Present, Future and the Way Forward Poultry Industry in Pakistan

September 26, 2013

By:

Khalil Sattar
Chairman Pakistan Poultry Association

Present Status of Poultry Industry in Pakistan (2012)

Broiler Parent Stock Placement Broiler Day Old Chicks 12 Million 1.2 Billion

Broiler (Table Birds) Produced 1.05 Billion Average Annual Growth 12.5% Live Weight 1.84 Billion Kg Broiler Meat including Giblets 1.34 Billion Kg Per Capita Poultry Meat Availability 7.4 Kg LayerParent Stock 0.75Million

Table Egg Layers 40Million Total Table Egg Production 11.2 Billion Feed 7Million MT Contribution to GDP 1.7% Processing/Value Addition 1% only
Note: Statistics provided in Economic Survey of Pakistan with regard to poultry are incorrect

Punjabs Contribution to Poultry Production

More than 70% of Broiler Production About 80% of Egg Production About 85% of Feed Production 100% Processing and Value Addition

Contribution of Poultry Industry to the National Economy

Poultry is by far the largest consumer of agro-residue and by-products, such as, oilseed meals, wheat bran, rice polishing, broken rice, corn gluten meal, guar meal, fish meal, animals by-product meal. During 2011-12, about 7 million ton of poultry feed was produced, comprising about 3.5 million tons of these residues and by-products; thus providing extremely valuable contribution towards reduction in the cost of principal food items, like edible oils, Atta, rice, fish, meat, sugar, glucose, etc. Thus poultry not only made possible their availability at lower prices to the consumers, but also enabled the agro industries to pay a higher price for the crops which served as an incentive to produce more.

Contribution of Poultry Industry to the National Economy

In addition to the agro residue utilisation, poultry sector, during 2011-12, consumed about 3.5 million tons i.e. 61% of Maize and Rice Tip Production. The increase in production was sustained by higher prices offered in the poultry sector, which has directly benefited the farmers in the rural areas of Pakistan to produce more.

Poverty Alleviation
1.7 Million Jobs:
Poultry, during 2011-12, has provided approximately 1.7 million jobs to skilled, semi-skilled and unskilled workers deep into the rural areas; thereby reducing the influx of the rural population into urban areas in search of jobs.

Low Investments:
In addition, since it can be started with low investment, it is an important means of self-employment and provides an opportunity to women to be self-employed. It has thus played an important role in poverty alleviation by improving rural economy.

Produce Across the Country:

Poultry, as an alternate food, is now produced in remote areas of the country, like, Gilgit, Skardu, Turbat, Kalat, Mastung, Parachinar, Tahrparkar, D. G. Khan, Loralai, Zohb, Mianwali, etc. Thus, poultry has contributed to the national economy in many a surpassing ways.

Comparison of Deflated Prices of Selected Food Items

2001-02 vs. 2011-12 Price per Kg Inflation Inflation Corrected Corrected 2001-02 2011-12 Price (Rs.) * Increase (%) A Chicken Eggs (Farm) Per Dozen Beef (with bone) Mutton (Avg. quality) 52.04 28.57 55.19 111.53 B 125.73 81.63 250.27 477.48 C 59.59 38.69 189.56 354.80 D 14.50 35.41 89.56 254.80 Average Annual Increase E 1.4 3.5 9.0 25.4

Items

* Deflated to the extent of (%): 110.00

Current Price per Kg (B) / Deflation % = Inflation Corrected Price (C) 125.73 / 2.11 = Inflation Corrected Price (C) 59.59 = Inflation Corrected Price (C) Inflation Corrected Price (C) - Previous Price per Kg (A) / Previous Price per Kg (A) x 100 = Inflation Corrected Increase (D) 59.59 52.04 / 52.04 x 100 = Inflation Corrected Increase % (D) 7.55 / 52.04 x 100 = 14.50 Inflation Corrected Increase % (D) Data Source: Economic Survey of Pakistan

Note: For the year 2012-13, over 2001-02, deflated prices are 64% lower

105

115

125

135

145

155

165

175

Price (in Rupees)

