EXPORT OF HATCHING EGGS

By KHALIL A SATTAR
Chairman, Pakistan Poultry Association
May 14 - 20, 2001

The estimated world export trade of eggs in 1999 stood at 7.2 billion eggs; total value being $500 million (Source: USDA). The hatching eggs exports of Netherlands during Jan.-June. '99 (i.e. 6 months) stood at 86.2 million eggs. Out of this, the importing countries of our interest and within our reach are Kuwait, Saudi Arabia, UAE and Libya, who imported approximately 20.34 million eggs during the 6 months' period of a value of 8.28 Dutch Guilders or, $2.09 million, which works-out to approximately $0.16 per egg. These imports are probably 20% of the total annual imports of these countries. The other exporters to these countries are France and India, with India gaining progressively larger share. The potential of exports to Libya, Kuwait, Saudi Arabia, UAE, Malta, Yemen, Muscat and Bangladesh is estimated at over 225 million hatching eggs annually, of a value of approximately $45 million.

Pakistan in the first year, if given the necessary support, could easily take 15% share of this market, i.e. about 34 million hatching eggs valued at $6.75 million. It may further be added that due to various constraints, it is not unusual for countries to face a sudden shortage in their own production; though Iran not a large importer of hatching eggs, went extremely short of eggs in 1997 and Philippines went short of eggs in 1999, their requirements were much larger than the requirements of the countries discussed above.

Constraints

The international trade price of hatching eggs hovers around an FOB price of $0.16 per eggs and the C&F price is $0.20 per egg. However, our cost of production being $0.19 to $0.20 per egg, and packing and forwarding cost of $0.01 and freight cost from Lahore/Islamabad to UAE/Saudi Arabia at an average rate of Rs. 39/- per kg would be $0.04 per egg (Rs 39 x 25 kg/360 eggs/61.00 = $0.04) which would push the C&F cost to $0.25 per egg against the prevailing price of $0.19. Thus at current cost of production and freight cost, there is a loss of $0.6 per egg. In order to be successful in exports, this loss must be replenished.

Exports in the past

During the past export of hatching eggs from Pakistan have taken place at price below cost and only at times when prices of day-old chicks produced from hatching eggs have fallen in the domestic market far below the cost of production and yielding revenue of even less than what is recovered through exports of hatching eggs. Thus exports have not been a regular feature for profits, but only a mean to mitigate losses.

Competitors' edge

In the potential areas for Pakistan, India would be our closest competitor. In competition on quality, we stand as good a chance as India, if not better. However, on the basis of cost of production, India would have an edge over us, and some of the reasons for our higher cost are:

a. Higher Feed Prices:

Poultry feed ingredients to Feed Mills in Pakistan are available at a higher price than to the feed mills in India. Soy Bean Meal (SBM) an essential ingredient of poultry feed, is included in the breeder feed for production of hatching eggs at an average inclusion rate of 25%. SBM which is imported from India is available to Indian feed mills at an equivalent of Pak Rs. 9,850/- per metric ton, whereas, to feed mills in Pakistan, it is available at Rs. 17,000/- per metric ton. This is primarily due to an exorbitant rate of import duty of 35% plus other taxes and costs, and also arbitrary higher valuation by customs for the purpose of import duty. The total impact being about 45%. The cost of other ingredients too are higher than India. Rapeseed Meal and Sunflower Meal are available in India at an equivalent of Pak Rs. 6,160/- and Rs. 6,500/- per metric ton respectively, whereas, in Pakistan, it is available at Rs. 7,500/- and Rs. 9,000/- per metric ton; ex-works, respectively. Other ingredients such as Vitamins, Amino-acids are also available at a higher cost in Pakistan because of import duties. Poultry feed constitutes 65% - 75% of the cost of production of hatching eggs, as such it's cost has a very substantial bearing on the total cost and feasibility of exports. The impact of import duties on all the items given in graph 'D', which are input components in production of hatching eggs, would work out to 2.0 cents per egg, as per detailed in table 'C'. It may be highlighted that none of these items are locally produced.

