Poultry producers struggle with shortage of feed and sharp rise in costs

• Ceylon Grain Elevators cites maximum retail price on whole chicken as further bane 

Demand for poultry produce such as chicken rebounded faster than expected since the end of lockdowns last year, boding extremely well for the large scale poultry producers’ top and bottom lines, but they now contend with scarce local feed and sharper cost rises in imported poultry feed among others, which have threatened their margins and profits. 

According to poultry industry leader Ceylon Grain Elevators PLC, their top-lines were strengthened by strong and sustained demand for compounded feed and breeder operations at its subsidiary, Three Acre Farms PLC, but the rise in feed costs amid scarcity in local feed have dented its gross margins and profits at operating level. 

Poultry feed account for nearly two thirds of poultry rearing cost and the ban on maize imports effective from January last year have pushed feed cost further up and even the limited imports allowed have gone up in price, both as a result of rise in commodities prices and the weakening rupee against the dollar.  Ceylon Grain Elevators PLC, the producer of Prima branded Chicken and Farmer’s Choice branded animal feed reported revenues of Rs.6.1 billion for the three months ended in June, up 77 percent from their year earlier period but reported an operating profit of Rs.63.6 million, down 30 percent from a year ago. 

The poultry group saw their direct costs rising by as much as 81 percent over the same period last year, denting their margins and operating profits.  

“……the performance of feed mill and chicken segments were affected by the continuously increasing imported raw material prices, scarcity of local raw materials, LKR depreciation against US$, increase in fuel prices & other overhead costs and the recent setbacks that arose with the third wave of COVID-19 cases,” said Cheng Chih Kwong Primus, the company’s Chief Executive Officer in an earnings release this week.  What appears to be making the conditions for the poultry producers further challenging is the maximum retail prices applicable on the whole chicken, which hasn’t been revised in the past one and half years. “The adverse impact of these challenges on the cost of production was further aggravated by the maximum retail price of whole chicken, which has not been revised in the past one- and-a-half years”, Primus added. 

Sri Lanka is confronted with double digit food inflation for few months running due to supply chain constraints triggered by virus induced restrictions, import controls imposed in view of supporting local production which hasn’t been able to ramp up production to make up for the imports and the weakening rupee which makes imports expensive even when all other things remain unchanged. 

Ceylon Grain Elevators, Three Acre Farms and Bairaha Farms are the three big listed poultry producers in Sri Lanka and were largely poised to financially benefit from the sharp post pandemic recovery in demand since last year and higher prices for Day Old Chicks (DOC) and chicken prices.

The company reported earnings of Rs.1.37 a share or Rs.82.4 million in the April - June quarter compared to Rs.1.03 a share or Rs.61.9 million in the same period last year due to favourable corporate income tax which resulted from the tax concessions and exemptions afforded for agro-farming, agro-processing and manufacturing by the government. For the six months ended in June 30 2021, the company reported earnings of Rs.5.52 or Rs.330.9 million compared to earnings Rs.4.17 a share or Rs.250.5 million in the corresponding period last year. 
Singapore’s Prima Limited holds 45.45 percent stake in the company followed by 8.92 percent stake held by Employees’ Provident Fund.