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Poultry Industry Seeks Import Duty Cuts Explained for Investors

Introduction:

The poultry industry in India is requesting the government reduce import duties on key animal feed ingredients like maize and soyabean meal. This comes amidst production shortfalls domestically, rising prices, and expected increased competition for these crops from the ethanol industry.

Analysis for Layman:

The poultry sector in India raises chickens and other birds commercially for meat and egg production. A major cost input is animal feed, which contains ingredients like maize (corn), soyabean meal, and broken rice. Due to poor monsoon rainfall leading to lower crop yields this year, the supply and prices of these commodities have been negatively impacted.

The industry trade group Compound Feed Manufacturers’ Association (CFMA) plans to request the Indian federal government lower import taxes on maize and soyabean to make it cheaper to import these crops to meet shortfalls. Import duties increase the costs of bringing in products from other countries. In addition, with the government promoting increased ethanol production from maize, the poultry sector faces greater competition for limited domestic crop supplies. Ethanol is an alcohol-based biofuel blended with gasoline. All this points to continued upward price pressures for key animal feed components. The poultry groups want reduced tariffs to aid affordability.

Poultry Industry Seeks Import Duty Cuts Explained for Investors

Original Analysis:

The poultry industry’s request for lower import duties reflects the supply-demand imbalances and inflationary pressures affecting key agricultural commodities. With poor domestic production due to unfavorable weather, elevated prices, and crops being diverted towards India’s ethanol blending programs, additional imports may be necessary to meet poultry feed demand.

However, lowering tariffs could negatively impact local Indian maize and soyabean farmers if cheaper imports flood the market. It demonstrates the competing interests between different domestic agriculture sectors. There are also risks trade partners could dump excess crops in India. A balanced approach evaluating the interests of all stakeholders will be required by policymakers.

There are also long-term food security implications from becoming reliant on imports for crops like maize and soybeans rather than improving yields locally. Investments in agricultural R&D and irrigation infrastructure could benefit the poultry and ethanol sectors simultaneously over time through sustained advancements, avoiding seasonal volatility. Stakeholders may need to collectively fund such initiatives.

Impact on Retail Investors:

For retail investors in the Indian stock market, this news signals potential opportunities and risks worth monitoring across the agriculture, biofuels, packaged foods, and broader consumer sectors. Poultry feed cost inflation will squeeze margins for integrated protein producers like Venky’s, Suguna Foods, and Simran Farms if they cannot fully pass on price increases. However, corn starch manufacturers like Roquette Freres and poultry feed mills themselves could see revenue growth from heightened demand and prices.

Consumer sectors like fast food and restaurants serving chicken items may take a hit to foot traffic if menu prices rise to account for pricier protein, impacting stocks like Devyani International, Burger King India, and Barbeque Nation. Price-conscious consumers may trade down to eggs or other proteins. At the same time, soybean oil brands like Ruchi Soya and Adani Wilmar could be doubly impacted by reduced soymeal supply and its linkage to soy oil output.

Investors should monitor agricultural commodity price trends, protein and oil producer earnings calls, and consumer purchasing power during the coming quarters. On the upside, integrated poultry players expanding into value-added products or those with pricing power may be better positioned to weather input cost storms.

Impact on Industries:

The poultry, animal feed, and edible oils industries seem poised to face the greatest impacts from this situation over both the short and long term. Poultry players will experience significant feed cost inflation affecting profitability, especially for smaller players lacking scale or integration across the supply chain. However, some of this will likely get passed to consumers.

The animal feed industry in India supplying compounds and concentrates to poultry farms will see volumes and top-line revenue growth from higher prices but may grapple with working capital challenges if corn and soymeal costs rise ahead of price adjustments in finished feeds. Farmers may have some flexibility substituting alternative grains like sorghum or millets, but formulations optimize nutrition. Edible oils face similar cost-push inflationary risks as linked soybean output falls.

In the long run, India must improve yields, storage, and transportation infrastructure for sensitive crops like corn and soybeans. Over-reliance on imports creates trade deficits and food security risks. The burgeoning poultry and ethanol sectors need reliable domestic supply chains. Better irrigation, farmer education programs, commodity market derivatives for hedging, and agricultural visa programs allowing foreign expertise are all structural solutions requiring coordinated public-private investment.

Long Term Benefits & Negatives:

In the long run, allowing greater feed grain imports with reduced tariffs can support the continued healthy expansion of India’s poultry and aquaculture industries to boost affordable animal protein availability. Rising incomes and nutrition awareness are growing demand, so maintaining reasonable input costs aids consistency.

However, an over-reliance on imports would expose the market to global price volatility and supply shock risks. Currency fluctuations affecting landed costs, trade barriers by partner nations, or freight/logistics interruptions could all impact feed affordability. Such uncertainty hinders investment in domestic production capacity – both in grain production and downstream protein processing.

Also, utilizing scarce foreign exchange reserves for import-driven price interventions rather than agri R&D spending or irrigation infrastructure investments mortgages the future for short-term relief. Export-oriented Indian rice farmers would also likely protest the glut of imported broken rice displacing demand.

