Star’s Krige said he canceled an earlier order for more than 200 young female pigs because he’s worried about overproduction.
“We need to bring the market back into balance,” he said. “We can always grow production again as we see the process side picking up on demand.”
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