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Why processed chicken is just 5 per cent of the total poultry market!

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India’s poultry industry represents a major success story. While agricultural production has been rising at the rate around two per cent per annum over the past two to three decades, poultry production has been rising at the rate of around eight per cent per annum. What was largely a backyard venture before the 1960s has been transformed into a vibrant agri-business with an annual turnover of Rs 20,000 crore.

Why processed chicken is just 5 per cent of the total poultry market!
Poultry's share in total meat consumption is 28 per cent, as against 14 per cent ten years ago, outpacing its competitors – beef and veal, and buffalo meat

Today, India is the third-largest egg producer in the world (after China and the United States of America), and the nineteenth-largest broiler producer. Undoubtedly, this impressive growth is a result of several factors, such as active developmental support from the state and Central governments, research and development support from research institutes, international collaboration and private sector participation.

A point worth mentioning here is that Indian poultry is self-sufficient, supported by a broad and strong genetic base in which the productivity levels of broilers and layers are equal to those achieved elsewhere (e.g., the USA and the European Union).

Undoubtedly, these achievements are quite significant. Today, however, globalization is posing greater challenges: namely, making the industry globally competitive and viable; and fulfilling the quite enormous potential for growth that is presented by changing food habits and preferences.

Poultry is today the major source of meat in India. Its share in total meat consumption is 28 per cent, as against 14 per cent ten years ago. It has outpaced its competitors – beef and veal, and buffalo meat. High mutton prices, religious restrictions on beef and pork, and the limited availability of fish outside coastal regions have all helped to make poultry meat the most preferred and most consumed meat in India. Expanding domestic production and increasing integration have pushed poultry meat prices downward and stimulated its consumption.

The annual per capita consumption of eggs and chicken meat has grown from 10 eggs and 146 gram in 1970s to about 44 eggs and 1.8 kilogram, currently. The National Institute of Nutrition recommends that a balanced diet should contain 30 gram of eggs/day (i.e. 180 eggs per annum) and 30 grams of meat daily (11 kg per annum).

The future outlook for the Indian poultry sector appears to be bright. The most optimistic forecasts predict a two- to three-fold increase in poultry production. According to one projection, egg production is expected to reach 106 billion eggs by 2020 and poultry meat production to 4.2 million tonnes.

Processed Poultry

Indian consumers mostly prefer live and fresh chicken butchered before their eyes, which results in 95 per cent of chickens being slaughtered by the retailers in a very unhygienic manner. Traditional poultry dressing facilities at the wholesale or retail level are completely manual, with no sanitary measures taken for the dressing floor or the workers. As a result, hygienic slaughtering and proper utilization of byproducts are currently the most important issues in the Indian meat industry.

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Most poultry meat in India is marketed to consumers in the form of live birds, with only a small share of output now marketed as chilled, frozen, or further processed products. The costs of moving live birds, including transport, shrinkage, and mortality costs, severely limit inter-regional movements. As a result, Indian poultry markets are regional, rather than national, in scope and there is a limited potential for low-cost producers to market their product in higher cost regions.

The limited information on costs and market price behavior collected for this study suggests that the presence of poultry integrators in a region has a significant impact on the returns received by poultry producers and the margins between producer and consumer prices. For example, retail prices and producerretail margins were found to be significantly higher in the northern region, where poultry integrators are least active. But with the development of modern retail there is some demand for frozen or chilled poultry products from hotels, fast food restaurant chains
and some urban consumers.

About five per cent of poultry meat is sold in processed form, of which only about one per cent undergoes processing into value-added products (ready-to-eat/ready-to-cook). The recent emergence of supermarkets and shopping malls is now supporting the growth in the retailing of chilled/ frozen poultry products.

The modern poultry processing sector in India consists of just about 12 firms as of FY 13-14, which are mostly operated by poultry integrators located in or near major urban areas. These firms use imported equipment and follow hygienic procedures, including monitoring employee health, water supplies, sanitary conditions and refrigeration facilities. Chilled whole birds and parts are sold in markets and shops in major cities. Acceptance of chilled meat is higher than that of frozen meat, yet growth in chilled meat consumption could help to accelerate the transition to frozen poultry products.

