Poultry industry finally gets what it longed for

• Maize imports liberalized to meet shortfall in local supply
• Industry fared poorly in September as demand feeble & maize squeezed margins

Sri Lanka’s Finance Minister Mangala Samaraweera appeared to have heeded the long drawn out call by the poultry farms - high cost of maize - which plagued the industry for years as the government decided to allow importation of maize to bridge the gap in the local market. 

Few third parties are allowed to import maize under the State patronage but such imports have been of low quality and high price, the industry complains. 

“The poultry industry is a key part of the country’s agro industrialization strategy, given its capacity to be a significant export earner.  As such, the import of maize will be liberalised provided that such imports will be made only to meet any gap created due to lack of domestic production of maize”, said Samaraweera reading out the budget last week. 

Last week Ceylon Grain Elevators PLC CEO, Cheng Chih Kwong, Primus said his company’s profits declined due to continued price hikes in both local and imported key raw materials. The poultry group which runs a feed mill reported Rs.115.7 million profit after tax for the July - September quarter (3Q’17), down 61.2 percent. 

The sales of the group of which a 45 percent stake is owned by Singapore’s Prima Limited grew by a paltry 2.0 percent on year to Rs.3.7 billion but the cost of sales rose by 14.0 percent on year to 3.4 billion due to said reasons. 

As a result the group which also has 57.21 percent stake in Three Acre Farms PLC saw its gross profit falling by a steeper 53 percent on year to Rs.284 million. 

Three Acre Farms PLC which has the market leadership in broiler and day old chicks in Sri Lanka saw its top-line falling by 12 percent on year to Rs.555.3 million in the September quarter. The profit after tax fell by 50 percent on year to Rs.107.8 million. 

“The Group’s revenue has declined during the quarter under review as a result of the decreased demand for layer and broiler day old chicks caused by the prevailing glut situation in the local chicken and table eggs market, which was cyclical in nature. Continued increase in raw material cost and overheads had adversely affected the Group’s performance”, Primus said in an earnings release last week. 

Meanwhile the Bairaha Group reported Rs.74.9 million profit after tax for its September quarter, which is a decline of over 70 percent over the same period last year. 

Further the top-line of the pioneer chicken processing group also fell by 8.6 percent on year to Rs.1.07 billion. 

Early this year Primus appealed the government to issue permits to import maize directly by the feel millers to enable them to procure quality maize at better rates with the aim of relieving the industry of the local maize supply shortage. 

“The government has granted limited import quotas to feed millers in response to appeals made by the industry. That would lessen the burden to production cost and allow the industry to perform better in the forthcoming quarter”, Primus said. Sri Lanka also cut the taxes on maize in late July. Maize accounts for 60 percent of the raw material of the poultry sector and the sector is forced to buy local maize at Rs.52 a kilogram when it could be sourced at Rs.35 (CIF Colombo price) when imported. 
Maize import liberalisation will allow the industry to lower the prices of chicken and further to find export markets due to guaranteed supply of maize at competitive rates. 

Sri Lanka until recent controlled prices of chicken. 

The industry’s potential to supply the international markets is largely constrained by a web of factors ranging from roadblocks in supply chain, highly distorted and protectionist policy on maize, price controls and the drought of investments in within the sector, said Shafeek Samad, a Director at Farm’s Pride Private Limited that markets chicken under Crysbro brand. 

The government also proposed to, “provide on lease basis underutilized state farms or land suitable for this industry to develop modern poultry farms with a view to increase the live birds stock from 110 million to 500 million per year”

This is a certainly a welcome news for the industry which operated for ages at the mercy of local maize growers who have effectively been shielded from imports and more so as the government has finally recognised the significant contribution the industry adds to the economy as well as its food security.