Bird flu to hit Jan. sales, unlikely to cull poultry profitability this fiscal – Crisil
New Delhi, Jan. 18 (IANS): The avian flu outbreak in India could pare poultry sales by a third this month, but if the history of upward price correction after every avian flu outbreak is any indication, the industry will bounce back in quick time with profitability intact for the full fiscal, rating agency Crisil said on Monday.
The outcome is based on an analysis of 87 Crisil rated poultry companies, which comprise 30 per cent of the industry’s revenue.
Avian flu has been confirmed in as many as 10 states since the first incident was reported in Kerala in the first half of December 2020. Such outbreaks have been witnessed year after year due to carrier migratory wild birds crossing into the country. However, the outbreaks in organised poultry farms have been rare.
The flu has chopped around 30 per cent off broiler chicken volume, bringing down daily chicken demand in the country from 100 lakh kg in December 2020 to an estimated 70 lakh kg in January 2021.
Additionally, wholesale prices of broiler chicken have crashed 20-30 per cent from INR 105-Rs 110 per kg in December to INR 80 per kg.
Given this, overall revenue could decline 30-40 per cent in January 2021 due to a fall in realisations and volume, the Crisil analysis pointed out.
It noted that as wholesale prices usually correct sharply following such outbreaks, the fall in prices tends to be temporary.
Notably, wholesale prices of broiler chicken had crashed to a low of INR 50 per kg in March 2020 from INR 90 per kg in January 2020 due to apprehensions of Covid-19 spreading through poultry.
However, wholesale prices surged back to INR 90-INR100 per kg in the subsequent quarter, shaking off the blues. Prices could well reach INR 90-INR100 per kg soon this time around, too, the rating agency said.
According to Dinesh Jain, Director, Crisil Ratings Ltd, “The impact of the current avian flu outbreak on the poultry industry will depend on its intensity and duration. In recent past, the impact of such outbreaks has been temporary due to swift implementation of testing, culling and containment protocols by the authorities. Fears against chicken consumption do not last for more than a few weeks as the infection rate abates. We, therefore, believe Crisil’s earlier estimate of 200 bps increase in operating margin to 7-7.5 per cent this fiscal will hold despite the outbreak.”
The poultry industry has made attractive profits operating margin of 8 per cent compared with 5.5 per cent on average historically in the two quarters following lifting of the pandemic-led lockdowns in May and June, supported by higher sales realisations and prevalence of low poultry feed prices. High profitability of preceding quarters and likely price recovery post the current outbreak is expected to support improved operating margins of 7-7.5 per cent for the industry in the current fiscal.
Further, the government’s compensation for culling birds is resulting in quicker loss absorption by poultry farmers. Notably, despite four avian flu incidents in the past two years, operating margins of poultry farmers have remained stable in the range of 5-6 per cent over fiscals 2017-2020.