Bangladesh, with its rural and agro-based economy, has always been plagued with problems such as malnutrition, high levels of unemployment, and poverty. With the objective of alleviating the protein deficiency of the people and solving the unemployment problem to some extent, in the last 30 years, private investors have taken up the mantle to address these issues by setting up commercial livestock, fisheries, and poultry farms. The Feed Mill manufacturing industry has grown consequently to provide backward linkage support to the three industries, especially poultry farms which consume the biggest share of the feed industrially produced. With a current turnover of BDT 10,000 Crore and a growth rate of 10% per year, the organized and unorganized feed production industry has a great prospect withstanding some challenges as well, such as: increasing price in raw materials, adulteration of raw materials, lack of quality control in unorganized sector, high import duty of vaccines. Due to high capital intensiveness, feed production is not coping up with the increasing demand and attaining economies of scale has been primary challenge for the industry players.
DEMAND AND SUPPLY DYNAMICS
The major demand driver of the feed industry is the poultry industry and the feed milling industry works as the prime backward linkage industry for these industries. Based on internal estimates, current demand for poultry feed has been estimated to be 5.08 Million MT/year (based on CAGR 10% growth). As the market size and demand for feed are increasing, the demand for the major raw materials, such as: corn, maize, Soy-bean, etc. is also expected to rise. However, since Bangladesh is not self-sufficient in producing these raw materials, it has to import major portions of them from neighboring country India; and rising price of Corn and Soy-bean, due to seasonal variation, creates continuous pressure on the market.
Poultry farms in BD are situated mainly around Dhaka, Chittagong, and Khulna Division which leads to a higher demand for feed in those areas.
Demand for poultry feed decreases around 30% during Nov-Feb and increases during Jul-Sep by 50%III
Among three types of dairies: Rural, Pocket, and Metro, demand for feed is highest in the last category because of the farmers’ comparative affordability and consciousness of nutrition.
Demand for livestock feed stays similar throughout the year with a special pull during later in the year due to Eid-ul-Adha festivals.
Dhaka, Chittagong, and Khulna have the highest percentage (27.57%, 20.27%, 18.58%) of inland water fish production and consequently have the highest demand for fish feed among regions of BD.
Similar to the demand for poultry feed, demand for fisheries feed decreases around 30% during Nov-Feb and increases during Jul-Sep by 50%, as well.
As the livestock and fisheries industry has been growing at a steady rate of 20%IV for the last two decades, the demand for feed has been growing accordingly. However, the supply side has not been able to keep up with the increasing demand. Yearly production of feeds per year is 27,95,040 MTV which is inadequate for meeting demand, which have to be imported directly from India and China.
The local production of feed and the raw materials necessary to produce the feed is still inadequate. For example, only 40% of the corn (one of the most vital raw material necessary to produce the feed) is produced locally, the rest (60%) are imported primarily from India. Another vital raw material soy-bean is also imported from India (60%) and the rest are sourced locally.
Source: Volume 11, Issue 10, IDLC Monthly Business Review, October, 2015
Vaccines and the necessary medicines that are used in the feed are also imported internationally. The millers keep a stock of 3/ 4 months in advance creating a shortage and fix the selling price to distributors by auction which naturally bumps up the price of the feed to the end consumers. As the local producers cannot achieve economies of scale easily, they face a hard time staying in the market and maintaining a check on the big players.
Figure: Value Chain of Feed Industry
The top industrial producers (CP, Paragon, Aftab, Quality and Kazi) meet 50% of total estimated feed demand of 240,000 MT/month, while the other 50% is met by home mix producers (25%) and low quality local level producers (25%). However, there is a major difference in quality between the two different forms of feed since home mix producers and local producers do not hire expert supervision or add the necessary additives or vitamins and in some instances the raw materials, such as: maize and soy-bean are beyond expiry dates contributing to lower quality.
The industry trend is shifting towards relatively higher-priced balanced feed manufactured by mechanized feed millers due to high feed conversion ratio that leads to a greater commercial benefit. Increased demand from the ready-mix feed segment is causing the decline of home-mix feed market and exit of smaller, low quality producers having lower economies of scale.
Among the major feed mill companies in Bangladesh, Agro Industrial Trust, Rupsha Poultry Feeds Ltd., BRAC Poultry Feeds Ltd., Paragon Poultry Feeds Ltd., Surma Poultry Feeds Ltd., Kazi Poultry Feeds Ltd., Provita Feeds Ltd., Aftab Bohumuki Farms Ltd., Narish Poultry Feeds Ltd., Saudi-Bangla Fish Feed Ltd., New Hope Feed Ltd., Aman Feeds Ltd. are the major players. In a capital-intensive industry such as this, small local players are facing a high entry barrier because achieving economies of scale is very difficult.
The growth opportunities for the feed market is immense. Feed market works as the backward linkage of the poultry, livestock, and fisheries industries. According to DLS (Department of Livestock services), the average growth rate for the poultry industry has been 3.62% over the last ten years, whereas the combined growth rate for the three industries is 3.49%, and it is forecasted to grow at this steady rate in foreseeable future, which leads to the understanding that the market for the feed industry will continue to grow as well. The major portion of the increasing demand will have to be met by mechanized feed millers whereas the home-mix producers will have to take care of the rest. Ban on importing livestock from India might have a positive impact on demand for feed as domestic cattle farms will have to be built to offset its effect.
Our average protein intake is 4.5 kg per person per year, whereas the number for Pakistan, India, and Sri Lanka is respectively 38kg, 16kg, 12kg.VI However, the disposable income of the people of this country is on the rise and so is the demand for protein. This increase in demand will boost up the production of poultry, cattle, fisheries and consequently, the demand for feed. As the industry experts all agree that the market is increasing in size at a minimum 10%-15% per annum, more players are entering the market for higher profit opportunities. Accounting for challenges such as: industry & market risks, increasing Raw Material Price, variability of demand with respect to seasons, technological innovation, changes in government and global policies, and operational risks, this market is expected to become more lucrative in the coming years.
Kazi Ahmed Arif Fuad is a Junior Associate at LightCastle Partners. For further queries and clarifications, contact us here: [email protected]
[i] Page 3, volume 11, issue 10, IDLC Monthly Business Review, October, 2015
II Page 11, volume 11, issue 10, IDLC Monthly Business Review, October, 2015
III Page 3, volume 11, issue 10, IDLC Monthly Business Review, October, 2015
IV Page 10, volume 11, issue 10, IDLC Monthly Business Review, October, 2015
V Poultry Khamar Bichitra, 2015. Poultry business directory, 2015. Poultry Khamar Bichitra, Dhaka, Bangladesh. http://www.poultrykhamarbichitra.com/mg/Directory-2015Part-A.pdf
VI World Health Organization (WHO), 2015