Soaring poultry production costs overshadow pricing formula
View(s):The poultry sector in Sri Lanka is bearing the brunt of soaring production costs, with poultry producers suffering heavy losses day by day, key players in the industry said.
Despite the government’s move of granting concessions to the industry in the 2013 budget, the viability of poultry is at stake due to its dependency on feed prices, as it is the dominant production cost.
Feed prices have risen by as much as 25 per cent in recent months, with every prospect of further price rises, they added.
In order to create a competitive market environment for producers in this industry, a formula pricing for poultry has been proposed next year (2013 budget) replacing the price ceiling, which will take into account the cost of production.
The income tax on poultry industry has also been reduced to 10 per cent from 12 per cent.
Bairaha group Managing Director Yakooth Naleem told the Business Times that these budgetary concessions will not help to protect the industry, as the price revision of Rs. 30 per kg of chicken is not enough as the cost of production has increased. The revised price comes after 2 ˝ years of a request by the industry to the authorities.
He said that the proposed formula pricing is very complicated as it involves so many sectors, adding that the government is yet to clarify the modalities of calculating the new formula.
Mr. Naleem pointed out that poultry firms are paying 12 per cent income tax at present and the reduction by 2 per cent will not help them at all because of eroding revenue and declining profits, of producers.
“If you have no profits how can you pay income tax?” he asked.
Government’s incentives have been provided to farmers to increase maize production helped by an increased cess on imports but that has had a negative impact. Maize prices have risen to Rs. 45 per kg from Rs. 30 to 35 earlier, owing to rising cost of production.
Soya which used to sell at Rs. 95 a kg now costs as much as Rs. 117 while prices of other ingredients such as vitamins as well as, Poonac, Rice Polish, Broken Rice, Fish Meal, Oil, Vitamins and Minerals have also increased sharply, he added.
Mr. Naleem said it is the feed costs basically which is eating up all the profits and to raise a healthy chicken it is the feed that is essential so when the basic feed cost is high the farmers are pushed into a situation to increase the prices
Another factor for the increase in cost of production of poultry products was the devaluation of the rupee, increased electricity tariffs, labour and transportation costs.
The Government’s recent move to impose 12 per cent VAT on supermarkets and wholesale dealers would exert a greater impact on poultry producers as chicken meat is a VATable item, he said.
He revealed that supermarkets have cut down the purchases of chicken meat from poultry firms such as Bairaha as a result of the newly imposed VAT.
Previously they were buying large stocks of chicken which could be kept frozen for about three to four months, he revealed.
These new developments would affect around 75,000 poultry farmers their families and over 3 million employees.
The poultry industry alone pays over Rs. 25 billion annually only as VAT component and this industry is contributing around 5 per cent to the GDP.
Medium and small scale producers and farmers will have to close down their business if the Government does not increase the price of chicken meat at least by Rs. 50 reflecting the production cost, he added.
Under these circumstances there will be a shortage of chicken in the near future if the Government fails to remedy the situation, he warned.
The Government should take policy decisions preventing monopolies in the poultry industry as well as inputs such as poultry feed, parent birds and chick supply, a senior member of the All Island Poultry Association (AIPA) told Business Times.
The insufficient price increase affects the industry and small scale producers have suffered huge losses.
Some of them have already moved out of the industry, while others have scaled down production or reduced rations to birds by diluting with low quality feed, he revealed.
The replacement of the price ceiling with a formula based method (2013 budget proposal) would not help poultry firms to absorb their costs and things will not improve with the tax reduction to 10 per cent, he said adding that the Government should take measures to tackle the cost of production issue rather than introducing plaster solutions.
He said that the Association demands a price increase of Rs. 80 per kg to compensate for the increased cost of production, but it went unheeded by the Consumer Affairs Authority.
CAA Chairman Rumy Marzook was not available for comment despite several attempts to contact him.
Dr. Athula Mahagamage, President of the World’s Poultry Association – Sri Lanka Branch says the cess on maize imports should be removed and more imports encouraged in order to bring down its prices.
He said the consumption of meat among the people in the country is 11,000 metric tons per month and the demand for chicken has been rising rapidly when compared to other kinds of meat.
Therefore the government should give some kind of assistance to boost the industry, he suggested. The contribution by the poultry sector for the development of livestock sector is around 70 per cent. At present an average of 10,000 MT of chicken meat and 100 million eggs are produced monthly. The monthly and per capita availability is 6kg. The target for 2016 to be self-sufficient in the industry is the production of 18,000 MT of chicken meat and 280 million eggs per month. In order to achieve this target the government should provide facilities along capital investment grants but not pricing formulas, he added
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