As cruel as it sounds, the poultry sector’s demand and supply dynamics dictate fields of dying chicks. While the price of a day-old-chick (DOC) had gone as high as Rs42 at one point, higher costs of raising chickens amid limited demand mean that there are no buyers. And the chicks are left in fields to fend for themselves.

Poultry prices depend on a number of factors that fluctuate throughout the year. Comparatively unrelated events such as school holidays and mango season can decrease demand and hence bring the price of broiler chickens down.

“During the school year, eggs form an integral part of children’s lunch boxes, which is a reason why demand drops during the summer break,” says Khalil Sattar, chairman of the Pakistan Poultry Association and founder of K&N. “People opt to divert their household incomes towards mangos during the mango season, which is another factor driving down poultry demand. Similarly, beef haleem is a substitute for chicken-based food during Muharrum. On the other hand, the wedding season sees an upswing in preference for chicken thus prices rise.”

Only 5pc of total broiler chickens are processed for further value addition

Basic economic theory dictates costs impact the availability of supply. Repeated bouts of devaluation and a levy on sales tax on various costs associated with raising chickens have made taking the DOCs to farms prohibitively expensive. In the last two months, DOCs have not been in the farms, asserts Mr Sattar.

A 50-kilogram bag of chicken feed costs Rs3,250. Plus, there are electricity bills, vaccination and medical costs and so on, which make raising chicks to chickens unviable financially.

While the costs have not significantly impacted prices as yet, consumers should brace themselves for an increase in coming months. Since the chicks won’t grow up to be chickens, there will be a decrease in supply that will drive the price up.

“Due to the various factors impacting the price, it is hard to gauge how the price will go up but the increase will be more than Rs10 per kg.” The chain reaction should take about two months to result in an appreciable price increase.

Soya bean

The 2018 United States Department of Agriculture (USDA) report on Pakistan predicted that the import of oilseeds would exceed that of edible oil for the first time in 2017-18.

The poultry industry’s rising inclusion of soya bean meal in its feed rations was cited as a major reason for this change with oilseed imports projected at a record 3.7 million tonnes, of which soya beans were expected to account for 2.5m tonnes.

The USDA 2019 update clarifies that the Department of Plant Protection and Quarantine revised the sanitary and phytosanitary standards, which prevented the expected increase from materialising. However, imports of soya bean seeds alone are expected to reach 2m tonnes during 2018-19.

Demand, led by poultry and livestock sectors, is expected to grow to 2.5m tonnes in 2019-20. While palm oil still leads the edible oil imports at 2.8m tonnes in 2018, the exponential increase in soya bean seed consumption in the last few years has made it an import bill staple.

Soya bean meal was mostly imported from India till 2013, according to International Trade Centre’s data. Since then, the import mix has shifted from meal to seeds with imports of soya rising from $6.5m in 2014 to nearly a billion dollars in 2018.

Despite being an oilseed, soya bean’s oil content is limited to about 17 per cent. Therefore, it is not viable for it to be imported for edible oil purposes alone. Soya bean is crushed to obtain vegetable protein in the form of meal to cater to the poultry feed sector.

Mr Sattar contends that the poultry sector alone is not solely responsible for the rapid rise in soya bean imports since corn and canola also provide protein to chickens. However, the USDA report suggests, “The crushing industry is improving the quality of soya meal it produces, transitioning from prior experience with rapeseed and sunflower. Additionally, end-users such as the poultry industry have increased their vertical integration, taking control of the process of meal production.”

Together these factors have led to the import of soya bean seed becoming an integral part of the poultry sector, amounting to about 30-35pc of the cost of chicken.

This leaves the poultry sector vulnerable, among other factors, to devaluation and international oilseed price dynamics. For example, the China-US trade war resulted in a surplus of soya been seed available in the market, which drove its price down and was able to offset some of the effects of devaluation.

Value addition

With 1.04 billion broiler birds, Pakistan is the 11th largest producer in the world. However, only 5pc of total broiler chickens are processed for further value addition, such as nuggets. The rest is sold in its raw form either in the corner butcher shops or packaged by chains such as K&N.

Products that compete directly with the local butcher will impact national food chains more since they have to pay taxes that their informal counterparts can evade. If there was a higher demand for processed poultry products, some of the increase in the chicken price could be cushioned by higher margins.

Fast food chains may hike up their prices too as the various cost factors decrease the available supply. While beef products for international chains are mostly imported due to a lack of an organised livestock sector, many opt for locally produced chicken products as formal standardised outlets for poultry are present in the country.

Published in Dawn, The Business and Finance Weekly, July 22nd, 2019