The poultry industry in Oman is at a take-off stage both in terms of size and sophistication
Is it an industry or is it a part of agriculture? The poultry industry in the sultanate faces this existential dilemma. While the jury is still out on the issue, popular opinion veers towards categorising poultry as a part of agriculture. Nasser Abdullah Lashko, chairman, Nasser Lashko Group (the owners of Barka Poultry), says, "We look at poultry as agriculture, rather than an industry."
With the bird flu scare being in the news again, are poultry companies worried about its impact on the market? Ramzi Schumann, general manager, Sohar Poultry, explains, "Bird Flu has been around for 100 years. In 1997, for the first time the disease was transmitted from chickens to humans, but these were in cases where humans were exposed to chickens on small farms in Asia. People who eat chicken have no risk at all. Only those who work or co-habit with chickens in an unhygienic environment are susceptible." Point taken.
Security measures
Large farms like A'Saffa Poultry Farms, Sohar Poultry Farms and Barka Poultry maintain the highest possible safety standards. All these farms maintain a bio-security system in accordance with which everyone who enters the farm needs to take a shower, vehicles entering the farm need to be disinfected and are given only limited access.
Sohar Poultry maintains a temperature of 34 degrees on the day the chickens are born while the day they are slaughtered (after 35 days) the temperature is brought down to 25 degrees. The humidity is maintained at 60 to 70 per cent and big ventilators are used to keep up the air circulation in a closed environment.
The market
The poultry industry can be divided into three kinds of farms. Large farms rear over one million chickens a year. Medium farms rear 100,000 birds a year and small farms or local producers breed 50-100 birds.
The size of the Oman market is around 60mn birds per annum. Of this, frozen chicken dominates the market. Fresh chicken (birds slaughtered in a controlled environment and frozen within an hour) accounts for a paltry 1.5mn birds - 2.5 per cent of the market - while frozen chicken imported from countries like Brazil and other GCC countries with over 40mn birds makes up 65-70 per cent of the market. The rest of the market is taken up by the live chicken sector, where the birds are slaughtered live in a market place. Fresh chicken dominates the market in the US and Europe.
Chicken produced by all the large farms is fresh chicken. These farms slaughter the birds when their temperature is at 35-37 degrees and freeze them to three degrees in an hours time, ensuring that no bacteria grows. At A'Saffa, the temperature is further brought down to minus 18 degrees in the next five to six hours so that they can be stored for up to 12 months.
Nasser al-Mauly, CEO, A'Saffa says, "Not only are live chickens unhygienic, but they are also not the best value for money. A live bird gives you 500 gm of meat for the same price at which one can get a kilo of frozen chicken." The popularity of frozen chicken over fresh chicken is attributed to the cost factor. Frozen chicken imported from Brazil sells at 760bz per kilo, at times even going down to 600bz, compared to RO1 at which fresh chicken is sold. Realising that price is the main barrier for fresh chicken, Sohar Poultry has started selling its brand Rayaf at 840bz.
The cost factor
Frozen chicken from Brazil is lower priced as their cost of production and transportation is low. The major expense of a poultry farm - around 50-70 per cent - is the cost of the feed. Chickens are given a feed consisting primarily of corn and soya. And this has been going up over the last few years. Most farms in Oman import corn from the US and Brazil while soya is imported from India. Mauly says, "Input costs have gone up by 25 per cent in the last year as the cost of soya and corn have shot up in the international market. A depreciating dollar has also added to our costs."
The consumption of chicken in Oman is 40,000-45,000 tonnes per annum, much lower than Saudi Arabia, which consumes 500,000 tonnes a year. The UAE consumes 170,000 tonnes while Lebanon boasts of 70,000-80,000 tonnes of chicken consumption per annum. Lashko says, "There is not much market capacity in the country. The market has been almost stagnant over the last few years."
