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Avian Influenza

Update on Avian Influenza

 

27 February 2012

 

It was Winston Churchill who said: “A lie gets halfway around the world before the truth has a chance to get its pants on”.

 

In the current circumstances surrounding the Avian Influenza epidemic in the South African Ostrich Industry, where certainty is in serious short supply, lies can travel with relative ease. Any potential assesment of the situation is speculative at best, but I believe it is still important to try and provide some type of overview to our customers on where, we as a industry, currently stand with regard AI (Avian Influenza).

 

In the past few weeks there has been two confirmed cases of AI on ostrich farms in South Africa. Our initial expectations were that the industry would possibly start exporting again in the nearby future (possibly April), but these two incidences will most likely extend the ban on fresh meat exports. Unfortuntely, under these circumstances, we can only speculate on how long it will take before exports can resume, but the current period that has been tabled is another 12 months!

 

These developments obivously have a serious impact on the sustainability of the South African Ostrich Industry over the medium to longer term. Most of the stakeholders in the industry cannot survive in an environment without meat exports – the disparity between local and export meat prices is simply too big to sustain a viable business in ostrich farming. As already mentioned, what makes this epidemic different from the previous AI situation, is the fact that leather is not making the same level of contribution to the farmers income when compared to the 2006 AI epidemic. Therefore, our challenge is to establish a value chain where the meat, leather and feathers are in better balance with regard to each category’s contribution towards the farmer’s income.

 

Ultimately, the price of any product in the free market is determined by a balance between supply and demand at a certain price point. On the current income levels, investment in ostrich farming is being seriously comprimised by the lack of any future income security and a sustainable business model. Our farmers are simply not investing in ostrich farming anymore. The low volumes of day-old chick sales basically confirms the lack of investment and indications are that the total size of the industry will probably shrink by between 40 to 50% in the next 18 months (140k birds per annum). From a leather perspective, our industry is going to be driven by a completely diffrent set of dynamics compared to the past few years. What the industry will be like is at this stage only a matter of sepculation, but at 140k birds per annum, there are a few obvious consequences:

 

  • The novelty value of ostrich leather will increase at a very rapid tempo as the supply of ostrich leather becomes a lot more strained
  • The traditional market segmentation will probably change as the diffrent manufacturers compete for ostrich leather raw material

 

In the next few months the competition for raw material in South Africa will become very intense and ultimately this will have a major impact on the pricing of ostrich leather as an ingredient in the various luxury consumer goods. In our commercial environment, it is always essential to manage these cycles with a coordinated and pragmatic approach. During the first 12 months of AI, I think KKI has been reasonably successful in achieving this in spite of dire circumstances. Unfortuntely, the severe impact of Avian Influenza on our industry and the prospect of being closed for fresh meat exports for another 12 months, will not allow us the legacy of being able to continue with a more pragmatic approach to the shortage in supply.

 

As an industry, our position has now moved from one with medium term challenges, to pure survival. We need to create a viable business for our stakeholders (ostrich farmers) which is a lot less reliant on meat and more balanced in terms of income from leather and feathers. This needs to happen very quickly since the past 12 months of AI has already absorbed any possible resolve we might have had to manage the situation with more moderate measures.

 

What are the implications for you, our customer? Obviously, the trading environment will be more volatile in the next 18 months to two years. We as KKI will try to manage this environment as best possible, but with the anticipated shortage of raw material, the competition for it will be brutal and in order to survive, we will have to respond quickly. Under these circumstances, we can only try to relay increases in the price of raw material in a coordinated way, but I think we are beyond the point where KKI can absorb these commercial realities – the impact of AI on the company the past 12 months has simply been too severe. I think it is important for you as our customer to bear in mind that this is not an exercise to exploit the shortage of ostrich leather, but rather an effort from KKI to develop a more viable and stable business for our stakeholder, the ostrich farmer. In an environment with a shortage of supply, conditions are obviously more favourable to try and unlock more value for the product which will ultimately be for the benefit of you as the customer as well. Price increases and supply shortages are never easy variables to deal with in any value chain. In this regard KKI needs the support of our customer base under these trying circumstances in the ostrich industry.

 

For the past four years, the general trading conditions in the exotic leather industry have been very tough. During this time KKI did a lot to support our customers and ensure that ostrich leather remains an exciting exotic medium for leather goods. In any healthy commercial relationship, the cornerstone remains mutual benefit. During the next two years, KKI is going to have to rely very strongly on the support of our commercial partners to support us during these uncertain times.

If you should have any specific questions, be it with regard to AI or the general state of the industry; please do not hesitate to contact me directly.

Charl du Plessis

Executive Director: Leather

   

Ostrich Is A World Citizen

beautifull Klein Karoo International pioneered the global supply of quality ostrich leather around the world since its inception a few decades ago.

As a world leader in the ostrich industry, Klein Karoo continues to focus on the innovative and dynamic needs of the international fashion industry.

Constant attention to quality and finishing by the Klein Karoo Boutique ensures the continuing international demand for this amazing leather.

Garment ostrich leather is enjoying increasing popularity due to improved softness and roundness of feel. The fashionable wearer of ostrich leather creations is very aware of the uniqueness, luxury and status offered by ostrich leather.

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Naturally Beautiful!

Clients who visit the Klein Karoo Ostrich Boutique in Oudtshoorn are bowled over by the proverbial feather when they see the beautiful natural ostrich feather boas and clutch bags.

This ‘green’ idea has been developed by the marketing division of the Klein Karoo Ostrich Boutique to satisfy the demand the market has for natural products. These boas and bags are made from the downy soft byocks feathers of male and female ostriches – the grey and black speckled feathers underneath the wings of the ostrich that protect the precious, majestic wing plumes.

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