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Monday, October 13, 2003 6:10:06 PM
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An Assessment of the Poultry Broiler Demand in Dhaka, Bangladesh

 

 

 

 

 

Agro-based Industries and Technology Development Project, Phase-II

(ATDP-II)

 

Dr. Scott Thomas, Economist

Dr. Golam Morshed, Poultry & Livestock Consultant

ATDP-II/The Louis Berger Group

April 2002

 

 

Assessment of the Poultry Broiler Demand

in Dhaka, Bangladesh

 

April 2002

 

 

Executive Summary

 

Our estimates of demand for broilers in Dhaka are based on available data on meat production and price trends, cross-checks against other studies and sources, and interviews with industry experts.  Broiler demand in Bangladesh has increased very rapidly during the past decade, from an almost negligible position in 1991, to 70% of chicken meat consumption in 2002.  This has occurred because of dramatic shifts in demand, as well as reduced relative prices for broilers. The market for chicken meat has seen 10% - 15% increases annually in Bangladesh during the past several years, with relatively high prices producing rapid market entry by numerous small producers. More recently, the market has been subject to price declines, which we believe are consistent with market consolidation, including exit by inefficient producers. We estimate that broiler demand in the Dhaka area in 2002 stands at around 30% of the national market, or 60,000 metric tonnes. 

 

There are insufficient data to formally estimate demand equations, and so instead, three scenarios are posited for future market growth from 2003 - 2005.  Under an optimistic scenario, demand for broilers in Dhaka continues to grow at the pace witnessed during the past decade.  This we think is unlikely, because it appears as if market consolidation has already begun.  Under a pessimistic scenario, demand would grow at the rate projected for the population as a whole.  We think this is too low, because it fails to take into account economic growth of more than 5% per year and the ability of producers to offer broilers at relatively moderate prices as compared with substitute protein foods.  Under the most likely scenario, the Dhaka market for broilers increases at the rate of increase of chicken meat nationwide.  This rate - still a growth rate of nearly 10% annually - would amount to an increase in demand of 17,000 MT of broiler demand during the three-year period.

 


 

Demand trends

 

This is an assessment of the demand for broiler chicken meat in the Dhaka area, based on available data and interviews with industry specialists.  The assessment develops estimated trends describing the market for broilers in Dhaka, based on Bangladesh Bureau of Statistics (BBS) annual data from 1991 - 1998.  These were cross-checked against available information from other sources and studies, and from industry experts, to arrive at the best possible estimate of broiler demand in 2002.

 

Demand trends are then forecast through 2005, based on three different growth scenarios. 

 

Time trend data are not available on broiler sales in Dhaka.  What are available are annual BBS data from 1991- 1998 on various types of meat production in Bangladesh as a whole.  These are shown in the following table.

 

Production of Meat in Bangladesh (000 Metric tonnes)

 

 

Period

Chicken/duck

Beef

Buffalo

Goat

Sheep

Total

 

 

1990/91

79.0

140.0

3.0

78.0

2.0

302.0

 

 

1991/92

83.0

141.0

3.0

84.0

2.0

313.0

 

 

1992/93

91.0

144.0

3.0

92.0

2.0

332.0

 

 

1993/94

105.1

189.7

4.6

109.9

2.5

411.7

 

 

1994/95

101.0

147.0

3.0

103.4

2.7

357.0

 

 

1995/96

106.0

148.0

4.0

111.2

2.9

372.0

 

 

1996/97

138.6

325.0

7.0

44.3

3.8

518.8

 

 

1997/98

145.0

330.0

7.0

44.3

4.2

530.4

 

 

 Source:  BBS

 

 

 

 

These official data indicate that demand for chicken and duck increased by nearly 12% on average annually during the period shown.[1]  Based on these growth trends, national demand for chicken and duck are estimated to have risen to 233,000 metric tonnes by 2002.

 

According to interviews with industry experts, demand for broiler chicken has risen much faster than demand for chicken and duck meat as a whole.  This has been caused by, among other things:

 

Demand shifts: 

    • A shift in consumer preferences from local birds and other types of chicken (ie., culled birds, cockerels), which represented 85% - 90% of sales as recently as 1991, toward broilers, which are now estimated to account for 70% of all sales of chicken meat.

                

       

    • Changes in demand for substitutes, caused by (1) a goat epidemic, which decimated goat herds in 1997 - 98;  (2) falling fish harvests due to declining river fish populations;  and (3) recent increases in beef prices. 

Price decreases: 

    • Falling broiler prices, for both dressed and live birds, have occurred since 1999 due to market entry by more producers, and their ability to institute lower production costs. The result is that, by 2002, the price per kilo of broiler meat was about half that for local birds. 

Estimated Dhaka broiler market

 

Our Dhaka area broiler market estimates are based upon the following assumptions: 

    • Chicken meat production is 95% of chicken and duck production.

                

    • Broilers were about 15% of total chicken meat production in 1991, rising to 70% in 2002.

                

    • The Dhaka market for broilers represents 30% of the national market 

These assumptions are derived from interviews with industry experts in Bangladesh, and cross-checked against prior studies.[2] 

 

Utilizing these assumptions, we estimated time trends for broiler sales in the Dhaka area based on the BBS meat production data shown above.  These estimates are shown in the following table.

