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Total Quality Management in Management of Poultry Industry - A Study

Demonstrate knowledge of compliance issues and their implications in the poultry industry

Contents

1. Indian Poultry Industry Through the ages


2. Present Scenario

3. Present Consumption

4. SWOT Analysis of Indian Poultry Industry

4.1. Strengths

4.2. Weaknesses

4.3. Opportunities of Growth

4.4. Threats

5. Latest Trends in Poultry Industry

5.1. Designer Eggs

5.1.a. Omega-3 eggs

5.1.b. Eggs with lower saturated fat and cholesterol

5.1.c. Cage-free or free-roaming eggs

5.1.d. Organic eggs

5.2. Computing poultry ration on day to day basis

6. Recommendations

7. References

8. Annexures

STATEMENT OF THE PROBLEM


OBJECTIVES OF THE STUDY

1. Introduction
Intense global competition and diminishing trade barriers are making it more and
more difficult for companies to maintain their market share. Competition from companies
operating in different markets has increased as advancements in telecommunications and
information technology have broken down traditional barriers to entry.
In a competitive environment, a business must persuade a customer to buy its
products rather than those of competitors at a price that is more than its cost of production.
A rational customer, however, would like to maximize value for his money. Therefore, a
successful producer must enhance the total value of his products so that the price is
acceptable to the customer while his own costs are low enough to allow him to make a
profit.
Total quality management (TQM) is all about fostering a culture that is
continuously oriented towards increasing customer satisfaction while minimizing the real
cost of production.
Increasing competition in the global market necessitates that productivity should
not be considered as an indicator of efficiency only; it must also measure effectiveness. Yet
the distinction between the two is often overlooked. For example, a company that produces
7
according to process specifications may be using its resources efficiently, but unless it is
producing what its customers want it may not be using them effectively. To be profitable, a
company must judge productivity and value from the perspective of the customer, not from
the engineer.
Older manufacturing facilities are often faced with productivity challenges due to
their inflexible designs. The application of some of the principles of lean manufacturing is
more restricted in such a setting. Today, ``lean'' may no longer be fashionable but its core
principles flow, value, pull, minimizing waste etc.) have become the paradigm for many
manufacturing (and service) operations. In order to provide a platform for establishing the
long-term competitive impact of the lean production model, the paper then develops a
theoretical construct explaining the mechanisms that underpin sustainable competitive
advantage.
2. Total Quality Management model and productivity
A simple model for TQM is depicted in Figure 1. The model consists of two main
components:
TQM philosophy;
TQM systems and tools.
TQM cannot exist without a complete acceptance of its philosophy by at least the
top management. Once the basic TQM philosophy is accepted by the top management then
different systems and tools can be initiated to propagate and facilitate a culture based on
such a philosophy.
TQM philosophy consists of four basic beliefs, which are as follows:
absolute customer focus;
employee empowerment, involvement and ownership;
continuous improvement;
the use of systematic approaches to management.
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INCREASING PRODUCTIVITY BY TOTAL QUALITY MANAGEMENT AND
CONSTRAINT MANAGEMENT
Prof. Marius-Dan DALOT!, Ph.D.
Romanian-American University
1B, Expozi&iei Avenue, Sector 1, Bucharest
dalota.marius.dan@profesor.rau.ro
Abstract:
The paper argues that the total quality management concept and its
implementation is the critical need for the survival of industries. In the meantime, lean
manufacturing and constraint management could work together to improve productivity,
efficiency and quality. The article discusses the environment in which businesses are
operating, the effect of the total quality management on productivity and presents some of
the benefits that were realized by implementing total quality management. Direct benefits
from combining the concepts of lean manufacturing and constrained management during
the productivity improvement process by using automation reduce production cycle times
by more effectively designing and scheduling the movement of robots. The ultimate goal is
to satisfy customers demand. The paper discusses how constrained management
substantially increases production.
Keywords: Productivity; Performance management; Total quality management;
Constraint management; Lean production.
JEL Classification: M10
1. Introduction
Intense global competition and diminishing trade barriers are making it more and
more difficult for companies to maintain their market share. Competition from companies
operating in different markets has increased as advancements in telecommunications and
information technology have broken down traditional barriers to entry.
In a competitive environment, a business must persuade a customer to buy its
products rather than those of competitors at a price that is more than its cost of production.
A rational customer, however, would like to maximize value for his money. Therefore, a
successful producer must enhance the total value of his products so that the price is
acceptable to the customer while his own costs are low enough to allow him to make a
profit.
Total quality management (TQM) is all about fostering a culture that is
continuously oriented towards increasing customer satisfaction while minimizing the real
cost of production.
Increasing competition in the global market necessitates that productivity should
not be considered as an indicator of efficiency only; it must also measure effectiveness. Yet
the distinction between the two is often overlooked. For example, a company that produces
7
according to process specifications may be using its resources efficiently, but unless it is
producing what its customers want it may not be using them effectively. To be profitable, a
company must judge productivity and value from the perspective of the customer, not from
the engineer.
Older manufacturing facilities are often faced with productivity challenges due to
their inflexible designs. The application of some of the principles of lean manufacturing is
more restricted in such a setting. Today, ``lean'' may no longer be fashionable but its core
principles flow, value, pull, minimizing waste etc.) have become the paradigm for many
manufacturing (and service) operations. In order to provide a platform for establishing the
long-term competitive impact of the lean production model, the paper then develops a
theoretical construct explaining the mechanisms that underpin sustainable competitive
advantage.
2. Total Quality Management model and productivity
A simple model for TQM is depicted in Figure 1. The model consists of two main
components:
TQM philosophy;
TQM systems and tools.
TQM cannot exist without a complete acceptance of its philosophy by at least the
top management. Once the basic TQM philosophy is accepted by the top management then
different systems and tools can be initiated to propagate and facilitate a culture based on
such a philosophy.
TQM philosophy consists of four basic beliefs, which are as follows:
absolute customer focus;
employee empowerment, involvement and ownership;
continuous improvement;
the use of systematic approaches to management.
8
In 1984, Garvin has proposed the following five approaches to defining quality:
The transcendent approach is the philosophic concept of ``innate
excellence'', which is both absolute and universally recognized through
experience.
The product-based approach focuses on the quantity of some ingredient
or attribute possessed by a product. Like the amount of cream in ice
cream, it can be assessed objectively and is based on more than
preferences alone.
The user-based approach begins with the premise that quality ``lies in the
eyes of the beholder''. It is subjective and motivated and rooted in
consumer preferences.
The manufacturing-based approach focuses on engineering and
manufacturing practices. It identifies quality as ``conformance to
requirements'', and it is equated with meeting specifications or making a
product right the first time.
The value-based approach defines quality in terms of costs and prices.
Quality provides performance at an acceptable price. The phrase
``affordable excellence'' summarizes the dilemma.
This particular definition of quality is also presented in the pictorial form in Figure 2.
Fig. 2: Five approaches to defining quality

The possible critical factors that can cause the failure of productivity improvement
programs are the following:
Lack of incentives or appropriate regards (or disincentives).
Insufficient capital for improvement plant and equipment.
Poor employee relations.
Poor relationship with union leaders.
Insufficient awareness by engineering of the manufacturing implications
of product and process designs.
Insufficient investment in workforce training.
Poor financial controls and/or information systems.
Weak middle managers.
Decline of the work ethic.
Weakness in industrial and manufacturing engineering.
Weak first-line supervision.
Poor communication organization-wide.
A piecemeal, unplanned approach to improving productivity.
Inadequate/ineffective coordination among departments or functional
areas (excessive functional of departmental autonomy).
Uncooperative union leadership.
Poorly trained supervisory personnel in the area of productivity related
problems.
Programs that just cannot be implemented.
10
Insufficient investment in management and supervisor training and
development.
Lukewarm commitment and involvement by top management.
Lack of loyal, skilled workforce.

3. Constraint management, Lean production and the competitive advantage


relationships
Constraints management is a process of continuous improvement at the system
level. It improves overall productivity by focusing efforts on improving operations at
bottleneck resources.
Productivity is a measure of how effectively resources are used to produce various
goods or services. Productivity is increased by producing more with the same amount of
resources or by producing the same amount with fewer resources. Bottleneck is a resource
that limits or constraints the capacity or maximum output of the process. If you work on
improving productivity on operations other than the bottlenecks, the only result you would
get is frustration. The goal is to increase productivity by eliminating bottlenecks. We can't
completely eliminate bottlenecks. When specialists eliminate one, and as the process
speeds up in response, another operation or resource functions as a new bottleneck. The
bottleneck reduces productivity and creates both blockage and starvation in the productive
system. The blockage or excess inventory occurs at resources prior to the bottleneck, and
the starvation occurs at operations after the bottleneck.
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The constraint management views organization as a chain of dependent
activities/functions and includes the following items:
Finding constraints and collecting data.
Reducing volume losses.
Reducing wastes.
Having a clear goal.
Reducing volume variation.
The process is also represented in the flow chart in Figure 3.
Fig. 3: Constraint management (Source: Shahram Taj, Lismar Berro, op.cit.)
The first step is to set the goal. The goal is to safely build the maximum number of
good parts each hour, at minimum cost. Setting the goal involves the six steps below:
1. Define the system.
2. Identify the system's constraint.
3. Decide how to exploit the system's constraint.
4. Subordinate everything else to the decisions made in Step 3.
5. Elevate the system's constraint.
The term lean manufacturing or lean production were first used by Womack
in 1990 in their historical book The Machine That Changed the World. The lean
manufacturing describes the profound revolution that was initiated by the Toyota
production system against mass production system.
12
Lean means manufacturing without waste. Waste is anything other than
minimum amount of equipment, materials, parts, and working time that are absolutely
essential to production. The lean approach is focused on systematically reducing waste in
the value stream. The waste concept includes all possible defective work/activities, not only
defective products. Waste can be classified in eight categories:
1. Motion: movement of people that does not add value.
2. Waiting: idle time created when material, information, people or
equipment is not ready.
3. Correction: work that contains defects, errors, rework mistakes or lacks
something necessary.
4. Over-processing: effort that adds no value from the customer's
viewpoint.
5. Over-production: producing more than the customer needs right now.
6. Transportation: movement of product that does not add value.
7. Inventory: more materials, parts or products on hand than the customer
needs.
8. Knowledge: people doing the work are not confident about the best way
to perform tasks.
Most companies waste 70 percent-90 percent of their available resources. Even the
best lean manufacturers probably waste 30 percent. Interestingly, every company has to
find its own way to implement the lean method: there is no universal way that will apply to
all. Despite the wide knowledge and available resources, many companies are struggling to
stay lean.
Competitive advantage can be defined as the result of a business being either a
particularly able player in its market (i.e. being better, which could mean being lower cost
or more lean) and/or, being differentiated in what it offers. In order to build a useful
construct to explain how competitive advantage is created and sustained, and in order to
build directly upon the previous discussion of lean production, another input (resources),
transformation (process) and outcome (competitive advantage) model will provide the basic
structure of our discussions. Figure 2 presents this model in more detail, illustrating how
resources are deployed in business processes to create competitive advantage.
Although both the lean production and sustainable competitive advantage models
are illustrated using basic transformation representations there are some key distinctions
between them. In exploring these distinctions we will develop the secondary set of research
propositions that will guide the empirical work.
Sustainable competitive advantage, lean production and the competitive
environment (Figure 4) illustrates how sustainable competitive advantage comes into being
through the dynamic interplay between a firm and its external environment.
Certain resources can be strategic, but only if they cannot be copied or replaced by
external rivals. Equally, firms need not directly own strategic resources (i.e. when
developing manufacturing processes, resources that have competitive significance are
often owned by suppliers). Similarly, all critical value creating processes stretch beyond
the boundaries of the firm, involving actual and potential customers, and successful
outcomes are only meaningful if they make the firm better and/or different. Although the
lean production model also stresses the generic importance of customers and suppliers, the
attempt to create a series of ``operating principles'' has required advocates to downplay the
significance of the interaction between specific internal and environmental contexts. It is
important to relate all lean production/sustainable competitive advantage findings to the
specific external context of the firm. The success of lean production in delivering
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sustainable competitive advantage will be contingent upon the external context of the firm
(see P3).
Contextual factors might include: type of market (competitor activity, different
demand profiles); dominant technology in sector; supply chain structure etc.
The sustainable competitive advantage model argues that resources (skilled staff,
market information, technological data etc.) create value when enacted in processes. In
turn, these processes allow the organization to learn and thereby create new (or
reinforce/extend existing) resources. When allied to the concepts of customer value stream
and market pull, lean production suggests a very neat model of information and material
flow. If the firm's competitive environment remains stable and modifies only slowly over
time, then sustainable competitive advantage should be delivered through such adaptation.
The final research proposition will explore the relationship between learning and lean
production.
The more successfully any firm applies lean production principles, the less it will
engage in general innovative activity (see P4). The firm will focus instead upon
continuously improving existing processes and adopting incremental changes.
Unfortunately, more and more markets are changing rapidly and the lean production view
of continuous improvement might be trading short-term performance advantage for longterm
viability.
Fig. 4: Sustainable competitive advantage, lean production and the competitive
environment relationships (Source: Michael A. Lewis, op.cit.)
14
Constrained management and lean manufacturing and are complementary to each
other, generating a great synergy when implemented together. They have played an
essential role in improving productivity and competitive positioning in recent years. The
first one is designed to improve system's throughput. The second methodology improves
the manufacturing processes through the elimination of waste and continuous
improvement. This requires a total cultural change towards lean thinking, identification and
quantification of non-value and value added activities. The transformation requires
everyone's participation and training.
While both initiatives are very effective, it is the clear understanding of their
complementary interaction that fosters the synergy between them, avoids rework and
ultimately gets both initiatives working in conjunction towards common objectives. Many
companies have attempted one of these improvement strategies, some companies have tried
both, but few have integrated the two practices into a single approach for achieving
continual improvement. Managing constraints are extremely critical in a lean or cellular
environment due to very small or no buffering in the process.
Constrained management has been traditionally applied in a batch and queue type
operations, but not in a lean manufacturing environment. In a lean environment, all
operations are running at the same takt time with no or very small buffering among them.
This creates a very low margin for errors; therefore as soon as a resource becomes
bottleneck, it immediately reduces the throughput.
4. Conclusions
Considering the current state of global competition, it is imperative for companies
to develop a customer-focused culture as soon as possible. This would ensure that their
resources are efficiently and effectively utilized to produce only those products and
services which the customer wants and is willing to pay a premium price for.
Before any of this can be achieved, the management of organizations will have to
fully understand and believe in the total quality philosophy without which achievement of
maximum benefits would not be possible no matter how many material resources are
invested. The systems and tools cannot promise significant or sustainable results without
the visible commitment of the top management to the TQM philosophy.
Looking at the experience of companies both local and international, which have
implemented TQM successfully, there is little doubt that the Total Quality culture if applied
correctly yields significantly better results in all the performance categories of financial
results, customer satisfaction, and employee satisfaction. TQM also provides a long term
sustainable competitive advantage in an increasingly competitive global market.
TQM is a paradigm shift from a reactive culture to a proactive one with the
overriding emphasis on delighting the customer. Involvement and empowerment of every
single employee within the organization - from the most humble to the most powerful is
essential in order to develop ownership of the culture and to stem conflict of interest. As
the scope is company wide, everyone is responsible for ensuring quality.
In this paper we also discussed how lean manufacturing and constraint
management could work together to improve productivity, efficiency and quality. With the
best practice guidelines being applied in manufacturing companies, the following benefits
are possible:
Reducing production inventory and improve supplier performance: with
pull-based tracking and replenishment.
15
Increase yield and reduce scrap: by having operators use the most
current work instructions, and ensuring they are cross-trained and
certified.
Enabling continuous process improvement: with a structured approach
to identifying, tracking, resolving, and measuring issues and incidents.
Speeding decision making and problem resolution: with real-time
process control, analytics and event management.
Driving business change through metrics: to measure and eliminate nonvalue-
add, and to validate continuous process improvements.
It is important that lean improvement principles and tools that focus on waste
elimination and process speed; constrained management that focuses on increasing
throughput, plus a financial screening rigor for projects; and productivity improvement in
the organization's cultural focus and creation of accountability, energy, and ownership
through a new structure and set of principles. The ultimate goal is to satisfy customer
demand.
Bibliography:
[1.] Dalot$ Marius-Dan, Small and medium enterprises growth and new technologies
implementation, Romanian Economic and Business Review, Vol.7, no.2, 2011
[2.] Khan Jamshed H., Impact of total quality management on productivity, The
TQM Magazine, Volume 15 Number 6, 2003 pp. 374-380
[3.] Juran, J.M. Jurans New Quality Roadmap, Free Press, New York, 1988
[4.] Hoffman Joyce M., Mehra Satish, Operationalizing productivity improvement
programs through total quality management, International Journal of Quality &
Reliability Management, Volume 16 Number 1 1999 pp. 72-84
[5.] Gunasekaran A., Goyal S. K., Martikainen T., Yli-Olli P., Total quality
management: a new perspective for improving quality and productivity,
International Journal of Quality & Reliability Management, Vol. 15 No. 8/9, 1998,
pp. 947-968.
[6.] Taj Shahram, Berro Lismar, Application of constrained management and lean
manufacturing in developing best practices for productivity improvement in an
auto-assembly plant, International Journal of Productivity and Performance
Management, Vol. 55 No. 3/4, 2006, pp. 332-345
[7.] Womack, J., Jones, D. Ross, D., The Machine that Changed the World, Edit.
Rawson Associates, New York, 1990
[8.] Michael A. Lewis, Lean production and sustainable competitive advantage,
International Journal of Operations & Production Management, Vol. 20 No. 8,
2000, pp. 959-978

