T

he emergence of a new type of avian influenza (AI) in Central Java at the end of 2012 has spread throughout Java recently. Until today, more than 300,000 dead-duck cases have been reported by farms all over Java. However, the AI does not affect chickens since it is a different AI strain from the one infecting chickens.

Additionally, with tight bio-security and vaccined chickens, we believe AI, known informally as avian flu or bird flu, is a managed risk within the poultry sector, particularly for the larger and more technologically advanced companies. Nevertheless, it is possible that consumption may come down during an outbreak given public fear of contagion effect from AI.

Another recent positive factor is the government’s statement that subsidized fuel price hike will be their last resort to limit subsidies. This will mean continued growth for Indonesia’s chicken consumption on contained inflationary pressures and preserved consumer purchasing power. However, if the government were to go through with their fuel price hike this year, chicken consumption would only decrease temporarily. Exhibit 3 shows that Indonesia’s chicken consumption had historically contracted just 5 percent y-y in 2005 on fuel price hike, before experiencing a 12 percent y-y rebound in 2006.

The government’s minimum wage hikes across all provinces by an average 21.8 percent (exhibit 1), the highest increase since 2002, will positively impact the poultry sector.

In line with higher wages, chicken consumption will rise as chicken remains as one of the cheapest protein sources available, compared to beef and fish (exhibit 2).

Additionally, with Indonesia’s still low chicken consumption per capita of 6.3kg per annum, compared to neighboring countries like Thailand (12.5kg) and the Philippines (8.4kg), we see robust chicken consumption growth ahead, in tandem with higher GDP per capita.

The writer is an analyst at PT Bahana Securities.