A better approach is to adopt production, procurement, storage, and distribution policies that incentivize stability in commodity cycles rather than dramatic price swings requiring reactive trade or fiscal policies. This insulates farmers and consumers alike while supporting sector growth.

Short Term Benefits & Negatives:

In the short run, reducing import duties on maize, soybean meal, and related feed grains would offer tangible cost relief to India’s fast-expanding poultry and aquaculture sectors coping with the twin challenges of domestic supply shortages and elevated inflation. Passing any cost savings to consumers can help demand.

Poultry firms expected to benefit include top listed players like Venky’s and Suguna Foods who have vertically integrated supply chains, along with smaller farms. Soybean processors like Ruchi Soya and edible oil brands may also expand crushing capacity.

However, such moves may displace demand for local corn and soybean crops, negatively impacting domestic cultivators if prices crash below profitable rates. Many smallholder farmers have thin margins unable to withstand volatility. This could increase rural agrarian distress.

There are also risks that opportunistic trading partners like Brazil, Argentina, or the US could dump excess grain inventories in India, undermining local production initiatives. Without tariff safeguards, such practices could stifle self-sufficiency goals. Short-term relief may give way to long-term regrets if not balanced properly.

Companies that will Gain:

Listed companies likely to benefit the most from reduced tariffs on feed grain imports include:

  1. Venky’s – India’s top integrated poultry producer with breeding, processing, and marketing operations benefiting from potential cost savings. Higher volumes and margins probable.
  2. Suguna Foods – Second-largest poultry firm gaining similar advantages as Venky’s but more focused on live bird production than value-added segments. Feed is their largest cost component.
  3. Avanti Feeds and Waterbase – Major shrimp feed suppliers to India’s fast-growing aquaculture segment who use corn and soybeans. Better input pricing aids demand.
  4. Godrej Agrovet – Leading animal feed manufacturer with a large presence in poultry and aqua segments seeing volume tailwinds from lower industry costs.
  5. KRBL Ltd – India’s top basmati rice exporter who also trades maize and soymeal domestically. Could enhance trading margins and volumes.
  6. Nestle India – Major packaged foods company using poultry, eggs, and edible oils as ingredients. Lower input costs aid margins or cushion price hikes.
  7. QSR chains like Devyani International (KFC, Pizza Hut franchisee) and Burger King India who must absorb or pass on protein input inflation. Some relief probable here.

Lower protein input expenses indirectly benefit broad consumer sectors longer term. But near-term risks of excessive imports exist that could hurt domestic cultivators.

Companies that will Lose:

Indian listed companies who may lose out from reduced import tariffs on crops like maize, soybean, and related grains flooding the feed market include:

  1. NACL Industries – Leading Indian agrochemicals manufacturer promoting crop protection solutions and GM seeds to corn and soybean farmers. Lower potential acreages hit growth.
  2. Nath Bio Genes – Biotechnology firm selling GM corn and soybean hybrid seeds to Indian farmers. Demand risks as imports reduce price incentives for local production.
  3. Vikram Agro – Primarily an edible oil processor but also supports soybean farmers through contract farming programs. Business model could be disrupted by duty changes.
  4. JR Agarose – Key supplier of crop storage silo bags widely used by domestic corn and soybean farmers. Import competition reduces investible capital for such purchases.
  5. Dhanuka Agritech – Sells fertilizers, seeds, and agrochemicals to grain producers. Import competition dampens rural demand and heightens financial stress amongst its core customer base.
  6. PI Industries – Agchem company promoting integrated crop solutions including plant nutrients and protective solutions for major oilseeds like soybean, groundnut, etc. Import threats pressure growth.
  7. Insecticide India – Branded crop protection chemical manufacturer whose portfolio services maize, soybean, and mentha farmers. Vulnerable to acreage decline from imports.

While near-term price relief seems positive for downstream users like poultry firms and edible oil producers, excessive grain imports without safeguards hurt domestic cultivators, rural incomes, and long-term self-sufficiency goals. Balanced policies are key.

Additional Insights:

The news reflects the complex linkages between various participant groups in India’s agricultural and food production ecosystem. As emerging middle-class demand boosts sub-sectors like poultry and aquaculture, feed grain supply security becomes paramount but needs balanced policymaking. Excessive import dependence displaces domestic production, while high tariffs fuel food inflation impacting affordability when local harvests falter.

Investments to drive productivity growth in grains production through infrastructure upgrades and better farmer price discovery and crop planning tools can help greatly. Aggregators securing supply agreements with end-user groups also aids stability. Technology adoption and precision farming techniques will likely need coordinated public-private participation to transform the sector.

Conclusion:

In light of strong demand tailwinds but erratic domestic output, India must strike the right balance between short-term relief from feed grain imports versus long-term investments to augment self-sufficiency. Over-reliance on imports risks higher structural trade deficits and food security vulnerabilities during global supply disruptions. But excessively high import tariffs hamper poultry, aquaculture, and oils affordability for middle-class consumers. Nuanced policies factoring local farmer income stability are ideal for balanced, sustainable growth across the Agri value chain.

Proper Citation:

Bhonsle, Jayashree. “Poultry Sector to Seek Reduction in Import Duty on Maize & Soyabean.” The Economic Times, 14 Dec.

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