Local poultry sector likely to face excess demand near future: report

Sri Lanka’s poultry sector is expected to run into excess demand, given the rising income levels and inconsistent government policies with regard to supply, an equity research report pointed out.

“Sri Lanka’s current per capita chicken consumption is estimated to be at 9 kg per annum and it is likely to create an excess demand situation in the near future,” 

Asia Securities, a Colombo-based stockbrokerage, said in an industry report.

The report said that last year, the availability of poultry per person was 7.8 kg, after production grew by a compounded annual growth rate of 9.6 percent for the past five years.

The report noted that rising income levels have led to changes in dietary habits, especially towards the consumption of more protein-rich foodstuff.

“Rising per capita income levels in the country has also played a major role in increasing demand for chicken as a prime protein intake. Sri Lanka’s per capita income has increased 60 percent over the past five years to US $ 3,837,” it added.

The consumption of fish, beef, mutton and pork in Sri Lanka has fallen over the last five years, with the demand shifting towards chicken, which has also been helped due to the consumer shunning red meat and processed meat due to health concerns, the report added.

Asia Securities noted that compared to Malaysia, where the per capita annual consumption of chicken was 47 kg in 2014 and the consumption of a kilo of chicken for every US $ 239 of income, Sri Lankans consumed a kilo of chicken for every US $ 426 of income, showing the potential 
for growth.

The handful of large poultry companies, which control around 60 percent of the frozen meat market, recorded exceptional profits last year, with the three listed poultry suppliers recording over 100 percent growth in net profits and the largest—Ceylon 
Grain Elevators PLC— recording a 227.5 percent growth.

It should be noted that these large poultry suppliers do have an excess of supply, which they are exporting in the form of hatchable eggs and parent day-old chicks to regional countries, especially to the Middle East.

Lobbyists have pointed out that the large corporations are limiting the supply of day-old chicks to small-scale local farmers, who are dominant in the fresh chicken meat market, in order to stifle competition.

The industry, for which the Consumer Affairs Authority has imposed maximum price controls, could face supply shortfalls of meat due to government policy inconsistencies, with regard to the importation of raw material to feed 
the chicken.

“With increasing demand for chicken feed, the government has taken steps to encourage the expansion of maize (i.e. corn) cultivation in the country. However, still more than 50 percent of maize raw material required for feed manufacturing need to be imported,” Asia Securities said.

It noted that in addition to the currency risk, the imports are subjected to cess and duties, putting pressure on supplier margins, despite the low cost of animal feed in the global market. “In recent years, the price of maize in Sri Lanka has been held artificially high by hoarding of stocks by intermediaries. This practice continues to create a lot of difficulties to the poultry industry in the absence of intervention by the government or prompt issue of permits to import maize,” it added.
Asia Securities added that the proposed increases of the value-added tax and the port and airport development levy will also bite into the suppliers’ profits.