December 7, 2018
Speed bumps ahead for India's poultry boom?
After slowing down at the turn of the decade, lower feed input costs and a rebounding economy enabled both eggs and layer growth rates to return to their previous highs. Even though it is poised for decades of rapid growth, the industry faces serious feed input challenges that must be addressed.
By Eric J. Brooks
An eFeedLink Hot Topic
Although India's booming poultry sector is poised to continue prospering into the foreseeable future, it still faces some serious long-term challenges. Growth is robust and well balanced. The years 2008 through 2018 inclusive had annual output growth of 7.0% in broiler meat and 5.4% in eggs respectively.
For both broilers and layers, output is concentrated in a few select regions. Despite having 29 states and seven territories, 60% of both broilers and layers found in five states (Andhra Pradesh, Telangana Karnataka, Maharashtra, Punjab and Tamil Nadhu).
Partly due to inadequate cold chain infrastructure, partly due to stubborn consumer insistence on freshly slaughtered meat, finished broilers frequently make long final journeys. This both damages broilers, kills a significant proportion of them and helps transmit poultry diseases across the country.
At the same time, it also means that once India builds adequate cold chain infrastructure, up to half a million additional tonnes of chicken meat can be harvested that was previously lost in transit.
Accounting for a dominant share of Indian animal protein consumption, chicken meat leads all Indian agribusiness lines, and continues its robust expansion. After expanding 7.7% (to 4.2 million tonnes) in 2016, broiler meat output achieved growth of 8.6% totaling 4.56 million tonnes in 2017. It is projected to rise a further 7.5% to 4.9 million tonnes in 2018 and exceed 5.2 million tonnes in 2019.
Much like its broiler sector, Indian egg production appears to be enjoying a longer-term recovery in its growth fundamentals. Based on World Egg Organization (WEO) per capita consumption statistics, egg production expanded 6.1%, from 2016's 82.9 billion eggs to approximately 88.0 billion eggs in 2017. With feed costs staying low and consumer demand growing at a brisk pace, conservative estimates see egg production rising 6.3% to 93.5 billion eggs in 2018, and just under 100 billion eggs in 2019.
Based on US FAO statistics, from 2000 through 2013 inclusive, Indian egg production grew at a 5.0% annual rate, but with some significant variation within the time period. 2000-08's 6.5% annual growth decelerated to 4.7% annual growth during 2008-13, when a combination of slower economic growth and strong feed price inflation decelerated demand and supply growth respectively.
On the other hand, the faster economic growth of the past five years boosted the 2013-16 years to 5.9% annual growth. Nasty recessions or feed cost inflation notwithstanding, there are several reasons why egg production growth can be sustained at a near 6% pace throughout the 2020s and possibly beyond.
First, with a per capita income of approximately US$2,000, a typical developing country with this level of purchasing power can triple or quadruple its consumer incomes before egg demand slows down due to the substitution of more expensive proteins.
Second, a large majority of Indians are of a Hindu vegetarian religious tradition that forbids meat consumption but allows the eating of eggs.
Third, with 2018 per capita consumption of approximately 70 eggs, personal consumption needs to more than triple before it reaches the 210 to 250 eggs/year consumption level seen in the US, South Korea or Germany.
Moreover, India's vegetarian religious beliefs are likely to boost per capita egg consumption above the level found in western countries. –It is far more likely that as incomes rise, Indian per capita egg consumption will match or exceed the 300 to 350 eggs/year consumption levels seen in China, Japan or Mexico. World Egg Organization director-general Julian Madeley is of the opinion that as India's economy catches up to China, so will its egg consumption.
According to Madeley "Nearly 25-30 years ago there was not much difference in egg consumption between India and China." Because China's economy grew more rapidly in the years up to 2010, "Today India's per capita consumption stands at 67-68 eggs per year vis a vis China's 310 eggs per year." With India's economy now growing faster, "By 2040, we expect the Indian egg consumption to explode with three times the growth." With China's egg production expected to decelerate to 2% annual growth, Madely implies that Indian layer production is poised to expand at a 6% annual rate for at least two decades.
Similarly, despite decades of exceptionally rapid output growth, per capita broiler meat production is estimated at just under 4kg. Countries with slightly consumer higher purchasing power such as China, Philippines or Thailand all consume up to 10kg to 16kg. With religious restrictions channeling Indian protein consumption growth into its poultry sector, its per capita chicken meat consumption will one day equal or exceed that of these countries. Under the most conservative assumptions, this implies that so long as its economy continues to grow at its average post-2000 rate, Indian broiler meat production and consumption can increase at a 6% to 7% annual rate well into the 2030s.
