Sri Lanka poultry industry squeezed by feed taxes

 

 

Sri Lanka's poultry industry has been squeezed by taxes on imported corn which pushed feed costs up and price controls on processed chicken which worsened a downturn in the industry, a top agro firm has said.

 

Ceylon Grain Elevators group, a unit of Singapore's Prima, said an economic slump in early 2009 reduced demand for chicken as consumers ate out less and tourist arrivals also plummeted.

 

"With the continued downturn of the economy during the early part of the year, we witnessed a strain on consumer purchasing power and reduced demand for processed chicken," chairman Primus Cheng Chih Kwong said.

 

Cheng added that lacklustre demand brought about a drastic scaling back of capacity in the poultry industry as a whole during the first few months of 2009.

 

As demand for chicken fell, the industry was hit by a government decision to restrict the import of corn through high duties pushing up the cost of chicken feed.

 

In early 2008, a commodity bubble fired by US Federal Reserve money printing peaked, sending food, petroleum, base metals and precious metals to new highs not seen since the creation of the Fed, overtaking previous bubbles created in 1971 and 1980.

 

The bubble collapsed in mid-2008, but Sri Lanka imposed new taxes on many imported foods to fill its growing budget deficit, denying price falls that gave citizens more disposable income and improving purchasing power.

 

Grain Elevators said that due to poor storage and harvesting facilities a majority of the corn grown locally is not of good quality in addition to being expensive.

 

Consumer affairs minister Bandula Gunewardene said the government wanted to keep a price of around Rp28 a kilo to encourage domestic production but that corn prices had gone up to Rp45  or more after the import tax.

 

Gunewardene said the consumer affairs ministry had no plans to put price controls on eggs, though there are controls on processed chicken.

 

Sri Lanka's state heavily supports farmers with production subsidies and spends about Rp26 billion a year on fertiliser subsidies and also restricts imports of rice, deliberately keeping food prices higher than the rest of world.

 

However, government price controls in processed chicken had badly hit poultry farmers, who would otherwise have been able to re-enter the industry with the help of higher margins.