Chicken prices soar as supply shortage bites consumers and producers alike

As majority of the producers grapple with the rising producer prices, the small-scale poultry farmers have been forced to exit the industry due to the escalating feed prices, which among other things have pushed the selling price of fresh chicken up to astronomically high levels. 

However, the development appears to be making another group of winners, i.e. the large-scale listed poultry firms, which possess the scale and financial muscle to weather the adversities plaguing the industry. 

According to a poultry sector report by CAL Research, the research arm of the investment bank Capital Alliance, the price of chicken has risen by nearly 25 percent in March this year from the same month in 2020, primarily driven by the sudden increase in the demand due to the New Year. 

However, the research firm also observed the situation had been compounded by the supply shortage caused by the inability to import parent flock to produce day-old-chicks (DOCs) during last year’s lockdowns, causing a steep increase in DOC prices. 

During lockdowns, at least seven million DOCs and 140,000 parent birds were culled, as the demand slumped. However, as the demand for chicken recovered faster than anticipated with the lifting of lockdowns, a demand-supply gap was created and thereby causing the prices to shot up.

CAL Research said that the fresh chicken prices reached to Rs.700 a kilogramme in the wholesale market, citing an April 7 report from the Chicken Marketer’s Association, the representative body consisting of chicken retailers. 

According to CAL, the association had stated that many stalls had opted to close until the wholesale suppliers consider bringing their prices down, as they found it difficult to sell chicken at the elevated prices. 

While the government responded to the escalating retail prices by way of imposing a maximum retail price of Rs.600 for a kilogramme, this is yet to come into effect. 

However, CAL is of the view that the prices would return to the Rs.600 level with the gradual easing of the festive demand and the commencement of the Ramadan season, although substantially higher compared to last year.

“Our view supports a scenario in which market forces will converge to correct the artificially inflated price,” CAL Research said. 

Meanwhile, the weakening of the rupee and higher feed costs, a perennial issue facing the industry, due to the corrupt system of maize imports—a key ingredient and the largest cost component in poultry rearing—have pushed many small-scale poultry producers out of the industry.

“The impact of cost escalation can already be seen within the Kurunegala district, where a significant number of small-scale poultry farmers have decided to exit the industry,” CAL Research said, adding that they would eventually be crowded out by larger players. 

Meanwhile, CAL Research maintained that the increasing demand for chicken parts, due to their affordability by the price-sensitive customers and the higher prices of DOCs, together would expand the margins of the larger players such as Ceylon Grain Elevators PLC, Three Acre Farms PLC and Bairaha Farms PLC, helping their financials through June this year.