Feed business seen as key profit driver for poultry issuers
Jakarta (ANTARA) - Senior Research Analyst at Mirae Asset Sekuritas, Andreas Kristo Saragih, stated that the animal feed business continues to be the largest contributor to profits for poultry issuers amidst fluctuations in global commodity prices.
Andreas noted that although the largest revenue contribution comes from the commercial farming segment, particularly broiler chickens, the feed business line is considered capable of generating higher margins due to its flexible business model.
“In terms of revenue, the majority does indeed come from commercial farmers, specifically broilers, at around 50 percent. However, in terms of EBIT or operating profit, the largest contributor is actually the feed business,” Andreas said during the Mirae Asset Sekuritas Media Day in Jakarta on Tuesday.
According to him, the profitability of the feed business is better maintained because companies implement a cost-plus business model. Under this scheme, producers can pass on increases in raw material costs to customers through adjustments in selling prices.
Andreas explained that approximately 70 percent of feed production costs originate from raw materials. Of that total, about 50 percent is maize, while approximately 20 percent comes from soybean meal.
Unlike maize, 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 rate fluctuations.
However, when soybean meal prices rise, the US dollar weakens, or maize prices increase, companies are still able to navigate these changes.
“That is what makes the feed business margin relatively more stable,” he said.
From a revenue perspective, the commercial farmer segment, particularly broilers, remains the largest contributor, accounting for about 50 percent of issuers’ revenue.
Beyond cost factors, Andreas also sees the prospects for the feed business supported by the potential increase in the consumption of processed foods in Indonesia. Referring to a consumption study in South Korea from 1998–2022, the contribution of ultra-processed food to the public’s diet has continued to increase across all income groups.
As urbanisation, lifestyle changes, and the demand for convenient foods increase, the consumption of ultra-processed food is expected to continue growing.
“We assess that Indonesia is likely about five to ten years behind South Korea. As the consumption of processed foods increases, the need for animal protein and its supporting supply chain, including the feed industry, also has the potential to continue growing,” said Andreas.
This trend is considered a positive catalyst for the processed food industry and the agribusiness sector that supplies raw materials and their derivatives.
In his view, the combination of the ability to maintain margins through the cost-plus scheme and long-term demand prospects ensures that the feed business remains the primary profitability engine for poultry issuers.