Pioneer resilient under virus pressure
Food and beverages producer Pioneer Foods, recently bought by US giant PepsiCo for $1.7bn (about R24bn when the deal was agreed upon), says its supply chain during lockdown has proven to be robust and adaptable under pressure, but warns that the rand exchange rate makes price inflation unavoidable. In the group's first interview since its takeover and delisting from the JSE in March, Pioneer Foods CEO Tertius Carstens said this week that the supply chain was in a "far better space than I would have anticipated"."The system keeps going. It's actually incredible how quickly the system in general has responded to the circumstances and is staying operational. "It speaks a lot to the enterprise of people and commitment of people to make it work, and the way we, government agencies and industry associations are working together is just on a different level. It's very positive."But Carstens said one short-term concern for the owner of brands such as Sasko, Weet-Bix and Ceres was that the industry was "in transition from an old maize season to a new harvest that should come in June". "The maize industry is under pressure - it is at that transition with the old-season stock running out and new-season stock still to come in, but the new-season crop looks fantastic so if we can get through the next month or so then we're in a good space."Another concern is the rand exchange rate, which he said would bring unavoidable food price inflation. Since January, when it was trading at about R14.50/$, the currency has been on a roller coaster due to concerns about SA's sputtering economy and now the fallout from Covid-19. It has lately been trading at well over R18/$."There's been some commodity inflation in wheat and some in rice as well," Carstens said. "Multiply that with the rand exchange rate and there is material inflation in some product categories lying ahead of us and has to be managed. But that was a risk that was to be expected in a poor economic environment and what has happened to South Africa specifically."Carstens said while there were "unavoidable price increases" in the near future, he could not give "specific guidance to that because it's still not that well articulated".Pioneer's essential foods business imports about 40% of its raw materials. SA itself imports about 50% of the wheat consumed in the country and 100% of the rice, as well as a large portion of concentrates for fruit juice. "We are continuingly replenishing raw materials. That additional cost will come through the system in the near-term future and it will have to be absorbed, otherwise you put the supply chain at risk," Carstens said.This required a balancing act because a company couldn't simply recoup this from consumers who are already under the cosh and likely to come under even more pressure. "We are acting extremely responsibly in this space to make sure that we can ensure sustainability."Carstens said as far as availability of raw materials was concerned, barring no extended shutdown at any harbour or in other countries, there was no risk at this stage. As far as exports were concerned, there had been snags here and there. Pioneer, which exports to Namibia, Botswana, Zambia, Mozambique and other African countries, as well as Europe, says that "interestingly enough, any exports at the moment are very dependent on what happens in the destination country"."If a country closes and institutes a lockdown, it has an impact on consumption in that country and it has an impact on the ability of our customers or our distributors to contract. "We are up and running with exports, but through harbours, road and transport hubs and customs areas . oversight has escalated. That has become more cumbersome."As far as local consumption trends were concerned, Carstens said there had been strong demand for staples such as maize, wheat, flour and rice, as well as cold ready-to-eat cereals. He said the group's beverages segment had been more negatively affected by the shutdown, especially because it supplied the fast-food sector.The group's main priority in the short term was the health and safety of employees, with "business continuity secondary to that". To this end the company, which employs 10,000 people, instituted strict hygiene and protection protocols in its production facilities and distribution points, which total about 85 across SA. These include hygiene on site, the provision of personal protection equipment and clothing, as well as transport for staff. "We are doing our best to prevent the spread of infection but we can't stop it. We can only do our best to battle it with all the initiatives we have in play."Carstens said Pioneer has had about 25 to 30 coronavirus cases across its businesses. If there is a positive case, the affected facility is immediately closed and undergoes a two-day sanitation process. "We also do contact tracing and ask people who have had contact [with someone testing positive] to isolate." He said with the help of the PepsiCo Foundation, Pioneer will be delivering 11-million meals to the poor in the next few weeks through selective service providers.