25

35

45

55

65

75

85

95

2002 2003 2004 2005 2006 2007

Jan, 02 Mar May Jul Sep Nov Jan, 03 Mar May Jul Sep Nov Jan,04 Mar May Jul Sep Nov Jan, 05 Mar May Jul Sep Nov Jan, 06 Mar May Jul Sep Nov Jan,07 Mar May Jul Sep Nov Jan,08 Mar May Jul Sep Nov Jan, 09 Mar May July Sep Nov Jan, 2010 Mar May July Sep Nov Jan, 2011 Mar May July Sep Nov Jan, 2012 Mar May July Sep Nov Jan, 2013 Mar May

Wholesale Price Movement of Broilers in Lahore

2008 2009 2010 2011 2012 2013

Price Mechanism of Poultry Products

Since poultry products, Day Old Chicks, Broilers and Table Eggs are perishable generic products, they are sold as a commodity. The prices are truly governed by demand-supply in a free market mechanism. The demand is highly elastic; a decrease in price widens the consumer base and an increase in price narrows the consumer base.

Factors Affecting Demand of Poultry Products

Prices influenced by supplementary food items :
Both broiler and egg demand is influenced by the prices of supplementary food items like beef, mutton, pulses, etc.

Climatic Changes:
Broiler and egg demand is influenced by fluctuating climate changes. Egg demand decreases during summers and with the school closures and increase during winters

Islamic Calendar:
Broiler and egg demand also reacts to Islamic calendars. For instance, during the month of Muharram, Ramadan, Safar and Zul Hajj chicken meat demand goes down and during the month of Shaban, Shawwal and Rabial-Awwal, being wedding season, demand goes up. Demand also changes with the percentage increase in per capita income.

Poultry Fluctuating Fortunes

July 1996 Sales Tax:
In July 1996, imposition of sales tax on poultry feed caused a steep rise in price of poultry feed, forcing farmers to sell products below the cost of production, closing about 40% of farms due to heavy losses. Listening to genuine demands of farmers, Govt. of Pakistan withdrew the sales tax on poultry feed in September 1997.

Marriage Wasteful Expenditures:

In 1997, Prohibition of Wasteful Expenditures on Marriages Ordinance resulted in a ban on serving food on marriages. The poultry industry lost 40% of its production.

Poultry Fluctuating Fortunes

Disease A huge cost 3% vs. 12%

2004 Bird Flu:

2004 saw a 40% reduction in production due to severe losses and adverse impact of Bird Flu.

2007 Bird Flu:

Once again in 2007, faced with Bird Flu and a 70% increase in feed prices, industry suffered heavy losses. Day Old Chicks were distributed Free of Cost and eventually embryos were pulled out of incubators and destroyed resulting in closure of more than 50% broiler breeding farms, dropping the production back to 430 million broilers.

Poultry Fluctuating Fortunes

Chinas Example
During recent Avian Influenza outbreak in China, the Chinese Government provided US$ 96.77 million subsidy to support the poultry industry Poultry farmers were given 15 Yuan (US$ 2.4) against each bird Government of China also purchased chicken from farmers to help them offset the losses No such compensations were given to Poultry Farmers in Pakistan, yet they bounced back in production

THE FUTURE

Expected Production 2018

1.4 billion broilers by 2018
The sector at current rate of growth, by the end of 2018, would be producing 1.4 billion broilers from current 1.02 billion. In order to sustain the existing growth rate of 15% production, the production of feed ingredients have to be increased particularly of corn at 15% per annum.

Major Constraints and Recommendations to Sustain Growth in Production

Disease Control Diagnostic Facilities and Services have not increased at the same rate as the demand for services. Well equipped Government Veterinary Laboratories capable of carrying out serology and virus isolation need to be established at district levels in all intensive poultry producing areas of the country.

Price Control A Serious Constraint to Recovery of Lost Production

Market Interventions Counter Productive: Ministry of Food & Agriculture has already advised the Provincial Chief Secretaries against price fixation and control of poultry products. Nonetheless, frequent price fixation and controls by the Administration by use of coercive measures of arrest and fines, particularly in the absence of any relief during periods of severe losses, is unjustified. Hoarding or manipulation of perishable generic commodity produced by over 30,000 farms is not possible. It sends wrong signals to the farmers and discourages them to place replacement flocks. The practice must be forcefully discouraged.

