Publicly listed poultry company PT Japfa Comfeed Indonesia has decided to scale down the firm'€™s operations as a sluggish market continues to hit its sales.

The company'€™s vice president director, Bambang Budi Hendarto, said in Jakarta on Tuesday that the company would cut down its capital expenditure for this year, mostly that allocated for production and expansion plans, by up to 50 percent, down to Rp 760 billion (US$58.6 million) from Rp 1.6 trillion in the previous year, as there have been no signs of recovery in the day-old chicken (DOC) and feed markets.

Bambang said that an oversupply has severely hit the local DOC market as the demand for chickens from customers had yet to show an improvement. With such a situation, DOC and other broiler prices remained depressed, resulting in a decline in the company'€™s profit margins, especially in the poultry breeding unit.

He said that luckily the company'€™s feed division still generated stable profits, helping the company to reduce the losses suffered by the breeding division.

The publicly listed company'€™s net sales rose by 14.2 percent to Rp 24.5 trillion in 2014 from Rp 21.4 trillion in 2013, but net profits declined by about 40 percent to Rp 385 billion from Rp 641 billion in 2013.

The feed division contributed about 50 percent of the total sales, cattle operations and consumers products about 28 percent, while the remainder came from other divisions, including aquaculture, trading, cattle farms and DOC production.

Besides cutting its expenditures, the company also intends to decrease its imports of raw materials to 15 percent and to boost the use of local corn and soybean. The company previously imported at least 800,000 tons of corn as the main ingredient for its feed division. This year, the company will only import about 700,000 tons.

Although several companies are still under pressure by the sluggish market, analysts have estimated that the country'€™s poultry industry would enjoy a more favorable business environment this year with lower commodity prices and the lifting of Japan'€™s ban on the importation of processed chicken from Indonesia, according to analysts.

Bahana Securities analyst Michael W. Setjoadi said recently that lower corn and soybean prices would help offset the adverse impact of the depreciation of the rupiah for the sector, in which 80 percent of the cost of goods sold (COGS) go to imports.

In addition to the drop in commodity prices, the country'€™s poultry industry would likely also benefit from the stabilized prices of day-old chicks (DOC) and broilers, UOB Kay Hian analyst Franky Kumendong stated.

'€œFurther support should come from Japan, with about 10 percent of global broiler chicken imports,'€ Bahana Securities'€™ Michael said.

Japan was showing more interest in importing poultry products from Indonesia because of the poor quality of Chinese broilers, he added.

The Agriculture Ministry'€™s director general for livestock, Syukur Irwanto, meanwhile, said that Japan'€™s authorities had lifted the ban on processed chicken imports from Indonesia in November last year.

'€œThis is a fundamental change [for the poultry industry]. This is the first time we can start exporting our processed chicken products after a ban that lasted around 10 years,'€ he said. (ind).

Popular

Trump and Musk sit side-by-side, months after messy split

ASEAN-centered trade bloc looks to expand, upgrade deal

Jakarta’s ‘invisible’ lives: Undocumented coastal children denied basic rights