Summary

MANAGEMENT OF CONTRACT FARMING IN


LIVESTOCK : A CASE OF POULTRY INDUSTRY
Thesis submitted to the
University of Agricultural Sciences, Dharwad
In partial fulfillment of the requirements for the
Degree of
MASTER OF BUSINESS ADMINISTRATION (AGRIBUSINESS)
By
SHIRAZ ZAKIR
DEPARTMENT OF AGRIBUSINESS MANAGEMENT
COLLEGE OF AGRICULTURE, DHARWAD
UNIVERSITY OF AGRICULTURAL SCIENCES,
DHARWAD 580 005
MAY, 2008
ADVISORY COMMITTEE
DHARWAD (BASAVARAJ BANAKAR)
OCTOBER, 2008 MAJOR ADVISOR
Approved by :
Chai rman : ________________________
(BASAVARAJ BANAKAR)
Members : 1.
________________________
(L. B. KUNNAL)
2.
________________________
(R. A. YELEDHALLI)
3.
________________________
(S. N. HANCHINAL)
4.
________________________
(Y. N. HAVALDAR)
CONTENTS
Chapter
No.
Title
I. INTRODUCTION
II. REVIEW OF LITERATURE
III. METHODOLOGY
IV. RESULTS
V. DISCUSSION
VI. SUMMARY AND POLICY IMPLICATIONS
VII. REFERENCES
LIST OF TABLES
Table
No.
Title
4.1 General characteristics of sample poultry farmers
4.2 Factors influencing farmers to be in contract in poultry farming and extracted
dimensions of Principal components
4.3 Variables with relatively higher factor loadings in different dimensions on the
factors influencing farmers to be in contract in poultry farming
4.4 Factors considered by the farmers for not going into any contract in poultry
farming and extracted dimensions of principal components
4.5 Variables with relatively higher factor loadings in different dimensions on the
factors considered by the farmers for not going into any contract in poultry
farming
4.6 Factors considered by the firms to award the poultry contracts
4.7 Total value of inputs procured by contract farmers from the contract firm
4.8 Total value of inputs procured by non-contract farmers in the market
4.9 Source of inputs procurement by non-contract farmers
4.10 Costs in poultry production by Contract and non-contract Farmers
4.11 Marketing Channels of broilers by non-contract farmers
4.12 Average quantity of broilers marketed and returns obtained per batch under
different marketing channels by non-contract farmers
4.13 Costs and Returns structure in poultry production of contract and non-contract
farmers
4.14 Aggregation of Clusters of Various Problems faced by the Contract Poultry
Farmers
4.15 Aggregation of Clusters of Various Problems faced by the Non-contract
Poultry Farmers
4.16 Problems faced by the Integrators/ Contracting firms
LIST OF FIGURES
Figure
No.
Title
1 Map of Karnataka state showing the study area
I. INTRODUCTION
FUTURE PROSPECTS OF CONTRACT POULTRY FARMING IN
INDIA : POST WTO AGREEMENT
The new regime would lead to reckless cheap imports leading to a glut in the
domestic market, and unremunerative prices to local producers and finally this situation may
force them to pack up and leave the field. The domestic industry is price competitive only in
case of eggs, and when one talks about the other aspects we are in no way near the circle of
either trade or exports. This ugly condition is the major face of our poultry industry that can be
attributed to its structure and which can never be compared to any other developed nations.
The big difference is in the size of poultry farms operated here and aboard i.e., in terms of
flock size and capacity, other aspects include the costs of feed, market delicacies, processing
facilities and farm subsidies. This is the flipper side of the coin.
When we look at the brighter side, the future looks quite promising. Here is the plinth
where contract farming can serve as a definitive bricks, thanks to the increasing
consciousness about food safety among the rising middle class population with rising
disposable income and the food safety requirements.
As the economy grows, there will be an increase in the number of people with high
disposable income and general consciousness about quality and health who will demand food
products of certain specifications.
Further developed countries prescribe specific standards of quality for import of
Agriculture commodities and processed food from developing countries. The WTO
agreements on sanitary and phyto Sanitary (SPS) measures are in accordance with food
safety and food standards set by the Codex Alimentarius Commission (CAC).
An important component of the CAC guidelines is the implementation of a food safety
system called Hazard Analysis and Critical Control Points (HACCP). This needs to be
incorporated in the food quality system of food processing units, otherwise the SPS
agreement can act as a non-tariff barrier for our exports.
Contract farming enables firms to have control over production of agricultural
commodities at various stage of growth. Thus, making it possible to meet such standards of
food safety.
II. REVIEW OF LITERATURE
Review of literature provides information regarding the previous works done and
gives a glimpse of what the outcome was and thereby it helps in identifying the framework
and other methodological aspects that can be inculcated in the current study. Totally it
provides a proper direction to carryout the research work and enables to arrive at meaningful
results.
Keeping the above things in view, the available literatures relevant to the objectives of
the present study was reviewed and are presented herein under the following headings.
2.1 Contracts farming
2.2 Economics of production
2.3 Problems in contract farming
2.1 CONTRACTS FARMING
Wereschnitzky (1984) presented a detailed structure on development, forms and
problems in contract farming. The study conducted in Hamburg, Germany, concluded that the
contract farming is a multi functional paradigm in agriculture and a reasonable step for rural
development.
Eroshenko (1984) reported the benefits of contract rearing of young animals in private
part time farms in Podso (Russia). Further, various aspects regarding the contractual
arrangements such as procurement and rolling back of animals was discussed and opined
that the contract animal rearing brought in the economics of scale in case of large farms.
Stoyanov (1987) has addressed various issues regarding contractual systems in
Bulgaria and recommended improvement in the aspects of production and sale of live stock
the researches defined contract farming as a systematic co operative system for small
farmers.
Freivalds (1989) analyzed and discussed the market experiences of best-dressed
chicken in Jamaica while studying he growth and integration of broiler production in Jamaica.
He opined that the integration has increased the bargaining position of farmers. The
researcher also studied the growers equity and structure of poultry industry before
recommending the concepts of integration.
Mackel (1990) studied different aspects of desirability and feasibility for contracting in
case of fat cattle in Scotland. The researcher opined that the pig fattening enterprise holds
economic significance as against other contracts.
Glovar (1990) highlighted the experience of contract farming and out growers
scheme of seven countries in the Eastern and the Southern Africa. In those schemes, farmers
sold their crops under contract to private or public enterprises for processing or export in
return for various inputs, services and price guarantee. The researcher identified some of the
key determinants of success and evaluated the performance. Also examined the constraints
to replication. In most cases , performance in delivering services and providing income to
farmers have been quite good although high management costs were widely applied.
According to author, lesser control, more reliance on price incentives and farmers
participation might have increased overhead costs while developing management capability
among growers.
Porter and Kevin (1997) analyzed and recorded the travails of farmers in Africa.
Examining their own experience of contract farming in Nigeria and south Africa they have
drawn attention to important issues which have reviewed little attention in the literature,
notably staffing of schemes, farmers previous experience with Multinational Companies
(MNCs) water and labout issues .
Rehber (1998) presented a brief history along with explanation of contract farming
concepts. Further, the reasons behind contract farming were analyzed based on several
research works and articles. Finally, a simplified model was presented for the success of
private contractual arrangements in the light of evidence taken from the experience.
Anonymous (1999) reported a success of contract farming in Nasik district of
Maharashtra state. The company supplied inputs viz., high yielding variety seeds, fertilizers
etc. , to the farmers on cash and carry basis along with technical advice and purchased the
produce at the prevailing market rates at the farm itself. The Nasik District Central
Cooperative Bank, Dena Bank, State Bank of India and Bank of Maharashtra participated in
the project. About 2000 acres of maize involving 2036 farmers and 124 acres of soybean
involving 150 farmers had been covered under the scheme. The estimated availability of
maize and soybean to the company after harvest was 4032 MTs and 150 MTs, respectively.
Key and Runsten (1999) examined the cause of the observed variations in the scale
of production and the success of smallholder contract farming. The authors opined how the
organizational structure of agro processing firms and the characteristics of contract farmers
were influenced by imperfections in the markets for credit, insurance, information, factors of
production, the raw product and the transaction costs. The main disincentive for firms to
contract with small holder appeared to be the transaction costs associated with providing
inputs, credit, extension services and product collection and grading. Many firms had found it
easier and more profitable to deal with a few large growers. The study suggested to increase
small holders participation in contract farming with a renewed effort on the part of growers to
organize themselves or to organize with the help of government agencies, non profit
organizations, or the agro processors.
Singh (2000) reviewed the logic, practice and implications of contract farming for
contract farmers and the local economy with evidence of contract farming experiences from
African, Latin America and Asian countries in different sectors of agriculture. He found that
agribusiness firms tend to deal with large producers only. Contracting lead to environmental,
equity, food security and sustainability problems, though it lead to better incomes for farmers
and more employment for labour initially through the introduction of new crop technologies
and by providing markets and inputs. In fact, contract farming as a system affected producers
positively or negatively was dependent on the context of the economy.
The researcher further studied the role of contract farming in agricultural
diversification and development in terms of its practices and implications for the producers
and local economy in the Punjab in India. Hindustan lever Limited (HLL), Pepsi and Jijjer were
engaged in contract farming of tomato, potato and chilli respectively. The main benefits of
contracting as perceived by contract farmers were better and reliable income, new and better
farming skills, better soil management and outlet for bulk sales.
Abhiram (2001) examined the supply chain management and role of contract faming
of tomato production in Maharastra. He opined that the services of contract farming system
were advantageous to both the farmers and company. The impact was clearly brought out by
contract farming. Tomato yields increased three fold (from 16 to 52 Mt/ha), chilly yields
increased from 6 tonnes to 18 tonnes/ha, farm incomes increased by more than 2.5 times,
processing season linked to fruit availability increased from 28 to more than 55 days and
there was an improvement in the quality of produce.
Matthew and Key (2001) under took an empirical case study of the impact of a
contract-farming scheme on Senegals rural community. Small holders in Senegals peanut
basin contract under the arachide de Bouche (ARB) programme to provide confectionery
peanuts for the international market. ARBS contracting farmers received seeds, fertilizers,
pesticides and herbicides on credit and were required to sell back their produce to the
programme. The study examined the access of poorer community members to contracts and
the effect of the programme on the income of participants. The ARB programme performed
very well on both counts; participants and non-participants were indistinguishable y wealth
measure and farmers increased their income sustainability by participating in the programme.
The study attributed the participants success to the programs mobilization of local
information
through its use of village intermediaries, permitting the substitution of social collateral for
physical collateral and making he programme more accessible to the poor.
Rausser and Simon (2001) examined the incentives and processor placements
regarding the broiler chicken production contracts in California. While analyzing the
contractual setup, the researchers found that the environmental management of processor
placements and production incentives to main factors that contribute to the success of
contracts and contract renewal.
Shalander and Deoghare (2001) reported various aspects of contractual
arrangements of goat rearing in north India. They found that 69 per cent of the farmers were
in favour of arrangement and renewal of contracts where as 62 per cent of the farmers were
without any land holdings.
Maung and Foster (2002) emphasized the need of vertical integration to facilitate the
alternate marketing options in hog industry of Canada. The researcher opined that the vertical
integration will have direct impact on capital investment and other real option approaches.
Dellal and Tan (2003) studied the socio-economic behaviour of contract Turkey
farmers in Fukeoka, Japan as compared to the case of Turkey. The study recommended the
system for the large scale production as against the small scale production of Turkey.
Merry et al. (2004) studied the systems of informal contracts in food plains of lower
Amazon. The study highlighted positive integral role by informal contracts in the growth of
small cattle heads which directly contribute for farm stabilization.
Tatlidil and Aktruk (2004) examined the viability of contract farming model in
Faisalabad (Pakistan). They revealed that the price fluctuation and market glut can be
avoided through adopting the models of contract farming over the traditional production
systems.
Begum (2005) undertook study in Bangladesh to identify incentives for poultry farmers to
participate in contract farming in Bangladesh. She explored why farmers enter into contract
farming and evaluated the impact of a vertically integrated contract poultry farming system on
farmer's income by analysing the costs and returns and labour utilization,. It was revealed in
the study that contract farmers get several incentives from the vertically integrated firm,
which
include credit, production and price risk reduction, marketing assistance, technical know-how
etc. she also concluded that contract farmers were better off in terms of net income by getting
a high net return from the poultry farm.
Reimer (2005) reported that the only solution for the pork industry in Boston to
survive the risks of shortage was the adoption towards vertical integration. The researcher
was of the opinion that the pork industry trading autonomy will be at stake if needed
measures are not applied immediate.
Hoffler (2006) advocated the promotion of contract farming in potato to sustain the
investments and to reduce the transaction risks involved in potato value chain business in
Germany.
JiQin and YingChun (2006) highlighted the need of vertical co-ordination of innovative
pork supply chain in Nanjing (China). According to them the vertical co-ordination in
production is the only answer to cater the ever increasing demands of pork in China.
Walli and Ponnusamy (2007) studied the aspects of contract dairy farming versus the
dairy co-operatives in North India. The study revealed the comparative strengths and
weaknesses of both the systems and recommended the process stream lining in case of dairy
contracts. However, the study also revealed that the co-operative system is still the best.
2.2 ECONOMICS OF POULTRY PRODUCTION
Desai and Kumar (1963) conducted a study on the economics of production of an
egg, one day old chick and sale of birds so on up to the age of 24 weeks for the year 1961-62
at the Government Poultry farm, Mathura. They found out that the cost of production of an
egg was estimated at 18 paise. The cost of production of a day old chick worked out to 54
paise and the cost of production of a bird of one week to 24 weeks ranged from 74 paise to
Rs. 8.31 . The cost of production of a bird increased by 34 paise per week. It was found
profitable to sell a bird after 17 weeks of rearing.
Mathur and Reddy (1970) reported that the contribution of chick cost was 27.00 per
cent towards the total cost. Labour charges accounted for 1.69 per cent. The depreciation on
buildings and equipments was 3.7 per cent of the total costs. They also reported that 45.9 per
cent of the total costs comprised of feed charges. The average returns per broiler was Rs.
6.68 while the percentage of net profit over total cost amounted to 20.8 per cent.
Maurice (1970) reported that the chick cost contributed to 27.67 per cent while the
feed charges accounted for 61.55 per cent of the total costs. Labour charges accounted to
1.69 per cent while the miscellaneous expenses contributed to 3.5 per cent of the total costs.
The depreciation on buildings and equipments was 3.3 per cent. The average returns per
broiler were Rs. 6.89 while the net profit was Rs. 1.27 (22.67% over total cost).
Marutiram (1973) conducted a study in Haryana on the relative contribution of various
components in the total cost of production of eggs and rearing of birds at different ages. Costs
on feed accounted for about 80 per cent of the gross cost (excluding unpaid labour) of
maintenance of an adult bird. Almost the entire cost of production of an egg arose from the
maintenance of the layers and about one fifth of the net cost per hatching egg was accounted
by the cost of maintenance of cocks. The expenditure on rearing of birds up to two months,
four months and till maturity mainly came from expenses on feeding and labour, besides initial
cost in each case.
Kamat (1975) conducted a study on economics of egg production in Udaipur. He
found that the average cost of raising pullets upto the age of laying was Rs. 13.52 for pooled
farms. The pullet cost was less where pullets came into production stage before 24 weeks of
age. The returns per 100 layers increased from small to medium size flock and decreased
from medium to large flock. The total cost per 100 eggs ranged from Rs. 20.72 to Rs. 45.00
with an average of Rs. 25.70. The total cost per layer on the other hand ranged from Rs.
52.20 to Rs. 71.49 with an average at Rs. 57.67 . Feed cost was highest in egg production.
He also found that as the size of the flock increased the feed cost per 100 eggs declined.
Labour cost per 100 eggs decreased with the increase in the farm size. Flock depreciation
(value of pullets value of culls for home consumption) per 100 eggs also decreased with the
increase in the farm size. A difference in the profit to a tune of Rs. 14.01 per 100 eggs was
found between large and small flocks. Further, between the groups that used 20 kg feed and
those, which used more than 20 kg of feed to produce 100 eggs, the difference in profit was
Rs. 13.27 per 100 eggs.
Majood Ahmed (1977) in his study on economics of broiler production in Akola
concluded that the total cost per broiler worked out to Rs. 8.41 . The recurring (variable) and
non recurring (fixed) expenditure per broiler was Rs 7.27 and Rs. 1.14 respectively. This
worked out to 86.44 and 13.65 per cent of the total cost. The cost of chicks and feed
