The egg industry: Another victim of ad hoc and reactionary policies?

The Government should phase out egg imports, re-impose necessary regulation to prevent disease outbreaks and facilitate feed production and imports, and let the egg industry regain its original competitive status

By Pradeepa Silva and Herath Gunatilake

Relaxed regulation to import eggs

The Government decided to relax regulatory requirements for importing eggs as a solution to shortage of eggs in the market. Until 2022, egg imports to Sri Lanka have been allowed under strict regulatory conditions of the World Health Organization for Animal Health (WOAH/OIE); there should be no records of bird flu in the country of origin. The Ministry of Trade, Commerce and Food Security has recently lowered the standards by allowing the egg imports from the farms with no previous records of bird flu outbreak, irrespective of the country of origin. 

Essentially, relaxing the national regulations from ‘no records of bird flu’ from ‘country’ level to ‘farm’ level with the provisions provided by WOAH/OIE allows importation of eggs from the countries which have had bird flu. The WOAH/OIE provides such a provision when the veterinary authority of the given country declares the ‘no records of bird flu’ status of the farm considering the management practices of the farm relating to biosecurity.

What are the implications of this policy change? The imported eggs are said to be used only in the bakery industry of Sri Lanka, which consumes only about 7% of the total national egg requirement. The decision taken is likely to address meeting the bakery product-demand in the new-year festival season. Feasibility of proper disposal of egg shells to prevent outbreak of bird flu type diseases in the poultry industry may be another reason to restrict the use of imported eggs by the bakery industry.

With the existing poor governance in the country what guarantee can one have to limit the use of imported eggs within the bakery industry?

If there is a price margin (higher prices of locally produced eggs) what prevents bakery owners selling the imported eggs to other consumers? Strict enforcement of the law to use imported eggs by the bakery industry is impossible and eventually any outbreak of disease would kill the already perishing poultry industry. Moreover, Avian influenza or bird flu caused by the influenza A virus, infect humans and initiate another health disaster, particularly while the country is facing acute shortage of medicine.

Flourishing to plummeting egg industry

The egg industry experienced phenomenal growth starting from the mid-1980s. The private sector involvement resulted in a modernised industry through vertical integration from breeder operations to marketing of eggs. The direct and key role players of the industry include eleven (11) layer chicken breeder farms, and around 25,000 commercial farms. These players supplied 3,200 million eggs per annum fulfilling the entire national requirement and contributing to 19% of the livestock GDP. Most importantly, this vibrant industry developed without government subsidies. Achievements in the layer industry were realised owing to the carefully monitored health and sanitary protocols and technical standards. Before 2021, the poultry industry was the only flourishing animal industry in Sri Lanka that was competitive and comparable in quality to global standards. Egg industry supported a large number of families to live above the poverty line and helped significantly reduce malnutrition, especially among children.

The downfall of the industry started with the ban on agro-chemicals. One unintended side effect of this ill-advised policy was drastic reduction of animal feed production in the country. For example, the yields of maize, which is the main ingredient in poultry feeds, have decreased up to 40%, leading to a severe shortage of animal feed for the poultry industry. Supply chain issues during the COVID-19 lockdown and subsequent dollar shortage prevent importation of maize. Unfortunately, animal feed was not in the list of essential items for importation. When markets were functioning, about 65 % of the maize for animal feed was produced in the country and the private sector imported the balance. 

Once COVID-19 and economic crisis hit the country, the Government took control on imports and it miserably failed to pay attention to the poultry feed as an important input to an industry which has serious implications on food security and household income of the poultry farmers and others dependent on the industry. Rubbing salt in the wound, Sri Lanka’s Consumer Affairs Authority banned the use of rice for animal feed in June 2022.

The impact on the industry

Due to the non-availability of poultry feeds and increased cost of production, about 40% of small to medium-scale egg producers have closed their farms during the last two years (2021-2022). It is reported that egg production has reduced by over 40%, which led to the present crisis of shortages of eggs, creating a 36% deficit in egg consumption in 2021. Shortage of eggs, which is the cheapest protein source, would lead to protein malnutrition, especially among children leading to loss of potential human capital in the future. Poor physical health, poor cognitive development, low educational attainment and increased healthcare costs are known repercussions. It has been estimated that the level of consumption of eggs is reduced by around 40% owing to both non-availability of eggs, higher prices and also due to low purchasing power.

