Sri Lanka’s largest poultry producer warns of weaker demand;fallout from Sena

Ceylon Grain Elevators PLC, Sri Lanka’s largest poultry sector operator and the producer of ‘Prima Chicken,’ warns of higher prices due to the spread of ‘Sena’ caterpillar (fall armyworm) in many maize farmlands in the country.

“The recent spread of invasive ‘Sena’ caterpillar (fall armyworm) in many maize farmlands of the country has caused a shortfall in the domestic maize production for the upcoming Maha season, and this will affect the prices adversely. This may in turn affect the overall poultry industry performance,” Ceylon Grain Elevators Executive Director/CEO Cheng Chih Kwong, who is also known as Primus, noted in an earnings release that accompanied the firm’s December quarter (4Q18) interim financial accounts. Sri Lanka is said to be facing its worst pest infestation in history, which could cut the country’s maize and rice output, according to government officials.

Crop-eating army worm Sena was first confirmed in October, and since then it has spread swiftly to many parts of the country.
It is estimated that the pest has damaged almost half of the country’s  80, 000 hectares of maize cultivation.

Maize is the key raw material in the poultry industry. Short supply and low quality of maize remains the biggest obstacle for the development of the industry, as poultry producers face government restrictions in directly importing their requirement. 

The December quarter results of Ceylon Grain Elevators were affected by the weaker rupee and inclement weather that persisted during the period.
The group revenue rose 18 percent year-on-year (YoY) during the three months to Rs.4.47 billion, but the earnings fell by 34 percent YoY to Rs.240.6 million or Rs.4.01 a share.

However, for the year ended in December 2018, the group reported earnings of Rs.890.5 million or Rs.14.84 a share, an increase of 13 percent YoY. 
“The group has been able to improve profitability despite the adverse effect of upward revision in fuel prices, the continuous depreciation of the Rupee against US dollar, inclement weather conditions and the glut in the market for chicken that hindered the last quarter performance, with prudent management and cost control,” Primus said. 

The glut in chicken in the market has arisen due to excess supply, but as a result of weak demand due to higher prices stemming from higher production costs caused by weaker rupee. 

Due to the government’s protectionist policy on maize imports, price of chicken remains high in Sri Lanka, which keeps it beyond the reach of many, hindering their required protein intake. 

Ceylon Grain Elevators’ direct costs, which mainly consist of prices paid for maize, during the quarter under review, grew 24 percent YoY to Rs.4.0 billion weighing on the gross profit. 

Hence, the damage caused to the local maize produce by Sena caterpillar and the rupee weakening could become a double whammy for the local poultry industry. 
Ceylon Grain Elevators provides feed for the livestock industry under Farmer’s Choice brand. 

Meanwhile, the group subsidiary, Three Acre Farms PLC, which has the market leadership in broiler day old chicks, reported earnings of Rs.218.8 million for the quarter and Rs.748.8 million for the full year, up 12 percent and 14 percent YoY. 

“The group revenue has increased due to the improved demand for broiler day old chicks (DOCs) during the year. Stable demand for layer DOCs in the last quarter of the year after recovering from the volatile table egg market further strengthened the performance of the group”, Primus said.

As at December 31, 2018, Singapore’s Prima Limited held 45.45 percent stake in Ceylon Grain Elevators. Employees’ Provident Fund also held 8.92 percent stake.