ECONOMYNEXT – Sri Lanka’s fresh chicken prices have soared as a combination of state controls and Coronavirus impact hit the sector, with higher meat prices driving up day-old-chick prices amid supply constraints while priced controlled frozen chicken has gone off the shelves.
Sri Lanka’s fresh chicken prices have soared to around 700 rupees a kilogram as demand resumed during the New Year season, ahead of expectations of the industry, CAL Research said in a research note.
Frozen chicken on which there is a 430 rupee ceiling price by the Consumer Protection Authority, which creates shortages of anything from tinned fish, to dhall to cement through its price controls, has disappeared from supermarket shelves and only higher priced parts are available.
There have been discussions to set a new price ceiling of 600 rupees a kilogram as money printing also depreciates the currency pushing up costs.
Fresh chicken retailers closed shops in protest as the frozen chicken sector bought up stocks and fresh poultry prices rose to as much 700 rupee a kilogram.
The rush to grow new chicken has sent day old (DOC) chick prices soaring, while supply was hit by import controls on grant parent stock, CAL said.
“The chicken price hike of 24.76 percent ye YoY was driven primarily by the sudden increase in demand over the last few weeks owing to the festive season,” CAL Research said.
“This compounded the supply shortage caused by the inability to import the parent flock to produce day-old chicks (DOC) during the lockdown in 2020, causing a steep increase in DOC prices.”
Sri Lanka imposed widespread import controls after tax cuts in December 2019 followed by unprecedented money printing triggered import controls.
Sri Lanka’s fresh chicken prices slumped during a Second Covid wave in the fourth quarter of 2020, on top of a hit on farmers during the second quarter driving many farmers out of the business, industry analysts say.
During Covid-19 lockdowns the industry buried day old chicks and also culled parent stock. It takes about 5.5 to 6.0 months to grow parent stock.
Import controls on maize as well as rupee depreciation from money printing had also driven up costs.
Between January and April fresh chicken prices rose around19.5 percent, feed costs increased around 10.0 perent and DOC prices increased from around 60-70 rupees a chick to 160 rupees a chick.
“The Feed Conversion Ratio (FCR) stands at 1.6x, implying that these developments will especially benefit larger players who are able to leverage scale benefits,” CAL said.
“The steady LKR depreciation and increasing feed cost (the largest cost component in poultry rearing) will also exert additional pressure on retail poultry farmers.
“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. Small-scale poultry farmers may eventually be crowded out by larger players.”
Sri Lanka’s maize supplies are also controlled by the state to promote import substitution and give profits to farmers and several collectors generally labeled the ‘maize mafia’.
Critics say money printing the resulting, currency depreciation and balance of payments deficits, which had undermined free trade, and a knee jerk ‘import substitution’ policy are among the biggest constraints facing consumers and businesses alike.
A Colombo Port City business and services hub plans to escape the instability coming from the Monetary Board policy errors by dollarizing.
CAL Research said higher chicken and day old chick prices may boost margins of listed poultry firms such as Grain Elevators, Three Acre Farms and Bairaha Farms. (Colombo/Apr20/2021)