Growth in the retail segment is being encouraged by new approaches from poultry integrators, including establishing integrator-owned or franchised chilled/ frozen poultry shops, opening sales counters in existing food shops, and home delivery services. Today, there are various indicators of the processed poultry growth in India such as:

• The changing lifestyles and demographic profiles of Indian households. Consumers are exposed to Western lifestyles, cuisines and cooking and expect the same from Indian markets also.

• Indian Consumers are becoming more healthconscious and are willing to spend more towards healthy and clean food.

• The rapid growth of QSRs such as McDonalds, KFCs, Nando’s, Marrybrown and various such outlets are fuelling the growth of processed poultry.

• The recent emergence of Modern Trade such as supermarkets and shopping malls is also supporting growth in the retailing of chilled and frozen poultry products. The investments in the cold chain by these modern retailers are creating channels for the growth of processed poultry.

• To streamline the meat and poultry processing industry and the production of hygienic meat, the government of India launched the National Meat and Poultry Processing Board. The board is raising domestic standards in meat and poultry processing to international levels; developing uniform and effective meat quality testing systems and improving conditions in the wet-market.

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• The National Meat and Poultry Processing Board has a greater role to play in educating consumers about the possible health hazards of chicken bought from a wet market as well as to accelerate the pace of the transition from a live-bird market to a chilled/ frozen poultry product market. This will also be an important factor in the future expansion of broiler production.

Major challenges for processed chicken

The major challenges faced in expanding the processed chicken market in India are:

Consumer awareness: Tremendous growth potential for the Indian broiler industry exists provided consumers are educated on the benefits of processed hygienic poultry products.

• Regulatory and policies for healthy development of the poultry sector: Policies governing from farm to the consumer plate needs to be oriented towards the development of the processed poultry.

• Raising domestic standards to international levels in processing, supply chain management, retailing and delivery.

• Current environmental pollution issues created by slaughterhouse waste materials, especially in large cities and towns. Certain states such as Kerala have taken initiatives to promote a clean environment and new chicken slaughter houses are not allowed within the municipal limits.

• Developing uniform and effective national meat quality testing systems and laboratories.

• Setting up training institutes for workers, technicians and managers in meat processing industries.

• Providing research and development for production and marketing of new value-added meat products for domestic and international markets.

• Government should actively promote and regulate the meat industry for increasing exports. There should be proactive initiatives from the government in creating and promoting Indian brands of healthy poultry products.

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Bottlenecks to growth of processed market

In the other farm products such as grains, fruits and vegetables, processing can be carried into dehydrated dry ambient products and frozen products. But in meat products, the processing can only be done to its best natural form into frozen processed products. Hence a cold chain becomes very critical and a vital link in the development of processed chicken products. From the processing plant to the end consumer’s plate, the development of cold chain depends on the following:

• Stable power supply: Cheaper and uninterrupted power will help to develop cold chain across the length and breadth of the country.

• More governmental support and concessions should be provided to attract the private sector for investments in the cold chain.

• Modern retail development will ensure private sector and FDI involvement in the development of cold chains. Today, the skeletal cold chain is developed only to Tier I and tier II cities, which needs to grow further into smaller towns and only then can the processed poultry products reach the masses.

• Development of retail outlets for frozen/ chilled products: When the frozen products are nearer to the consumer, the acceptability and demand for these products increase. Today any organized supermarket has a cold freezer of about 400 liters and hypermarkets have about 800-1200 liters of cold freezer space, which is grossly insufficient. Hence, there is a large potential in such retail outlets for selling all forms of frozen products.

