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Coronavirus
LOW Source: covid.gov.pk
Pakistan Deaths
28,328
1624hr
Pakistan Cases
1,266,826
62224hr
1.4% positivity
Sindh
466,750
Punjab
438,433
Balochistan
33,149
Islamabad
106,571
KPK
177,132

Unprecedented times, 101: welcome to the poultry chapter. After witnessing its steepest week-on-week decline during the first week of lockdown, it appears average prices of broiler have stabilized in the last fortnight at Rs 132 per kg. Yet, that’s by no means unprecedented: price per kg kissed Rs 125 in Jan-19 driven by seasonality of demand.

When it comes to poultry punting, there are two camps. The first believes that the sector has witnessed only the tip of the iceberg since the beginning of lockdown, whereas the worst is yet to come. Given the sheer scale of demand for poultry in the commercial segment, that appears to be a reasonable explanation. Afterall, even if the lockdown were to ease tomorrow, the domino effect on domestic spending is estimated to be staggering.

The theory goes that as households across socioeconomic categories cut back on consumption expenditure, spending on high value meat may be the first one to go. That’s also corroborated in literature, which indicates that consumption patterns switch to lower priced sources of calories as real incomes fall.

Importantly, the lockdown is already in its third week yet is showing no sign of abatement. And here’s the kicker: barring the 2019 price anomaly, historically broiler prices start inching upwards with the onset of spring season, peaking by June/mid-summer. Rewind to mid-Feb - based on price trajectory at the time - forecast for May-20 hovered between Rs180-225 per kg as consumption usually peaks around Ramzan/Eid-ul-Fitr.

Even if the lockdown were to be eased in a staggered fashion, eateries and non-essential hospitality segment may very well be the last to be allowed to re-open. Considering that demand nosedives as Eid-ul-Adha closes in, the bouquet of factors may all but ensure that prices remain lower bound till calendar year end.

It is hard to dispute demand suppression, but its effect on near-term prices may very well be counterintuitive. Recall that the ordinarily high price volatility in poultry segment is explained by the seasonality of the product: while the birds may not take very long to reproduce thanks to modernization in the processing value chain, they just as easily die out.

Given the short cycle of poultry crop, it appears likely that end consumer prices may very well be in for a shock. Even under ordinary circumstance, poultry farmers regularly engage in culling of crop when price falls below cost of production.

By that token, the stock at any poultry farm simply represents the sunk cost, while the variable portion, such as feed, routinely overshoots the fixed portion. Imagine that cycle to continue for three consecutive weeks, and the farmer is soon faced with the prospect that his loss may be minimized if he were to close shop altogether.

The second argument then, has two legs. First, while demand suppression is a foregone conclusion, the cyclicality of raw material does not rule out a supply shock, and one may very well be on the horizon if the lockdown were to be eased during peak demand Ramzan/Eid season. Second, once that temporary shock evens out by July end, poultry prices will struggle to find a leg to stand on for a long time.

A lot will depend on income elasticity of poultry consumption, considering of the 1.5million tons of domestic poultry meat output, two-thirds is accounted for by household expenditure. Having said that, if a ban on large public gathering continues indefinitely, the worst to suffer will be the poultry farms. But such are the times.

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