accounted for 90 per cent of the recurring expenditure. The monetary returns per broiler was
Rs. 10.10 at the selling rate of Rs. 8.00 per kg of the live weight. Margin of profit per broiler
housed, over variable costs, was Rs. 2.82 937.8%) and over total cost was Rs. 1.69
(20.10%).
Azad et al. (1980) conducted a study in Kanpur and estimated that on an average per
bird variable and fixed costs were Rs. 50.21 and Rs11.67, respectively . the cost of
production per 100 eggs was worked out to be Rs. 29.98. Further, they estimated gross and
net returns per month per bird at Rs. 6.57 and Rs. 1.12, respectively. The net profit per bird
over one production cycle varied from Rs. 10.79 to Rs. 15.69 with an overall average of Rs.
13.15.
Basu (1980) estimated the total cost in production of eggs at Rs. 7,420 per 100 layers
in Haldia district of West Bengal. He found that the total cost of rearing 100 layers during per
laying period was Rs. 1,215 and laying period was Rs. 6, 205, which formed 16.37 and
83.63 per cent of the total cost of rearing 100 layers.
Kulkarni (1982) studied the economics of poultry farming in and around Hyderabad.
He found that the rearing costs per layer ranged from Rs. 75.42 on large farms to Rs. 76.38
on medium farms and Rs. 78.22 on small farms with an average of Rs. 76.67. This study also
revealed an inverse relationship between costs in egg production and farm size. The variable
cost per 100 birds amounted to Rs. 66.80 , Rs. 67.31 and Rs. 67.26 on large, medium and
small farms respectively, with an average cost at Rs. 67.12 . The proportion of the fixed cost
to the total cost varied from 12.50 per cent on large farms and 14.01 per cent on small farms.
Kathandaraman and Narahari (1982) in their project for a broiler farm of 500 bird
(weekly replacement) concluded that feed cost was the major item of expenditure (53% of the
total costs) followed by the costs on chicks (29% of total costs), 98 per cent of the total
returns were from the sale of broilers. About 16 per cent of the total returns formed the net
profit in the project.
Sewak and Dhillon (1983) opined that the costs and returns of poultry business in
Punjab state has undergone a big change due to severe inflationary trend in the Indian
economy. As for as costs were concerned, the major expenditure was on feed (74.65%),
followed by cost of day old chicks (7.04%) , cost of human labour (4.54%) and miscellaneous
charges (4.08%). The total cost per bird per year ranged from Rs. 60.67 on small farms to Rs.
53.78 on large farms.
Vliegar (1983) studied the economics of contract production in pig farming in Holland.
He reported that majority of the costs inured by the farmers pertained to the maintenance of
animals at rational stage of production where in consumption starts doubling every week.
Ram Monhana Rao and Nagabushanam (1985) conducted a study around Mysore
city and found that the percentage of pre laying cost to the total cost was 29.02 per cent,
24.80 per cent, 29.41 per cent and 20.42 per cent in group I, group II, group III and group IV
farms respectively. The cost of laying period to total cost per 100 layers was 70.98 per cent,
70.59 per cent, 70.54 per cent, 70.48 per cent for group I , group II, group III and group IV
farms respectively. Further, they observed that feed cost accounted for 69.38 per cent of total
costs of production per 100 layers. The gross returns per layer in different size groups ranged
from Rs. 125.13 to Rs. 130.17 and net return ranged from Rs. 16.93 to Rs. 47.47.
Srinvastava et al. (1986) conducted a study in which they concluded that the feed
cost constituted a major part (54.70%) of the total cost in chick rearing. The cost of day old
chicks constituted 19.86 per cent . On an average total cost incurred on poultry farms were
estimated at Rs. 118.85 , Rs. 115.40 and Rs. 110.06 in small, medium and large farms
respectively. Further, they estimated the net returns per bird per year which was higher in the
case of large size poultry unit (Rs. 27.87) as compared to medium farms (Rs. 23.63) and
small farms (Rs. 19.68).
Ashok (1987) conducted a study in and around Hyderabad city and estimated that
proportion of costs per layer in the total cost was 25.10, 24.90, 24.58 and 24.68 per cent in
small, medium large and pooled farms respectively. In the laying period, the proportion of
costs to total cost per 100 layers was 74.90, 75.10, 75.42 and 75.32 per cent for small,
medium, large and pooled farms respectively. Feed cost accounted for 73.94 per cent of total
cost of production.
Raghuram et al. (1987) in their study on economic analysis of poultry production in
Nellore district of Andhra Pradesh found that the total production costs ranged from Rs.
55.194 in small units to Rs. 2,09, 276 in large units with an average Rs. 1,20,519. The total
production costs per 100 layers ranged from Rs. 11,387 on small units to Rs. 10,185 on large
units with an average of Rs. 10,284. The proportion of variable costs to the total costs was
91.99 , 91.78 and 92.38 per cent on small, medium and large units respectively with 92.16 per
cent for the average farm.
Lance (1987) discussed the economic aspects of contracts turkey growers in
Georgia. He came out with the effective production costs and returns for independent and
contract turkey growers . The researches found that independent turkey growing is less
beneficial compared to that of contract growing mainly because of high cost of production in
case of independent growers.
Singh and Bhullar (1987) in their comparative study of poultry farming in Punjab and
Andhra Pradesh indicated that respectively, with the total cost of maintenance of Rs. 125.96.
The cost of feed (72.14%) , the interest on working capital (7.82%), the value of bird (5.3%)
and the labour expenses (3.98%) were the major items of maintenance cost per bird.
Kareemulla (1989) revealed from his study conducted in Tirupati, Andhra Pradesh
that the cost of rearing a bird was Rs. 142.92, Rs. 123.83 and Rs. 112.61 for small, medium
and large farms respectively. Further, he found that the average income realized by the small
, medium and large farms per bird was Rs. 143.88, Rs. 139.36 and Rs. 146.87 , respectively.
He also concluded that the profit per 100 eggs sold was higher in large farms compared to
medium and small farms.
Soni and Verma (1990) found that a total cost of maintenance per bird was Rs.
150.75, out of which fixed and variable costs amounted to Rs. 138.00 and Rs. 12.75
respectively. The study also revealed that , on an average a poultry farmer got Rs 187.75 as
gross returns and Rs 37.00 as net returns. The return from the sale of eggs was the major
source, accounting for 85 percent in Punjab and 86 percent in Andhra Pradesh.
Chhikara and Chidha (1989) in their study on cost structure of poultry farming in
Gurgaon district of Haryana showed that the major item in the total cost was feed (70.12%)
followed by interest on working capital (10.72%) . The other components of costs were 6.82
per cent, 5.42 per cent and 2.24 per cent, respectively towards cost of day old chick, fixed
cost and labour cost. The total cost per bird per year were at Rs. 104.38, Rs. 92.41 and Rs.
88.52 for small, medium and large farms respectively. The gross income per bird was Rs.
113.77 , Rs. 114.37 and Rs. 115.23 for small, medium and large farms there by giving a net
return of Rs. 9.39, Rs. 21.96 and Rs. 26.71 per bird per year respectively.
Jadhav and Kasar (1989) found that on an average variable and fixed costs per bird
were Rs. 116.81 and Rs. 9.15 bird per month when risk and uncertainty involved have not
been included in the total cost.
Shanmugam (1991) conducted a study on production and marketing of broilers in
Salem district of Tamil Nadu. He concluded that feed cost accounted for the highest share
(52.64%) followed by chicks (24.68%). The labour charges accounted for 2.94 per cent while
medicinal and electricity charges accounted for 6.15 per cent and 2.51 per cent. The net
returns over total cost were worked out at Rs. 4.50 per bird.
Shiva Prasad (1991) in his study on production and marketing of eggs and broilers in
Bellary district of Karnataka concluded that total variable costs formed about 7.2 per cent of
the total costs. The variable costs comprised of the chicks (29.5%), feed (45.48%) and
interest on working capital (10.37%) , medicine and veterinary charges accounted for 8.17 per
cent and electricity charges account for 1.3 per cent of the total costs . He also concluded
that
98 per cent of the returns from broiler farming was through sale of broilers.
Singh (1995) in his study on broiler marketing in Ambala and Gurgaon districts of
Haryana state concluded that the most important channel is producer-wholesaler-
retailerconsumer
and price spread was found to decrease with the elimination of intermediaries. Two
indices (concentration ratio and the Hirschman Herfindahl index) wereused to analyse market
structure. The indices revealed an absence of monopoly in broiler marketing.
Omkumar and Dutta (1996) conducted a study on performance of layers in North
Eastern Region of India. They found that the major input was on feed (86.49%) followed by
cost of chicks 95.88%) and medicines (3.53%) . The perlaying cost was 23.76 per cent in
comparison to laying cost (76.24%) per bird. Egg production was 171 eggs and total receipt
from egg was 76.10 per cent of total return, the gross return per bird was Rs. 187 . The input
output ratio was 1:0.86.
Verma and Singh (1997) studied the effect of farm size, educational level and
occupational status of the entrepreneurs on the economics of egg production for 1.5 year life
of birds in Haldwani area of Nainital district. The total cost per bird was Rs. 381.59. The fixed
and variable costs contributed were 7.54 per cent and 92.45 per cent, respectively. Expenses
on the land rent, depreciation on buildings, equipments and purchase of day old chicks
contributed 0.63 per cent, 1.84 per cent, 0.44 per cent and 3.85 per cent respectively of the
production cost. The average gross return per bird was Rs. 399.49. Income from the sale of
eggs, spent hens, manure and empty gunny bags contributed 87.33 per cent, 10.87 per cent,
0.84 per cent and 0.83 per cent respectively to the total returns.
Sreekant Babu (1999) in his study on management of Broiler industry in Andhra
Pradesh , concluded that the total investment and total costs per bird increased with the
increase in the farm size at total costs per kg live weight decreased with the increase in the
farm size, while the net returns increased with the increase in farm size.
Ashutosh and Shrivastava (1999) studied the economics of poultry production and
marketing in Jabalpur district Results reveal that commercial layer and broiler units,
particularly the larger farms, were well managed and cost effective as compared to the small
and medium farms. Among the four main marketing channels, two account for a 75% share of
egg marketing and one account for a 90% share of broiler marketing. Poultry farming is
considered to have good prospects in the district due to relatively cheaper land and labour
input originating from tribal areas. It was recommended that efforts should be made to exploit
this potential.
Rangareddy et al. (1997) made an economic analysis of broiler production in
Kamarajar district of Tamil Nadu which revealed that Rs. 27.10 per broiler was invested to
start a broiler farm. The total cost of broiler production per bird was Rs. 22.18 of which
variable and fixed costs constituted 93.24 per cent and 6.76 per cent respectively. Cost of
feed alone accounted for more than 50% of the total cost followed by cost of chicks (25%).
There is a wide scope to reduce the total cost by substituting the least cost farm mixed
rations. Amount realized by sale of broilers formed the major source of return (96.21%) in
broiler enterprise. The net return per broiler and per kg of live-weight of broiler produced were
Rs. 5.51 and Rs. 3.01, respectively.
Raiz and Chistie (2000) studied the economics of broiler farming in Kamrup district of
Assam. They reported that a typical farm had to incur about Rs 31.00 of cost to produce one
Kg of broiler and earn a net income of Rs 7.31 from the same in a cycle of eight weeks. The
income of the farmers increased with an increase in size groups. They also reported that both
break even production and break even price were lower than the respective average
production and average price received.
Boehlje and Ray (2000) studied the financial feasibility of contract vs independent
pork production in Washington DC and found out that the contract pig production yielded two
folds as compared to independent farming both in production as well as profits.
Karim et al. (2001) made an attempt to analyse the performance of the broiler farms
under contract farming system in terms of profitability under constant rate of price located at
Bajitpur Upazila of Kishoregonj district, Bangladesh. Seventy five farmers (25 small, 25
medium and 25 large farms) were purposively selected from the area. Costs and return were
calculated to find out the profitability of broiler production. The total costs per bird were
estimated at Tk. 78.43, Tk. 78.51, Tk. 78.32 and Tk. 78.31 for small, medium, large and all
broiler farms respectively. On the return side, the average gross returns per bird per batch
stood at Tk. 89.21, Tk. 89.40, Tk. 90.71 and Tk. 89.87 for small, medium, large and all broiler
farms, respectively. The profit or net returns per bird for small, medium, large and all broiler
farms were Tk. 10.80, Tk. 10.85, Tk. 12.40 and Tk. 11.75, respectively. Findings of the study
clearly indicate that all broiler farms made good profit and the large farms, however, earned a
little higher profit.
Biswas et al. (2003) studied the sustainability of broiler farming in coastal districts of
West Bengal. Their study parameters were stock procurement, market sales, profit, monthly
income, sale of meat, utilization of dead stock, rearing systems, and marketing. They
concluded that congenial and improved conditions of the state have prioritized the broiler
production. The findings indicate the sustainability of broiler farming in the locality. Areas for
further improvement are identified and discussed.
Kumar and Rai (2004) studied the economic status of poultry farming enterprises in
Andaman & Nicobar Islands. The study compared the investment patterns, Labour utilization
pattern, cost and returns and efficiency measures of small (300 birds), medium (900 birds)
and large (1500) farms. The total cost per bird was found to be Rs 68.84, Rs 65.85 & Rs
63.07 respectively. The net returns per bird were Rs 8.36 for small farms and was Rs 11.35 &
Rs 14.13 for medium and large farms respectively. The study revealed that the BC ratio of all
three categories was even and was 1.13, 1.19 and 1.24 respectively. The study concluded
that the broiler farming was a profitable enterprise and a main source of income to a sizable
number of farmers
Gnanakumar P Baba (2005) compared the returns of vertically integrated contract
farming system in broiler production and independent poultry system in Tamil Nadu and
Andhra Pradesh. He estimated that the net returns in the vertically integrated contract
farming
system in broiler production were 1.7 times higher as compared to the independent farming
system.
Gnanakumar P Baba (2007) studied the financial feasibility of investments in contract
poultry farming in Tamil Nadu region. 50 integrated poultry were selected randomly in
Coimbatore district. He concluded that on an average, farmers received a growing coat Rs
2.36 per Kg of bird. The study also calculated the profitability per chick, which was found to be
Rs 1.50 in the beginning. The study also estimated the returns on investment that was found
to be 11.5 % in the beginning and increased up to 20%.
2.3 PROBLEMS IN CONTRACT FARMING
Minot (1986) studied the effect of contract faring exclusively on small farmers in less
developed countries. He reported that the small farmers majority face the problems of
infrastructure and also reported the financial ways of improvement and policies undertaken by
Michigan state.
Vershinin (1986) conducted a surrey on various aspects of organizational and
economic problems of contract farming on the basis of family groups. The researcher
reported that the performance and other problems related to contract farming are sparsely
occurring w.r.t. family groups.
Glover (1987) studied various aspects relating to the benefits to small holders from
contract farming in Wales. He came out with specific problems faced by farmers organization
and policy makers. He concluded that majority of the problems are concentrated around the
maintenance and production aspects. The researcher also identified the major bottle necks in
contract farming in case of small holders.
Heim (1988) reported the main problems in drawing up the contract, especially under
the sponsorship and under an agricultural co-operative land ownership and input qualities
were the discriminate factors under the outcome of his study in Bonn (Germany) .
Cordes (1988) in his study of contract agriculture in German and Dutch laying hen
farming revealed that the low productivity was due to unspecified standards prevailing in the
study area and opined that majority of production problems occurred due to the socio
economic differences among the layer farms. Further the study also revealed that market for
eggs in the study area was ununiform.
Srivastava and Seetharaman (1989) while providing an overview of agro processing
industries suggested backward linkages as the key element for success of fruit processing
units. They observed that larger processing units often faced the problems of sever under
utilization of capacity due to inadequate and unsustainable supply of raw materials. They
concluded that the uncertainty in supply was the major reason for private processing units to
forge backward with the farmers for ensuring supplies.
Schrader (1989) in his study on egg and broiler markets in Madison (USA) came out
with various pricing problems in case of contract agriculture especially with emphasis on thin
markets.
Gillespie and Eidman (1998) studied the effect of risk and autonomy on the decisions
of independent hog producers who wished to go for contracting. He found out that about 86
per cent of the producers decided against independent rearing due to hovering risk and also
many producers (68 per cent) wanted a subtle type of contract hog production in Indiana
state.
Bhattu and Sharma (1999) made an attempt to study region-wise constraints
encountered by broiler farmers in Haryana. The major constraints observed were high cost
and poor quality of inputs, oligopsony marketing structure, high electricity charges, incidence
of diseases, non-remunerative prices of broilers, existence of rigid procedure for government
grant or bank loans, and lack of broiler insurance schemes
Rangi and Sidhu (2000) while studying contract farming practiced by Hindustan Lever
Ltd. (HLL) and Nijjar agro Limited in tomato for processing venture at Punjab found that,
tomato was mainly attacked by fruit borer, sometimes leaf minor, aphid, cutworm and fruit fly
also. To have a check on these attacks, the expenses on pesticides/ insecticides were high
and this also pushed up the labour cost. Continuous cultivation of tomato crop on the same
field has also adversely affected yield. Nijjar agro Limited rejected the poor quality produce
brought by the farmers. The HLL did not indulge in such practice. Farmers of both the firms
expressed opinion regarding the low contract prices.
Singh (2000) identified the faults of contracting system both at company and at
farmers level. About two thirds of Hindustan lever Limited growers and more than 50 per cent
of the Nijjer growers did not face any major problem in contacting. The other reported
problems were poor coordination of activities, poor technical assistance, delayed payments,
outright cheating in dealings and manipulation of norms by the firm. Some of the Pepsi potato