But there is one key factor that can upset this rosy forecast: The poultry sector accounts for e vast majority of Indian feed output, the poultry sector will continue to grow at an approximate overall rate of 6% yearly into the foreseeable future –but can domestic soybean production keep up?.
As was the case in other nations during their early agribusiness development stage, ongoing modernization and consolidation are causing feed consumption to grow faster than meat production. From 2008 through 2018 inclusive, broiler output increased 7% annually, layer production by 6% yearly and soymeal consumption by 11.4% --but with soybean harvests only rising at a 1.6% rate, soymeal output rose at a 1.3% annual rate over this time.
As the attached graphic shows, this has profoundly narrowed the gap between India's soymeal supply and demand. Rohit Dhanda, a grains and oilseed analyst with Rabobank notes that from 800,000 tonnes in 2007, soymeal consumption totaled 5.4 million tonnes by 2017. The good news is that he projects future soymeal consumption to rise at a slower 7% annual pace.
The bad news is that with soybean harvests rising by less than 2% annually amid, longterm feed cost and supply issues dog the industry. Even under the most optimistic projections, the 2018-19 soybean harvest will be 10% to 20% lower than those achieved in 2010.
During the past five years of low feed costs, bouts of soymeal price inflation have caused the industry to occasionally suffer large losses while the higher production costs made consumer demand grow by less than expected. Dhanda points out that one hand, India's above average soymeal prices should be increasing farming returns and lead to higher soybean production. On the other hand, India's government is unwilling to encourage the consolidation of countryside soybean farms. The latter could profoundly boost soy harvests and meal supplies but could also create politically explosive rural unemployment.
As a result, Dhanda notes "The large presence of marginal farmers and fragmented land holdings will remain a hindrance in strategic investments at the farm level." This causing India's soymeal production to fall increasingly behind the needs of its poultry sector as much as the fact that its arable land utilization is maxed out.
While India also produces large cottonseed and rapeseed crops, Dhanda states that their high levels of erucic acid and glucosinolates will create poultry performance problems whose cost will be comparable to that of expensive soymeal, or worst. Finally, Dhanda states that due to the low level of feed technology in India, fortifying feed with low soymeal content with amino acids is not an option. Consequently, he "expects India's poultry industry to remain largely dependent on soymeal as a protein source in the near future."
As result, from exporting 3.2 million tonnes of soymeal in 2008, exports have fallen into the 0.5 million to 1 million tonne range. Based on present trends, India will soon be unable to supply enough domestic soymeal to feed its expanding poultry flocks.
According to Dhanda "India's soymeal import demand by 2025 is expected to be 1.5 million tonnes in an average production year -- but in the extreme case of a really bad domestic soybean crop, this could be up to 5 million tonnes."
Even so, importing soymeal is easier said than done, as it bans imports of genetically modified (GM) soybean-based products.
Unfortunately, only 12% of world soybeans are produced by non-GM plants, and no particular country specializes in their cultivation. Dhanda concludes that "Depending on supplies in individual years, importing such big volumes of non-GM soybeans or soymeal could also be prohibitively expensive for India, due to the attached price premium compared to GM soybeans." All this makes bridging domestic soymeal shortfalls far more problematic for India than it is for other countries.
None of this needs to derail Indian poultry from its aggressive growth path. Even under a worst case scenario, the industry will grow more slowly but still well above the world average.
At the same time, with America's putting pressure on India to open up its market to imported chicken, plentiful, inexpensive GM soymeal is required to keep broiler production costs internationally competitive.
For now, Indian poultry stakeholders are closely watching New Delhi policymakers, fully aware that they cannot put off making cruel decisions for much longer.
Will India sacrifice its vast, politically sensitive rural soybean farmers, flirt with rural unemployment and force domestic oilseed production into a productivity-enhancing consolidation? Will it opt to import non-GM soymeal at potentially outrageously high prices and damage its flourishing poultry sector? Allow the import of GM soymeal so as to keep costs internationally competitive? Modernize its capacity to fortify low soymeal feed?
The answer to these and other questions will determine the industry's growth path well into the late 2020s.
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