Due to a drop in purchasing power hindered by inflation, which remained elevated towards high single digit levels, Sri Lanka's 

consumer demand for chicken dampened in the first quarter of 2013.


This is according to John Keells Stock Brokers (Pvt) Ltd. (JKSB).


The situation has already impacted the financial performance of the industry and is clearly reflective from the subdued top as well as 

bottom line of the market leader, Bairaha FarmsPLC.


Even though fourth quarter sales of the poultry and farming industry has historically been strong due to the festive season (Christmas 

and the New Year), sales remained subdued this time. The headline inflation during this period hovered around 9.8% (in January) and 7.5% (in March).


Bairaha Farms PLC's top line narrowed by 6% on-year in first quarter in 2013 to LKR803 million (US$6.2 million) mainly due to a steep 

decline in prices in both the broiler and layer day old chick markets stemming from industry oversupply coupled with a decline in sales 

volumes.


Further, given the positive correlation between the disposable income of people and per capita chicken consumption, this situation 

could further aggravate the already poor per capita chicken consumption which remains well below the level of developed nations at 

present.


The present chicken consumption level stands at roughly 6.2 kilogrammes of chicken per person and 57 eggs per person. However 

JKSB expects the per capita consumption of chicken and egg in Sri Lanka to increase in tandem with the projected growth in per capita

income level which is expected to reach US$4,000 by end 2016.


"This should, in turn, translate to steady volume growth for local poultry producers over the medium term," they opined.


Meanwhile the gross margin contracted largely due to substantial increase in feed prices, value added tax (VAT) on super markets and

the maximum price imposed in November 2012.


Some feed prices during the period even doubled where for instance price of soymeal shot up by 99% while meat and bone meal

increased by 50% locally during 2012.


"Poultry producers in Sri Lanka are somewhat constrained in terms of their ability to pass on cost increases to consumers, given a 

state-controlled price ceiling of LKR380 (US$3) on processed whole chicken with skin (chicken parts are, however, currently not 

subject to price controls)", JKSB said.


They also said that although the price of a kilogramme of chicken was increased by LKR30 (US$0.23) in October 2012 - from the 

previous maximum retail price of LKR350 (US$2.72), it has been insufficient to offset the sharp increase in production costs.


Apart from that, the recently imposed VAT charges on supermarkets generating a quarterly turnover in excess of LKR500 million (US$3.9 million) also took effect from fourth quarter 2013, causing a further drag on margins (as producers have had to bear some of the impact).


According to the Central Bank annual report, chicken production grew by 5% to 122,490 tonnes while egg production showed a 

significant increase by 23% to 1,457 million eggs in 2012.


For the financial year ended March 31, 2013 Bairaha Farms PLC recorded a turnover of LKR2,883 million (US$22 million), up 3% and

posted a net profit of LKR159 million (US$1.2 million) down 63% from LKR433 million (US$3.4 million).


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Sri Lanka's demand for chicken drops due to inflation

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