Major Constraints and Recommendations to Sustain Growth in Production

Live Bird Markets
Live bird markets have neither expended nor are capable of handling growing production. Distribution of live birds costs not only the producers, the wholesalers, retailers, the consumers and the national economy on account of transit mortalities and loss of weights

Price Instability
The frequent boom and burst to be prevented by bringing in stability through poultry processing. Value Addition the next Step Forward.

The Next Step Forward Processing and Value Addition

Benefit to Consumers
Generic Commodity Converted to Branded Products Price Stabilization Diversification in Products Convenience Competitive Pricing

Benefit to Consumers
Branding Benefits Safeguarding Brand Equity brings about:
Quality Assurance: Free of Bacteria, Virus, Toxins, Chemicals and Drug Residues (Vertical Integration) Food Safety (Vertical Integration An Important Factor) Over 250 Known Food borne Illnesses; some important ones are: Campylobacteriosis E-Coli Salmonellosis, Etc.

Benefit to the State

Means to Enhances Poultrys contribution in GDP by over 250% (Rs 138 to yield Rs 512) Current Processing is about 1% of Production Other major producing countries process 80 to 100% Exportable Products Brings Foreign Exchange Earnings Safeguards Health of the Nationals Less Illness Reduces Subsidies for Public Health Care

Exports World Halal Food Trade of US$ 661 Billion

Possible after Processing only Potential: World Halal Food Trade in 2010 is worth US$ 661 Billion Middle Eastern Countries US$ 3.87 Billion Countries of our interest, because of being in close proximity or being Muslim countries, requiring Halal products, imported chicken meat in the year 2010 to the tune of US $3.874 billion, growing approximately @ 5-10% per annum Pakistan, being predominantly a Muslim country, stands to benefit from growing demand of Halal food world over US$440 Million from 10% Value Added Exports 10% Export of the Current Live Birds, when converted to Value Added Products i.e. 80,000 MT @ US$5500/MT, could fetch over $440 Million per annum

- Government to be a factor
Fiscal Incentives
Fiscal incentives to reduce cost of production to bring about economy of scales. Zero rating must be restored. Withdrawal of Zero Rating of Sales Tax on Processed and Value Added Products has increased the cost of production by Rs 20 45/Kg. This would reduce the demand and defeat the economy of scale. Removal of Anomalies: Lysine, Methionine Import of Machinery, Equipment and Implements: Free of Advance Income Tax to reduce cost of investment.

Way Forward

Way Forward
- Government to be a factor
Fiscal Incentives
The UK VAT Act 1994 Schedule-8 Group-1 specifies food of a kind used for human consumption is Zero Rated. The term food includes products eaten as part of a meal or as a snack. Food items are not only exempted but are zero rated and entitled to input tax credit. In USA too, many States exempt all food items whether processed or unprocessedfrom payment of VAT.

Way Forward - Government to be a factor

Free Trade Agreements
Free Trade Agreement should, in fact, be Fair Trade Agreements. No FTAs and MFN should include poultry and poultry products unless both the countries have same regulations and protocols ensuring both countries have level playing field to have equal opportunities to export to one another. The poultry sector must be taken on board for evaluating protocols and regulations for every FTA or MFN where poultry is to be included. In the face of power outages and existing rate of import duties on inputs, level playing field would be difficult.

- Government to be a factor
Fiscal Incentives
For the purpose of exports, enact rules and regulations for food security to the satisfaction of the importing countries without which exports cannot take place. Import duties on processed and value added products are only 25% and under FTAs are either free of import duties (Malaysia) or attract very low rate of import duty as in the case of China.

Way Forward

- Government to be a factor
Fiscal Incentives Import Duties to be Enhanced
The Indian Example: On entry of and commencing imports by multinational fast food chains, the Indian Government clamped 100% import duty on importation of chicken meat and its value added products. Our Government reduced the import duty from 50% to 25%. Though the bonded rate of duty filed by the Government of Pakistan under WTO regime was 100%. In view of higher cost of production, a minimum protective rate of duty should be increased from 25% to 50%.

Way Forward

- Government to be a factor
Fiscal Incentives
Imported inputs for producing value added products covered under PCT Headings 0904.1200, 0910.9100, 1905.9000, 2103.9000 and 2501.0090 are subject to 15% to 35% rate of import duty and 17% sales tax. On the other hand, finished products are imported free of duty. Import duties and sales tax on the above PCT headings needs to be withdrawn for the poultry processing sector under specific requirements.

