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Poultry industry’s dilemma

Poultry industry’s dilemma

LAST week, the Pakistan Poultry Association went on record, yet again, lamenting that chicken is being traded at almost 10pc less than the cost of production, and fearing that half of the businesses would soon pull their shutters down if the government did not come to their aid.

Detailing the poultry perspective on the help it seeks, the PPA said the required relief package should include a Rs20/kg subsidy to each farmer, interest-free loans and direct export and freight subsidies to exporters.

In short, the PPA wants the government to virtually withdraw all taxes and duties that it collects at different stages of the business, subsidise chicken production and trade, and provide interest-free loans. Finally, it seeks an end to the price monitoring system by the district administration.

However, the PPA forgets that it has been fined twice by the Competition Commission of Pakistan (CCP) for cartelisation and price collusion earlier.

For the last three years, the PPA has been claiming that the average sale price of live chicken and chicken meat has fallen much below the cost of production, and that the industry has been absorbing huge losses. At different stages, it has quoted various figures emphasising feared business closure — from 30pc to the latest 50pc. But when it calculates its losses per bird, it has been quoting the unchanged figure of 1.2bn bird production per year.

The question arises; if the industry has been bearing such huge loses so as to lose nearly half of its business, how has the poultry production remained unchanged for the last three years? Something seems to be wrong, either with loss calculations, business closures or production figures. The industry needs to explain.

The poultry business may be going through tough times, but it is the industry’s own performance which can retrieve the business from its distress. The industry is caught in a cycle of gross overproduction.

Till a few years ago, the country had only two major grandparent importers. Now there are five — and all of them are importing, competing with each other for a larger share of the market. Once grandparent stock is imported, it starts off a three-year cycle of production — spanning many generations — which cannot be stopped by culling the birds as the produce is perishable.

The second failure of the industry is its marketing strategy. If stakeholders know that production cannot be stopped, they should have been wiser on the marketing front. But that has not been the case. The only way the industry knows of doing business is by continuously dumping its produce into the market. Since the same level of production is maintained, the consumption side determines the volume of the sale and price.

During seasonal lows, the price drops sharply and hurts the industry. A slight profit is made when consumption rises for any reason, such as the arrival of the wedding season. There has not been much investment in the industry on value addition, which could have dealt with perishability of the product and brought stability to business. Both these failures are now haunting the industry.

This situation is despite the fact that grain prices have fallen worldwide, helping the poultry industry immensely on the feed side. Maize and wheat prices in the country are down and soybean import, even from as far as Brazil, costs much less than what it used to half a decade ago.

Regardless of this feed cost relief, the industry is not performing well. Its failure is now spilling over to the agriculture sector. Many maize farmers have started running after feed millers because they have not been paid for the last year or so.

However, the government needs to help the industry in value addition with required incentives. The domestic poultry industry has all the ingredients — genetics, infrastructure and trained manpower — to compete globally.

Published in Dawn, Business & Finance weekly, August 8th, 2016

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