Poultry sector:

Big players cartel threatens industry

By Gamini Warushamana

The chairman of the All Island Poultry Association (AIPA) Dr. D.D. Wanasinghe last week resigned from his post which he held for 17 years.

Dr. D.D. Wanasinghe

He claimed that a few big players in the industry have now taken control of the industry and created a cartel that will harm the poultry farmers and the consumers.

He outlined the issues confronting the AIPA and the industry in an interview with the Sunday Observer.

Q. What were the objectives of forming AIPA?

A. We started the AIPA in 1996 as an industry to address the issues we faced. At the time as a veterinary surgeon I provided my consultancy to leading companies.

They were also medium-scale companies at the time. When we faced some issues and needed the support of the authorities to address them, we individually met the then Minister of Livestock Development the late S. Thondaman. He asked us to form an organisation to represent the industry.

Our objective was to provide equal rights and equal privileges to all players. I am happy about what we have achieved in the past and our actions supported the industry to grow to the present level. We lobbied in the pricing, tax issues, obtaining government support and struggled against government decisions to import eggs and chicken, to protect the industry.

I was the founder chairman of the AIPA and over the past 17 years I was reappointed every year.

Q. What were the reasons for your resignation?

A. There were some conflicting opinions among the directors of the Association and in the recent past some of the directors did not support the activities of the AIPA. Separate groups have also been formed within the AIPA and there are around six such groups which only look after their own interests and my opinion is that these factions may harm the overall growth of the industry and not serve the poultry farmers or the consumers.

Q. Why do you claim that there is a cartel of big players?

A. Over the past 17 years there has been a steady growth in the poultry industry in which the AIPA played a major role.

Several medium scale producers grew rapidly and they became big players with huge production and storage capacity, brand image and controlled the supply of inputs.

By around 2010 they formed a separate group called Elite Group and wanted to breakaway from the AIPA.

In 2011 they formed the Poultry Producers Forum (PPF) and started to hold separate meetings and I too was invited. But I felt that their objectives are different and they do not consider the interests of small and medium scale farmers.

All the big poultry producers are in this group and with their financial and other resources they now have an influence on government policy decisions and AIPA does not have representation in such fora.

We are not invited to meetings at the relevant ministries where important decisions are taken but the PPF represents the industry at the meetings. So now the interests of the small and medium scale producers are not represented.

This can be clearly seen in the budget proposals of recent years and the tax relief and other incentives given to the poultry industry only benefit large scale producers.

They have obtained tax relief for investments such as large freezers and cold stores, environmentally controlled production with facilities to handle hundreds of thousands of birds in a batch.

A chicken stall

I also observe a vertical integration in the industry and big companies gaining control over supplies such as day-old chicks, poultry feed, vaccine and medicine and marketing. All these indicate that the formation of a cartel will harm the small scale farmers and the consumers.

Q. Incentives such as cold stores and environmentally controlled production facilities will reduce the cost of production and finally will reduce prices. Don't you think that this is a positive trend in the industry?

A. Yes. It will definitely reduce cost of production, because environmentally controlled production with facilities for hundreds of thousands of birds in a batch can be operated by four or five workers and due to this their profit margins will increase. But there are also issues. Such big investments do not create employment opportunities but create environmental issues.

The small and medium scale farmers cannot compete with the big players if they cut prices. But yet they demand a price increase and recently the PPF demanded a price increase of Rs. 80 per kg. While demanding a price increase some leading brands now offer discounts of Rs. 90 at supermarkets and at their sales outlets.

It is clear that they are not ready to pass any benefits to the consumers.

With large storage facilities these big players control the market.

According to our estimates 60 percent of the market is controlled by the big companies. According to government estimates by 2010 there were over 75,000 farmer families.

My opinion is that the small farmers play a role in maintaining a competitive market.

As they don't have storage facilities they provide a continuous supply and due to this big players cannot manipulate the market. There should be a competitive market for the farmers and consumers to benefit and government incentives should go to small and medium scale producers as well.

According to the present trend small poultry producers will be wiped out in 2014 and we have to consider the socio economic impact of such a situation.

Q. Don't you think that with the large scale production we can enter the export market?

A. Exporting poultry products from Sri Lanka is not feasible due to several reasons. Our cost of production is still high and the global poultry product market is highly competitive.

The market we can focus on is the Middle East and Europe. The Middle East market is dominated by East Asian producers such as the Philippines and Thailand.

Globally, geographically big countries such as Brazil are leading the market and they have comparative advantages. In Sri Lanka we have some limitations in expanding the industry. Being a small country we cannot scale up this industry beyond a certain limit.

Considering the state of the economy we have to consider socio economic and environmental issues and specially the creation of employment opportunities.

Large scale production facilities will create huge environmental issues and, therefore, we have to careful not to create issues similar to ground water pollution at Rathupaswella.

On the other hand, we cannot openly promote this industry according to our culture. There is already a campaign against animal slaughter and vegetarianism is being promoted. Some companies export day-old chicks to countries such as Bangladesh but we don't export chicken. The AIPI considers two aspects of the industry, the profitability of the farmers and the affordability of poultry products to consumers.

If we only consider the protein requirement of the people the best way to do this is to import chicken. We can provide imported products at a cheaper price. But there are thousands who depend on the industry and it has a huge socio economic impact. Although there is an increase in chicken consumption the price is high and unaffordable to average people. The controlled price of chicken is Rs. 380 per kg but it should come down to around Rs. 200 per kg.

Q. What is the present consumption?

A. In 2000 per capita chicken consumption was 4.5 kg per person per year and today it has increased to 6 kg. We are happy about this development and the AIPI played a major role in achieving this growth while developing the industry.

The Government provided a lot of assistance such as tax concessions and increasing maize production.

Q. What are the interests you have in the industry?

A. I never had any stake in the industry and all throughout my career I provided my expertise to the industry.

I started my career as a senior research officer at the Department of Agriculture and I obtained my PhD in Australia and later joined the University of Peradeniya as a lecturer.

I pioneered the diagnosis of four animal diseases and I have 34 scientific publications to my credit. I was elected chairman of the AIPA due to my knowledge in the field and as one who do not have any personal interest.

I strongly believe that all the players, small or big, should receive equal rights and opportunities especially with regard to government assistance.

Q. What would be the future of the industry?

A. There is much potential to develop the industry but creating cartels or monopolies will disrupt the present growth momentum. Big players and small producers should have a share in the industry.

To create this environment there should be a poultry industry monitoring committee in the Ministry of Livestock Development to look at these aspects of the industry. The committee should comprise knowledgeable people and have the power to take decisions. Government policy recommendations should be based on the protein requirements of the people, affordability of the poultry products, employment generation, export potential, environmental issues and social impact.