Like all terrible things, it started with good intentions. Back in 2021, when poultry meat prices breached Rs 500 across the country for the first time, the Competition Commission of Pakistan launched multiple probes against anti-competitive practices in the poultry value chain. By May 2021, the competition watchdog had concluded that the poultry value chain participants including hatcheries and feed mills were engaged in collusive practices and cartelization, recommending punitive action against several industry members.
CCP’s findings of anti-competitive practices in the poultry industry were based on an exceptional rise in prices “of 110 percent” between March 2020 and May 2021. Commenting on CCP’s recommendations, BR Research had noted at the time that “rather than drawing a year-on-year comparison, the competition watchdog had selected an ‘interesting’ base period, and stretched the review period to 14 months, rather than 12 months. March 2020, as many would recall, is when prices of perishable food commodities collapsed overnight when the country witnessed its first nationwide lockdown with the imposition of quarantine due to the Covid-19 pandemic.
Fast forward three months, and through a separate Order in August 2021, the Ministry of Industries & Production authorized the office of Controller General of Prices to use discretionary powers to fix prices of various commodities declared “essential”. This was made possible by amending the Schedules under the Price Control and Prevention of Hoarding Act, 1977 and adding broiler chicken and farm eggs – among other commodities, to the list of ‘controlled goods’. The Order defined “national emergency” as a state of uncontrolled price hike with average increase of 33 percent in prices (over preceding) year. Naturally, the axe (price fixing) fell hard on the poultry industry, which had witnessed significant resurgence in price over 2021 following lifting of pandemic lockdowns and resumption of commercial activity such as public gatherings and large weddings.
Some 14 months later, a routine inquiry by Customs Intelligence into oilseeds shipments offloaded at Karachi seaport led to a ‘discovery’ that the imported goods are ‘genetically modified’. The issue became politicized when it was picked up by the federal minister for Food Security, who unimaginatively proclaimed that GMO imports would be allowed ‘over his dead body’. Poultry feed inputs such as soy have since disappeared from the market, with feed prices rising by as much as 75 percent in less than six months.
Why are these three events relevant all of a sudden? The CCP order was not malicious in nature, and is most certainly not responsible for the poultry price hike that we have witnessed in recent months (at least not directly). The MoIP Order is (most likely) no longer effective, considering that national CPI breached 35 percent in March 2023, and we are yet to see imposition of a national state of emergency by the ‘Controller General of Prices’. Together, however, these seemingly independent and well-meaning interventions by the state are responsible for destroying a ‘perfectly’ competitive market, leaving both producers and consumers at a significant loss.
Look closely at the graph of ex-farm prices of Day-Old Chicks (DOC) in the first illustration. The graph follows daily prices of DOCs in five major consumption centers across the country over the last seven years. Even those unfamiliar with the industry dynamics would notice the near-perfect sinusoidal movement of prices, averaging under Rs 30 per chick for most of the period (even today, prices are under Rs10). Notice also how for 5 years between Jan 2015 to Dec 2019, broiler chicken prices move like a wave function, staying well below Rs200 per kg. Yet, over the past 24 months, unintended consequences of state interventions have broken both markets, bringing the industry to a brink.
How? Poultry prices – meat and farm eggs – have two major inputs: the day old chick and the poultry feed. Those trained in the art of charting would notice how the cyclical nature of DOC prices drives output prices (broiler chicken) in the short run, and how the trending in the feed market drives broiler prices in the long run. Punitive measures against market participants have had two broad outcomes for the industry. First, it exacerbated the frequency of volatile movement in prices. And two, it broke the floor and ceiling; meaning, it has pushed both the peaks and troughs upwards, making instances of abnormal losses more frequent.
If hatcheries are frequently forced to sell their chicks below cost, or the price of live chicken frequently falls below cost of feed, market participants would respond with scaling back of investment. In the long run, it leads to lower output and permanent increases in prices (as the trough or floor moves upwards), since the breakeven level also shifts upwards.
That’s exactly what is taking place in the poultry industry today. Between June 2021 and 2022, when private sector industries witnessed a spectacular rise in credit offtake in a low interest rate environment, poultry, feed and processing industries witnessed an across the board stagnation in credit offtake. Limited growth was witnessed by the edible oil industry during 2021 for working capital when prices of imported raw material surged globally. However, total credit offtake to poultry farms, animal feed, and even the meat processing industry largely stands today at similar levels where it did in June 2019, signaling a substantial decline in borrowing for growth or expansion in real terms. Anecdotal evidence suggests that many hatcheries, commercial farms, and feed mills across the country have either closed or are facing serious write-offs on receivables, since uncertainty and increased frequency of abnormal losses makes business impossible.
Now, pay attention the to the illustration of long-term prices of poultry and beef recorded over 25 years. Notice that in 1998, a kilo of chicken cost more than a kg of beef. Back then, a chicken burger at McDonald’s was also more expensive than a beef burger. The following two decades recorded remarkable investment in the poultry value chain which saw prices of products decline significantly in real terms, making affordable protein more common.
If you have been around Pakistan during the last 20 years, you could not have missed the memo on the mushroom growth in restaurants serving chicken BBQ, biryani, karahi and pulao-based cuisine across the nation, as more Pakistanis, especially those in urban centers, could now afford to consume more protein at remarkably cheap prices. That also includes more farm eggs for the table, which saw prices averaging at Rs 150 for over 6 years between 2014 – 2020.
That is what the state intervention in a competitive market has taken away from us. Thank the government for ruining cheap protein!