Charoen Pokphand Indonesia, one of the country’s largest poultry producers, has set $205.1 million in capital expenditure this year to expand its production capacity to meet domestic demand.
Ong Mei Sian, a director at Charoen, told reporters on Wednesday that the company will use half of the funds to finance the expansion of its chicken farm, 25 percent to finance the expansion of its poultry feed facilities and the remaining 25 percent on new chicken plants.
Bank loans will make up $205 million of the financing, while the remainder will come from internal funds.
For the company’s chicken farming, Mei Sian said the company will increase its capacity to 900 million day-old-chickens this year from about 800 million day-old-chickens. She did not elaborate on the poultry feed capacity expansion.
“This year, on processed chicken meat alone, we are increasing 33 percent of our production capacity,” said Ferdiansyah Gunawan, a director at Charoen.
Currently, the company has about 6,000 tons per month of production capacity and predicts an increase to about 8,000 tons after the expansion.
He said a meat processing factory will open in three months in Mojokerto, East Java, a factory near Bandung, West Java and a slaughterhouse in Makassar, South Sulawesi, that will start operation in mid 2014.
“That slaughterhouse in Makassar may eventually be expanded into a food processing facility,” Ferdiansyah said.
Ferdiansyah is optimistic that demand for chicken meat will continue to increase as Indonesia’s middle class rises and as long as the commodity remains the cheapest source of protein.
He said that chicken meat consumption in Indonesia is only about 7.5 kilograms per capita, which is much lower compared to Malaysia that has 18 kilograms per capita.
He expects Indonesia’s consumption to increase to 10 kilograms per capita within the next three years.
Suparman Sastrodimedjo, an independent commissioner at the company said that the government plans to increase fuel price may hurt purchasing power with the possibility of consumers buying less. However, based on the current indicative price of about Rp 6,000 (62 cents) to Rp 6,500 per liter for the subsidized fuel, he said the impact “will not be significant.”
This year, Mei Sian said the company targets its revenue to increase by 15 percent this year from Rp 21.31 trillion last year.
During the first quarter, the company posted a 16 percent increase in revenue to Rp 5.65 trillion from the same period last year, but net income fell by 9 percent to Rp 718 billion. Mei Sian said that was caused by a sharp increase of raw material prices towards the end of last year.
“There was a time lag between the increasing price of raw materials and our sales price increase. But now, the raw material price is normalizing and we have increased our selling price by 10 percent,” she said.