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Poultry Industry Faces Hard Times

by 5m Editor
20 January 2009, at 10:25am

INDIA - The country's poultry industry is facing the results of the global credit crunch.

The country's 400 billion rupee (INR) poultry industry is feeling the pinch of unavailability of working capital as banks and financial institutions are pulling their hands away from funding the industry, reports Business Standard of India. Industry representatives said this could lead to less production of poultry products - eggs and chickens - as lack of funds may hamper expansions.

Last year was one of the toughest years for poultry farmers as high input costs and diseases like bird-flu impacted the industry. The margins got squeezed resulting into erosion of capital. Reports suggest that several poultry farms owners got trapped into debt which they could not repay.

Anuradha Desai, chairperson of the National Egg Co-ordination Committee (NECC), told Business Standard: "There is a constant pressure on realisation for the last two years which has left fewer people in the business. Due to shrinking margins, capital is now eroded. Moreover, even banks are not forthcoming for assistance as farmers could not make the repayment of the debt taken earlier. There is no fresh capital available now."

The rise in maize prices (maize constitute as a major ingredient in poultry feed) last year hit the poultry industry hard. "The cost of feed makes up 70 per cent of the capital required," said B.V. Rajmane, former head of the Department of Poultry in Bombay Veterinery Hospital. According to Ms Desai, input costs in 2008 was 20-30 per cent more than the bird itself.

Former managing director of Venkateshwar Hatcheries and currently the managing director of Advanced Bio Agrotech Limited, O.P. Singh, said, "Presently, industry hardly has 50 per cent of the working capital requirements as input costs have almost doubled where as costs on required infrastructure is 25 per cent more. Players in the industry are not able to generate enough internal funds and profits are eroding. If this continues, expansions will be hampered and country may end up with less production."

Agreeing with Mr Singh, Ms Desai said that profit margins have shrunk to 5 per cent from the once over 25 per cent. At the same time, replacement of layer birds have decreased by 15 per cent which last year down by 5-10 per cent, she added.

Even the government officials admit the industry's troubles. I.N. Kulshrestha, assistant commissioner of Animal Husbandry in government of Maharashtra, said, "The prices of output (egg and chicken) have not gone up in proportion with the rise in input costs. Since margins are unattractive, farmers have gone into deep debt and banks seem unwilling to finance this business."

The past few years have seen model of contract farming gaining momentum in domestic poultry industry where farmers are at low risk and gets fixed price of the products, however, Mr Kulshrestha said, "Iit has its limited scope and cannot compensate much."

The minimum support price of maize has been increased to INR 840 per quintal (100 kg] from INR 630 last year. This will further dent the margins of the poultry farmers. "If situation remains so, prices of eggs may reach INR 3.50 each before the middle of this year from the current INR2.5-3.0 an egg in the retail market," said Ms Desai.

If actual growth is to come back, government should pay heed to the crisis and give some financial help in forms of interest subsidy to the industry, Business Standard reports.