Poultry farms in India are facing pressure on their profit margins due to a sharp increase in feed prices and their inability to pass them on to the consumers, despite a peak demand season.
The scenario has changed in the sector over the last two months. The government’s effort to protect farmers through sustained increase in the minimum support prices (MSP) has seen a rise in prices of maize and soybean. The two are used as feeds, and take up half the cost of chicken and eggs.
Maize prices have jumped 21 per cent in the last two months to Rs 2,000 a quintal due to crop losses owing to deficient rainfalls in Andhra Pradesh and Karnataka, and pest attacks in other parts of the country. Thus, poultry farmers have to pay around Rs 2,000 a quintal compared to Rs 1,450-1,500 a quintal last year. The government raised the MSP by 19 per cent to Rs Rs 1,700 a quintal this year. Soybean prices rose 16 per cent to hit a five-year high at Rs 3,964 a quintal. This is attributed to a continuous hike in the MSP, which was raised by 11 per cent to Rs 3,399 a quintal this year.
“Owing to the feed price increase, the cost of eggs and broiler chicken production has gone up by 15-16 per cent in the last few months. But, prices of chicken and eggs have not gone up proportionately. In fact, prices of poultry products are flat, resulting in pressure on profit margins. If the trend continues, the industry will have to cut down production in the coming months,” said K G Anand, general manager, Venkateshwara Hatcheries, the producer of Venky’s brand of poultry products.
Despite a forecast of bumper output of 13.5 million tonnes (mt), soybean prices are moving up due to lower arrivals in mandis. Also, prices of soybean meal, another feed, have increased proportionately due to increase in bean prices.
“Feed prices have risen abnormally high in the last few months, which need to be passed on to the consumers,” said Balram Yadav, managing director, Godrej Agrovet.
Meanwhile, the increased cost of production has not been passed on to the consumers due to the fear of consumers shifting to value-based purchase instead of volume-based ones.
“When consumers purchase poultry products, they fix a disposable amount in their mind. In case of price rise, they reduce the quantity instead of raising their budget,” said Anand.
Overall increase in raw material cost has raised the cost of production of broiler chicken to Rs 80 a kg. But, it is being sold at Rs 68-70 a kg in the north and south Indian states, and Rs 78-80 a kg in Maharashtra.
“Many farmers have already shut their shops due to viability issues. If the current trend continues, poultry farmers would be in trouble again,” said Ramesh Khatri, president, Poultry Federation of India.
Usually, by volume, maize forms 60-65 per cent of poultry feed, while soymeal forms 28-30 per cent, with the rest being rice bran oil, de-calcium phosphate, among others.
“Remunerative broiler realisation and low feed prices had boosted profitability in the industry during FY17 and FY18. However, the profitability will moderate substantially in FY2019 due to lower realisation and a sharp increase in maize prices,” said Ashish Modani, vice-president, corporate sector ratings, Icra.