As governments scramble to put in place preventive measures and bolster economies, the big question on the minds of producers in the animal protein industry is ‘How is this going to pan out?’
Tracking the developments in the region, we see hyperactivity in online sales and supply chain disruptions that are slowly being remedied since food is ranked as an ‘essential’ service. Still, the scale of the coronavirus shock, is simultaneously cratering aggregate demand and disrupting supply in the industry and across borders.
Asian Agribiz spoke with Ben Santoso, Animal Protein Analyst at Rabobank Singapore for his view of the current crisis and what he envisages the future to hold.
“Admittedly, Covid-19 has had a net negative impact on chicken demand for two reasons: quarantine measures and slower economic growth. Quarantine measures shift foodservice demand towards at-home meals.
“The economic impact has instantly affected the informal economy and increasingly the formal economy.”
“Despite the flurry of online activity in the retail and food delivery space, this is not likely to fully compensate for the loss in foodservice demand, as overall consumption declines. The economic impact has instantly affected the informal economy and increasingly the formal economy as well,” said Mr Santoso.
More than just Covid-19
He added that other factors have contributed to the demand downtrend, such as the crash in oil price; travel bans, border closures and a literal halt in air travel that has drawn a blank with global tourism; and the drop in exchange rates.
“Reduced spending power has dragged down broiler prices way below cost in many markets. In Indonesia, this year’s Lebaran (Eid festival) peak demand is now in doubt.
“Broiler prices in Thailand have managed to stay at least at cost, as a large part of the traded volume is based on contract prices and the industry is also supported by large export demand. But as Thai domestic demand is also decreasing because of the gap left by tourism and the trickle-down impact on all industries that depend on it, chick placements have nevertheless been reduced,” he said.
Missing links in food supply
As most markets go on lockdown, the food sector is primed for full service. Supermarkets and food retail are to remain open while most food service outlets are only allowed to offer takeaways.
These rules, however, do not filter across the value chain to ancillary services that support farming and logistics.
“In the Philippines, I understand goods going into and out of Luzon require a special permit. There have also been a few cases were local governments in Indonesia and in Philippines have setup roadblocks to restrict movements of people; but this has also affected movements of livebirds.
“In the downstream segment, we expect more demand for mass-market value-for-money, shelf-stable products.”
“These cases have so far been isolated; and there have not yet been any major disruptions from farms receiving piglets or DOC thus far in the rest of Southeast Asia that we are aware of. It would not be surprising to see disruptions in feed raw materials to feedmills such as amino acids, vitamins and minerals as these are not deemed essential. If allowed to continue, this will increase cost due to reformulations, supplier diversification and reduced FCR,” added Mr Santoso.
Will a supply shortage ensue?
Mr Santoso said pork is already in short supply due to ASF in Vietnam and soon in the Philippines. There’s likely to be a beef supply shortage soon resulting from the three-week lockdown in India which would slow shipments of Indian carabeef.