farmers had a few problems with the company system, but a large number of them (60%)
were happy. The study also highlighted the implications of contract farming on cropping
pattern, land lease market, sustainability, farm income and employment. Despite, various
problems and conflicts between companies and growers, 62 per cent of Hindustan lever
limited, 80 per cent of Niger and 68 to 73 per cent of Pespsi (potato and chilli, respectively)
farmers wanted to continue contract farming.
Banumathi and Sita devi (2001) an attempt was made to identify the major problems
in marketing of jasmine at Chidambaram taluk of cuddaloe district of Tamil Nadu. They found
that in case of small farmers lack of finance was the problem ranked first. Perishable nature of
flowers, price fluctuations, poor market information and forced sale were other important
problems. Medium farmers and large farmers ranked price fluctuation and perishable nature
of flower as first and second respectively. Long distance to the primary market, lack of finance
and poor market information were other important problems in medium farms.
Bridges et al. (2002) reported that the poultry farmers in china are prone to poultry
associated diseases but no extensive infections by the avian flu were seen. They also studied
various potential problems of poultry farmers w.r.t occupational hazards
Arunkumar (2002) opined that major problems faced by the contract farmers were low
contract price and irregular payments. The other problems faced were unawareness of
potentiality of crops, poor technical assistance, manipulation of norms by firms and higher
rejection rate. He also opined that major problems faced by contract firms were land
constraints and fixing of contract price. The other problems were farmers discontent and
holding up of vehicles. The contract farmers try to put lower grade into higher grade and it
was difficulty to check and make sure of the grade as quantity handled was more. Farmers
held up vehicles in the villages demanding that they should be paid higher prices even though
agreement does not say so.
Sukhpal and Singhe (2002) reviewed the status of contracting and present political
economy of contract farming in Punjab. They opined that the small scale farmers faced the
chunk of problems as compared to that of large farmers, the majority of problems being
related to policy and input decisions.
Shiva Kumar Gupta (2002) studied major constraint in contract farming as the
difficulty in allocating the risk between the firm and farmers, where the distribution of risk
was
dependent largely on factors such as bargaining power, availability of alternative and access
to information. In short duration crops such as vegetables, farmers tend to divert the produce
to the open market rather than supply to the processing firm when the prices were high. The
cost calculations of the firm crumble, as they were forced to arrange supply of raw materials
from alternative sources. In long duration crops such as plantation crops. The firms often fail
to honor the contract, as they knew that farmers had no alternative but to sell the products to
them at lower prices.
Kattimani et al. (2003) undertook an empirical study of Ashwagandha contract
farming in selected districts of North Karnataka revealed that problems faced by the
Ashwagandha growers in North Karnataka were high cost of seed material, lack of knowledge
on production technology, marketing problems, incidence of pest and diseases, harvesting
and grading.
Ramdurg (2004) conducted a study on perception of bird flu disease on consumption
of chicken and eggs in Dharwad district of Karnataka. The findings of the study revealed that
the effect of bird flu was not expected in India, yet due to wrong perception the bird flu
occurrence had a huge impact on the consumption as well as production activities.
Vinayaka (2005) in his study of economics of contract farming in Ashwangandha
reported two major problems faced by the contract farmers in North Karnataka. He revealed
that lack of prescribed contract norms and manipulations of norms were the major problems.
Prasad et al. (2005) studied problems in contract broiler farming as perceived by the
farmers in Andhra Pradesh. The problems cited by non-contract farmers included high feed
cost (90.6% of the respondents), unremunerated price (87%), high electricity charges (77%),
high chick cost (69%), poor quality feed ingredients (69%), delay in lifting of birds by
wholesalers (53%), mortality and disease (43%), delay in chick supply (40%) and insufficient
attention of hatchery men (39%). Contract farms cited delay in chick supply (87% of the
respondents), high electricity charges (69%), mortality and diseases (40%), delay in payment
(27%), lesser payment of hatchery to contract farmers (13%) and problems in the daily
supervision of the broiler unit by the supervisor (9%) as their problems. Based on these they
concluded that non-contract farms have more difficulties in broiler farming.
Yeshodha Devi and Kanchan (2006) studied the chicken consumption pattern and
consumer preference for processed chicken in Coimbatore. The study also discussed the
problems of live bird market as compared to that of the frozen products in poultry. It was
opined that the live bird market should be supplemented by the processed poultry products to
reduce the costs and other seasonal vows of the poultry farmers in that region
Gnanakumar P Baba (2007) studied the financial feasibility of investments in contract
poultry farming in Tamil Nadu region. 50 integrated poultry were selected randomly in
Coimbatore district. The study found out the problems of poultry farmers that compelled them
to enter a contract. Poor income from traditional agriculture, water scarcity, high market risk
in
traditional agriculture, labour crunch and need for more substantial working capital were the
primary reasons that were evolved from the study.
III. METHODOLOGY
The chapter deals with the various details about contract poultry farming, study area,
sampling procedure, nature and sources of data, selection of respondents, collection of data
and various analytical techniques employed.
The details are presented under the following heads.
3.1 Description about Contract Poultry Farming in Karnataka.
3.2 Description of the study area.
3.3 Sampling procedure
3.4 Nature and sources of data.
3.5 Analytical techniques employed.
3.6 Definition of terms and concepts used in the study.
3.1 DESCRIPTION ABOUT CONTRACT POULTRY FARMING
IN KARNATAKA
Contract poultry farming involves a oral or written agreement between a contracting
firm / integrator and the poultry farmers where in the firm provides basic inputs such as feeds,
Day Old Chicks (DOC) and medicines and the farmers has to rear the chicks for about 42
days. Other inputs such as litter material, labour, and equipments along with other fixed inputs
are from farmers side.
After the completion of a production cycle, the contracting firm will procure back the
grown chicks (usually 42 days) at a particular pre-agreed growing cost/ purchase price per kg
of live bird weight.
In this cycle of events the farmers also has an incentive of 15 percent more growing
charges if he reduces the feed conversion ratio (FCR). The firm entitles a flexibility of about
5percent to 7percent on mortality of birds and also prescribes minimum standards in case of
other production aspects.
The present contract system in Karnataka differs with that of northern states where in
the procurement by contracting firms is on a pre agreed price and at the same time the inputs
arent given free to the farmers.
The firm also provides technical assistance to the production aspects. There will be
strict supervision periodically to ensure that no discrepancy occurs in production of chicks.
3.2 DESCRIPTION OF THE STUDY AREA
3.2.1 Location of the study area
The study was undertaken in Doddaballapur, Nelamangla and Channapatna taluks of
Bangalore rural district in southern Karnataka and in Hubli, Dharwad and Kalghatgi taluks of
Dharwad district in northern Karnataka (Fig. 1). This is because notable contracting firms as
well as farms are concentrated in these districts in the state. Hence these locations were
selected for the detailed study.
3.2.2 Demographic profile
Bangalore rural district geographically lies at a latitude of 12015 and east longitude of
7737. It is surrounded by Kolar district in the north, Tumkur in the west, Mandya district to
the south and forms a boundary of Karnataka with Tamil Nadu state in the eastern part.
Fig 1. Map of Karnataka state showing the study area
The district covers a geographical area of 5,814 square kms with a population of
18.82 lakhs (2001, GOI census) that constitutes 3.61% to the total population of state.
On the other hand, Dharwad district geographically lies at a latitude of 150201 and
east longitude of 750351. It is surrounded by Belgaum district in the north and west, South
Canara to the south and Gadag district in the east. The district covers a geographical area of
4260 Sq. kms with a population of 16.04 lakhs (2001, GOI census) which constitutes 3.12% to
the total population of Karnataka State.
The population of both districts is heterogeneous with a diverse cultural, religious and
economic backgrounds. Both districts are the important hubs for commerce, industry and
trading activities and form a very wide market for poultry and poultry products.
3.2.3 Poultry infrastructure
Both the selected districts has many contracting firms / integrators namely Suguna
poultry, Venkateshwara Hatcheries Private Limited, Godrej Chicken, Aasha Feeds & Poultry
and Yarana Feeds.
3.3 SAMPLING PROCEDURE
3.3.1 Selection of districts
The Bangalore rural and Dharwad districts are congenial to poultry industry in all
aspects especially with respect to climatic variability, production and marketing
infrastructure.
At the same time in these two districts in the State large numbers of contracting firms are
operating in contract farming activities in the poultry industry in the State.
3.3.2 Selection of poultry farms
In the selected districts three taluks were selected based on concentration of broiler
poultry farms in the districts. In the Dharwad district Hubli, Dharwad and Kalghatgi taluks
were
selected. Similarly from Bangalore rural district Nelamangala, Ramnagara and Channapatna
taluks were selected. In the total selected taluks five broiler poultry farms engaged in contract
farming and five broiler poultry farms which are not involved in contract farming (Non contract
farms) from each taluk were selected at random. Totally the sample size for the study
accounts for 30-contract broiler poultry farms and 30 non-contract poultry farms.
3.4 NATURE AND SOURCES OF DATA
For evaluating the objectives of the study, necessary data collected from sample
farms includes data on general information about individual farmers, input particulars,
financial and infrastructure arrangements, various costs involved, returns from the contract
and non-contract business, and also about particulars of marketing. The data was obtained
from the selected farmers with the help of a well-structured schedule. The farmers were
personally interviewed.
The opinion about the various factors that influence the farmers to be in contract or
non-contract and problems faced in production, marketing. financial and contractual aspects
were also recorded.
3.5 ANALYTICAL TECHNIQUES EMPLOYED
The study employed the following tools to analyze the data to satisfy the objectives
are,
3.5.1 Factor analysis
In order to get the factor loadings, the Principle component analysis method was
used. The Principle component analysis is probably the oldest and best-known technique of
multivariate analysis. The Central idea of principal component analysis is to reduce the
dimensionality of the data set in which there are large number of inter related variables, while
retaining as much as possible of the variation present in the data set. The component model
is expressed as
Z i = a i 1 X 1 + a i 2 X 2 + a i 3 X 3 +. . . . . . . . . . . . . . a i p X p
Where
Z I = Magnitude of the variable
a i p = The factor loading of variable i on factor p
X p = The amount of association in magnitude of indicators, the uncorrelated trait
measured by factor p which is possessed by variable.
i = Factor loading with reference to indicators 1, 2, 3, . . . . p
p = A set of common factors (1, 2, . . . . . p)
a i p X p = Factor co-efficient or loading of variables i on factor p
This reduction is achieved by transforming to a new set of variables, the principal
components or dimensions, which are uncorrelated, and which are ordered so that the first
few retain most of the variation present in all of the original variables. The first principal
component or dimension absorbs and accounts for the maximum possible proportion of the
total variation in the set of all variables, the second principal component or dimension absorbs
the maximum of the remaining variation (after allowing for the variation accounted for by the
first dimension) and so on.
The main purpose of adopting principal component analysis was to know the most
important factors that influence the poultry farmers to go in for contract and also to quantify
the most probable reasons why the farmers are not in contract.
To transform these variables, Varimax rotation method with Kaiser normalization is
used.
Once a set of factors / reasons are transformed by successfully extracting the largest
common elements, then the principal component or dimension with Eigen value less than one
would be eliminated as per Kaisers rule (Kaiser, 1960). Those principal components whose
Eigen values are greater than or equal to one would be retained to determine the number of
components in the present study. Each component measures the dimension of influence and
it is possible to correlate a component with a group of variables.
While selecting the variables from the various extracted dimensions, greater and
positive values from rotated component matrix (Varimax rotation method) was selected from
their respective dimensions.
3.5.2 Tabular analysis
Tabular analysis includes tabulation of collected data using simple average and
percentages in order to facilitate easy comparison.
Simple average and percentages were worked out to estimate costs and returns in
broiler poultry farming by contract and non contract poultry units
3.5.3 Cluster analysis
Grouping or Clustering is a distinct form of classification pertaining to a known
number of groups and the operational objective is to assign new observations to one of these
groups.
Cluster analysis is a formal multivariate analysis technique, more primitive where in
no assumptions are made concerning the number of groups or a group structure. Grouping is
done on the basis of similarities or distances (dissimilarities). The analysis commences with
the data set of independent variables of the samples, later on which leads to formation of
homogeneous groups.
The cluster analysis technique was adopted to analyze the opinion of farmers who
are in contract as well as independent farmers regarding the problems they usually face.
In order to study the problems faced by both categories of farmers clusters were
formed using Average distance method also known as Average Linkage Method.
Initially, each variable was considered as a separate cluster, and then the two most
similar variables were grouped to form a cluster. This amalgamation process was continued in
a stepwise fashion until a single cluster was formed. The absolute values of correlation
coefficient
were used as a measure of similarity and the co-efficient were converted to the scale
of 0 to 100. It was presumed that, higher the similarity measured values of the formed cluster,
greater were the degree of association of that cluster, with the problems faced by the farmers.
3.5.4 Ratio analysis
Ratio Analysis includes meat-feed price ratio and benefit-cost ratios, which were
calculated to know the viability of the business
Meat-feed price ratio =
Benefit cost ratio =
3.6 DEFINITION OF TERMS AND CONCEPTS USED IN THE
STUDY
1. Variable costs
The variable costs include costs incurred on variable inputs such as feeds, docs,
medicines and vaccines, labour, litter material, supplementary feeds, water and electricity
charges, repairs and maintenance transportation and interest on working capital.
2. Interest on working capital
This was calculated at the rate of 11 per cent per annum for the duration of a
production cycle on the total amount borrowed for working capital.
3. Fixed costs
These include interest on fixed capital and depreciation on poultry shed and poultry
equipment.
The calculation of interest and depreciation is as follows:
Interest on fixed capital
This was calculated at the rate of 11 per cent on the total cost incurred on shed
construction and equipments.
Depreciation charges
Depreciation on poultry shed was calculated using straight-line method. i.e.,
Value of meat produced per bird
Value of feed consumed per bird
Gross returns from output sale
Total input costs
Annual Depreciation =
Depreciation on poultry equipment was calculated using sunk method. i.e.,
D=
R = Rate of interest on depreciation.
C = Total costs on equipment
S = Scrap value
N = No. of years of equipments usefulness
4. Broiler : A young bird of either sex, up to seven to nine weeks of age and weighing
about 2 2.8 Kg usually of the meat type breeds.
5. DOC : A Day old Chick, sent immediately for rearing just in a day after hatching.
6. Litter material : Accumulation of materials or a single type of material used as
bedding material.
7. FCR : It is the ratio of amount of feed consumed to the total body weight obtained.
8. Live bird : Unprocessed form of poultry just out of rearing.
9. Cycle or batch : Group of birds reared together for a particular / fixed period of
time.
10. Contracting firm / Integrator : Poultry firm which is in vertical integration with
poultry forms. It provides inputs and finally procures birds after a specific pre-fixed
period and at a pre-fixed growing cost.
11. Flock size : Total number of birds reared per cycle / hatch.
Amount spent on construction Junk value
Useful life of the shed (in year)
R (C-S)
(1=R)N-1
IV. RESULTS
In consistence with the objectives of the study, the necessary data collected from
different sources were analyzed and interpreted. The results of such analysis are presented in
the chapter under the following broad heads.
4.1 Factors influencing the poultry farmers to go in for contract and reasons for not
entering into contract.
4.1.1 General Characteristics of Sample Poultry Farmers.
4.1.2 Factors influencing the farmers to enter into a poultry production contract.
4.1.3 Factors affecting the farmers for not entering into contract in poultry production.
4.2 Factors considered by the poultry firms to award contracts.
4.3 Inputs procurement management by contract and non-contract farmers.
4.3.1 The total value of inputs procured by contract farmers.
4.3.2 The total value of inputs procured by non-contract farmers.
4.3.3 Sources of inputs procurement by non-contract farmers.
4.4 Production management by contract and non-contract poultry farmers.
4.4.1 Comparison of cost in production by contract and non-contract farmers.
4.5 Marketing management of output by non-contract farmers.
4.5.1 Channels identified for marketing of broilers by non-contract farmers.
4.5.2 Returns obtained by non-contract farmers under different channels of marketing.
4.5.3 Cost and returns structure in production activities by contract and non-contract
farmers.
4.6 Problems faced by farmers and firms in contract and non contract in production.
4.6.1 Problems faced by the contract poultry farmers.
4.6.2 Problems faced by non-contract poultry farmers.
4.6.3 Problems faced by the integrators/ contracting firms in poultry production activities.
4.1 FACTORS INFLUENCING THE POULTRY FARMERS TO
GO IN FOR A POULTRY CONTRACT AND REASONS FOR
NOT ENTERING INTO CONTRACT
4.1.1 General characters of sample poultry farmers
The general characteristics of the contract as well as non-contract poultry farmers are