Way Forward

Thank You!

CHICKEN MEAT IMPORTED BY COUNTRIES OF OUR INTEREST IN 2010

Country UAE Saudia Arabia Oman Kuwait Yemen Russia CIS 000's of US$ 484,390 1,230,568 116,630 322,442 169,242 823,966

Value Addition to Chicken Increases GDP

ESTIMATED PRODUCTION OF BROILERS PER ANNUM BIRDS SOLD IN LIVE FORM Average Weight of a Live Bird Average Selling Price Average Selling Price per Bird - (B x C) B C D Kg Rs/LWKg Rs Rupees 1.75 138.1 5 241.7 6 242 Billion A No of Birds 1 Billion

REVENUE from live Chicken: (A x D)

INITIAL VALUE ADDITION BIRDS SOLD AS DRESSED WHOLE CHICKEN Average Price of Raw Skinless Carcass Live bird yield of 55% Meat Value per bird (E x F) Bye-parts Recovery per Bird Revenue per bird (G + H) E F G H I Rs/Kg Grams Rs Rs 277.2 2 962.5 0 266.8 2 24.71 291.5

Value Addition to Chicken Increases GDP

BIRDS SOLD AS BONELESS MEAT Average Price of Raw Meat Boneless Meat per bird at yield of 22.70% Meat Value per bird (F x G) Drumsticks, wings, bone carcass & bye parts Recovery/Bird Revenue per bird (H + I) Percentage Addition over live REVENUE From Boneless Meat (A x P) Rupees L M N O P Rs/Kg Grams Rs Rs 497.0 0 397.2 5 197.4 3 107.8 9 305.3 3 26% 305 Billion

VALUE ADDITION TO MEAT Average Price of Value Added Products Birds required to Produce Boneless Meat for 1 kg of Value Added Products Q R Rs/Kg 511.5 8 1.26

Comparison of Deflated Prices of Selected Food Items

2001-02 vs. 2011-12 Price per Kg Inflation Corrected Price 2001-02 2011-12 (Rs.) * A Chicken Eggs (Farm) Per Dozen Beef (with bone) Mutton (Avg. quality) 52.04 28.57 55.19 111.53 B 150.45 89.43 250.27 477.48 C 71.30 42.38 118.61 226.29 Inflation Corrected Increase (%) D 37 48 114.91 103

Items

* Deflated to the extent of (%): 110.00

Current Price per Kg (B) / Deflation % = Inflation Corrected Price (C) 150.45 / 2.11 = Inflation Corrected Price (C) 71.30 = Inflation Corrected Price (C) Inflation Corrected Price (C) - Previous Price per Kg (A) / Previous Price per Kg (A) x 100 = Inflation Corrected Increase (D) 71.30 52.04 / 52.04 x 100 = Inflation Corrected Increase % (D) 19.26 / 52.04 x 100 = 37 Inflation Corrected Increase % (D) Data Source: Economic Survey of Pakistan

Note: For the year 2012-13, over 2001-02, deflated prices are 64% lower

Comparison of Deflated Prices of Selected Food Items

2001-02 vs. 2011-12 Price per Kg Inflation Corrected Price 2001-02 2011-12 (Rs.) * A Chicken Eggs (Farm) Per Dozen Beef (with bone) Mutton (Avg. quality) 43.25 52.00 55.19 111.53 B 125.73 81.63 250.27 477.48 C 59.59 38.69 118.61 226.29 Inflation Corrected Increase (%) D 38 (26) 114.91 103

Items

* Deflated to the extent of (%): 110.00

Current Price per Kg (B) / Deflation % = Inflation Corrected Price (C) 125.73 / 2.11 = Inflation Corrected Price (C) 59.59 = Inflation Corrected Price (C) Inflation Corrected Price (C) - Previous Price per Kg (A) / Previous Price per Kg (A) x 100 = Inflation Corrected Increase (D) 59.59 43.25 / 43.25 x 100 = Inflation Corrected Increase % (D) 16.34 / 43.25 x 100 = 37.78 Inflation Corrected Increase % (D) Data Source: Economic Survey of Pakistan

Note: For the year 2012-13, over 2001-02, deflated prices are 64% lower