Friday, April 1, 2011

Pakistan - Problems in the poultry sector

Poultry is one of the organised and important segments of agriculture sector of Pakistan. This sector generates employment, directly and indirect, and income for about 1.5 million people. Poultry meat contributes 23.8 percent of the total meat production in the country.

Poultry Development Policy versioned sustainable supply of wholesome poultry meat; eggs and value added products to the local and international markets at competitive prices and aimed at facilitating and support private sector and private sector led development for sustainable poultry production.
The strategy revolves around improving regulatory framework; disease control and genetic improvement in rural poultry; hi-tech poultry production under environmentally controlled housing; processing and value addition. Improving bio-security; need based research and development and farmers training and education. It targeted poultry sector growth of 15 to 20 percent per annum.
As against these objectives poultry producers made a cartel like situation and raised the prices to an
unprecedented level. On the media reports, the Competition Commission of Pakistan (CCP) had taking suo moto enquiry, on May 24-25, 2010 under Section 37(1) of the Competition Ordinance 2009. The Enquiry Officers submitted the enquiry report on 8 July 2010 concluded that there were prima facie violations of Section 4 of the Ordinance by Pakistan Poultry Association (PPA).
The PPA has adopted a policy of increasing the price of parent stock and end products in the poultry sector by reducing production. PPA representative admitted the poultry industry has no choice but to prevent losses by curtailing production.
The CCP raided the offices of PPA in Islamabad, Lahore and Karachi and the documents confirmed that directives were issued to reduce production to increase prices. It was found that the PPA had taken various decisions to restrict, reduce, prevent or distorting competition in the relevant markets of parent stock, day old chick, broiler chicken, table eggs and poultry feed.
The CCP has imposed a penalty of Rs 50 million on the PPA for operating like a cartel and distorting the market.
The CCP stated that these decisions are against the concept of competition, denied the concept of free market and has proved the existence of a cartel. The PPA has no solid ground to defend its case effectively.
Further, it was also proved that PPA ordered early culling of chicken and marketing of starter eggs as table eggs and stated that the decision of PPA to reduce bird population by culling it early, as a collective measure, is anti-competitive in object, the CCP enquiry revealed.
About the broiler chicken there was also sufficient evidence the PPA designed and implemented its policies through its committees to determine at the very least rate at the farm gate of broiler chicken.
Similarly about poultry feed it was observed that PPA feed mill wing met to discuss, deliberate and took decisions regarding the price of various poultry feeds.
PPA in its defense stated feed is a perishable product and prices of perishable products cannot be manipulated, as stock cannot be stored. PPA also took the plea that the decision taken by the wing was merely suggestive or indicative and no decision was taken to fix the price of the feed. However, the Commission observed that detailed discussion took place before PPA decided to increase the price of various poultry feeds with effect from particular dates in future.
The CCP said prices are being determined collectively under the umbrella of PPA while in a free market; prices are determined by negotiation between independent buyers and suppliers.
The cartelisation may allow greater profits, the consumer suffers direct and indirect losses due to artificial caps on the supply or artificial price hikes.
Thus there is a loss in the total economic surplus and firms also experience efficiency losses due to under utilization of their capacity. A bad state of competition erodes competitiveness in the economy, results in productivity losses and leads to or accelerates, economic decline.
Though floods have washed away million of birds, but surprisingly prices of chicken meat decreased from Rs 260 per kg to Rs 190 per kg in Karachi, in the end of August 10.
A preliminary report shows that about 15 to 25 percent of poultry birds vanished resulted a loss of Rs 8 to Rs 10 billion, estimated by PPA.
The PPA predicted in coming winter the prices of chicken and eggs will increase to an unprecedented level. Due to flood damages the production process has been halted in the affected areas, which would take at least six months to be started again.
According to FAO to produce chicken meat in 2008, 517 million birds were slaughtered and 601
million tonne meat was acquired. In the same year world total chicken meat production was 52887 million ton.
According to PPA data, the number of broiler grandparent and parent stock decreased from 200,000 to 135,000 and 8 million to 5.5 million, respectively from 2006-07 to 2008-2009.
Similarly layer grandparent and parent stock decreased from 4000 to zero and 428,000 to 290,000, respectively, from 2006-07 to 2008-09. The effect on broiler and layers farming was evident by an increase in prices. Broiler and layer chicken decreased from 800 million to 550 million and 35.5 million to 30 million respectively from 2006-07 to 2008-09. The output of feed decreased to 3.8 million ton in 2008-09.
Some of the poultry companies in Pakistan are fully vertically integrated, having businesses that encompass all aspects of the poultry sector, starting from feed production and going down till the retail of value added product. Other unit are partially vertically integrated.
Pakistan’s poultry industry comprises several sectors that are interconnected and have stakes in each other. The sectors include feed manufacturers, breeders, hatcheries, broiler farms and layer farms.
Feed manufacturers use agro based produce and by products to make various feeds, which are fed as diet to chickens bred by breeders and hatcheries. Breeders use grandparent pure line stock strains to produce parent stock strains of chickens, which in turn supply eggs to hatcheries. Hatcheries use eggs provided by breeders to produce day old chicks, which are then raised on farms for meat and eggs and are sold to broiler and layer farms. Broiler farms purchase day old chicks from hatcheries and raise a breed of chicken, known as the broiler, which is meant for chicken meat production.
Layer farms, on the other hand, purchase day old chicks from hatcheries and raise a breed of chicken known as the layer, which lays eggs for consumption.
During the years 2008-09 and 2009-10 sharp fluctuations occurred in the prices of day old chicks. The data made available by Poultry Research Institute shows price of day old broiler and layer chick was Rs 11 and Rs 35.5 respectively in January 2008. The lowest price during the period for broiler and layer day old chick was Rs 6 and Rs 28 respectively and the highest price was Rs 71.9 and Rs 39 in October 2009. On the basis of information provided by Poultry Research Institute and by leading companies of poultry industry to the CCP the cost of production of day old broiler chick was around Rs 18 per chick. The chick was being sold below cost during almost all months of the year 2008 and since January 2009 the prices rapidly increased and touched the figure of Rs 71.9, leading towards proportional increase in the prices of poultry meat, since the price of day old broiler chick are directly related to price of poultry meat.
The prices of poultry feed also showed a consistent increase during the years of 2008 to 2010. The average price of a bag of 50 kg poultry feed had been Rs 955 during year 2008, which rose to Rs 1,343 in 2010. One of the factors of increase in the prices of day old chicks and poultry meat is the increase in prices of feed that is one of the basic inputs in poultry industry.

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