June 1, 2018
Can Indian broilers fly up the value chain?
To sustain its rapid expansion rate, India's broiler sector must reinvent the way it feeds, houses, grows and processes its chickens.
By Eric J. Brooks
An eFeedLink Hot Tpoic
India's booming broiler sector is decelerating but still has decades of rapid, pent-up growth ahead. With 2018's chicken meat output projected to rise 4.5% to a USDA projected 4.6 million tonnes, from 4.4 million tonnes last year. A poultry sector that was barely growing half a million tonnes of chicken 25 years ago and a million tonnes in 2000 will by 2020 have succeeded boosting output a whopping 400% in just 20 years, to approximately 5.0 million tonnes.
Alongside enjoying self-sufficiency in its own domestic market of 1.35 billion people, India's Agriculture & Processed Foods Product Development Authority (APEDA) states that it exports approximately 660,000 tonnes of poultry products (not all consisting of chicken meat) in 2016. 400,000 tonnes of poultry product exports are shipped to the Middle East, with another 150,000 tonnes accounted for by buyers in neighboring South Asian countries such as Bangladesh and Nepal and slightly over 100,000 tonnes to Africa.
But the real story is the immaturity, growth potential and problems that keynote Indian poultry's vast domestic market. According to a joint study by integrator Suguna and the Confederation of Livestock Feed Manufacturers (CLFM), the world's fourth-largest poultry meat producer has per capita chicken consumption of approximately 3.4kgm and this is expected to increase to nearly 6kg by 2025.
On one hand, compared to the 0.5kg per capita consumed in 1990, 1kg in 2000, 2.2kg in 2010 or 3.0kg as recently as 2015, the doubling of personal chicken consumption every decade is probably unmatched anywhere else in the world. On the other hand, compared to 10kg in third-ranked producer China, 46kg in second-ranked Brazil or 48kg in top chicken grower America, India's per capita chicken consumption lags badly.
Even so, that implies years of rapid, pent-up demand growth. Hence, unlike export-driven America or Brazil, Indian poultry's greatest opportunities lie in its vast domestic market, which is comparable in size to China but has more longterm potential.
According to a report jointly prepared by the Suguna Group and the CLFM, the industry is on the road to consolidation. Currently, 2/3rd of broilers are raised under contract farming arrangements and the remainder in backyard farms. Even so, integration is nowhere near what is taken for granted in the west or a more advanced Asian nation like Thailand. CLFM estimates India has 90,000 farms with an average of 7,000 to 8,000 birds.
On one hand, nearly 90% of the chicken eaten in India continues to be sourced from wet markets and consists of on-site slaughtered birds. On the other hand, processed chicken's 10% to 15% annual growth rate exceeds that of the overall broiler sector by a factor nearly three.
Moreover, processed chicken's exceptionally high growth rate is becoming an increasingly crucial factor in Indian poultry's long-term fortunes. For while it continues to grow rapidly, Indian broiler production's average expansion rate has decelerated from 16.1% in the years covering 1998-2003 to 10.7% from 2003-08, 6.7% from 2008-13 and based on USDA statistics, 5.9% in the five years since 2013.
Going forward, the more producers can satisfy pent-up demand for processed chicken, the less the industry's growth rate will fall over time. For such an outcome, however, India's poultry sector will have to make extensive end-to-end supply chain investments.
But this cannot happen until the sector's technological and management deficiencies are addressed. According to Netherland's government report, ("Poultry Sector Opportunities and Challenges in India", Rijksdienst voor Onderemend Nederland), "A good majority of the poultry farms in India are open buildings with no climate control or quarantine mechanisms in place, which exposes the birds to various climate variations as well as potential disease and epidemics."
It is probably because of the latter that bird flu constantly breaks out in India, disrupting production and impacting consumer confidence. By comparison, Thailand responded to far more devastating bird flu epidemics by introducing state-of-the-art compartmentalized biosecure poultry housings –and has not suffered bird flu cases for over a decade.
But while bird flu is catastrophic, the lack of biosecure housings also encourages the spread of mundane, non-lethal poultry diseases. This boosts unit costs and necessitates greater reliance on antibiotics. When poultry housings are not secure, keeping outbreaks under control means that stocking densities have to be kept low. For integrators that do contract farming, this prevents them from capturing the full cost savings implied by large economies of scale.
Feed quality is also identified as a concern. The report notes that high-quality feed materials are in short supply. It states that feed inputs only meet, "Minimal nutritional requirements and do not help in raising high quality, healthy birds." The CLFM report concurs with this assessment, noting that poultry farms are caught between an inability to import corn and soy freely and unstable domestic feed crop supplies.
All these issues are compounded by backward farm management practices that ironically, discriminate against domestic consumers. The Netherland's government report notes, "For export markets, APEDA has imposed strict quality standards and regular audits to ensure quality is maintained up to international standards. However, in the domestic market, there is a lack of comprehensive regulating authority to maintain hygiene in farms, processing and transportation."
All this means that the 99% of broilers destined to be eaten by Indian consumers will be housed in the worst poultry sheds, receive the lower quality feed with more antibiotics given to mitigate the lower sanitation levels. Even if better quality feed and biosecure housings are widely adopted, for animal productivity to rise and unit costs to fall by their full potential amount, far better farm management techniques need to be introduced.
Alongside impacting broiler performance, such shortages lead to sharp, volatile changes in feed costs. This impacts profitability and the resulting cost-push inflation forces consumers to eat less chicken than would otherwise be the case. Noting that Indian corn and soy yields are half the world average, the CLFM recommends that the government subsidies help encourage the adoption of hybridized or genetically modified corn and soy seeds.
Further up the supply chain, more efficiency issues arise when broilers reach maturity. According to the Netherland government report, the lack of a nationwide cold storage chain means that broilers must be slaughtered on-site rather than inefficient, large-scale slaughterhouse.
A lack of dry processing facilities and cold storage chains means that broilers are, "Birds are currently transported alive between the states.. in inhumane and sometimes unhygienic conditions. Many birds are killed during transport." Beyond the point of slaughter, "Poultry produce neither are transported using refrigerated trucks nor is there specialized equipment used for packing or transporting poultry produce."
In urban areas, wealthy or upper middle class areas enjoy access to frozen processed chicken meat or processed products such as ready-to-eat meals, often sold at integrator owned shops with refrigeration facilities. But India remains a largely rural society and most consumers must, by necessity, purchase their chicken freshly slaughtered from wet markets and, due to a lack of refrigeration, cook it on the same day.
None of these factors will undermine India's poultry sector or destroy its momentum, at least not over the short or medium term. Even so, Indian poultry's still impressive growth rate is decelerating. For producers to take advantage of processed chicken's far higher growth rate, the way Indian broilers are fed, housed, farmed and frozen must change. To sustain their still high industry growth rate, India's broiler sector must shift focus from the quantity of broilers produced to and put increasing emphasis on the quality of the chicken meat grown. That entails new ways of feeding chickens, housing them, and reinventing the means by which they are slaughtered, processed and preserved.
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