September 25, 2014

Indonesia to cut day-old-chick production to stabilise broiler prices

The Indonesian government hopes to raise chicken prices to help the beleaguered poultry industry recover from the current deflation.

To stabilise broiler prices, analyst Michael W. Setjoadi of PT Bahana Securities says, the government is attempting to reduce the domestic supply of day old chicks (DOC) by 7.5%.

Due to oversupply, the average selling price for a day old chick in Indonesia now is IDR3,000 (US$0.25) and this is unprofitable, the analyst says.

The average cost of production for a day old chick is IDR4200 (US$0.35), according to him.

By cutting DOC supply and raising  its prices, too, the government expects broiler prices to increase, too.

The analyst expects the average selling price of day old chicks to increase to IDR5,000 (US$0.41) next year, up 12% year-on.

Mr. Setjoadi, however, doesn't expect the big players to respond positively to the government's desire to cut DOC production.

Large players, he says, are going to maintain their current level of DOC output as "they have recurring customers - chicken farmers - with bundled feed-mill packages."

He also predicted that "due to growing concerns over the use of expired chicken meat imported from China, Japan will likely start importing chicken meat from Indonesia for the first time since 2004."

This is expected to start by the end of 2014 with processed chicken meat to be imported first, he adds.

Japan accounts for 9.7% of total global imports of broiler meat.

Mr. Setjoadi saysexports to Japan should provide higher and more stable margins for the country's broiler industry.