This article first appeared in The Edge Malaysia Weekly on October 30, 2023 - November 5, 2023

CHICKEN and eggs are staples of the Malaysian diet, so much so that the per capita consumption of chicken stands at a whopping 50kg — one of the highest in the world — while per capita consumption of eggs averages 280 per year.

Thus, the announcement this week of when the government plans to end price controls on these two items and allow their prices to float will be of much interest to the public.

Many are waiting to see if the prices will move up quickly or remain where they are at the present time — for example below the ceiling price of RM9.40 per kg for a standard chicken (slaughtered, cleaned, with head, feet and organs).

“The market will reach an equilibrium price. It could go up or down, it’s difficult to foresee it. The biggest variable that determines market prices is supply. Demand is quite constant, it does not fluctuate much,” says a poultry industry veteran.

The price ceiling, which took effect in February 2022, kept the prices of chicken and eggs stable when feedstock cost surged on the back of the commodity price boom due to the war between Russia and Ukraine.

At the same time, the government moved to subsidise poultry and egg farmers to help prevent them from making losses. This resulted in RM3.8 billion in subsidies for the industry.

Poultry industry sources say floating the prices of chicken and eggs will give producers accurate information on the actual demand and supply dynamics of the market.

“High prices indicate there isn’t enough supply in the market, hence producers can increase production to meet demand,” says an industry player, adding it would create a healthier and more sustainable poultry industry in the longer term.

From a financial performance standpoint, it should be noted that listed poultry players did not face adverse effects from the price ceiling. In fact, one could say most of them are currently seeing revenue and profits that are even higher than pre-pandemic levels.

It is worth noting that poultry farmers listed on Bursa Malaysia are integrated farmers — meaning they are involved in the production and trading of livestock feed, breeding and selling of day-old-chicks (DOCs), in addition to broiler and egg production, as well as the production and trading of processed food products.

Poultry players attribute their improved financial performance to a combination of factors — higher sales of DOCs, broiler chickens and feed, as well as government subsidies.

People familiar with the poultry industry say while integrated farmers have been reaping higher profits in the last two years, farmers who operate on a smaller scale have been haemorrhaging money.

“The big players have a 50% share of the chicken and eggs market and they also breed DOCs. There are close to 20 mid-sized players that are also DOC producers. The small-scale farmers have to purchase DOCs from these producers.

“It is interesting that there are price controls for chicken and eggs but none for DOCs. So what has happened is that the price of DOCs has gone up to a record high. It usually averages RM2 to RM2.20 per chick (broiler chicken) but it is now at a record high of RM3.20 to RM3.40,” says an industry veteran.

This means small farmers are at a disadvantage even before they can compete in the market because their production cost would be higher than that of the mid-scale or large-scale players, the veteran says. “The ones suffering are really the small farmers, not the integrated players. But this is the trend worldwide — eventually, the small farms will disappear as they either close down or become contract farmers for the bigger players.”

The government’s plan to remove the price ceiling for chicken and eggs comes at a good time, given how the cost of feed has been softening recently.

Feed cost is the largest cost component for poultry farmers, making up about 70% of the cost of production. Corn makes up 75% of the feed for chickens while the rest is largely soybean meal.

“We can sell broiler chickens below the ceiling price because feed cost is going down and with the subsidy, we don’t have to sell them at the ceiling price,” says a poultry industry player.

Industry players say corn prices trended downwards by 15% to 20% in September, compared with a year ago, while soybean meal prices also softened by 5% to 10% in September from a year ago.

“Corn and soybean meal prices [traded in US dollars] are trending downwards. However, the ringgit has also weakened from 4.40 in January to the current 4.80 level, a 10% decline, which makes imports more expensive. But we expect landed feed cost (actual feed cost farmers pay) to trend downwards,” says a poultry farmer.

While commodity prices have certainly softened, they are still high compared with 2020. In September 2020, landed cost for corn was RM950 per tonne while soybean meal was RM1,750.

The landed cost of corn and soybean meal shot up to a high of RM1,840 and RM2,940 per tonne respectively in March last year. Now, it stands at RM1,300 per tonne for corn and RM2,800 for soybean meal.

“Overall, both soybean meal and corn futures for September 2023 are still trading above 2019 levels. However, on a positive note, soybean meal and corn futures are currently trading below their two-year peak levels, indicating a potential decrease in raw material costs for animal feed in the near term.

“The expectation of lower animal feed costs, combined with the anticipated removal of subsidies and retail price ceilings for chicken and eggs, will provide poultry companies with more flexibility to adjust market prices based on supply and demand dynamics and to pass on increased costs,” notes Kenanga Research in an Oct 17 note on the consumer sector.

While broiler chicken prices are currently lower than the ceiling price, some producers say eggs are still being sold at the ceiling price, given the tight supply.

“Egg supply remains tight due to a shortage of DOCs as there is limited parent stock, which was affected by the Avian flu issue globally. I believe egg prices will adjust upwards in tandem with the subsidy quantum once the ceiling price is lifted,” says an industry source.

Kenanga Research is expecting a 22% rise in price across various grades of eggs once the ceiling and subsidies are removed. Currently, the ceiling price is 45 sen for Grade A eggs, 43 sen for Grade B and 41 sen for Grade C.

CAB Cakaran Corp Bhd’s net profit almost doubled to RM96.54 million in the nine months ended June 30, 2023 from RM50.04 million a year ago as cumulative revenue grew 15.7% to RM1.68 billion.

In those nine months, the company’s net profit surpassed the RM28.06 million it made in pre-pandemic FY2018 on revenue close to FY2018’s full-year top line of RM1.75 billion.

The integrated poultry farmer operates over 10 breeder farms and more than 100 broiler farms in Peninsular Malaysia. It also operates medium-sized supermarkets in smaller towns, but about 95% of the group’s revenue comes from its integrated poultry farming.

Other companies such as Leong Hup International Bhd and QL Resources Bhd have also seen profits and revenue rise in recent times.

Leong Hup’s net profit for its six months ended June 30, 2023 jumped 43% to RM87.17 million from the corresponding period a year ago while revenue climbed 6% to RM4.61 billion. At this pace of growth, Leong Hup’s annualised net profit would amount to RM174.34 million with revenue coming up to RM9.22 billion.

In FY2019, Leong Hup’s net profit amounted to RM151.9 million with revenue totalling RM6.05 billion.

Leong Hup is one of the largest integrated producers of poultry, eggs and stock feed in Southeast Asia with a presence in Malaysia, Vietnam, Indonesia, the Philippines and Singapore.

Meanwhile, QL Resources’ integrated livestock farming segment reported a profit before tax of RM183.12 million on revenue of RM3.44 billion for its financial year ended March 31, 2023.

Its integrated livestock farming segment accounts for slightly more than 50% of the group’s overall revenue while its marine products manufacturing segment accounts for 20%. The remaining revenue comes from its palm oil and clean energy segment as well as its convenience chain store — Family Mart.

Another large-scale integrated poultry farmer is Lay Hong Bhd, which saw its revenue for the financial year ended March 31, 2023 cross the RM1 billion mark for the first time at RM1.07 billion while net profit stood at RM28.11 million.

Back in FY2019, Lay Hong’s revenue was RM796.8 million while it reported a net profit of RM7.26 million.

So, are poultry farmers wary about ceiling prices being imposed again in the future?

“We are fine if the government needs to impose a ceiling price, if it is set at a level high enough for companies to produce and sell at a reasonable profit. Otherwise, the government needs to provide subsidies, since no company can sustain itself if there is no profit to be made,” says an industry player. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.