 

Dhaka Broiler Market Trends  (000 Metric tonnes)

 

 

Year

Sales

% change

 

 

1991

3.4

 

 

 

1992

4.7

40.10%

 

 

1993

6.5

37.00%

 

 

1994

9

38.60%

 

 

1995

10.1

12.10%

 

 

1996

12.1

19.90%

 

 

1997

17.8

47.10%

 

 

1998

20.7

16.20%

 

 

1999

28

35.30%

 

 

2000

36

28.70%

 

 

2001

46.3

28.70%

 

 

2002

59.6

28.70%

We were able to cross-check these results against a survey of broiler sales carried out by a major Bangladesh agribusiness concern.  They contacted all the major sales centers in the Dhaka area in 2000, and based on this they estimated that 120,000 live birds were sold daily.  This amount translates into 32,000 metric tonnes of broiler meat sold in the year 2000.  This estimate excludes main markets, restaurants and state institutions, which might comprise an additional 4,000 metric tonnes in 2000.  Thus their survey is entirely compatible with our estimate.

 

Another major agribusiness concern involved in the broiler market informed us that sales of broiler meat in the Dhaka area comprise at least 60,000 metric tonnes per year in 2002.  


Dhaka broiler market situation

 

The market for broiler chicken meat has been growing extremely rapidly during the past decade, according to available data, interviews with industry experts and other sources.  But as described above, this has been caused principally by demand shifts due to changes in consumer preferences and structural changes in the markets for substitute protein products.

 

The question is, will the market continue to grow as rapidly in the future as it has in the past?  There are several reasons to think it will not.  The main one is that much of the increased demand caused by changes in consumer preferences may have played itself out by now, when it is estimated that sales of broiler meat comprise fully 70% of all chicken meat sales.

 

The principal evidence that the market is beginning to grow more slowly derives from the examination of prices, which have begun to stabilize and, in some months, decline.  The following chart present prices of chicken, eggs and fish, for purposes of comparison.  The chart indicates that nominal prices of broiler chicken and fish have been declining in recent years, while eggs have remained stable.  In real terms, ie., discounted for inflation,  broiler prices are declining. 

 


 

Falling price trends apparently continued into the first quarter of 2002.  This is consistent with information we have heard from field interviews to the effect that prices were quite low in the first three months of 2002, prompting some small producers to keep some of their sheds empty until prices rose.  We were told that average prices for live birds fell to Taka 54 per kg. and that in some spot markets they were lower.  Prices for live birds have returned to around Taka 60 since then. 

 

These price trends may indicate that the market for broilers is already consolidating.  A large number of producers have entered the market during the past few years to take advantage of excellent profit-making opportunities.  But as in any market, eventually production capacity catches up with demand growth and there is a market correction. More efficient producers will be able to continue to produce at lower prices, while inefficient producers will have to exit the market.  This is likely to have been what began to occur earlier this year.

 

Dhaka broiler market trend forecasts

 

There are insufficient data to estimate demand equations for broiler meat formally.  It is also the case that structural changes are occurring in the market for broilers which could not be predicted using econometrics in any case. Under these circumstances, the best means of predicting the future is to utilize trend forecasts based on differing scenarios. 

 

Three forecasts of the market for broiler meat in the Dhaka area are presented in the chart below.  These should be regarded as merely indicative of what may happen in the near future, not as predictions.  In particular, it cannot be predicted exactly when the market for broiler meat will effectively reach saturation point and start to grow more slowly than it has in the past decade.  In the chart below, this begins to occur in the current year, an assumption based on observation of recent price trends.

 

The three forecasts are based on the following scenarios: 

    • Forecast 1 (broiler demand growth trend).  This assumes optimistically that the growth trend in demand for broiler chicken witnessed during the past decade continues unabated for at least three years. 

                

    • Forecast 2 (overall chicken demand growth trend).  This assumes more conservatively that the shifts in demand for broilers described above are played out, and that in the near future, broiler demand will begin to rise at the same rate as has been seen recently in regard to demand for all kinds of chicken. 

                

    • Forecast 3 (population growth rate).  This is a very conservative assumption, under which demand for broilers in the Dhaka area rises only at the rate of increase of the general population (estd. 2.0%).

 

Conclusion

 

We believe that the scenario underpinning Forecast 2 is far more likely to occur during the next three years than the other two scenarios.  This implies that, by 2005, demand for broilers in the Dhaka area will rise from 60,000 metric tones to 77,000 metric tones, a growth rate of nearly 9.8% per year.  During this period, even with slower growth, there will be excellent opportunities for new producers to enter the market. 

 

Nonetheless, one key question for producers has to do with price.  It appears that currently the capacity of producers to supply the Dhaka market either matches or exceeds consumer demand at a price of Taka 60 per kg.  This is likely to mean that a consolidation of the industry is either already underway or imminent.  And that means that prices are likely either to stabilize or weaken, forcing less efficient producers out of the market, and encouraging those that remain to introduce more efficient methods to maintain profitability. 

 

The upshot is that a medium-term plan for producers in this market should consider two variables.  The first is, market fluctuations are inevitable.  Those producers with sufficient retained earnings - or with access to credit - will be in a better position to weather price declines for several production cycles during the year (up to 7 cycles may be anticipated for the average producer). 

 

Second, Taka 60 per kg. may not be a sustainable price in the medium term.  It is more likely that there will be a slight downward trend in prices over the medium term, as competition forces producers either to introduce efficiencies or exit the market.  Prudent producers will anticipate this trend and plan accordingly.

 


[1] There is virtually no importation or exportation of chicken meat in Bangladesh, and so domestic production equals demand.

 

[2] See, in particular, M. M. Khan and H. Bin Husain, 'Macroeconomic (Supply and Demand situation) Analysis of Poultry Sub-Sector,' Khamar:  A Monthly Magazine on Poultry, Livestock & Fisheries, Dhaka, Bangladesh, Jan. 2002.

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