Philippine poultry sector: In the brink of a new crisis

 

 

The high demand was expected as the national elections near, yet prices drastically dropped because of overproduction and weaker purchases in the first three months of the year.

According to Gregorio San Diego of the United Broiler Raisers Association, the industry is currently experiencing a supply glut due to the imports made last year. "On top of the Minimum Access Volume (MAV) of 23.5 million kilos of imports last year, our imports for December-January have already reached eight million kilos. Inventory for January is already five million kilos and most of them are imported," he said.

San Diego added they are expecting a surplus of three million kilos in the first quarter of this year and five million kilos in the second quarter and without intervention, there may be another crisis brewing for the poultry industry.

 

Figures from the Bureau of Agricultural Statistics (BAS) show that the poultry sector shared 14.33% in the country's total agricultural production in 2009. Chicken production was up by 1.53% due to increased broiler production in commercial farms in the first half of the year, particularly in Central Luzon, CALABARZON (Cavite, Laguna, Batangas, Rizal and Quezon), Central Visayas and Northern Mindanao. Production of chicken eggs went up by 5.04% on higher inventory of layers and better egg-laying efficiency also in the said regions.

Duck production, also according to BAS, went down by 8.35% due to lower culling of layers in the first three quarters of 2009. In the fourth quarter, floods affected duck producing provinces in CALABARZON which resulted in lesser pasture area for duck raising. Duck egg production recorded another 6.64% decline during the past year as a result of non-replacement of layer stocks which were damaged during the typhoons.

On the other hand, the value of production of chicken from the BAS data reveals that it grossed PHP144.3 billion (US$3.17 billion) at current prices, up by 9.97% from the 2008 record. The gains in output and prices enabled chicken and chicken egg to gross higher by 10.05% and 11.6% respectively. Duck, meanwhile, suffered a 5.96% drop in gross earnings because of decreased production. Gross receipts from duck eggs, however, increased by 5.62% due to improved prices.

The current production surplus may result to a huge price plunge which will hurt poultry farmers. "We are already selling our liveweight at PHP65 (US$1.42) per kilo on the average, which is PHP5 (US$0.10) below production cost. We are buying our DOC (day-old chicks) at PHP34 (US$0.74) so we are incurring higher production expenses and sadly we can't pass our add-ons to our consumers," San Diego said.

The huge difference between farmgate prices and actual market prices has prompted the Department of Agriculture to impose a lower suggested retail price (SRP) for chicken to spur consumption of the product and accelerate its turnover. From the current PHP130 (US$2.86) a kilo, chicken prices will be set at PHP125 (US$2.75) a kilo to fix the price imbalance - low farmgate price (PHP58 to PHP65) and high prices at the retail level.

As of March 15, inventory already reached seven million kilos from the usual three million to 3.5 million on that period. The DA says consumption has been very sluggish, leaving too much available supply in the market.

However UBRA in a statement says the government should consider other factors aside from the farmgate prices before setting a fixed SRP. These included transport and marketing costs, and middlemen's fees, if applicable. Even factoring these costs and including some margins, the group says the PHP125 (US$2.75) retail price is way too high and is not enough to stimulate the currently dampened demand. But San Diego decries the SRP, stating chicken in wet markets are already selling from PHP110 (US$2.42) to PHP70 (US$1.54) per kilo. "Those who are selling it below PHP125 will increase their price and consumers will not at all benefit." Still and all, San Diego says the heart of the issue is not the SRP but the impact of supply glut to the farmers. "The situation has affected the farmers most of all because of high production costs. We're not getting a break-even, we are losing so much now because prices have been very erratic and mostly, it has been decreasing, from PHP3 (US$0.06) to PHP5 (US$0.10) weekly." The fiesta month of May and the elections should liven demand for eggs and chicken but hasn't picked up until now.  Presently, egg prices at the market are pegged at PHP4.50 (US$0.09) each, too low compared to the previous prices of PHP6 (US$0.13) to PHP7.50 (US$0.16) per piece. If there is no intervention, San Diego fears an additional 20% increment in production will translate to more than 600 million heads or 80,000 tonnes of broiler – resulting to a bigger production spill, hence, leaving farmers to bleed dry from huge profit loss.

 

Initially dreaded by business leaders, the poultry sector saw some advantages of the Asean Free Trade Agreement (AFTA) two months after it has been implemented. San Diego said prices of corn have been controlled and meat imports cannot come in easily due to overabundance in supply as well as biosecurity measures executed by the government. With local corn prices becoming competitive, the UBRA chief even hopes that production cost may come close to that of Thailand once the situation of supply glut eases. The only problem would be that of other factors such as power costs, transport and workers' wages.

However, some companies are already preparing strategies should AFTA jeopardise the industry. Poultry integrator Bounty Agro-Ventures is mulling to shift to retail business if Southeast Asian countries will export cheaper chicken. The volume growth of its banner product, Bounty Fresh Chicken, has already slowed down from 10% to 25% in the last five years and the company is mulling to change its business model: opening more rotiserrie outlets instead of being a full poultry integrator. Its food retail business, Chooks To Go, have already 600 outlets nationwide and plans to expand by 1,500 at the end of the year.  The bulk of the company's revenue comes from Chooks To Go and if Bounty's clients – fastfood chains and restaurants – opt to buy cheaper chicken from Thailand and Malaysia, company executive reveal they may downsize or stop production and instead focus its attention in expanding its food retail segment.

Even San Miguel Foods Incorporated (SMFI), which is expecting a 20% increase in yakitori or skewered chicken exports this year, express concern on the impact of AFTA. "The Philippines is not competitive in poultry production although I remain optimistic because Filipinos will always prefer fresh chicken rather than frozen, imported ones," tells SMFI president Rita Imelda Palabyab.

The El Nioño phenomenon is also another problem. In a joint study by Philippine agricultural agencies and the Embassy of Israel, chickens will be the biggest casualty of this freak weather phenomenon due to heat stress. Since chickens do not perspire because of lack of sweat glands, the study discloses that severe panting takes a lot of energy and ultimately results in death because of heat exhaustion. Temperatures above 18 to 24 degrees Celsius severely affect the growth and feeding habits of fowl and egg production. By far, the biggest casualty is in Nueva Ecija wherein 1,200 chicks died from extreme heat. A barangay in Cebu have reported 1,000 poultry deaths wherein owners saw their chickens "just suddenly collapse and died."

The Department of Agriculture expects a loss of PHP20 billion (US$439.95 million) from the El Niño and poultry is expected to significantly suffer from the abnormal weather patterns. But San Diego says the biggest victim of El Nino were the Filipino's pockets. "Farmers have already harvested the first batch of corn last year even before El Nino came. The affected crops were those of the succeeding harvest. Prices of corn even went up by 33 percent weeks after news of El Nino somewhat eased. Even in pork, in reality, if consumption is normal, we will really have a huge shortage. The real problem is the weakening buying power of the Filipinos. That is what really dried up."