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, Crisil said.
Avian flu has been confirmed in as many as 10 states since the first incident was reported in Kerala in 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, given the stringent biosecurity measures they follow.
The flu has chopped around 30% 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% from Rs 105-110 per kg in December to Rs 80 per kg. Given this, overall revenue could decline 30-40% in Jan 2021 due to a fall in realisations and volume.
Wholesale prices usually correct sharply following such outbreaks. Hence the fall in prices tends to be temporary. Notably, wholesale prices of broiler chicken had crashed to a low of Rs 50 per kg in March 2020 from Rs 90 per kg in January 2020 due to apprehensions of Covid-19 spreading through poultry. However, wholesale prices surged back to Rs 90-100 per kg in the subsequent quarter, shaking off the blues. Prices could well reach Rs 90-100 per kg soon this time around, too.
The poultry industry has made attractive profits 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 will support improved operating margins of 7-7.5% for the industry in 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% over fiscals 2017-2020.
The extent and impact of the containment measures to curb the flu will, however, be a key monitorable.