• Consumer end of the cold chain: For encouraging the full development and growth of the cold chain, it is important for the domestic consumer to have adequate freezer space at home. However, the domestic household penetration of refrigerators is dismally low in India and a majority of Indian households have refrigerators with not more than 200 liters capacity. Of this, the freezer space is just sufficient to keep the daily requirements of dairy products, which results in no freezer space for meat products.

Even in households having more than 400 liters capacity refrigerators, not more than one kg of packaged meat products can be stored at home. In the European and American markets, every household possesses deep freezers of 200 liters for storing frozen products along with the regular refrigerators. Indian markets consider deep freezers as an institutional appliance and not as a domestic appliance.

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Government initiatives

Government should first ensure the uninterrupted supply of power at affordable costs. Only if affordable power is available can the investments in cold chains be attractive. Government should also give priority in power supply to cold chains.

The extant concessions on investments are not attractive enough to any investor. More tax holidays and concessional support in terms of lower sales taxes on frozen product sales and support to the trade in selling frozen products are required. Attractive foreign direct investments into processing plants and cold chain is urgently required.

Till date only two plants have received FDI in poultry processing. The investments in cold chain have been limited only to Snowman Logistics. More FDI will give the necessary momentum to the cold chain industry in the country. Currently, India has no restrictions on FDI in the poultry industry, hence investment opportunities in poultry production and marketing can be much stronger than the opportunities for trade in poultry or feed.

So far, there have only been relatively small amounts of FDI in poultry feeds, production equipment, and processing, and none in poultry breeding or integration. Market price volatility, uncertainty on feed availability, poor power and transport infrastructure, and high taxes on processed food are key disincentives for foreign investment.

Retail initiatives

Indian consumers lack the confidence in chilled or frozen meat because they believe live birds have a better taste and texture. As a result, the Indian broiler sector operates almost completely as a live-bird market. With manual poultry processing accounting for more than 90 per cent of consumption, hygienic slaughtering and proper utilization of byproducts are currently the most important issues in the Indian meat industry.

Regional poultry production and consumption imbalances are also prevalent. The dominance of the live-bird market restricts the movement of poultry because of the high mortality associated
with transporting live birds. Broiler prices are based on the demand and supply in a particular market on any particular day.

A preference for live birds limits broiler meat consumption in markets where poultry consumers are sensitive to price. A number of religious rituals in various regions of India adversely affect meat consumption leading to a significant drop in demand. Negligible sales of frozen products coupled with the limitation in inter regional movement of live birds create volatile broiler market prices.

A shift to mechanical and more hygienic processing is integral to the transition of the broiler industry towards a chilled/ frozenproduct market. Growth in the retail segment is being encouraged by new approaches from poultry integrators, including establishing integratorowned or franchised chilled/ frozen poultry shops, opening sales counters in existing food shops, and home delivery services. The recent emergence of supermarkets and malls is also supporting growth in the retailing of chilled/ frozen poultry products.

Most poultry integrators in India are marketing dressed and chilled products, and ready-to-cook and ready-to-eat products to institutional and retail customers. With the establishment of Hazard Analysis Critical Control Point certified processing plants, many processed chicken brands are becoming popular in urban India. Consumers are paying more attention to quality and hygienic food and the demand for processed meat products is increasing.

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Each of the major player is doing its own bit to creat cold chain to reach nearer to the consumers by creating neighborhood cold freezer outlets to reach the end consumers at their doorsteps. Suguna has created its chain of franchised retail outlets “Suguna Daily Fressh”, which sell chilled and frozen products. Similarly there are outlets of Republic of Chicken from Al-Chemist, Venky’s Express and those from other poultry majors. With each player creating its distribution infrastructure across the country and into the smaller towns, the demand for creation of cold chains and storages is increasing.

Today you can find distributors with small cold storage rooms in smaller towns and this trend will strengthen further. All the leading players are investing into the creation of freezer spaces in independent outlets. Major poultry players should join hands with the white goods manufacturers/ appliances makers to create demand for frozen food appliances such as deep freezers and microwave ovens with a defrost facility.