Diverting maize for ethanol production will increase poultry feed prices, crimp margins

Indian poultry sector fears margin squeeze due to potential maize diversion for ethanol, a key feed ingredient, impacting feed prices.

The Indian poultry sector expects feed prices to spurt, crimping its margins, if the Centre goes ahead with its plan to divert maize for ethanol production, as the grain is a primary ingredient of the feed.

Since the government has fixed a cap of 1.7 million tonnes of sugar for ethanol production anticipating a lower sugarcane output, it is hoping to largely fill the gap by allowing more quantities of maize to be used for producing ethanol, in order to achieve its target of 15 percent ethanol blending with petrol this year.

The oil marketing companies (OMCs) have sweetened the deal by hiking the procurement price of ethanol from maize and other grains by Rs 5.79, to Rs 71.86 a litre.

Though the Centre has not declared the volume of maize to be diverted, the poultry industry anticipates that 10-20 percent could go into ethanol production, which could increase the demand-supply gap further causing a spike in maize prices.

“Already it is a hand-to-mouth situation in the case of maize. Further fall in supply could take maize prices from the current level of Rs 25 per kg to Rs 30 per kg, unless more is imported,” said Neeraj Kumar Srivastava, former Chairman of the Compound Livestock Feed Manufacturers Association (CLFMA).

According to him, around 60 percent of the maize produced is consumed by the poultry feed industry, which makes it the largest consumer of the grain. In other words, out of an annual production of around 35 million tonnes, the poultry sector absorbs 21 million tonnes. The starch companies and breweries mop up around 10 million tonnes, and only around 1.5 to 2 million tonnes go for human consumption.

Srivastava said the government has allowed the import of maize that is not genetically modified (GM), which is produced by only a few countries. Besides, there is an import duty of 50-55 percent on maize. “The government should waive the import duty and allow the poultry industry to import GM maize, which is available at lower prices. At the current rates, the landed prices will be around Rs 20 per kg,” he said, adding that a rate of Rs 19-20 per kg for maize is ideal for the feed industry.

Last year, when the prices of soybean, another ingredient of the feed, escalated, the government allowed the import of GM soybean, which stabilised the prices of the commodity.

Maize prices in the country went up from Rs 21-22 per kg to Rs 25 following a poor kharif harvest, particularly in Karnataka, where scanty rains affected production. However, the acreage of the rabi crop of maize has been higher, kindling hopes of a better output. But the prices will depend on the quantity that goes for ethanol production.

The country is expecting the new maize crop to hit the market by the end of March. “The availability of maize may be higher and soya prices are stable now. But till now the government has not come out with specific numbers for the diversion of maize for ethanol,” said A Y Rajendra, CEO, Animal Feed, Godrej Agrovet Ltd.

Higher maize prices have made the poultry feed costlier, forcing many small poultry farms to reduce production or wind up operations.
``The poultry feed price has increased from Rs 35 to 42 per kg, leading to a higher cost of production. As a result, production has dropped by 20 to 30 percent,’’ said T S Pramod, Secretary, Poultry Farmers and Traders Samithi, Kerala. High temperatures have aggravated the situation by raising the mortality of the chicks.
The farmgate prices of chicken have gone up from Rs 90-100 to Rs 110-115 per kg. The retail price of chicken is hovering in the range of Rs 200-300 per kg in several cities, hitting demand.

Bigger companies are not feeling the pinch yet as several of them hiked the prices of their products when there was a jump in feed prices a year ago. “Though it is higher, the feed price has not increased to the level it did last year as soybean prices are stable. But the demand of maize has gone up in general, and diversion for ethanol production will lead to a lower supply, which could impact the industry,” said Vignesh Soundararajan, MD, Suguna Foods Pvt Ltd, a major player in the poultry sector.

A rise in exports has cushioned egg producers from the impact of high feed prices. The Russia-Ukraine war has led to a disruption in the egg supply chain from Ukraine and Turkey. This has boosted demand for eggs from India, particularly to the Gulf countries, according to P V Senthil, Secretary of the Livestock and Agri Farmers Trade Associations. “Over the last six months, egg shipments have touched 30-40 lakh eggs a day. Oman is the biggest buyer,’’ he said.

The production in Namakkal, the egg hub of the country, has increased to 6 crore eggs per day from 4 crore a year ago. Domestic consumption has also improved after the pandemic, Senthil said.