Feed business seen as key profit driver for poultry issuers

Senior Research Analyst at Mirae Asset Sekuritas, Andreas Kristo Saragih, stated that the animal feed business remains the largest profit contributor for poultry issuers amid global commodity price fluctuations. Andreas noted that although the majority of revenue comes from the commercial farming segment, particularly broilers, the feed line is capable of generating higher margins thanks to a flexible business model. “In terms of revenue, the majority indeed comes from commercial farming, especially broilers, at around 50 percent. However, in terms of EBIT or operating profit, the largest contributor actually comes from the feed business,” he said during Mirae Asset Sekuritas’ Media Day event in Jakarta on Tuesday. He explained that the profitability of the feed business is more secure because companies implement a cost-plus business model. Under this scheme, producers can pass on increases in raw material costs to customers through selling price adjustments. Andreas detailed that around 70 percent of feed production costs stem from raw materials. Of that total, approximately 50 percent is corn, while about 20 percent comes from soybean meal. Unlike corn, which is largely sourced domestically, soybean meal still relies on imports from Argentina, Brazil, and the United States, making it sensitive to global commodity price movements and exchange rates. However, when soybean meal prices rise, the US dollar weakens, or corn prices increase, companies are still able to navigate these challenges. “This is what makes the feed business margin relatively more stable,” he said. Beyond cost factors, Andreas also sees the feed business outlook supported by the potential increase in processed food consumption in Indonesia. Referring to a consumption study in South Korea from 1998 to 2022, the contribution of ultra-processed food to people’s diets has continued to rise across all income groups. With increasing urbanisation, lifestyle changes, and demand for convenient food, ultra-processed food consumption is expected to keep growing. “We assess that Indonesia is likely around five to ten years behind South Korea. As processed food consumption increases, the need for animal protein and its supporting supply chain, including the feed industry, also has the potential to continue growing,” Andreas said. This trend is considered a positive catalyst for the processed food industry and the agribusiness sector that supplies raw materials and derivative products. According to him, the combination of the ability to maintain margins through the cost-plus scheme and long-term demand prospects keeps the feed business as the main profit engine for poultry issuers.