b. Lower Capacity Utilization:

The cost of production in Pakistan has gone up substantially due to the Marriage Ordinance (Prohibition of Wasteful Expenditure), which has banned serving of food at Marriage related functions as a result of which 40% demand for poultry products has been lost forcing lower production, thereby increasing the cost as a result of increased overhead cost on account of lower capacity utilization.

c. Higher Electricity Tariff:

The electricity tariff in Pakistan is higher than that of India. The electricity tariff for poultry in Pakistan, for some unearthly reasons, is higher than available to any other industry; irrespective of the fact whether poultry unit falls within the same category of consumers or not. For instance, consumers qualifying for B-1 or B-2 tariff, are required to pay 3% and 1% of the total units consumed at commercial tariff A-2 respectively, whereas poultry farms, though qualifying and having B-1 and B-2 connections are required to pay 10% of the total units consumed at commercial tariff A-2. Poultry has been singled out, there is no other industry that is required to pay 10% of the total units consumed at commercial tariff. This penal application unnecessarily increases our cost making us less competitive.

Recommendations

a. Reduction in Cost of Production by a Stroke of a Pen

Since cost of production, being higher than the export price, as described under "Constraints" above, is a major constraint, there is a need to reduce the cost of production if it is desired to have a continuous sizeable export Endeavouring to reduce cost of locally produced feed ingredients to reduce cost of poultry feeds, would be a long-term remote possibility, and in fact, may even not be desirable, as it may end-up as a disincentive to the agricultural crop grower. A reduction of 2.0 cents per egg can be brought about by a stroke of pen by providing all inputs given in 'E', at zero duty, as per worked out in table 'C'.

b. Reduction in Electricity Tariff

A reduction can be brought about by removing anomaly and the penal tariff applicable to poultry. This too requires a store of pen.

c. Controlled Environment Holding Rooms at Airports

Hatching eggs, being live embryos, are required to be held at a temperature of 65oF to maintain quality for hatchability. There being no such facilities at present, there is a need to make the same at Karachi, Lahore and Islamabad airports. We estimate air-conditioning expense of a room of 600 sq ft at approximately Rs. 500,000 for each.

d. Alternate Suggestion to 'ZERO' Rate Import Duty

In case it is not possible to provide all the items under Table 'E' on Zero duty, a rebate/restitution may be paid against export @2.0 cents per egg. This recommendation is based in view of the fact that the hatching eggs producer will, under no circumstances, be able to reconcile th input of tax with the export consignment, as he has no access to the tax paid by upstream producers/importers of items given in table 'E'.

A detailed working has been provided under Annex 'C', which can be confirmed by a technical committee. Since hatching eggs cannot be produced, without the input of these items, upon confirmation of the committee, the same may be given us as rebate/restitution.

We feel quite confident that if above recommendations are accepted, Pakistan's poultry industry could progressively take a larger share of the market. Achieving an export target worth US$50/- million would not be too ambitious a figure it still would be less than 1% of the world exports.

Table: Cost of production of broiler hatching eggs

.

In Rs.

Feed 69 kg @ Rs. 10.44

758.00

Parent Stock Rs. 175/- + 10% Mortality

193.00

Medication/vaccination

92.00

Electricity per pullet

104.00

Labour per pullet

52.00

Other

53.00

Management, Financial, Administration

83.00

Total cost

1,335.00

Average Eggs produced

110.00

Cost per Hatching Eggs

12.14

Cost in US$ (@ Rs.61/-/$)

0.20

 


 

Table: Basis of calculation of duty draw back

1.

Soyabean meal

Rate of duty 35%

H.S. code 2304.000

Exchange rate Rs 61.00

Soyabean Meal consumed in feed per pullet

17.25 kg.

C+F cost of soyabean meal ($200/m.t)

$0.20/kg

C+F price of soyabean meal per pullet (17.25 kg @ $0.20)

$3.45

Duty on Soyabean meal per pullet ($3.45 x 35%)

$1.21

Duty in Rupees per pullet ($1.2075 @ Rs. 61/- per $) = Rs.

