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Report from Arrenga on Budget:
Maintain high CESS of imported green grams, peanuts, ginger and maize so as to increase self-sufficiency in the domestic cultivation of these crops; Removal of VAT on machinery & equipment for livestock production.
With maize taking up nearly +40% of feed cost of most poultry operators; Bairaha Farms and Ceylon Grain Elevators along with its subsidiary, Three Acre Farms continue to see their margins being affected. Despite the growth in revenue witnessed by the poultry players during 1HFY12, overall performance was impeded with the increase in cost production owing to increased cost of maize. All the poultry operators witnessed dip in their Gross Profit margins with local supply being hindered after the occurring of floods during the Maha season. With the Government continuing to maintain high cost of imported maize, we expect the poultry firms’ margins to be affected especially with the Yala Season (in September) favouring rice cultivation.
It should be noted that though the Government looks to increase self-sufficiency of local maize cultivation, the country still continues to import almost 50% of its total requirement. The broiler operators have already expressed their issues pertaining to the quality of the locally cultivated maize as local growers lack technological support to be in line with regional growers whilst availability of large extents of land in the dry zone continues to be a bottleneck for new entrants. On a positive note, we believe Bairaha Farms would make use of the current depreciation of the currency to penetrate into its long term target markets, Maldives, with its value added product range whilst making use of VAT exemptions on investment in machinery & equipment. However, we believe that the high cost of production would continue to weaken its competitiveness in the global market.
However, CIC Holdings – a local key agri producer, will prove to be a direct beneficiary of the export incentive moves. CIC Holdings, with its exposure to maize through CIC Feeds (Pvt) Ltd and rice cultivation will stand out to be a direct recipient with the Government looking to discourage import of feed. With the 3% devaluation of the domestic currency after the Budget, we expect CIC Holdings to better position its agro products in the global market, though export contribution remains minute, but is believed to grow in the upcoming periods.
This is not to discourage from "Chicken" counters but to educate the new guys!
Maintain high CESS of imported green grams, peanuts, ginger and maize so as to increase self-sufficiency in the domestic cultivation of these crops; Removal of VAT on machinery & equipment for livestock production.
With maize taking up nearly +40% of feed cost of most poultry operators; Bairaha Farms and Ceylon Grain Elevators along with its subsidiary, Three Acre Farms continue to see their margins being affected. Despite the growth in revenue witnessed by the poultry players during 1HFY12, overall performance was impeded with the increase in cost production owing to increased cost of maize. All the poultry operators witnessed dip in their Gross Profit margins with local supply being hindered after the occurring of floods during the Maha season. With the Government continuing to maintain high cost of imported maize, we expect the poultry firms’ margins to be affected especially with the Yala Season (in September) favouring rice cultivation.
It should be noted that though the Government looks to increase self-sufficiency of local maize cultivation, the country still continues to import almost 50% of its total requirement. The broiler operators have already expressed their issues pertaining to the quality of the locally cultivated maize as local growers lack technological support to be in line with regional growers whilst availability of large extents of land in the dry zone continues to be a bottleneck for new entrants. On a positive note, we believe Bairaha Farms would make use of the current depreciation of the currency to penetrate into its long term target markets, Maldives, with its value added product range whilst making use of VAT exemptions on investment in machinery & equipment. However, we believe that the high cost of production would continue to weaken its competitiveness in the global market.
However, CIC Holdings – a local key agri producer, will prove to be a direct beneficiary of the export incentive moves. CIC Holdings, with its exposure to maize through CIC Feeds (Pvt) Ltd and rice cultivation will stand out to be a direct recipient with the Government looking to discourage import of feed. With the 3% devaluation of the domestic currency after the Budget, we expect CIC Holdings to better position its agro products in the global market, though export contribution remains minute, but is believed to grow in the upcoming periods.
This is not to discourage from "Chicken" counters but to educate the new guys!
