Poultry Companies Invest to Meet Projected Demand

INDIA - The consumption of chicken meat is set to double by 2014-15, according to the top poultry companies, which are investing heavily to meet the projected increase in demand.
calendar icon 8 June 2010
clock icon 5 minute read

The eating-out phenomenon, with more quick service restaurant chains opening up, is changing the consumption profile of Indians. Economic Times of India reports that the current chicken consumption is under three kilos per head a year and the poultry industry expects the consumption to double in the next five years.

The 400-billion-rupee (INR) domestic poultry industry produces 2.4 billion birds commercially every year. To cope with the doubling of demand by 2014-15, the industry will need to expand at a rate of 12 to 15 per cent annually, requiring an investment of INR300 per commercial broiler and INR450 to 500 per commercial layer, not including the land cost, says Venkateshwara Hatcheries' deputy general manager, P.G. Pedgaonkar.

He added: "While consumption is expected to double in the next five years, it may not become six kilos per head in 2014-15. It may increase to 4.5 to 5.0kg per head, factoring in an increase in our population." By then, the poultry industry could become a INR600 to 650 billion sector. Other players such as the Mumbai-based Godrej Agrovet and the Coimbatore-based Suguna group maintain that the current chicken consumption is just over two kilos per head annually but both agreed that consumption is expected to double by 2014-15.

Godrej Agrovet managing director B.S. Yadav said,: "The consumption of chicken doubles every five-six years, so we expect it to double by 2014-15. This will require huge investments but banks have lost large sums of money through growers going bankrupt so the investment needed for capital formation is not happening. Everyone will have to invest, from poultry farms, to breeders and hatcheries since this is an investment-intensive business. Consumption may be ready to increase but the matching infrastructure to handle it is not ready."

Outlining the issues the poultry industry faces, Suguna Group managing director, B. Soundararajan, said: "In 2007, the per-capita consumption in India was two kilos. But due to the financial crisis and an increase in commodity prices, there was a drop in consumption. This year, consumption has picked up again."

Outlining the investments they have lined up to cater to this projected growth in the market, Prasun Kumar Roy, managing director, Arambagh Hatcheries, a Kolkata-based integrated poultry company, said: "We will invest in the infrastructure to cope with the growth. This year, we will invest INR2.3 billion, which will rise to INR5.53 billion in 2014-15."

Mr Yadav added that the current high prices of chicken are driven by food inflation since pulses have become expensive.

He told Economic Times: "Farmgate chicken prices have nearly doubled this year over prices in 2008. In 2008, the farm gate price was INR30 to 35 per kilo, this year it is INR60 to 65 per kilo, mainly because the industry shrank last year. Retail prices have reached an all-time high of INR100 to 110 per kilo. In 2008, 42 to 44 million chicks were placed every week. In 2009, the placement fell to 36 to 37 million per week, leading to the current chicken shortage."

Projecting an annual industry growth of around 10 to 12 per cent, the Suguna group has invested around INR4 billion in the last two years to develop its network across the country. In Tamil Nadu, farmers need to invest INR80 per bird compared to INR50 per bird five years ago. Most of them have a minimum of 6,000 birds, and their initial investments will go up by INR500,000.

Mr Soundararajan said: "We have already made the capital investment to tackle 50 per cent of the growth in the next five years. The infrastructure will be adequate to meet the requirements for the next two years."

Industry players agreed that the capacity expansion, pushed by the growth in consumption, will require farmers being able to handle birds for six to seven weeks, which means an investment on land. Dr Pednekar added that capacity increase can be effected through an increase in efficiencies, a sort of de-bottlenecking of existing facilities, and by an increase in automation. This would reduce the need for more land, he said.

Godrej Agrovet's Mr Yadav said the growth in quick service restaurants has pushed chicken consumption over the past three years to emerge as a significant segment.

He explained: "Over the past decade, institutional sales, which means these quick-service restaurant chains, have emerged as the biggest consumers. Eating out of the home has become a big segment."

The Economic Times article concludes that Arambagh is also basing its growth on this segment. Mr Roy said the company is looking at growth and future requirements of its products by consumers from institutions, ranging from fast food outlet chains, railways and the hospitality sector.

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