Aditya Hadi, Jakarta – The Indonesian poultry industry is poised to see constrained growth this year as firms' bottom lines are eroded by a prolonged oversupply of live birds and higher input costs, despite an increase in sales last year.
Industry players and analysts have said poultry producers' earnings before interest, taxes, depreciation and amortization (EBITDA) may improve as a result of rising demand but that the figures would remain below pre-pandemic levels.
Last year, publicly listed poultry firms PT Japfa Comfeed Indonesia, PT Charoen Pokphand Indonesia and PT Malindo Feedmill saw their annual net profits drop 29.8 percent, 19.1 percent and 57.2 percent, respectively.
These declines were despite increases in annual net sales of 9 percent, 10 percent and 21 percent, respectively.
Arief Witjaksono, cofounder of tech start-up Pitik, which helps chicken farmers purchase animal feed and sell their stock, said the prolonged Russia-Ukraine war had disrupted the supply of wheat, a major component of chicken feed.
The disruption had led to soaring input costs for the poultry industry.
"Those two countries are supplying around 30 percent of the global wheat demand. Maybe the price will only drop when the war is over," Arief told The Jakarta Post on Wednesday
Michael Filbery, an analyst at Sinarmas Sekuritas, said in a February note that the price of soybean meal (SBM) used in producing chicken feed would remain high in the first quarter the year. His data showed a 10 percent increase from last year's average to US$480 per tonne.
A Samuel Sekuritas research note from March 3, however, said it was possible that SBM production from Argentina and Brazil would be strong this year, bringing down the price on the global market.
This would allow Japfa's EBITDA to increase by 25 percent annually to Rp 4.5 trillion, along with a 9 percent annual increase in net sales to Rp 53.5 trillion this year, the note claimed.
"We foresee Japfa feeling the impact of high raw material prices and low demand for broiler and day-old chicken (DOC), at least until the first half of this year," the analysts wrote.
"We expect Japfa to see some recovery in the second half, supported by the increase in demand following improved global and domestic macroeconomic conditions," they added.
Factoring in the elevated input costs, MNC Sekuritas wrote in its research note, Japfa's EBITDA margin might only improve to 8.4 percent this year, still below its five-year average of 10.1 percent.
In addition, the local poultry industry is still struggling with a prolonged oversupply of live birds that has been suppressing farm gate prices.
The imbalance resulted from a miscalculation regarding the import of grandparent stock, animals that give birth to the chickens used for poultry production.
The Agriculture Ministry has tried to solve the problem through a culling program, but this has so far failed to prop up prices. Broiler chicken went for Rp 16,300 ($1.09) per kilogram in January, marking a 12 percent drop from the previous month.
Mirae Asset Sekuritas analyst Emma A. Fauni said, as quoted by Kontan, that culling requests were quite low, which affected the effectiveness of the program.
At least 20 million chickens should have been culled per week under the program, but between October and November last year, only 14 million were managed. The figure dropped to half that amount between December 2022 and January of this year.
An updated program required the industry to cull only 14.9 million chickens per week between February and April.
Raka Junico, a research analyst at MNC Sekuritas, said in a report on April 5 that the lower culling quota had been used to maintain supply during Ramadan.
However, he said he expected the government to cull between 200 million and 326 million chickens throughout the year to help lift farm gate prices to within the reference price range of between Rp 21,000 and Rp 23,000 per kg.
This, he said, would offset the cost per live bird and improve commercial farms' margins.