The inflation genie is out of the bottle, causing concern from the U.S. to Uganda. Can rising input costs be passed on? Will retailers source more cheaply elsewhere? What can be done to control costs and to keep clients happy?
Poultry producers around the world are facing the same questions, and some have already had decisions taken for them with far from positive results.
Inflation would appear to be with us for much longer than originally thought when alarm bells began to sound last year. The latest figures from Brazil, for example, reveal a marked increase in broiler producers’ input costs in 2021. Some inputs reached all-time highs mid-2021, but at least the rate of inflation slowed as the year progressed and some of these higher costs could be passed on to consumers.
Not all poultry producers around the world, however, have been quite so lucky. Take, for example, Malaysia, where price caps placed on chicken to ensure it remains affordable are said to be turning once profitable chicken business into loss makers and forcing others to close.
But to return to Brazil, figures released at the end of January by Brazilian Agricultural Research Corporation (Embrapa) reveal that the cost of producing a broiler in the country rose by almost 19.8% last year. In December alone, it notes, input costs rose by 1.5%.
This increase can be seen the price of Brazilian chicken meat exports, which has risen by 18.6% over the last 12 months. This increase contributes to the rather eye-watering rise in the value of Brazilian chicken meat exports so far this year which, at US616.6 million, was 42% higher.
Admittedly, not all of this increase is attributable to inflation. Volume sales were 19.7% higher in January this year than in January 2021, a particularly poor month for the Brazilian industry, so there was some catching up to do.
According to the Brazilian Association of Animal Protein (ABPA), producers have suffered intense input cost pressures, and this has been reflected in higher prices.
In September 2021, ABPA expressed its concern that input costs had risen by 44% over the preceding 12 months, with feed prices having reached a record high. It warned then that prices would have to rise.
While the situation may have improved somewhat as 2021 drew to a close, Embrapa notes that input costs were still increasing into December, citing feed and electricity costs in particular.
Inflation, as we should all know, is affecting all markets, not simply Brazil and Malaysia and, as ABPA president, Ricardo Santin notes: “The increase in the price of protein is a global phenomenon”.
Degree of protection
To some degree, the poultry industry is protected when prices rise, with chicken meat being the cheapest animal protein and the port of call when other meats become too expensive. Nevertheless, there is always the risk that consumers are priced out of even low-cost chicken.
Greater use of technology and greater efficiencies can go some way to controlling costs. There has certainly been significant investment at processing level over recent years that should help to reduce costs in the long term, but, as we all know, at farm level, consumers are not always in favor of the most efficient production methods.
Closer co-operation and co-ordination along the supply chain could also bring benefits, but partners are not always reliable, and they too want to preserve their margins and keep their clients happy.
An unhappy example of this can be seen in the U.K. beef sector, which has seen its highest input inflation for 10 years. Late last year, one leading retailer committed to source only locally produced beef. By January this year, that promise had been broken with the retailer blaming rising U.K. prices for its decision to source overseas.
The country’s poultry producers are feeling the pinch too. In October last year, one of the country’s leading poultry producers noted that prices would have to rise by 10% and that food was “too cheap”.
We can only hope that inflation will be simply transitory, but opinion is divided. And let us not forget that the commonest tool to control inflation is interest rates. Brazil’s benchmark interest rate stood at 2% last year, by December it had risen to 9.25%! Hardly conducive to investment and growth.
