Bairaha Farms December performance aptly displays poultry industry woes

Bairaha Farms PLC reported losses for the quarter ended December 31, 2019 as cost of sales rose while revenue slipped from a year earlier, impacting the bottom line of the country’s leading poultry producer. 

Sri Lanka’s poultry industry has long been experiencing a supply shortage due to the so-called corn mafia operating in the procurement of maize, a key component of poultry feed. 

Adding to the woes were the slowdown in the economy, which eroded disposable incomes, and the Easter Sunday attacks that dealt a crippling blow to the country’s booming tourism sector. 

According to the interim financial accounts filed with the Colombo Stock Exchange (CSE) last week, Bairaha Farms reported negative earnings of 5 cents a share or Rs.742, 875 for the October-December period (3Q20) compared to earnings of Rs.2.73 a share or Rs.43.7 million reported for the corresponding quarter a year ago.

The revenue slipped by 5 percent year-on-year (YoY) to Rs.1.16 billion.

The cost of sales rose by 12 percent YoY to a billion rupees weighing on the company’s gross profit by nearly 60 percent in comparison to the quarter in the previous year. 

Meanwhile, the group’s joint venture companies’ share of profits turned a negative million rupees for the quarter from nearly Rs.24 million in the period year earlier. 

Bairaha owns a 50 percent of Fortune Agro Industries (Pvt) Limited, which runs a feed mill, established in June 2016 to minimise the undue volatility in the supply of poultry feed due to sporadic issuance of permits for corn import. 

The company along with its other joint venture entity, Windsor Real Estate Limited, last year completed the acquisition of lands, buildings and silos from CIC Grain Private Limited for Rs.340 million for the purpose of storage and drying of maize. 

In January this year the government announced an import ban on maize and groundnuts effective from January 15 to apparently help local farmers. 

But the move was instantly met with resistance by the poultry industry as they claimed the ban would only play into the hands of the corn mafia and not help the farmers. 

The import ban would further hurt the poultry industry as they will be forced to pay higher prices for maize due to the supply shortfall in the local market. 

Sri Lanka’s poultry industry has been bogged down by limited access to international markets to import maize due to protectionist policies, price controls on chicken, and inadequacy of investments. 

Meanwhile, for the nine months ended December 31, 2019, Bairaha Farms PLC reported a net loss of Rs.107.5 million compared to a profit of Rs.405.7 million in the year earlier period. 
The sales for the nine months were Rs.3.26 billion, down from Rs.3.52 billion in the corresponding period of the previous year.

While the supply woes could persist longer, the industry expects the demand to recover with the rising disposable income from the lower taxes and the faster than expected recovery in the tourism industry.