presented in the Table 4.1.
It could be seen from the Table that the average age of poultry farmers in case of
contract was 43.27 years, whereas in case of non-contract farmers it was 41.48 years. About
63 per cent of contract farmers occupy poultry business as primary occupation, where as it
was only 26 percent of noncontract farmers occupied poultry as primary occupation. Further
36 per cent of contract farmers took poultry as a subsidiary enterprise and 73 per cent of
noncontract
farmers took it as secondary enterprise. The average flock size per batch was 4274
birds in case of contract farmers and it was 3482 birds in case of non-contract farmers.
Table 4.1: General characteristics of sample poultry farmers
Sl.
No.
Particulars Units Contract farmers Non-contract farmers
1 Average age of the farmers Yrs 43.27 41.48
2 Occupation (respondents) Nos.
Primary occupation 19 (63.33) 8 (26.66)
Subsidiary occupation 11 (36.66) 22 (73.33)
3 Average flock size per batch (Nos.) Nos. 4274 3482
4 Average number of production cycles / batches per year. Nos. 4.60 3.75
5 Average installed capacity Sq.ft. 4816.66 3966.60
Note-Figures in parenthesis indicate percentage to the total sample size
The contract farmers reared about 4.6 batches per year as compared to 3.75 batches
reared by non-contract farmers. The average installed capacity was 4816.66 Sq.ft. in case of
contract farmers and 3966.6 Sq. ft. in case of non-contract farmers.
4.1.2 Factor influencing the farmers to go in for a contract in poultry
production
The technique of principal component analysis was employed for studying the factors
that influenced the farmer to enter into a poultry contract and various reasons for not entering
into any contract.
Varimax rotation method was used and separate analysis was done for both
categories i.e. contract and non-contract farmers.
The factors which influence the poultry farmers to go in for a contract and noncontract
were considered. There are a total of 12 factors relating to production, marketing,
socio-economic characters, contracting terms were considered and subjected to principal
component analysis.
In the case of contract farmers, 12 factors/variables were considered emphasizing the
factors influencing to go in far a contract in poultry production. In this principal component
analysis, five dimensions were extracted and considered for interpretation.
The variance explained in absolute values registered a decreasing trend from first
dimension to all other succeeding dimensions. It can be seen from the Table 4.2 that the
percentage variation was 21.197 in first dimension, which decreased at 8.878 in the fifth
dimension. All the five dimensions extracted together explained 69.542 percent.
The factors influencing farmers to be in contract and extracted dimensions of principle
components are presented in Table 4.2 and the factor loadings for different factors/variables
obtained from factor analysis are presented in Table 4.3.
First dimension
Out of 12 variables, 4 variables showed higher factor loadings on the first dimension
than on the second and subsequent dimensions. While, two variables had relatively higher
factor loadings on the second dimension than on first. Similarly two variables in the third
dimension had relatively higher factor loadings than on the first and second dimension. In the
fourth dimension 2 variables showed relatively higher factor loadings than first, second and
third. At the fifth dimension only one variable showed relatively higher factor loadings than the
first four dimensions. All the variables in all the five dimensions were relatively associated
among themselves.
On the first dimension, the factor loadings varied from 0.789 to 0.438. Among the
variables buy-back agreement and timely availability of critical inputs had higher factor
loadings of 0.789 in both variables. Further, risk involved in independent business and
transportation facility had relatively low factor loadings of 0.580 and 0.438 in that order
The second dimension
The key variables identified in this dimension are Technical guidance (0.850) and
improved access to market (0.716). This dimension explained 15.467 percent of variation
Third dimension
The third dimension explained 13.488 per cent of variation. Two variables appeared
on this dimension had higher factor loadings than in any other dimensions. The variables
were annual income (0.787) and education level (0.627).
Table 4.2: Factors influencing farmers to be in contract in poultry farming and extracted
dimensions of Principal components
Dimensions
Sl.
No.
Codes Variables/ Factors
I II III IV V
1 F1 Age of the farmer -0.154 -0.171 -0.176 0.819 -1.27E-02
2 F2 Annual income -4.46E-03 -0.150 0.787 -5.73E-02 -2.32E-02
3 F3 Educational level -0.190 0.305 0.627 3.22E-02 9.88E-02
4 F4 Land holding 0.129 0.196 0.443 0.611 -0.227
5 F5 Favourable contracting terms 6.44E-02 7.55E-02 4.39E-02 -0.123 0.939
6 F6 Assured credit -0.762 -0.109 0.297 -0.196 -0.232
7 F7 Improved access to market 0.141 0.716 0.261 0.151 0.162
8 F8
Timely availability of critical
inputs
0.789 5.82E-02 -1.76E-02 -0.250 -0.320
9 F9 Technical guidance 6.93E-02 0.850 -0.154 -0.151 -3.31E-02
10 F10 Buy back agreement 0.789 0.197 0.184 2.78E-02 6.84E-02
11 F11 Transportation facility 0.438 -0.419 0.437 0.138 0.118
12 F12
Risk involved in independent
business
0.580 -0.206 -0.176 -0.358 9.33E-02
Eigen values 2.544 1.856 1.619 1.261 1.065
Variation (V) 21.197 15.467 13.488 10.512 8.878
Cumulative variation (%) 21.197 36.664 50.152 60.664 69.542
Table 4.3: Variables with relatively higher factor loadings in different dimensions on the
factors influencing farmers to be in contract in
poultry farming
First dimension variables (I PC)
Codes Factor loadings
F10 Buy back agreement 0.789
F8 Timely availability of critical inputs 0.789
F12 Risk involved in independent business 0.580
F11 Transportation facility 0.438
Percentage variation 21.197
Second dimension variables (II PC)
Codes Factor loadings
F9 Technical guidance 0.850
F7 Improved access to market 0.716
Percentage variation 15.467
Third dimension variables (III PC)
Codes Factor loadings
F2 Annual income 0.787
F3 Educational level 0.627
Percentage variation 13.488
Fourth dimension variables (IV PC)
Codes Factor loadings
F1 Age of the farmer 0.819
F4 Land holding 0.611
Percentage variation 10.512
Fifth dimension variables (V PC)
Codes Factor loadings
F5 Favorable contracting terms 0.939
Percentage variation 8.878
Note- PC = Principal Component
Fourth dimension
This dimension explained 10.512 per cent variation with variables like age of the
farmer (0.819) and land holding (0.611). The factor loadings of these variables were found to
be higher in this dimension than in any other dimensions.
Fifth dimension
The dimension had only one variable and explained about 8.878 per cent of variation.
The variable, favourable contracting terms had a factor loading of 0.939.
4.1.3 Factors influencing the farmers for not entering into contract in poultry
production
In this case also, 12 important reasons / variables were identified. Four dimensions
were extracted because all the variables captured in the first four dimensions itself and all
were considered for interpretation.
The factors considered by the farmers for not going into contract in poultry farming
and extracted dimensions of principle components are presented in the Table 4.4 and extent
of variation explained by different dimensions on the factors considered by the farmers for not
going into any contract are presented in the Table 4.5.
The first dimension explained about 22.761 per cent of variation, which decreased to
14.827 per cent in the fourth dimension. All the four dimensions extracted together explained
72.192 per cent variation through Principal Component Analysis.
Out of 12 variables, three variables showed a higher factor loadings on the first
dimension than on any other dimension. While two variables had relatively higher factor
loadings on second dimension than on any other dimensions. Similarly, three variables in
third dimension had relatively higher factor loadings than on any other dimensions. The fourth
dimension had three variables whose factor loadings were relatively higher than in any other
proceeding dimensions.
The First dimension
On the first dimension, the factor loadings varied from 0.892 to 0.421, where as on
the second dimension the factor loadings were 0.716 and 0.604. In the third dimension, the
factor loadings ranged from 0.647 to 0.463, where as in fourth dimension it ranged from 0.854
to 0.594.
The first dimension explained about 22.761 per cent variation, the second dimension
explained 17.524 per cent variation, the third dimension explained 17.081 per cent variation
and the fourth dimension explained variation of about 14.827 per cent.
Among the variables, high initial investments had the highest factor loading of 0.892.
Further, lack of infrastructure and rigid prescribed standards had relatively low factor loadings
of 0.791 and 0.421 in that order.
The second dimension
The second dimension possessed only two variables which had higher factor
loadings on the second dimension than on any other. This dimension explained 17.524 per
cent variation. The variables identified were poultry farming is taken as subsidiary occupation
(0.716) and no insurance offered by the firm (0.604).
The third dimension
The third dimension explained 17.081 per cent of variation, three variables appeared
on this dimension had higher factor loadings than any other dimensions. The variables were
difficulty in contract execution (0.647), lack of contract information (0.548) and not satisfied
with contract formalities (0.463).
Table 4.4: Factors considered by the farmers for not going into any contract in poultry
farming and extracted dimensions of principal
components
Dimensions
Sl.
No.
Codes Variables/ Reasons
I II III IV
1 R1 Farm size .204 .152 -.762 -1.979E-02
2 R2 Annual income -.226 .433 -.175 .736
3 R3 Lack of infrastructure .791 -.350 -5.937E-02 -9.773E-02
4 R4 Rigid prescribed standards in contract .421 -.763 -.207 5.842E-02
5 R5 Loss during previous contract -.663 1.041E-02 .170 .594
6 R6 Difficulty in contract execution -.136 5.290E-02 .647 5.365E-02
7 R7 Poultry farming is taken as subsidiary occupation .210 .716 -.286 .106
8 R8 Poor services by contracting firm 5.235E-02 -.108 .181 .854
9 R9 Lack of information about contracting firms -.107 .476 .548 .354
10 R10 Not satisfied with contract formalities -.723 .111 .463 2.613E-02
11 R11 High initial input costs .892 .236 -.132 -1.512E-02
12 R12 No insurance offered by the firm -1.379E-02 .604 .545 1.165E-02
Eigen values 2.731 2.103 2.050 1.779
Variation (V) 22.761 17.524 17.081 14.827
Cumulative variation (%) 22.761 40.285 57.366 72.192
Table 4.5: Variables with relatively higher factor loadings in different dimensions on the
factors
considered by the farmers for not going into any contract in poultry farming
First dimension Variables (I PC)
Codes Factor loadings
R11 High initial investments 0.892
R3 Lack of infrastructure 0.791
R4 Rigid prescribed standards 0.421
Percentage variation 22.761
Second dimension Variables (II PC)
Codes Factor loadings
R7 Poultry farming is taken as subsidiary occupation 0.716
R12 No insurance offered by the firm 0.604
Percentage variation 17.524
Third dimension variables (III PC)
Codes Factor loadings
R6 Difficulty in contract execution 0.647
R9 Lack of information about contracting firms 0.548
R10 Not satisfied with contract formalities 0.463
Percentage variation 17.081
Fourth dimension variables (IV PC)
Codes Factor loadings
R8 Poor services by firm 0.854
R2 Annual income 0.736
R5 Loss during previous contract 0.594
Percentage variation 14.827
Note- PC = Principal Component
Fourth dimension
This dimension explained 14.827 per cent variation with variables like poor services
by the firm (0.854), annual income (0.736) and loss during previous contract (0.594). The
factor loadings of these variables were found to be higher in this dimension than in any other
dimension.
4.2 FACTORS CONSIDERED BY THE FIRMS TO AWARD THE
POULTRY CONTRACT
Twelve important factors were identified and seven poultry firms were considered for
the study. The results are presented in Table 4.6 The Table depicts the factors along with their
percent share in the whole set of factors. The percentage share in the whole set of factors
ranged from 10.09 percent to 3.2 per cent. The major rated factors are availability of
infrastructure with farmer (10.09 percent), reduces cost of production and marketing of both
inputs and outputs (10.09 percent), distance from the main center (10.09 percent) and
performance in previous contract (10.09 percent) in the whole set.
Profits are more in contract arrangement and credibility of farmers were next major
factors with the percent share of 9.63 and 9.61, respectively.
The next block of factors include less risk in contract arrangements (8.71%),
preferred flock size (8.71%) and assured markets for their inputs (8.25%).
Other less rated factors are good demand for poultry in the market (6.42%), assured
supply of output to meet their contracted demand (5.5%) and possible to take organized
insurance (3.21%).
4.3 INPUTS PROCUREMENT MANAGEMENT BY CONTRACT
AND NON-CONTRACT POULTRY FARMERS
4.3.1 The total value of inputs procured by the contract farmers
In case of contract farmers, the major inputs viz., feeds, day old chicks (DOCs) and
medicines were supplied by the contracting firms. The total value of inputs procured by the
farmers from the firm and the amount spent by the farmers on litter material and feed
supplements in poultry production are summarized in Table 4.7
A. Procurement of inputs in a year
The total value of procurement of feeds in a year amounted to Rs. 7.061lakhs, DOCs
and medicine procurement amounted to Rs. 2.209 and Rs. 0.260 lakhs respectively. All these
above said inputs are supplied by the contracting firms.
The farmers spent Rs. 0.091 lakhs and Rs. 0.022 lakhs on procurement of litter
material and supplements respectively. These inputs were procured independently by
farmers. The total value of procurement of inputs per year amounted to Rs. 9.84 lakhs.
B. Procurement of inputs per batch
The value of feeds per batch amounted to Rs. 1.54 lakhs and the DOCs and
medicines value amounted to Rs 0.481 lakhs and 0.060 lakh respectively. The contracting
firm provides these inputs. The farmers spent Rs 0.020 lakh per batch on litter material and
Rs 0.005 lakh per batch on supplements procured by them.
Totally the value of procurement per batch in case of contract farmers amounted to
Rs 2.109 lakhs
Table 4.6: Factors considered by the firms to award the poultry contracts
(n=7)
Sl. No. Factors Percent share in the whole set of factors
1 Availability of infrastructure with farmer 10.09
2 Distance from the main center 10.09
3 Performance in previous contract 10.09
4 Reduces cost of production and marketing of both inputs and outputs 10.09
5 Profits are more in the contract arrangement 09.63
6 Credibility of the farmers 09.10
7 Less risk in this contract arrangements 08.71
8 Preferred flock size 08.71
9 Assured market for their inputs 08.25
10 Good demand for poultry in the market 06.42
11 Assured supply of output to meet their contracted demand 05.50
12 Possible to take organized insurance 03.21
Total 100
Table 4.7: Total value of inputs procured by contract farmers from the contract firm
Sl.
No.
Inputs
Per year
(Rs in lacs)
Per batch
(Rs in lacs)
Per bird
(In Rs)
1. Feed* 7.061 1.543 35.89 (74.01)
2. DOCs* 2.209 0.480 11.16 (22.61)
3. Medicines & vaccines* 0.260 0.060 1.31 (2.67)
4. Litter material 0.091 0.020 0.43 (0.90)
5. Supplements (feed) 0.022 0.005 0.10 (0.20)
Total 9.83 2.109 48.89 (100)
Note - * inputs provided by contracting firm at no costs to the farmers
Figures in parenthesis indicate percentage to the total
C. Procurement of inputs per bird
The value of feed procurement per bird was about Rs. 35.89, which was about 74
percent of the value of procurement of inputs in production of poultry. The value on DOCs
and medicine procured per bird amounted to Rs. 11.16 and Rs. 1.31 respectively, which
accounted to about 22.62 per cent and 2.67 per cent of the total value of inputs procured by
the farmer.
The value spent on litter material and supplements procured per bird by the farmer
were accounted to Rs. 0.43 and Rs. 0.10 respectively per bird. This accounted for 0.90
percent and 0.10 percent respectively. Total value of inputs procured per bird was Rs. 48.89.
4.3.2 Total value of inputs procured by non-contract farmers
The value of procurement of various inputs by non-contract farmers are presented in
the Table 4.8.
All the inputs were procured independently through various sources such as dealers,
integrators and local market. The particulars about the sources of input procurement by
noncontract
farmers are presented in the Table 4.9.
A. Procurement of inputs in a year
In case of non contract farmers a total of Rs. 6.915 lakhs per year was spent for
input procurement through various sources. Among various inputs Rs. 4.977 was spent on
feed procurement, Rs. 1.573 lakhs was spent for procurement of DOCs, Rs 0.280 lakh spent
on medicine.
The amount spent on litter material and supplements accounted to Rs. 0.054 lakh
and Rs. 0.030 lakh respectively in a year.
B. Procurement of inputs per batch
The value of feed procurement per batch amounted to Rs. 1.324 lakhs. Rs. 0.435
lakh was spent on DOCs, Rs. 0.074 lakhs was spent on medicines. The value of
procurement of other inputs such as litter material and supplements amounted to Rs. 0.014
lakh and Rs. 0.007 lakh respectively per batch. Totally, the farmers spent about Rs. 1.84
lakhs on inputs per batch.
C. Procurement of inputs per bird
The total amount of inputs per bird in case of non-contract farmers amounted to Rs.
52.81. The total amount of inputs procured, feed was major item of input as it accounted for
Rs. 38.02 constituting about 72 per cent of total value of procurement of inputs per bird. Rs.
12.02 was spent on DOC, which accounted for 22.76 per cent of the total amount spent per
bird. The amount spent on medicine per bird was Rs. 2.14 accounting for 4.08 percent. Other
inputs like litter material and supplements were accounted to Rs. 0.41 (0.79%) and Rs. 0.22
(0.41%).
4.3.3 Source of inputs procurement by non-contract farmers in a year
The source of procurement of inputs by non-contract farmers in a year is presented in
Table 4.9
The non-contract farmers procured inputs through various sources. The three
sources identified were poultry dealers, integrators (Contracting firms) and the local market.
About 19 farmers (63.33% of the total farmers) procured DOCs from poultry dealers,
where as 6 farmers (20%) procured from integrators and 05 (16.67%) farmers resorted to
local markets for procuring the DOCs.
In case of feeds, about 18 farmers (60%) procured the feeds from dealers and about
03 farmers (10%) procured it from integrators. The number of farmers who procured feeds
Table 4.8: Total value of inputs procured by non-contract farmers in the market
(Rs.)
Sl. No. Inputs
Per year
(Rs in lacs)
Per batch
(Rs in lacs)
Per bird
(In Rs)
1. Feed 4.977 1.324 38.02 (72.08)
2. DOCs 1.573 0.435 12.02 (22.76)
3. Medicines & vaccines 0.280 0.074 2.14 (4.05)
4. Litter material 0.054 0.014 0.41 (0.79)
5. Supplements (feed) 0.030 0.007 0.22 (0.41)
Total 6.951 1.840 52.81 (100)
Note: Figures in parenthesis indicate percentage to the total
Table 4.9: Source of inputs procurement by non-contract farmers
(n=30)
Inputs Source Number of farmers
Poultry dealer 19 (63.33)
Integrator 06 (20.00)
Local market 05 (16.67)
DOCs
Total 30 (100)
Poultry dealer 18 (60.00)
Integrator 03 (10.00)
Local market 09 (30.00)
Feeds
Total 30 (100)
Poultry dealer 21 (70.00)
Local Medicines & vaccines market 09 (30.00)
Total 30 (100)
Poultry dealer 07 (23.33)
Supplements (feeds) Local market 23 (76.67)
Total 30 (100)
Poultry dealer 11(36.67)
Litter material Local market 19 (63.33)
Total 30 (100)
Note- figures in the parenthesis indicates percentage to total sample size
