• Small and medium-sized egg and chicken producers face risk of closing operations

Sri Lanka’s poultry sector is teetering on the edge of a crisis, with over 3,000 small and medium-scale poultry farms facing the imminent threat of closure. 

Struggling to cope with soaring production costs, many farmers are being forced to sell off their egg-laying chicks and hens. This dire situation could lead to a significant shortage of eggs in the coming months, as small and medium-sized producers are responsible for nearly 60% of the nation’s egg supply.

The root cause of this crisis lies in escalating production costs, exacerbated by rising input prices and heavy taxation, primarily in the form of an 18% Value-Added Tax (VAT) on poultry feed, which constitutes 75% of the production cost. The sharp rise in costs is placing a heavy burden on the industry, threatening to bring one of Sri Lanka’s most vital agricultural sectors to a halt.

Rising costs

According to industry insiders, the cost of producing an egg has increased to Rs. 32, yet despite a temporary hike in egg prices during the New Year season, producers continue to suffer financial losses. 

The price per egg at the farmgate level briefly rose to Rs. 33 in the past week, with retail prices expected to climb to Rs. 38-42. However, this price surge is not expected to last, as surplus egg production in the country is already driving prices back down.

All-Island Poultry Farmers’ Association President Ajith Gunasekara explained that while eggs were a key source of affordable protein for Sri Lankans, the industry’s sustainability was under severe strain.

“Eggs are one of the main protein-rich food products in Sri Lanka and one of the common and low-cost options to meet protein requirements. But the Government has applied VAT of 18% on poultry feed, which accounts for 75% of the production cost. As a result, the cost of production has skyrocketed, ultimately causing producers to incur heavy financial losses,” he said.

The situation is exacerbated by the fact that no relief has been offered to poultry farmers, even though the Government has provided assistance to other sectors such as agriculture and fisheries.

Gunasekara stressed: “The Government is providing relief for the agriculture sector and fisheries, but we, too, are an important part of agriculture and contribute to the country’s food market. Yet we have not been exempted from any tax at present.”

Poultry production has been a cornerstone of Sri Lanka’s livestock industry for decades, yet the sector faced its greatest challenge in 2022, with the fallout stretching into 2024. Rising production expenses, coupled with shrinking market availability and low consumer affordability, have crippled the industry. 

In 2022, the sector’s vulnerability became painfully evident, with a drastic reduction of egg production, forcing Sri Lanka to import eggs for the first time since 1962. The high production costs also made eggs increasingly out of reach for consumers.

Despite these hardships, the sector remains a critical contributor to the national economy, generating 1.1% of the national Gross Domestic Product (GDP) in 2023, valued at Rs. 21.9 billion, which represents 79% of the total livestock GDP. The industry has significant export potential, thanks to modern technology and strict quality standards, and the country’s advantage of being free from highly pathogenic avian influenza (HPAI).

However, the sector is heavily dependent on imported feed raw materials, such as maize and soybean, making it vulnerable to global market fluctuations. The consequences of this dependence were acutely felt in 2022 and 2023, when supply chain disruptions led to increased feed costs, further burdening farmers.

Broiler and layer sectors

According to the Department of Animal Production and Health, in 2023, Sri Lanka’s broiler sector showed growth, with a 14% increase in total parent bird availability, reaching 1,425,581 birds. Parent bird imports surged by 215%, from 89,836 in 2022 to 282,891, while local production remained steady. 

The production of Day-Old Chicks (DOC) also grew by 3%, totalling 166.78 million, contributing to an 8,000 MT increase in chicken meat production. Forecasts for 2024 predicted a 49% rise in parent bird availability and a 9% increase in DOC production.

Meanwhile, the layer sector, which faced higher demand for DOC due to supply shortages, saw a 38% increase in layer DOC production. Despite these gains, table egg production declined by 2%, as the earlier DOC shortages affected supply. 

In order to stabilise the market, 168.52 million eggs were imported in 2023. However, the industry was expected to rebound in 2024, with a forecast 45% increase in egg production, reaching 2,960.59 million eggs.

Feed production, a vital sector for poultry farming, has been recovering since the economic crisis of 2022. In 2023, total feed production rose by 6%, reaching 1,165,427 MT, and was expected to increase by 5% in 2024. 

However, commercial feed production, which saw a 19% increase in 2023, was predicted to fall by 14% in 2024. The self-mixed feed segment, on the other hand, saw a sharp decline in 2023 but was projected to rebound significantly in 2024.

Despite these gains, the poultry feed sector still faces challenges. Maize production in the Maha season dropped by 16%, while soybean production saw a significant rise. Yet, the country remains reliant on imports for a substantial portion of its feed raw materials. In 2024, it was projected that 473,286 MT of cereals would be required for poultry feed production, with a portion of this being met through rice byproducts.

No changes in taxes

In light of the escalating crisis in the poultry sector, the Government’s response has been lukewarm. 

Treasury Deputy Secretary Ajith Abeysekera firmly stated that there were no plans to revisit taxes sector-wise to provide relief to the poultry industry. “Not just Sri Lanka, but no other country in the world has revisited taxes to save an industry. Instead, there are different aspects that we can look at in order to minimise losses,” he said.