And most farms are unable to cut down on this cost, as feeds are an indispensable input. A feed conversion ratio (FCR) is used to measure the efficiency of the feed. Mauly explains, "It is the ratio between the feed given and the final weight of a chicken." A high FCR means a less efficient farm. So if one kg feed leads to a chic-ken which weighs 1.5-1.6 kg, it is a good ratio. Some farms in Oman have been able to achieve a bird weight of 2.1 to 2.2 kg per one kilo feed.
Market drawbacks
It is pointed out that the preference for fish and meat over chicken accounts for the low consumption of chicken in the sultanate. Lashko adds, "With people becoming more conscious about their health, it seems they do not want to eat too many eggs."
While these may be true, there are other important factors, which account for the trend. In countries with high chicken consumption, the product mix is more widespread. In Oman most of the chicken is sold as whole chicken, while in countries which have a high per capita consumption of chicken a majority of the chicken sold is in the form of cuts (chicken cut into small pieces). Schumann puts things in perspective. "In Oman 80 per cent of chicken is sold as whole chicken while cuts make up only 20 per cent of the market. In developed countries, the ratio would be exactly the opposite."
The lack of chiller facilities in a number of shops is another impediment in the growth of the fresh chicken market. Mauly says, "Since a number of stores are not equipped to sell chilled chicken, we are forced to sell through supermarkets and hypermarkets limiting our growth." Thus big players like A'Saffa and Sohar Poultry are constrained to sell through retail outlets of Carrefour and Lulu as well as supermarkets like Al Fair, while live chicken sellers dominate the interior markets.
The lack of choice in chicken products is another limitation. For example, in countries like the the US, UAE and Saudi Arabia a large proportion of the sales is in the form of chicken products like nuggets, sausages, burgers and marinated pieces. In Oman these account for a small percentage of the market. Most farms are looking at growing this market aggressively. "The biggest risk in the poultry industry is that we are dealing with life and it has all the constraints associated with agriculture. Being in an environmentally closed system, chickens can die in large numbers due to a number of reasons," says Schumann. This makes hygiene, bio-security and vaccination of paramount importance.
Looking ahead
Despite the attendant limitations, most analysts see the poultry market as a growing one. "If you start a project correctly with the right management, the product will sell itself in the market," says Mauly. The market gives a return of anywhere between 15-20 per cent based on demand, reasonable for a growing market.
Sohar Poultry is looking at contract farming to grow the market and convert live chicken producers into frozen chicken producers. Schumann says, "In the US and Europe large farms have an agreement with a number of small farms wherein the latter breed chickens under the supervision (feed control) and management control of larger farms." The final product is marketed to larger farms. The move is expected to generate a number of jobs while growing the market for fresh chicken.
With the threat of cheap imports looming over the industry, the local industry feels that there is a need for some import restraints. Mauly says, "According to WTO rules, government can take action against subsidised products. The other choice is to add an import tax so that there is a level playing field." Poultry producers have already put across their viewpoint to the government and expect some action soon.
Government support
The government supports poultry farms with a host of measures like monetary support, technical advice and help for exports. A'Saffa was set up as a joint stock company two years back with a soft loan of RO4.4mn from the Ministry of Agriculture and Fisheries and the Ministry of Commerce and Industry. The promoters put in an equity capital of RO5mn. Sohar Poultry, which started operations a couple of months back, has started with an initial investment of RO9mn, with the government giving a subsidised loan of RO4.5mn for the venture.
A'Saffa has a capacity to breed 12mn chickens a year. Sohar Poultry has an overall capacity to breed six million chickens, while Dhofar Poultry has a one million capacity. Amongst the egg farms, Barka Poultry with a capacity of 75mn eggs a year is the market leader. Modern Poultry with its brand Dana is the other major player. Barka exports 35 per cent of its production to the UAE.
Oman as a country still has a huge potential to grow. Mauly says, "Only 25 per cent of the total market potential has been tapped till now." So the remaining 75 per cent is still virgin territory. Are entrepreneurs listening?
by Mayank Singh
businesstoday 2005
