Poultry profits seen improving

Poultry producers, who saw their profits squeezed by increasing feed costs and retail price ceilings, should do better this year with demand driven by rising incomes and some easing of price controls

By Echelon.

Published on March 10, 2014 with No Comments

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Poultry producers have been struggling for the last two years because the government has been controlling the retail price of chicken. What price increases the Consumer Affairs Authority did allow – the last was a Rs30 hike in October 2012 – were not enough to keep pace with rising costs.

The industry believes the price of chicken is not something that should be regulated by government. Poultry producers prefer no price control at all, arguing that their profitability has been eroded by the devaluation of the rupee and rising cost of feed, which make up well over half of total production cost. Nearly 30-40% of the raw materials for feed production for making broiler meat are imported by feed millers.

“Due to the price ceiling, poultry producers have not been able to transfer the impact of escalating feed and other input prices to customers, which have resulted in the industry’s overall profitability diminishing in FY 2012 and FY 2013,” RAM Ratings Lanka says. But rising personal incomes and the replacement of price ceilings with a pricing formula based on the cost structure proposed in the 2014 budget should improve the bottom line.

“The growth potential of the local poultry sector remains encouraging due to an improving market balance, coupled with declining grain and feed costs,” the rating agency said in a report. “Sri Lanka’s per-capita chicken consumption is expected to rise with higher per capita disposable incomes. Poultry prices will see further support from the government in future, given that the existing price ceiling for poultry products was replaced in the budget.”

Bairaha Farms, which has a broad range of interests from poultry breeding to processing and sale of pre-cooked meats, is a dominant player, estimated to have about half the market share of broiler parent breeder chicks, 18% of day-old chicks and 10% of broiler chicken meat. But profit margins have more than halved in the last two years in the firm, which is affiliated with Cobb-Vantress Inc., USA, a subsidiary of Tyson Foods, Inc. USA, one of the world’s largest processers and marketers of chicken.

Being one of the industry’s most highly-integrated poultry producers, with a strong presence in the processed foods market segment and one of only three operators of broiler grandparent farms and hatcheries, Bairaha can maximise economies of scale and influence pricing, RAM Ratings says.

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Correction

Bairaha Farms is not a subsidiary of Tyson Foods, Inc. USA, as reported in our story headlined ‘Poultry profits seen improving’ on page 30 of the February 2014 Echelon. Bairaha is affiliated with Cobb-Vantress Inc., USA, a subsidiary of Tyson Foods.

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