Indonesia’s authorities rein in poultry companies

It’s usual for the prices of day-old chicks (DOCs) and broilers to fall during the third quarter of the year in Indonesia following the country’s biggest holiday, Leberan.

FOTER | Kevin Cortopassi
FOTER | Kevin Cortopassi

It’s usual for the prices of day-old chicks (DOCs) and broilers to fall during the third quarter of the year in Indonesia following the country’s biggest holiday, Leberan. That’s not been the case this year, according to Jakarta Post, as DOC prices are up around 4 percent at INR4,941 (US$0.38), and the selling price of broiler chickens has remained flat at INR17,533.

The main reasons for these robust prices are the culling of three million parent stock to reduce the supply of local DOCs, and a reduction in import quotas that reduced the grandparent flock by as much as 6.3 percent last year. With the supply of chickens thus reduced, prices have remained higher than in previous years.

Poultry companies remain under some pressure, however, as soybean prices were 40 percent higher in the second quarter of this year compared with the same period in 2015. Furthermore, government action to support local corn farmers by cutting corn imports has been effective in reducing the trade by 60 percent for the January-July period, but it has led to an undersupply in the local market for the poultry companies.

Poultry companies under pressure

Despite the consequent rise in feed prices that have such a significant impact on profitability of poultry production, local analysts told Jakarta Post they were expecting Japfa Comfeed to post strong earnings. They were less certain about Charoen Pokphand because of the recent consolidation of its broiler divisions in Indonesia.

Last week, the same news organization reported that Indonesia’s competition authority had imposed fines on some of the country’s poultry companies found guilty of acting as a cartel.

Twelve companies were ordered by the Business Competition Supervisory Commission (KPPU) pay a total of INR119.67 billion (US$9.16 million) in fines for the premature culling of two million parent stock following an oversupply of DOCs in September 2015. The commission ruled that the cull was, in effect, ordered by the companies to control market prices.

The ruling will help to educate the public about the important of fair competition, according to Jakarta Post, and the fines will have little impact on the companies found to responsible for the cartel. These included Charoen Pokphand Indonesia, Japfa Comfeed Indonesia and Malindo Feedmill. They dispute the finding of the KPPU.

Domination of the poultry market by a handful of large companies has been concerning the Indonesian government.

In March, Agriculture Minister Andi Amran Sulaiman signed a memorandum of understanding (MoU) with a number of industry stakeholders, including the KPPU, the Indonesian Poultry Farmers Association and Information Center (Pinsar Indonesia) and the Indonesian Breeders Association (GPPU). Under the MoU, the large poultry companies are required to build any new slaughterhouses away from residential areas, to support government efforts to strengthen the downstream industry, and to include smaller producers in boosting exports.

A government moratorium on the construction of modern poultry buildings is already having an effect. Earlier this month, Sierad Produce announced it had cancelled its plans for more broiler houses.

Some in the poultry sector remain upbeat about the situation, however.

“The industry has been facing oversupply in recent years, so the moratorium will not have a big impact,” Mr. Sudirman, chairman of the Indonesian Feed Millers Association (GPMT), told Jakarta Post in early October.

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