from local market was 09 (30%).
About 21 farmers (70%) procured medicines through dealers as compared to 9
farmers (30%) who choose local market for their inputs.
In case of supplements, majority of farmers (23 farmers) procured from local markets
(76.67%) and about 07 farmers (23.33%) procured it from poultry dealers. For litter material
procurements, 19 farmers (63.33%) choose local market and about 11(36.67%) bought it from
poultry dealers.
4.4 PRODUCTION MANAGEMENT BY CONTRACT AND NONCONTRACT
FARMERS
The poultry farmers in the production activities incurred many costs. However,
contract farmers get the inputs such as DOCs, feed and medicines for production directly
from the contract firms and some of the other inputs like litter material and supplements
incurred by the farmers themselves. At the same time contract farmers owned physical
infrastructure for production of poultry. There is a buy-back agreement existing in this kind of
production activity. The technical guidance and supervision by a doctor will be provided by the
contracting firms.
In the non-contract scenario, the poultry farmers purchase entire inputs by
themselves from different sources. Hence, costs involved in poultry production are presented
for comparison between contract and non-contract farmers.
4.4.1 Comparison of costs in poultry production by Contract and non-contract
farmers
The results with respect to various items of costs per year, per batch and per bird in
poultry rearing under contract and non-contract poultry farming are presented in Table 4.10.
A. Variable costs per year
Under contract poultry farming, the total variable cost per year was Rs. 40,815.13 and
in case of non-contract poultry farming it was Rs. 7,31,520.30. The major items of variable
costs incurred by both categories were that of feeds, DOCs and medicines which amounted
to Rs Rs 4,97,770.06, Rs 1,57,369.69 and Rs 28,017.57 respectively. In case of contract
farmers these inputs were supplied free of cost. Hence the major variable costs were labour
cost (Rs 11,730.00), litter material costs (Rs 9,100.80), transportation costs (Rs 5,252.80),
interest on working capital (Rs 4,044.80), electricity charges (Rs 3,540.95), water charges
(Rs. 2,455.00) and repair charges (Rs. 2,579.00)
In case of non-contracted category, the other set of costs were those of litter material
(Rs. 5,367.86), supplements (Rs. 2,977.91), electric charges (Rs. 2,558.28), water charges
(Rs. 1,864.68) and repairs and maintenance costs (Rs 1,705.50). The interest on working
capital was Rs. 10,958.38.
B. Variable costs per batch
Under contract poultry farming the total variable costs per batch (4274 chicks) was
Rs. 8,787.90 whereas in case of non-contract poultry farming it was Rs. 1,96,250.04 per
batch (3482 chicks).
The major items of variable costs incurred by both categories were that of feeds,
DOCs and medicines. The cost on feed amounted to Rs. 1,32,385.64 per batch. The
expenses incurred on DOCs were next to feed costs, which constituted about Rs 43,525.00
per batch. The third important item of variable costs was the expenses on medicines and
vaccines, which amounted to Rs 7,451.
In case of contract farming the above said inputs were supplied by the firm, hence the
major items of variable costs per batch was labour charges (Rs 2,550.00), litter material costs
Table 4.10: Costs in poultry production by Contract and non-contract Farmers
Rs.)
Contract Sl. Non-contract
No.
Costs
Per year Per batch Per bird Per year Per batch Per bird
A. Variable costs
1. Feeds -- -- -- 497770.06 132385.64 38.02 (65.20)
2. DOCs -- -- -- 157369.69 43525.00 12.50 (21.43)
3. Medicines & vaccines -- -- -- 28017.57 7451.48 2.14 (3.67)
A1- Total 683157.32 183362.12 52.66 (90.31)
4. Litter material 9100.80 1965.60 0.43 (11.46) 5367.86 1427.62 0.41 (0.70)
5. Supplements (feeds) 2111.28 456.00 0.10 (2.6) 2977.91 792.00 0.21 (0.36)
6. Labor charges 11730.00 2550.00 0.59 (15.73) 8680.00 2400.00 0.69 (1.18)
7. Water charges 2455.00 512.00 0.12 (3.20) 1864.68 492.00 0.14 (0.24)
8. Electricity charges 3540.95 755.00 0.17 (4.53) 2558.28 675.00 0.19 (0.32)
9. Repairs and maintenance 2579.50 550.00 0.14 (3.74) 1705.50 450.00 0.13 (0.22)
10. Transportation 5252.80 1120.00 0.26 (6.93) 14250.40 3760.00 1.08 (1.85)
11. Interest on working capital @ 11% p.a. 4044.80 879.30 0.28 (7.46) 10958.38 2891.30 0.83
(1.42)
A2-Total 40815.13 8787.90 2.09 (55.74) 48363.01 12887.92 3.68 ( 06.32)
12. A- Total (A1+A2) 40815.13 8787.90 2.09 (55.74) 731520.30 196250.04 56.36 (96.64)
B. Fixed costs
13. Interest on fixed capital @ 11% p.a. 19758.80 4212.32 0.98 (1.86) 14780.41 3899.84 1.12
(1.92)
14. Depreciation 13531.59 2885.20 0.67 (1.27) 11022.19 2908.22 0.82 (1.40)
15. B-Total 33290.39 7097.52 1.66 (3.15) 25802.60 6808.06 1.94 (3.32)
16 Grand total (12+15) 74105.52 15885.42 3.75 (100.00) 757322.90 203058.10 58.31
(100.00)
Note: Figures in parenthesis indicate percentage to the grand total
(Rs 1,965.60) and transportation costs (Rs 1,120.00).
The fourth and fifth important variable costs in case of contract farming were that of
electricity charges (Rs. 755.00), and repairs and maintenance (Rs. 550.00),
In case of non-contract category the fourth and fifth important costs are transportation
and labour charges, which accounted for Rs 3,760.00 per batch and Rs. 2,400.00 per batch
respectively.
The other set of costs in case of contract farming were the water charges (RS.
512.00) and cost on supplements (Rs 450.00). in case of non-contract category the other set
of costs per batch include litter material costs (Rs. 1,427.62), supplements (Rs. 792.00),
electricity charges (Rs. 675.00) and repairs and maintenance (Rs. 450.00).
The interest on working capital for contract farming amounted to Rs. 879.30.00 and
for non-contract farming it was Rs. 2,891.30 per batch.
C. Variable costs per bird
Under contract farming the total variable costs per bird was Rs. 2.09 (55.74% of total
costs), whereas it was Rs. 56.36 (96.64% of total costs) per bird in case of non-contract
category.
In contract farming the major inputs were supplied by the contract firms, as a result,
the major chunk of costs were that of labour, litter material and transportation which were
amounted for Rs 0.59 (15.74%), Rs 0.43 (11.46%) and Rs 0.26 (6.94%) respectively per bird.
In non-contract farming, the primary costs were feeds, DOCs and medicines. These
costs accounted for Rs 38.02 (65.20%), Rs 12.50 (21.43%) and Rs 2.14 (3.67%) respectively
per bird.
The fourth and fifth important costs in case of contract category were that of electricity
charges and repairs and maintenance which were Rs 0.17 (4.53%) and Rs 0.14 (3.73%)
respectively. On contrary, in case of non-contract category, transportation and labour charges
were fourth and fifth important costs which were Rs 1.08 (1.85%) and Rs 0.69 (1.18%)
respectively per bird.
The other important costs in case of contract farming were water charges (Rs 0.12)
and supplements (Rs 0.10). Similarly the other costs in non-contract farms were of litter
material (Rs 0.41), supplements (Rs 0.21), electricity charges (Rs 0.16), water charges (Rs
0.14) and repairs and maintenance (Rs 0.13).
D. Fixed costs per year
The fixed costs per year in case of contract farming amounted to Rs. 33,290.39. In
this, Rs. 19,758.80 was contributed by interest on fixed capital (@ 11% p.a.) and Rs.
13,531.59 was by depreciation on shed and equipments. In case of non-contract category the
fixed cost amounted to Rs. 25802.60. The interest on fixed capital (@ 11% p.a.) was Rs.
14,780.41 and depreciation was Rs. 11,022.19.
E. Fixed costs per batch
In contract farming, the fixed cost per batch amounted to Rs. 7,097.52, which
included interest on working capital (Rs. 4,212.32) and Depreciation (2,885.20). On the other
hand, the fixed costs per batch in case of non-contract category amounted to Rs. 6808.06.
The interest on fixed capital was Rs. 3,899.84 and depreciation value was 2,908.22.
F. Fixed cost per bird
The fixed cost per bird was Rs. 1.66 and Rs. 1.94 for contract and non-contract
category respectively. In case of contract farming the total fixed costs per bird contributed to
about 44.26 per cent to the total costs interest on fixed capital (Rs. 0.98) and depreciation
value (Rs. 0.67). On the contrary, in the non-contract category the fixed costs per bird
contributed to about 3.32% to the total costs with contribution of Rs. 1.12 per bird as interest
on fixed capital and Rs. 0.82 as depreciation value.
G. Grand total costs incurred by contract and non-contract categories
The grand total cost incurred by contract and non-contract farmers was found out to
be Rs. 15885 per batch and Rs. 203058 per batch, respectively. Similarly, grand total cost
incurred in per bird production was found out to be Rs. 3.75 and Rs. 58.31 in contract and
non-contract respectively.
4.5 MARKETING MANAGEMENT OF OUT-PUT BY NONCONTRACT
FARMERS
The marketing of out-put by the contract farmers does not arise because the farmer
has to hand over all the produce at the pre agreed price to the firm. How ever the noncontract
farmers has to sell his produce through different channels in the market. Hence
channels identified for marketing of non-contract firms, costs incurred and returns obtained by
them are indicated below under different headings.
4.5.1 Channels identified for marketing of broilers by non-contract farmers
The broilers produced / reared by the non-contract farmers are marketed to
consumers mainly through four different channels. The details of these identified channels are
presented in the Table 4.11.
4.5.2 Returns obtained by non-contract farmers under different channels of
marketing
The quantity and the value of broilers marketed under different channels are
presented in the Table 4.12. It could be seen from the Table that, on an average the
noncontract
farmers marketed maximum quantity of output through channel-I. It was 3960 Kgs,
followed by channel II, 2845 Kgs, channel III, 715 Kgs and channel IV. 112 Kgs.
The average price received per Kg of live bird found to be as high as Rs. 31.00 per kg
in channel IV and as low as Rs. 27 in channel-I.. Channel-II and Channel III received an
average price of Rs. 27.50 and Rs. 28.50 respectively per kg of live bird.
The total value obtained by marketing all products was Rs 2,07,357.00. Under
channel wise amount obtained, the highest was Rs. 1,06,920.00 which was obtained under
channel I. This was followed by Rs. 78,237.00 under channel-II. Under channel III and
channel IV the value obtained was Rs. 20,377.50 and Rs. 3,472.00 respectively. The
average costs incurred on handling, transportation, and loading & unloading, charges
amounted to Rs. 1650.00.
4.5.3 Cost and Returns structure in production activities by contract and
noncontract
farmers
The details of average output and returns obtained per batch are presented in the
Table 4.13.
In case of contract farming the average out-put produced and sold was 9396.60 Kgs.
The average selling price/ procurement price per Kg of bird was Rs. 2.57. Thus the gross
returns realized per batch were Rs. 24149.26. The costs incurred by the farmer amounted to
Rs. 18249.46 per batch. Thus average net returns were worked out after deducting the costs
incurred by the farmers and it amounted to Rs. 8263.84. The net return per bird was Rs. 1.94.
In case of non-contract farming the average output produced and sold was 7,632.00
Kgs. The average gross returns realized per batch by selling the produce were Rs.
2,07,357.00. Thus, average net returns were worked out after deducting the costs incurred by
farmers (Rs. 2,03,058.10) was Rs. 4,298.90. The net return per bird was worked out to be Rs.
1.23.
Table 4.11: Marketing Channels of broilers by non-contract farmers
Channel I Channel II Channel - III Channel IV
Producers Producers Producers Producers
Agents Wholesalers Retailers Consumers
Wholesalers Retailers Consumers
Retailers Consumers
Consumers
Table 4.12: Average quantity of broilers marketed and returns obtained per batch under
different marketing channels by
non-contract farmers
Sl. No. Channel
Quantity marketed per batch
(kg)
Price per Kg (Rs.) Value (Rs.)
1. Channel - I 3960.00 (51.88) 27.00 106920.00
2. Channel II 2845.00 (37.27) 27.50 78237.00
3. Channel III 715.00 (9.36) 28.50 20377.50
4. Channel IV 112.00 (1.46) 31.00 3472.00
Total 7632.00 (100) -- 209007.00
Marketing costs incurred
(handling, transportation and
loading unloading
1650.00
Total
207357.00
Table 4.13: Costs and Returns structure in poultry production of contract and non-contract
farmers
Sl. No. Particulars Units Contract Non-contract
1. Average output per batch Kgs 9396.60 7632.00
2. Selling price/ Procurement price by firm/ Market price
(non-contract)
Per Kg 2.57 27.17
3. Gross returns per batch Rs 24149.26 207357.00
4. Costs incurred per batch (by farmers) Rs 15885.42 203058.10
5. Net returns (per batch) Rs 8263.84 4298.90
6. Net returns per bird (p) Rs 1.94 1.23
7 Meat-Feed price Ratio - 1.74 1.56
8 B-C ratio - 1.52 1.02
The Meet-feed price ratio & the benefit-cost ratio in case of contract poultry farming
was 1.74 & 1.52 respectively. In case of the non-contract poultry farming these ratios were
1.56 & 1.02 respectively.
4.6 PROBLEMS FACED BY THE CONTRACT AND NONCONTRACT
POULTRY FARMERS
The technique of Cluster Analysis was employed to study the problems of contract as
well as non-contract farmers. These variables are grouped into different characters based on
the degree of similarity values as shown in the Table 4.14.
4.6.1 Problems faced by contract poultry farmers
For contract poultry farmers, 29 variables / problems were identified and were
grouped under three different aggregate clusters namely High aggregate cluster, medium
aggregate cluster and low aggregate cluster.
Out of 29 variables, 5 variables were grouped under high aggregate cluster namely
delay in payment, Non availability of credit in time, Lack of storage facilities, Inadequate
capital & Losses due to disease occurrences.
The degree of similarity values of this cluster ranged from 98 to 96. There were two
variables with similarity value of 98 at the top of high aggregate cluster.
The similarity values of medium aggregate cluster ranged between 84 and 82 and the
variables were high labour / wage rate, Influence of recent avian flu, Availability of supplement
feeds, Irregular input supply, Manipulations of norms, Contract termination, Market price
fluctuations with degree of similarity value of 84 followed by variables poor services by the
firm, Partiality towards big farmers and Lack of technical guidance with degree of similarity
value 82
In the low aggregate cluster, the similarities values ranged from78 to 62 with the
variables high initial investment, Non availability of medicines in time, Rigid norms, Difficulty
in
achieving the prescribed standards, Mortality rate, High rejection rate, Low contract price,
Scarcity of water, No compensation to losses, High input costs, Availability of DOC in time,
Availability of labour and No insurance
4.6.2 Problems faced by non-contract farmers
For non-contract poultry farmers, 21 variables / problems were identified and were
grouped under three different aggregate clusters namely High aggregate cluster, medium
aggregate cluster and low aggregate cluster.
The aggregation of these clusters are presented along with degree of similarity values
in the Table 4.15
Out of 21 variables, nine variables were found in high aggregate cluster, another five
variables were grouped in medium aggregate cluster and the remaining seven were included
in low aggregate cluster
The similarity values of high aggregate cluster ranged from 96 to 92 with the variables
namely High initial investment, Inadequate capital, Scarcity of water, Stability of channels,
Lack of technical guidance, Non availability of medicines in time, Losses due to disease
occurrences, Influence of recent avian flu and Returns not assured.
The similarity values of medium aggregate cluster ranged from 88 to 84 and included
variables like Non availability of credit, Availability of DOC in time, Market fluctuations, Lack of
storage facilities and Lack of organized marketing
In the low aggregate cluster, similarity values ranged from 78 to 60 with the variables
viz., Competition from established firms / outlets, Lack of info about good breeds, Lack of
Table 4.14: Aggregation of Clusters of Various Problems faced by the Contract Poultry
Farmers
Aggregation of
cluster
Variable Code Name of the Variable Degree of similarity
28, 18 Delay in payment, Non availability of credit in time
98
High
14, 15, 9 Lack of storage facilities, Inadequate capital, Losses due to disease
occurrences
96
3, 10, 4, 27, 21, 22,12,
High labor / wage rate, Influence of recent avian flu, Availability of
supplement feeds, Irregular input supply, Manipulations of norms,
Contract termination, Market price fluctuations
84
Medium
24, 23, 7 Poor services by the firm, Partiality towards big farmers, Lack of technical
guidance.
82
17, 8, 20, 11, High initial investment, Non availability of medicines in time, Rigid norms,
Difficulty in achieving the prescribed standards
78
5, 29, 19 Mortality rate, High rejection rate, Low contract price 76
6, Scarcity of water 74
26, No compensation to losses 72
16, 1, 2 High input costs, Availability of DOC in time, Availability of labour 68
Low
25 No insurance 62
Table 4.15: Aggregation of Clusters of Various Problems faced by the Non-contract Poultry
Farmers
Aggregation of
cluster
Variable Code Name of the Variable Degree of similarity
18, 19, 7, 17, 8, 9
High initial investment, Inadequate capital, Scarcity of water, Stability of
channels, Lack of technical guidance, Non availability of medicines in time
96
High
10, 13, 21
Losses due to disease occurrences, Influence of recent avian flu, Returns
not assured
92
20 Non availability of credit 88
2 Availability Medium of DOC in time 84
14, 16, 12 Market fluctuations, Lack of storage facilities, Lack of organized marketing 82
15, 1, 11
Competition from established firms / outlets, Lack of info about good breeds,
Lack of market information
78
4, 6, 5 High labor / wage rate, Mortality rate, Availability of supplementary feeds 62
Low
3 Labor scarcity 60
market information, High labour / wage rate, Mortality rate, Availability of supplementary feeds
and Labor scarcity
4.6.3 Problems faced by the contracting firms
The firms were asked to voice their opinion and rate the seven pre-listed problems,
which they usually face while executing the poultry contracts.
The percent share of each problem in the total listed problems ranges from as high as
18.4 percent to as low as 9.5 percent in the whole set of problems faced by the firms and is
presented in Table 4.16.
The major problem faced by the integrator or contracting firm was the problem of
fluctuating demand for poultry products with 18.38 per cent in the whole set. This is followed
by the problem of poultry diseases and the recent avian flu with 17.64 per cent, input
diversion by farmers (15.44 percent), the problem that farmers wont comply with prescribed
standards (14.70 percent).
The other problems such as extra contractual sales by farmers (12.5%), selection of
appropriate farmers (11.76%) and procurement problems (9.55%) were considered least
among the considered problems.
Table 4.16: Problems faced by the Integrators/ Contracting firms
(n =7)
Sl. No. Problems
Percent share of
each problem
1 Fluctuating demand for poultry products 18.38
2 Poultry diseases and the recent avian flu 17.64
3 Input diversion by farmers 15.44
4
Farmers wont comply with prescribed
standards 14.70
5 Extra contractual sales by farmers 12.50
6 Selection of appropriate farmers 11.76
7 Procurement problems 09.55
V. DISCUSSION
The results of the study are discussed in this chapter under the following headings.
5.1 Factors influencing the poultry farmers to go in for contract and reasons for not
entering into contract
5.1.1 General Characteristics of Sample Poultry Farmers
5.1.2 Factors influencing the farmers to enter into a poultry production contract
