The poultry industry is one of the most important subdivisions of agricultural economy with an annual output of $10 billion.
The industry annually produces about 2.65 million tons of chicken meat worth $6 billion, making it one of the top 20 products of Iran’s agriculture sector. It also delivers 1.5 million tons of eggs (worth $3 billion) which, together with chicken meat, creates an added value of $5 billion and plays an important role in the country’s gross domestic product.
Poultry and its related supply chain have been developed in the country over the past 60 years, thanks to the latest technologies, to become one of the most modern industries in the country. It has the highest employment rate among all industries and shoulders the main burden of providing protein. It has been able to achieve a per capita consumption of 30 kilograms of chicken meat for the 85 million population of our country.
Reza Mobser and Farrokh Qobadi, economic analysts and poultry industry players, prefaced their write-up for the Persian daily Donya-e-Eqtesad with this note. A translation of the text follows:
How to Destroy a $10 Billion Industry?
The misguided and wrong policies of the Agriculture Ministry, particularly its government-mandated pricing, have adversely affected the country’s agricultural economy.
It has registered negative growth in the past two years and declined by 4.9% in FY 2021-22 and then by 1.2%, 2.8% and 7.1%, respectively, in three consecutive quarters leading to the autumn of FY 2022-23.
The latest statistics published by the Statistical Center of Iran show that in FY 2022-23, as many as 307,000 jobs were lost in the agriculture sector. The poultry industry has turned into a loss-making industry under the pressure of mandatory pricing and is losing jobs at an increasing rate. The number of chicken farms that have gone bankrupt in recent months has been unprecedented.
The method of pricing chicken after the discontinuation of the subsidized import policy [in May 2022] — the so-called “economic surgery” — is a clear example of the destructive measures of the government. This is a very clear example of a $10 billion industry, which plays an effective role in creating food security, stable employment and gross domestic product with an added value of more than $5 billion, losing at least 10% of its last year’s capacity.
A look at the main index of this industry, i.e., day-old chicken production, shows that we will face a 20% decline in chicken meat production in the first quarter of FY 2023-24 compared with the corresponding period of last year. That is synonymous with the decline in GDP, employment, per capita income and the shortage of chicken meat in a country that has an export capacity of 700,000 tons of chicken meat per year.
How Did We Get Here?
On May 11, 2022, the government announced that the supply of chicken feed will be calculated on the basis of rates used in the Integrated Forex Deal System, locally known as Nima, a platform where exporters sell currency earnings at prices lower than the open market rate. The Nima exchange rate was 250,000 rials per dollar then. Some points need to be discussed here.
First: On the day before the discontinuation of subsidized imports, the approved consumer price of chicken meat was set at 310,000 rials [per kilogram], which had remained the same since October 2021; at the same time, the 57% increase in the cost of labor (approved by the Supreme Labor Council) and a 35% increase in transportation and energy costs had not been taken into account. Producers and related trade unions protested the decision.
Probably the most logical way to calculate the new price was to consider the aforementioned factors, in addition to the increase in the price of feed and day-old chicken because of the increase in the price of raw materials, and then applying its effect on the end cost of chicken meat production.
An internationally accepted standard indicates that the cost of feed affects the production of chicken meat by 70%. But the consumer price of chicken was set at 599,000 rials then, whereas the dollar rate had increased sixfold against the rial, the price of feed 3.6-fold and the cost of a day-old chicken had increased threefold. By only considering the increase in the price of feed, the price of chicken meat should have been set at 775,000 rials.
With the promise of a future review by the then minister of agriculture, the approved price remained the same until October 2022, then a 5% increase was applied and the price reached 630,000 rials. None of the related trade unions accepted it. After all, a loss of between 120,000 and 150,000 rials per kilogram of chicken was inflicted on producers. The price has not changed to date.
Therefore, the government took the budgetary pressure of the subsidized imports off its shoulders and imposed it on the production sector, thereby killing the motivation of producers.
Second: The deficit in the working capital of the poultry industry, which had to be compensated immediately after the removal of subsidy, was estimated at 300,000 billion rials [around $580 million at the current exchange rate], which was supposed to be compensated by up to 200,000 billion rials by Agribank (Keshavarzi Bank) through low-interest loans.
In practice, even 50% of this sum were not provided and only a fraction of it was paid to small producers. The severe lack of working capital, which had increased due to the huge losses of the industry players, led to a significant loss in the poultry industry’s capacity last year.
Third: It was clear that after the increase in the price of chicken meat, demand for the product would decrease. Therefore, authorities were repeatedly advised to take appropriate measures to maintain demand and continue production. Among other things, they were recommended to maintain the demand in the general consumption sector by granting allowances in the form of coupons with a special focus on chicken meat to at least three low-income deciles.
Purchasing and providing strategic reserves from domestic producers for government purposes, and taking measures to strengthen the export of chicken meat were also recommended. Not only did all of these suggestions fell on deaf ears, but what happened in practice was a full-scale declaration of war against chicken production.
Coupons were not distributed and the export of chicken meat was banned. Up to 260,000 tons of frozen chicken meat, which was equivalent to 10% of the domestic chicken production capacity, were imported to fill strategic reserves at the rate of 400,000 rials and sometimes less, i.e., 30% of the approved price of fresh chicken meat. This led to a sharp decline in the price of chicken meat in the second half of FY 2022-23. The producers had to sell their product 20% below the approved price during the period and suffered heavy losses.
It was natural that with this huge loss, demand for production would decrease and a negative signal would be sent to the supply chain.
Lingering Consequences
In February, which is usually the booming season for day-old chickens, demand for day-old chickens decreased dramatically and prices reached a third of the cost.
First, the relevant organization tried to match supply with demand by collecting fertilized eggs and preventing a further decline in prices, but since the crisis was much worse than it was expected, this measure was not effective and many productive chicken peeps were eliminated and at some point the fertilized eggs were not sent to hatcheries (they were sold as edible eggs).
On the other hand, the inability to supply sufficient and timely inputs, especially in the final months of FY 2022-23, along with gas and electricity outages, compounded the poultry industry’s problems, which led to the current shortage of chicken.
This is how a $10 billion industry falls to the ground. Mandatory pricing and soft confiscation of the private sector by the government, a mixture of delusions and lack of competence among related officials all destroyed production and employment in this industry.
More interestingly, those in charge of the poultry industry have intensified price suppression by abusing the year’s envisioned perspective instead of putting forward a plan to save this industry and fulfilling their responsibility in terms of financial and monetary policymaking and controlling inflation, they put pressure on the producers.
They proudly talk of their plan to import 50,000 tons of fresh chicken meat, as they did about red meat after the practical destruction of production in that sector.
From the perspective of desperate poultry farmers, the influence of “import mafia” has turned the Agriculture Ministry into the agent of creating a trade organization (read import organization). Apparently, the agriculture minister has forgotten that when he took office in the new government, he promised to ensure food security.
Today, his decisions have created a situation where we have become a completely dependent country, especially in the field of animal protein supply. In fact, not only the government failed to take a step toward the fulfillment of its promises, but the country has also given up, one by one, the strongholds that we had conquered in the past with hard work.