73.66

Duty per egg

0.67

2.

Vitamin / mineral / antioxident / growth promoters etc.

Vitamins

H.S. Code 2304

Rate of duty 10%

Mineral

H.S. Code 2602

Rate of duty 10%

Others

Relative head

Rate of duty 10%

3.

Vaccine / medicine / biological etc.

H.S. Code 3003,2000

Rate of duty 10%

4.

Electricity

Detail is self explanatory

5.

Parent stock

H.S. Code 0105.1110

Rate of duty 15%

Cost per P.S.

$2.500

Mortality (10%)

$0.250

Value for Custom ($2.50+0.25)

$2.750

Custom duty ($2.75 x 15%)

$0.413

Duty factor per egg

$0.004

Duty factor per egg in Rs. (0.0039 @ 51.9)

$0.020

6.

Packing materials

Detail is self explanatory

PARAMETERS

*

Parent stock age

0 - 65 weeks

*

Feed consumed /bird

68 kg

*

Soyabean meal incorporation in feed

25%

*

Hen housed hatching produced / pullet

110

*

Hen housed day old chicks produced /pullet

90

1.

Duty draw back

Pak Rs.

US$

Soyabean Meal per Bird

Kg.

17.25

SOYABEAN MEAL USED PER PULLET

Value of Meal @ Rs. 12,200/-

Duty on Soyabean @ 35% per pullet

Rs.

73.660

DUTY FACTOR CALCULATE/HATCHING EGGS

0.670

0.011

2.

Vitamin / Mineral / Antioxidant

Growth promoter etc. (premix)

Value of Premix per kg. feed

Rs.

1.000

Premix used per Pullet

Kg.

1.380

Value of Premix per Pullet

Rs.

69.000

Duty of Premix per Pullet

Rs.

6.900

DUTY FACTOR PER HATCHING EGGS

0.063

0.001

3.

Vaccine Medicine / Biological etc.

Amount used per Pullet Housed

Rs.

92.000

Duty M. Material

Rs.

9.200

DUTY FACTOR PER HATCHING EGGS.

0.084

0.001

4.

Electricity

Electricity units used per Pullet

12.000

Cost of Electrical unit per Pullet

Rs.

72.000

Sales Tax charges per Pullet

Rs.

10.800

SALES TAX FACTOR PER HATCHING EGGS

0.098

0.002

5.

Parent stock

C & F P{rice per P.S.

$

2.500

Duty P.S. Hen Housed

$

0.413

DUTY FACTOR PER HATCHING EGGS

0.229

0.004

6.

Packing Material Egg Boxes

Sales Tax per box 360 eggs

Rs.

8.400

SALES TAX PER EGG

0.022

0.001

7.

Paper Egg Trays

DUTY AND SALES TAX PER TRAY IMPORTED

C & F price $3.00 per 140 Trays

Duty @ 35% & Sales Tax 18% on Duty paid value @ 25 eggs per tray

Rs.

0.770

DUTY & SALES TAX FACTOR PER EGG.

0.030

0.001

Total Duty & Draw Back

1.196

0.020

 


 

Table: List of proposed raw materials to be imported at 'Zero' duty for poultry industry

S.#

Item of import

H.S. Code

Statutory
Rate of Duty

Concessionary
Rate of Duty

Proposed
Rate of Duty

1.

Soya bean meal

2304.0000

35%

31.5%

0%

. . . .

(SAARC Origin)

.

2.

Grandparent Day-old Chicks

0105.1190

15%

-

0%

3.

Vitamins

2936.0000

10%

-

0%

4.

Anti-Coccidials

3003.2000

25%

10%

0%

. . . .

(On Regd. Item)

.

5.

Growth Promoters

3003.2000

10%

-

0%

6.

Vet. Medicines/Vaccines

3003.2000

25%

10%

0%

. . . .

(On Regd. Item)

.

7.

Amino Acids

2922.4100

10%

-

0%

8.

Other Chemicals

Misc.

35%

-

0%

9.

Disinfectants

3808.4019

25%

-

0%