5.1.3 Factors affecting the farmers for not entering into contract in poultry production
5.2 Factors considered by the poultry firms to award contracts
5.3 Inputs procurement management by contract and non-contract poultry farmers
5.3.1 The total value of inputs procured by contract farmers
5.3.2 The total value of inputs procured by non-contract farmers
5.3.3 Sources of inputs procurement by non-contract farmers
5.4 Production management by contract and non-contract poultry farmers
5.5 Comparison of cost in poultry production by contract and non-contract
5.6 Marketing management of output by non-contract farmers
5.6.1 Channels identified for marketing of broilers by non-contract farmers
5.6.2 Returns obtained by non-contract farmers under different channels of marketing
5.6.3 Cost and returns structure in production activities by contract and non-contract
farmers
5.7 Problems faced by farmers and firms in contract and non-contract poultry production
activities
5.1 FACTORS INFLUENCING THE POULTRY FARMERS TO
GO IN FOR CONTRACT AND REASONS FOR NOT
ENTERING INTO CONTRACT
5.1.1 General characteristics of sample poultry farmers
The general characteristics of the sample farmers include their average age, details
about their poultry occupation, i.e. whether the poultry occupation is taken up as a primary or
as subsidiary occupation, details regarding the flock size, production cycles/batches per year
and average installed capacity.
The results revealed that there is no huge difference in the average ages of contract
and non-contract farmers. In case of contract farmers the average age was 43.27 years and it
was 41.48 years in case of non-contract farmers. The most interesting point, which can be
noted, is that the aged and experienced farmers have taken the poultry activities as against
the younger farmers who seem to be risk averse.
It was found that most of the contract farmers (63.33%) took up poultry as a primary
occupation where as in case of non-contract farmers it was very less (26.66%). On the
contrary, more non-contract farmers (73.33%) have taken up the poultry activities as
subsidiary occupation when compared to contract farmers (36.66%). This may be because of
non-rigidity in production procedure.
The figures presented in the Table 4.1 showed that the average flock size per batch
was more in contract farmers when compared with that of non-contract farmers. It was 4274
birds per batch in case of contract farmers against 3482 birds in case of their non-contract
counterparts may be because of less risk with better technical guidance from the contracting
firms.
It was found from the study (Table 4.1) that the average number of production
cycles/batch per year was 4.6 in case of contract farmers as against 3.75 cycles/year in
noncontract.
This can be attributed mainly to the fact that for the majority of contract farmers,
poultry is the primary occupation. It could also be seen from the Table 4.1 that the average
installed capacity of poultry farms of contract farmers was higher (4816.66 sq ft) than that of
non-contract farmers. The findings of the study are in confirmation with the findings of Verma
and Singh (1997).
5.1.2 Factors influencing contract farmers to enter into a poultry contract
The technique of Principle Component Analysis was adopted to identify the most
important factors having a bearing on the farmers to go in for a poultry contract.
Twelve variables were subjected to Principle Component Analysis and five principle
components were extracted, Out of these variables, 4 variables had higher factor loading in
the first dimension, 2 variables each in second, third and fourth dimensions and a variable
had a higher factor loading in fifth dimension (Tables 4.2 and 4.3).
First dimension
This includes the variables such as buy back agreement, timely availability of vital
inputs, risk involved in independent business and transport facility, which had accounted for
21.197%. This clearly indicates that these variables are largely responsible to propel the
farmers to go in for a contract. Also, this was clearly indicated by the Principle Component
Analysis technique where in the variables had been captured in the first dimension itself
indicating their prime importance. As this dimension explains higher variation than any other,
it can be termed as prime dimension.
Second dimension
The second dimension was able to explain 15.46% of variation and captured two
variables namely technical guidance and improved access to market. These were considered
as the next best factors influencing the farmers to go in for a poultry contract.
Third dimension
The third dimension captured the variables such as annual income and education
level, accounting for 13.48 percent in influencing the farmers to go in for poultry contract.
These variables are considered as the next best factors after the designated factors in first
and second dimensions respectively.
Fourth dimension
The fourth dimension was able to explain 10.51% of variation and captured two
variables namely, age of the farmer and land holdings. These were considered as the best
variables in this dimension influencing the farmers to go in for a poultry contract after
accounting to previous three dimensions.
Fifth dimension
This captured a single variable namely, the favorable contracting terms, which had
reasonable influence on farmers to go in for a poultry contract. This variable was considered
in this dimension after accounting to all previous dimensions. The findings are in conformity
with the findings of Begum (2005) and Gnanakumar (2004).
5.1.3 Factors affecting the farmers for not entering into contract in poultry
production
The technique of Principle Component Analysis was adopted to identify the most
important reasons that had an influence on the farmers for not entering into a contract in
poultry production.
Twelve reasons/ variables were identified and were subjected to Principle Component
Analysis and four principle components were extracted. Out of all these 12 reasons, 3
variables had higher factor loading in the first dimension, two variables in second dimension
and three variables each in third and fourth dimensions had higher factor loadings ( Tables
4.4 and 4.5 ).
First dimension
The first dimension captured variables such as high initial investments, lack of
infrastructure and rigid prescribed standards, which had account for 22.76 percent variation.
This indicates that the above said variables had a maximum influence on the farmers to
restrict themselves and there by not entering any poultry contract. These variables can be
considered as best amongst all the variables, which had direct influence on the farmers.
Second dimension
The second dimension captured the variables such as poultry taken as subsidiary
occupation and no insurance offered by the firms, accounting for 17.52 percent variation.
These variables were considered as next best reasons influencing the farmers for not
entering any poultry contract.
Third dimension
The third dimension was able to explain 17.08 percent and captured three variables
namely, difficulty in contract execution, lack of information about contracting firms, and not
satisfied with contract formalities. The above said variables were taken as next best reasons
that have influenced the farmers for not entering any poultry contract.
Fourth dimension
This dimension accounted for the 14.82% variation by capturing these variables
namely poor service by the firms, annual income and loss during previous contract. These are
the last set of variables that had influenced the farmers in deciding on the poultry contract.
5.2 FACTORS CONSIDERED BY THE FIRMS TO AWARD THE
POULTRY CONTRACT
The results of Table 4.6 revealed that the firm expects loyalty and thorough
knowledge of production activities from the farmers in order to meet their expectations in
production and hence look through various dimensions before awarding any contract.
Twelve pre-listed factors were rated by 7 firms. Four factors namely availability of
infrastructure with farmers, distance from the main center, performance in previous contract
and reduction in cost of production and marketing of both inputs and outputs, were
considered with high regards by the poultry firms before awarding any poultry contract. This
indicates that the firms are very particular about the above said four factors.
The next rated factors were profits are more in contract arrangement and credibility of
farmers, which indicates the mandate of any poultry firms in preferring and executing poultry
contracts.
Factors such as less risk in contract arrangement, preferred flock size and assured
market for produce were rated in third preference by firms. Other factors like good demand for
poultry in the market, assured supply of output to meet their contracted demand and possible
to take organized insurance were rated less in consideration for awarding poultry contracts.
All these factors indicate the visional aspects of the firm looking towards their
production, demand, supply, profits and stability of their firms. The findings of the study are in
confirmation with the findings of Vinayaka (2005).
5.3 INPUTS PROCUREMENT MANAGEMENT BY CONTRACT
AND NON-CONTRACT FARMERS
Inputs are the base for any production enterprise and form a major block in strategic
planning and management. In poultry the major inputs are the feeds, docs and medicines, but
in case of contract farming these inputs are supplied by the firm and hence the farmers wont
incur any cost on these but other inputs such as supplements, litter material, electricity and
other minor materials are supplied by the farmers themselves. In case of non-contract farmers
all the inputs are purchased and procured by themselves.
5.3.1 Total value of inputs procured by the contract farmer
A. Procurement of inputs in a year
It was estimated from the study that the total value of procurement of feeds in a year
amounted to Rs. 7.06 lakhs. It was Rs. 2.20 lakhs in case of DOCs and Rs. 0.26 lakhs in case
of medicines. The farmers have not incurred any costs in the above said inputs as the
contracting firms provide all these inputs. The burden of purchasing and executing the
procurement is largely off from the farmers shoulder and this can be termed as the main
essence in the setup of contract poultry farming.
On the other hand, the value of procurement of litter material and supplements
amounted to Rs. 0.091 lakhs and Rs. 0.022 lakhs respectively. The total value of procurement
of inputs per year by a contract farmer amounted to Rs. 9.83 lakhs.
B. Procurements of inputs per batch
From the results of Table 4.7, it could be seen that the value of feeds was the major
one, which amounted to Rs. 1.543 lakhs. This was followed by the value of DOCs and
medicines, which amounted to Rs. 0.48 lakhs and Rs. 0.06 lakhs respectively. The value of
procurement of litter material and supplements amounted to Rs. 0.02 lakhs and Rs. 0.005
lakhs respectively. The total value of input procurement amounted to Rs. 2.109 lakhs per
batch.
C. Procurement of inputs per bird
In the present study, the value of inputs procurement per bird was estimated in order
to know the fine picture of input procurement by the contract poultry farmers. From the Table
4.7 it could be revealed that the value of input procurement the major inputs such as feeds,
DOCs and medicines amounted to Rs. 35.89, Rs. 11.16 and Rs. 1.31 respectively, which is
almost 99% of the total inputs. In this feeds contributed about 74% to the total value, where
as DOCs and medicines contributed 22.61% and 2.67% respectively. On the other hand the
contribution of litter material and supplements was very meager and was only about Rs. 0.43
(0.90) 0 and Rs. 0.10 (0.20%) respectively. The total value of inputs procured per bird
amounted to Rs. 48.89. From the study it could be clearly inferred that in case of contract
poultry farmers, the inputs procurement is a relatively easy scenario with out high risks of
transport and price modulations and meager amount spent in the production activity, because
of economies of scale.
5.3.2 Total value of inputs procured by the non-contracted farmers
A. Procurement of inputs per year
The important and distinguished point that should taken note of it is the way of
procurement of inputs, which comes to the farmers through different avenues and channels.
The total values of input procurement by non-contract farmer are presented in the Table 4.8,
which reveals that the different values of input procurement per year, per batch and per bird.
The total value of procurement of feeds was highest (Rs. 4.97 lakhs) followed by DOCs and
medicines (Rs. 1.57 lakhs and 0.280 lakhs in that order). The value of litter material
procurement was Rs. 0.054 lakhs and that of supplements was 0.030 lakhs. On the whole,
the value of input procurement per year by non-contract poultry farmers amounted to Rs.
6.951 lakhs.
B. Procurement of inputs per batch
The total value of input procurement per batch by the non-contract farmers amounted
to Rs. 1.84 lakhs with the larger contribution of feeds (Rs. 1.32 lakhs) and DOCs (Rs. 0.43
lakhs). The value of medicine procurement per batch amounted to Rs. 0.07 lakhs. The values
of litter material and supplement procurement were on a smaller scale and were Rs. 0.014
lakhs and Rs. 0.007 lakhs respectively.
C. Procurement of inputs per bird
The results in the Table 4.8 revealed that the value of feeds per bird amounted to Rs.
38.02. The value of DOCs and medicines procurement was Rs. 12.02 and Rs. 2.14
respectively. The value of litter material procurement per bird amounted to Rs. 0.41 and it was
Rs. 0.22 for supplements.
The total value of inputs procured per bird by non-contract farmer was Rs. 52.8 per
bird. Feeds contributed highest of 72.08 per cent to the total value. DOCs and medicines
contributed about 22.76 and 4.05 per cent, respectively. The contribution of litter material and
supplements was meager and was about 0.79 and 0.41, per cent, respectively.
The total value of procurement of inputs was higher in case of non-contract farmers
when compared to contract farmer. This may be due to better planning and procurement
practices.
5.3.3 Sources of inputs procurement by non-contract farmers in a year
The results of Table 4.9 revealed the sources of input procurement by non-contract
farmers.
DOC procurement - Majority of the farmers/respondents (63.33%) choose to procure DOCs
from poultry dealers, where as 20 percent of the respondents procured DOCs from poultry
integrators. The procurement of DOCs from local market was on lesser terms with 16.67
percent of respondents going for the procurement through this source. This can be widely
expected on lines of affiliation and proximity of non-contract farmers to the local poultry
dealers.
Feeds procurement - 60 percent of the farmers has procured feeds from poultry dealers,
where as on the other hand 30 percent farmers procured it from local market. 10 percent of
the respondents went in for integrators to procure the feeds may be in accordance with the
proximity to the farmers.
Procurement of medicines - Majority of non-contract poultry farmers (70%) procured the
medicines from the poultry dealers as against 30 percent who went in for local market due to
some technical help from the poultry dealers.
Procurement of supplements - In case of procurement of supplements, majority of the
noncontract
farmers (76.67%) choose local market for their needs as against others (23.33%)
who procured the supplements from poultry dealers because supplements are available at
cheaper rate in the market.
Procurement of litter material - 63 percent of the respondent resorted to local market for their
litter material needs as against 36.67 percent farmers who procured litter material from the
poultry dealers may be because of cheap availability in the local market.
5.4 PRODUCTION MANAGEMENT BY CONTRACT AND NONCONTRACT
FARMERS
Different items of cost and returns in poultry production are discussed below. These
costs are presented in comparison between contract and non-contract farmers in the Table
4.10.
5.4.1 Comparison of costs in poultry production by contract and non-contract
farmers
A. Variable costs per year
The results revealed that the cost of feeds was the major one in case of non-contract
farmers which amounted to Rs. 497770.06 and was followed by DOCs (Rs. 157369.69) and
medicines (Rs. 28017.57). The total costs of these three inputs in case of non-contract
farmers amounted to Rs. 6,83,157.32 per year. These costs were not incurred by the contract
poultry farmers as they are supplied by the poultry integrators at no costs to the farmers. On
the other hand, the contract farmers incur all other costs as their counter parts do.
In case of contract farmers the primary costs involved are labour charges (Rs.
11,730) which was followed by the litter material cost (Rs. 9100.80) and transportation cost
(Rs. 5,252.80). Under non-contract firms, the costs of transportation (Rs. 14,250.40), labour
charges (Rs. 8,680.06) and litter material were important costs after feeds, DOCs and
medicines.
The other costs in case of contract system were that of supplements (Rs. 2,111.28),
water charges (Rs. 2,455.00), electricity charges (Rs. 3,540.95) and charges on repairs and
maintenance (2,579.50). In case of non-contract system the other remaining costs were that
of supplements (Rs. 2,977.9), water charges (Rs. 1,804.88), electricity charges (Rs. 2,558.28)
and the charges on repairs and maintenance (Rs. 1,705.50).
The interest on the working capital in case of contract farmers was Rs. 4044.80,
where as it was Rs. 10,958.38 in case of non contract farmer which was on the higher side.
This was due to the fact that the non-contract farmers incur extra cost of feeds, DOCs and
medicines compared to that of contract farmers.
The total variable costs per year incurred by contract farmers was Rs. 40815.13
(excluding cost of feeds, DOCs and medicines) when compared to non contract farmers who
incurred Rs. 48363.01 which was on the higher side. The total variable cost per year incurred
by the non-contract farmers was Rs. 731520.30. This may be because of large scale
operation and calibrated operations in contract farming cases as compared to non-contract
farming cases.
B. Variable cost per batch
The total variable costs incurred per batch by the non-contract farmers amounted to
Rs. 1,96,250.04. This includes Rs. 1,83,362.12 for feeds, DOCs and medicines and Rs.
12,887.92 for other inputs. The cost of feeds was major one (Rs. 1,32,385.64) followed by the
cost of DOCs (Rs. 43,525.00) and medicines (Rs. 7,451.48). On the other hand contract
farmers dont incur these costs due to the contract arrangement.
In case of contract farmers, the major variable cost per batch was that of labour
charges (Rs. 2,550) which was followed by litter material cost (Rs. 1,965.60) and
transportation (Rs. 1,120.00). The other costs include electricity charges (Rs. 755.00),
supplements (Rs. 456.00), water charges (Rs. 512.00) and repairs and maintenance (Rs.
550.00).
On the other hand, other important variable costs per batch incurred by non-contract
farmers were the cost of transportation (Rs. 3760.00), labour charges (Rs. 2400), litter
material (Rs. 1427.62), supplements (Rs. 792), electricity charges (Rs. 675), water charges
(Rs. 492.00) and repairs and maintenance (Rs. 450). The interest on working capital per
batch in case of contract farmers was Rs. 879.30 as against Rs. 2891.30 in the case of
noncontract
due to large amount of investment by the non-contract farmers as compared to
contract farmers.
Totally the variable costs per batch in case of contract farmer amounted to Rs.
8787.90 and it was Rs. 196250 in non-contract farmers. This difference is mainly because of
contract farmers are supplied with free major inputs.
C. Variable costs per bird
It could be revealed from the results that the total variable cost per bird incurred by
contract farmer was nearly Rs. 2.09 as compared to Rs. 56.36 incurred by the non-contract
farmers due to free supply of major inputs to contract farmers.
