November 2, 2023


Production costs for chicken and eggs in Malaysia expected to decline



The Malaysian chicken and egg production industry is set to benefit from reduced production costs following a recent drop in the average three-month futures prices of crucial animal feed commodities, The Star reported.


These commodities, now trading below their two-year peak levels, represent a significant component of production costs.


According to Malaysian Industrial Development Finance (MIDF) Research, their findings suggest that efficient and large poultry producers are currently operating with production costs below the live bird price ceiling. Similarly, egg producers' production costs are either on par with or slightly above the market price of chicken eggs.


The flexibility of poultry producers to adjust prices based on demand and supply dynamics, coupled with their ability to pass on any increased production costs to consumers, is expected to improve following the government's decision to remove price controls and subsidies for chicken.


The Malaysian Ministry of Agriculture and Food Security recently announced the discontinuation of subsidies and price controls for chicken, effective immediately. However, subsidies for grade A, B, and C eggs will remain intact.


For chicken producers such as Leong Hup International Berhad, combined with the normalisation of commodity prices, this move is viewed as a positive development. MIDF Research believes that the demand for poultry products will continue to be robust as chicken products remain the most affordable source of protein for Malaysians.


In the case of egg subsidies for grade A, B, and C, the government's decision is not expected to impact egg producers, including QL Resources Berhad. MIDF Research considers this a manageable situation for QL Resources, given that the company only sells chicken eggs in Sabah and Sarawak, where the price ceilings are considerably higher and vary across cities.


The research house highlighted that QL Resources benefits from economies of scale and government subsidies, factors that will continue to sustain the group's margins.


MIDF Research pointed out that chicken prices in most states are currently below the retail price ceilings, except for Pahang and Selangor. Furthermore, the average prices for grade A, B, and C eggs in September were largely above the price ceilings.


The removal of subsidies and price controls is not expected to substantially increase the market price of chicken after taking into account these factors. The government is likely to monitor the situation closely and keep it on the watchlist. Subsidies for chicken eggs will persist, ensuring that the market price of these products remains controllable.


MIDF Research has not made any changes to its earnings forecasts and recommendations for the sector. The removal of subsidies is not anticipated to have a significant impact on the upcoming third-quarter earnings results season in 2023.


The research firm maintains a "positive" outlook for the consumer sector, driven by resilient demand for staple-related products, a strong domestic consumption outlook, improved profit margins for food and beverage producers, and normalised profit margins for poultry players.


-      The Star

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