It is important to emphasise that small- to medium-scale producers are vital contributors of the egg industry in the country, and a large number find their livelihood within the industry value chain.

Over the years, considerable efforts have been made to bring the industry comparable to world-class level and even up to the level of exporting eggs from Sri Lanka. At present, around 1.5 million stakeholders are involved in the egg industry value chain directly and indirectly and have been in the receiving end of ad hoc policy decisions of banning agricultural chemical imports, banning the use of rice as an animal feed and not removing animal feed from the restricted import list.

The shortage of the supply of feed ingredients such as maize produced in Sri Lanka, and lack of foreign exchange to import maize to fulfil the requirements, the egg industry has suffered multi-fold drawbacks such as: low day-old chick production; higher cost of production of eggs and higher prices; and closing down of medium-and small-scale layer farms. Unlike the poultry meat industry, it would take more than six months for a farmer to re-establish the farm and supply eggs to the market even after the above drawbacks were rectified. Hence, this unfavourable situation should be remedied immediately to avoid an imminent disaster such as a permanent closure of the small- and medium-scale layer operations, thus, increasing the gap between egg production and requirement.

While the authors are sympathetic toward the egg producers, it is a well known fact that some of them attempt to sell eggs at exorbitant prices too. This behaviour was made possible by distortionary policies which broke the equilibrium that existed for years in the egg industry. However, importation of eggs with relaxed regulation comes at a time when the industry is facing lower demand due to the prevailing crisis and higher production cost due to feed shortage. Thus, the decision to import eggs will not bring solutions to any of the problems faced by the industry, though it might provide temporary relief to consumers.

Reactionary vs. Proactive Policy

One may argue as to what is wrong in importing eggs when there is a shortage? As mentioned earlier, the egg industry grew under a competitive environment without government subsidies. Opening the market is fine but the science and policy interface should have been given due consideration. Reckless relaxation of regulations to import from countries with bird flu has the potential for health disasters for the industry as well as humans. Egg importation is happening and its possible health impacts are yet to be seen. Opening the market for eggs, under an optimal regulatory regime could have improved social welfare and efficiency in the local industry under normal circumstances. However, importing cheaper eggs when the poultry industry is struggling with lower purchasing power of consumers and higher cost of production due to feed shortages is akin to local producers playing boxing while hand cups are on. The local egg industry is bound to perish if egg importation continues without solving the feed shortage problem.

What are the lessons to be learnt from this episode of ignoring science and ad hoc policy making?

First, if an industry is running with private sector initiatives without government subsidies, never disturb that industry. It will sustain on its own. Second, if some related policies (like banning agro-chemicals) have potential implications on a related industry, never wait till industry is halfway destroyed to find solutions. Rather than this reactionary policy of importing eggs after realising the shortage, policymakers should have allocated part of the limited foreign reserves to import feed raw materials for the poultry industry and enabled the egg industry to survive during the economic crisis. Instead, the government has chosen “Mahadenamuththa” solution which will kill the goat (egg industry) in the short run. It is highly likely that the pot (egg consumers) will also be broken in the long run. 

Once the egg industry is destroyed, if a monopolistic import market is created (like condensed milk) consumers will bear the cost of this policy. Learning from this bitter reactionary policy measure, the Government should phase out egg imports, re-impose necessary regulation to prevent disease outbreaks and facilitate feed production and imports, and let the egg industry regain its original competitive status. Egg producers who stop their operations should also be given necessary assistance, such as concessionary credit, to re-enter the industry.

Mahadenamutta, ‘the Wise Man’ has been a well-known character in Sri Lankan folklore for a very long time.

(Pradeepa Silva is Senior Professor at the University of Peradeniya and Herath Gunatilake is Executive Director at the Center for Poverty Analysis. The ideas contained are that of the writers and don’t necessarily reflect the view point of CEPA.)