China’s loss making poultry firms vow to limit bird breeding

By Mark Godfrey in Beijing

- Last updated on GMT

Related tags: Livestock, Bird

An executive from one of China’s largest poultry processors has vowed to remove over-capacity from the sector, which he claims was as serious as bird flu in inflicting losses on chicken producers here. Oversupply remains a problem greater than the H7N9, according to Chen Jianhua, secretary of the board at Fujian Sunner Development Co Ltd.

The solution? A new quota system agreed by breeders through the poultry committee of the Animal Husbandry Assocation, which will limit imports of breeder birds to 1.25 million per year.

Industry experts blame an influx of investment into the poultry sector in the 2010-2011 period: Low barriers to entry and lax supervision were to blame, says Liu Qingqing, a meat industry analyst at SCI International, a Chinese commodities research consultancy.

An exodus of previously enthusiastic private investment in the past year has forced poultry firms into bankruptcy, prompting a shake-out and consolidation of the sector. Speaking to local media Chen said the sector had experienced the worst of times…but the worst period is past, it’s now bottoming out."

The China Animal Husbandry Association poultry branch meanwhile points to the 2012-2013 period when imports of progenitor birds for breeding surged to about 1.5 million units- well above the 1.1 million which the organisation believes was appropriate. "This generated a lot of excess commodity chickens".

China’s poultry sector continues to go through significant pain, judging by results for the first quarter of this year issued by leading poultry firms. Four locally listed firms racked up losses of RMB278 million – the biggest portion of that is attributed to Fujian Sunner, which lost RMB116 million (down 50% year on year).

But China’s biggest duck breeder, Henan Huaying Agricultural Development Co., Ltd lost RMB54 million, a massive 11,254% decline in net profits - its biggest drop since the firm’s listing in Shanghai. Other losers: Shandong Yisheng Livestock & Poultry Breeding Co., Ltd. and Shandong Minhe Animal Husbandry Co.

But while the sector still suffers from collapsing consumer demand due to H7N9 avian flu fears the worst may be over, say analysts. That’s based on projections by one of the country’s leading poultry processors. Fujian Sunner has projected losses for the first half of 2014 of RMB60 million: that would mark a significant improvement on 2013 when the loss was RMB233 million, points out Liu Qingqing.

Prices are also recovering thanks to a cut back by poultry farmers, causing a shortage of birds in some key coastal provinces. Data for the end of April from Shandong province shows an improvement underway: in the city of Weifang white feather broilers were selling for RMB4.53/ kg, up 3.0% while in the city of Yantai (also in Shandong province) white feather broiler chicks at RMB3.40 was up 15.3% giving farmers a profit of RMB0.90 per bird.

Poultry breeders on China’s east coast – where most chicken farms are located- have, according to the Animal Husbandry Association, taken RMB2 billion so far this year as the effects of bird flu linger. But there are signs too that investors are buying into an eventual recovery of the sector. Great Wisdom stocks ended last week trading at RMB6.83, 0.18 , 2.71% ) while those of Henan-based Huaying Agriculture at RMB5.19 were up 1.17%.

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