In case of non-contract farmers, the cost per bird on feeds was highest one, which
amounted to Rs. 38.02 followed by the costs of DOCs (Rs. 12.50) and medicines (Rs. 2.14).
The other variable costs per bird were the costs of transportation (Rs. 1.08), labour charges
(Rs. 0.69), litter material charges (Rs. 0.41), supplements (Rs. 0.19), water charges (Rs.
0.14) and repair and maintenance (Rs. 0.13).
On the other hand, the major variable costs per bird in case of contract farmers were
that of labour, litter material and transportation which amounted to Rs. 0.59, Rs. 0.43 and Rs.
0.26 respectively. Other costs were of electricity charges (Rs. 0.17), repairs and maintenance
(Rs. 0.14), water charges (Rs. 0.12) and supplements (Rs. 0.10).
The interest on working capital per bird in case of contract farmers was Rs. 0.28 as
compared to Rs. 0.83 in non-contract farmers. This difference may be due to more efficiency
in the management
D. Fixed costs per year
The total fixed cost per year in case of contract system was Rs. 33,290.39 as
compared to that of non-contract, which amounted to Rs. 25,802.60. The interest on working
capital per year in case of contract system was Rs. 19,758.80 as against Rs. 14,780.41 of
non-contract system. The above differences may be due to higher productivity space with
contract farms as compared to non-contract farms. The cost on depreciation per year was Rs.
13,531.59 in case of contract and was Rs. 11,022.19 in case of non-contract system.
E. Fixed costs per batch
The total fixed costs per batch was Rs. 7,097.5 in case of contract farmers and was
Rs. 6,808.06 in case of non-contract system.
The interest on working capital per batch and the depreciation value per batch was
Rs. 42,123.2 7 and Rs. 2,885.20 respectively in case of contract system. These costs in
noncontract
system amounted to Rs. 3,899.84 and Rs. 2,908.12 respectively, which can be
attributed the same reason as said earlier.
F. Fixed costs per bird
The total fixed costs per bird amounted to Rs. 1.66 in case of contract farmers. This
includes Rs. 0.98 from interest on working capital and Rs. 0.67 from depreciation on assets.
On the other hand in case of non-contract system, the total fixed costs per bird amounted to
Rs. 1.94, which includes Rs. 1.12 from interest on fixed capital, and Rs. 0.82 from
depreciation of assets. However, difference is found to be meager.
G. Grand total costs incurred by contract and non-contract categories
The grand total costs incurred per year (Total variable costs + total fixed costs) by the
contract category amounted to Rs. 74,105.52 and was Rs. 15,885.42 per batch. In case of
non-contract category, the total costs incurred per year was Rs. 7,57,322.90 and Rs.
2,03,058.10 per batch. The costs incurred by the non-contract category are very high
because the non-contract incurs extra costs on feeds, DOCs and medicines, which are not
incurred in case of contract category.
The total cost incurred per bird was Rs. 3.75 in case of contract category. The fixed
costs accounted to the tune of 55.74 percent (Rs. 2.09) and variable costs accounted to the
tune of 44.26 percent (Rs1.66).
On the other hand, the non-contract category incurred a total cost of Rs. 58.31 per
bird in which the variable costs contributed about 96.64 percent (Rs. 56.36). The fixed costs
in this case contributed a meager 3.32 percent (Rs1.94). This difference is also owing to the
above said reasons.
5.5 MARKETING MANAGEMENT OF OUTPUT BY NONCONTRACT
FARMERS
5.5.1 Channels identified for marketing
Table 4.11 reveals the various channels of poultry marketing in case of non-contract
category.
Channel I = Producer _ Agents _ Wholesalers _ Retailers _ Consumers.
The farmers sold the produce to the agents/middle men who in turn carry on the
business activity to next chain in this channel. The agents procure the produce directly from
farmers and the farmers evade the transportation costs.
Channel II = Producer _ Wholesalers _ Retailers _ Consumers.
The farmers sold the produce directly to the wholesalers who in turn carried out the
further activity.
Channel III = Producer _ Retailers _ Consumers.
The farmers sold their produce directly to the small time retailers evading the earlier
channels, but they incur the cost of transportation.
Channel IV = Producer _ Consumer.
Sales in this channel are not of a high quantum.
The findings of the study are in confirmation with the findings of Singh (1995).
5.5.2 Returns obtained by non contract farmers under different channels of
marketing
It could be observed from the Table 4.12 that at the over all levels, maximum quantity
of produce was marketed through channel-I (3960 kg), which accounted for 51.88%. This was
mainly because the agents procured the produce in large quantities and had a good
relationship with producers even on non-sales issues.
Channel-II accounted for about 37.27% (2845 kg) of the total produce as the
wholesalers had prime relation with poultry producers. Channel-III and channel-IV contributed
only about 9.36% (715 kg) and 1.46% (112 kg) respectively. The non-contract farmers
obtained a total of 7,632 kg of produce per batch on an average.
The average price per kg was highest in case of channel IV that was Rs. 31.00 per
kg. This was the result of direct selling by the farmers at farm. In case of other channels the
price per kg received by the producers was Rs. 28.50, Rs. 27.50 and Rs. 27.00 for channels
III, II and I respectively.
In concurrence to the quantity marketed and pertaining to price of that channel, the
value obtained under channel-I was Rs. 1,06,920.00, which was followed by channel-II (Rs.
78,237.00), channel-III (Rs. 20,377.50 and channel-IV (Rs. 3,472.00). The average costs
incurred in transportation, handing, loading etc amounted to Rs. 1,650.00 The average final
returns obtained by non contract farmers per batch was Rs. 20,7357.00.
5.5.3 Costs and returns structure in poultry production
From the present study, it was estimated that the average output produced per batch
in case of contract farmer was 9,396.60 Kgs as against 7,632 Kgs produced under noncontract
system.
The average selling price in case of non-contract was Rs. 27.17 per kg and the
average gross returns amounted to Rs. 2,07,357 per batch. On the other hand the average
procurement price by contracting firms in case of contract system was Rs. 2.57 per Kg and
the average gross returns in this case amounted to Rs. 24,149.26 per batch. However, the
average net returns per batch in case of the contract system was higher i.e., Rs. 8,263.84 as
compared to the non-contract i.e., Rs. 4,298.90. This difference mainly attributable to higher
cost incurred per batch by non-contract farmer as compared to contract farmer.
Finally the average returns per bird in case of contract system was Rs. 1.94 which
was slightly higher than that of non contract system where in the average returns per bird was
Rs. 1.23 due to better management in case of contract farms than non-contract farms.
It could be seen from the results of the Table 4.13 that the meet-feed price ratio of
contract firms was slightly higher (1.74) than that of non-contract firms (1.56). This could be
attributed to the point that the contracting firms prescribe certain standards techniques of
production and which generally is not followed in case of non-contract farmers. But the ratios
being more than unity for both the systems simply indicates that the systems are on par with
their sustainability.
The BC ratio in case of contract system was 1.52 as against 1.02 for non-contract
system. This clearly indicates that the non-contract system is nowhere near profitability but at
equilibrium of input and output. On the other hand, the BC ratio of contract system was
slightly encouraging and profitable.
5.6 PROBLEMS FACED BY THE CONTRACT AND NONCONTRACT
POULTRY FARMERS
The problems faced by the contract and non-contract poultry farmers were analyzed
separately and the outcome of this analysis has been discussed as under.
5.6.1 Problems faced by contract poultry farmers
The opinions sought from the contact poultry farmers were subjected to cluster
analysis in which an inter correlation matrix was designed to accommodate the identified
variables. The similarity values or the degree of association between all possible variables
were computed for the purpose of comparison.
It could be seen from the Table 4.14 that a decreasing trend was observed in the
degree of similarity values from the first to the last cluster, which relatively implies the lower
degree of agreement among the variables. The similarity values declined from 98 to 62, when
the clusters were formed. A cluster with lower similarity value implies a lower importance of
that cluster.
The selected 28 variables were accommodated into three different clusters based on
their similarity values in which as many as 5 variables were in first cluster, another 10 in
second and remaining 13 variables in the third cluster.
The first cluster was designated as high aggregate cluster whose similarity values
ranged between 98 and 96 reflected the problems of Delay in payment, non-availability of
credit in time in case of the contract farmers. It also highlighted the opinion of farmers about
the problems of storage facilities,
Inadequate capital and losses they suffer periodically due to disease occurrences.
The second cluster, which was termed as medium aggregate cluster had similarity
values ranging from 84 to 82. This cluster emphasized the problems of labor, avian flu,
supplements, and problem in input supply, contract norms and termination and the
everpersistent
price fluctuations in poultry. It also emphasized other problems like services by the
firm, Partiality of firms towards big farmers and issues of technical guidance.
The low aggregate cluster had similarity values ranging from 78 to 62 and
encompassed the problems of investment, availability of medicines, lower contract prices,
mortality of birds, problems of costs and inputs and also the problems relating to water, labor
and DOC availability.
The findings of the study are in confirmation with the findings of Prasad et al. (2005).
5.6.2 Problems faced by non-contract poultry farmers
The opinions obtained from the respondents on their problems were grouped under
three clusters based on the degree of similarity values. From the Table 4.15, it was seen that
the variables in high aggregate cluster reflected the high degree of impact on non-contract
farmers. It highlighted the problems pertaining to investment and capital, channel stability,
medicines, disease occurrence and the bird flu and also on the unstable returns from the
business.
The medium aggregate cluster included five variables that signaled the problems of
credit and DOC availability, market fluctuations, storage and organized marketing.
In the low aggregate cluster the similarity values ranged from 78 to 60 highlighting the
problems of market information, labour, mortality of birds, info on good breeds and market
competition.
5.6.3 Problems faced by the integrators/ contracting firms
The opinions sought on the problems, from the contact poultry integrators/ firms were
analyzed for the weightage of the problem as how many firms think that the problem is
affirmative.
It could be seen from the Table 4.16 that almost all the pre-listed problems have
certain degree of occurrence w.r.t the integrators.
According to the present study, the major problems encountered by the firms was the
fluctuating demand for poultry products which had a percentage share of 18.38 in the whole
set and was closely followed by the problem of diseases (17.64%) and input diversion by the
contract farmers (15.44%). The price fluctuations are mainly the result of the persistent out
breaks of the avian flu. It has also been noticed in the study area that the contract farmers
tend to diversify the inputs supplied by the firms under the contract. These inputs were
reportedly used for parallel poultry production activities
The fourth major problem that was highlighted was the problem that farmers wont
comply with prescribed standards (14.70 percent). Though firms undertake strict supervision
of production, various external factors hamper the mandate of the standards and finally the
firms have to compromise.
In many cases, contract farmers tend to sell the produce under contract for instant
cash. This problem of extra contractual sales by farmers was one of the major one
encountered by the firms. The other problems opined by the firms were the problems in
selection of appropriate farmers and procurement problems, which were held in lower regards
of problems by the firms.
The findings of the study are in confirmation with the results of Vinayaka (2005).
VI. SUMMARY AND POLICY IMPLICATIONS
Contract farming is defined as a system for the production and supply of produce
under forward contracts between producers/ suppliers & buyers. The essence of such an
agreement is the commitment of the producer/ grower to provide the commodity of a certain
type, at a time & a price, and in a quantity required by a known and committed buyer.
Contract farming usually involves the basic elements- pre-agreed price, quality, quantity and
time
DESCRIPTION ABOUT CONTRACT POULTRY FARMING IN
KARNATAKA
Contract poultry farming involves a oral or written agreement between a contracting
firm / integrator and the poultry farmers where in the firm provides basic inputs such as feeds,
Day Old Chicks (DOC) and medicines and the farmers has to rear the chicks for about 42
days. Other inputs such as litter material, labour, and equipments along with other fixed inputs
are from farmers side. After the completion of a production cycle, the contracting firm will
procure back the grown chicks (usually 42 days) at a particular pre-agreed growing cost/
purchase price per kg of live bird weight. In this cycle of this contract, farmers also has an
incentive of 15% more on growing charges if he reduces the feed conversion ratio (FCR). The
firm
entitles a flexibility of about 5% to 7% on mortality of birds. The present contract system in
Karnataka differs with that of northern states where in the procurement by contracting firms
is
on a pre agreed price and at the same time the inputs arent given free to the farmers. The
firm also provides technical assistance to the production aspects. There will be strict
supervision periodically to ensure that no discrepancy occurs in production of chicks.
Therefore in order to evaluate the efficiency in production activities under contract and
noncontract
cases needed to study with the following objectives.
1. To study the factors influencing the poultry farmers to be in contract and non-contract.
2. To evaluate the procurement management of inputs and its cost.
3. To analyze production management and its cost.
4. To study the marketing management of out put.
5. To analyze cost and returns structure in contract and non-contract poultry farming
activities.
6. To analyze the problems in contract and non-contract activities.
METHODOLOGY
Description of the study Area
The study was undertaken in Doddaballapur, Nelamangla and Channapatna taluks of
Bangalore rural district in southern Karnataka and in Hubli, Dharwad and Kalghatgi taluks of
Dharwad district in northern Karnataka. Both these districts are the important hubs for
commerce, industry and trading activities and form a very wide market for poultry and poultry
products and also has many contracting firms.
Sampling procedure
In the selected districts, three taluks were selected from the selected taluks based on
concentration of broiler poultry farms. In the Dharwad district Hubli, Dharwad and Kalghatgi
taluks were selected. Similarly from Bangalore rural district Nelamangala, Ramnagara and
Channapatna taluks were selected. In the total selected taluks five broiler poultry farms
engaged in contract farming and five broiler poultry farms which are not involved in contract
farming (Non contract farms) from each taluk were selected at random. Totally the sample
size for the study accounts for 30-contract broiler poultry farms and 30 non-contract poultry
farms. The necessary data was obtained from the selected farmers with the help of a
wellstructured
schedule. The farmers were personally interviewed.
Analytical techniques employed
The technique of factor analysis was employed to know the most important factors
that influence the poultry farmers to go in for contract and also to quantify the most probable
reasons why the farmers are not in contract. The technique of Tabular Analysis was
employed and simple average and percentages were worked out to estimate costs and
returns in broiler poultry farming by contract and non-contract poultry units. The cluster
analysis technique was adopted to analyze the opinion of farmers who are in contract as well
as independent farmers regarding the problems they usually face.
THE SALIENT FINDINGS OF THE STUDY
General characters of sample poultry farmers indicated that the average age of
poultry farmers in case of contract was 43.27 years, whereas in case of non-contract farmers
it was 41.48 years. About 63 per cent of contract farmers occupy poultry business as primary
occupation as against 26 percent for noncontract farmers. 36 per cent of contract farmers
took poultry as a subsidiary enterprise and 73 per cent of non-contract farmers took it as
secondary enterprise. The average flock size per batch was 4274 birds in case of contract
farmers and it was 3482 birds in case of non-contract farmers. The contract farmers reared
4.6 batches per year as compared to 3.75 batches reared by non-contract farmers.
Factors influencing contract farmers to enter into a poultry production
It was found from the study that the variables such as buy back agreement, timely
availability of vital inputs, risk involved in independent business and transport facility were
largely responsible to propel the farmers to go in for a contract. The secondary variables were
technical guidance and improved access to market. Variables like annual income, education
level, age of the farmer, land holdings and the favorable contracting terms had a very little
influence on farmers to go in for a poultry contract.
Factors affecting the farmers for not entering into contract in poultry
production
The study revealed that variables such as high initial investments, lack of
infrastructure, rigid prescribed standards, poultry taken as subsidiary occupation and no
insurance offered by the firms had a maximum influence on the farmers to restrict themselves
and there by not entering any poultry contract. The other reasons include difficulty in contract
execution, lack of information about contracting firms, not satisfied with contract formalities,
poor service by the firms, annual income and loss during previous contract.
Factors considered by the firms to award the poultry contract
The study revealed that the contracting firm, before awarding any poultry contract
expects loyalty and thorough knowledge of production activities from the farmers in order to
meet their expectations in production and hence look through various dimensions before
awarding any contract. It was found that the main factors namely availability of infrastructure
with farmers, distance from the main center, performance in previous contract and reduces
cost of production and marketing of both inputs & outputs were considered mainly by the
poultry firms before awarding any poultry contract. The other secondary factors were profits
are more in contract arrangement and credibility of farmers, less risk in contract arrangement,
preferred flock size and assured market for produce, good demand for poultry in the market,
assured supply of output to meet their contracted demand and possible to take organized
insurance were rated less in consideration for awarding poultry contracts.
The total value of inputs procured by the contract farmers
The current study reveals that the total value of procurement of feeds in a year
amounted to Rs. 7.061lakhs; DOCs and Medicine procurement amounted to Rs. 2.209 and
Rs. 0.260 lakhs respectively. Rs. 0.091 lakhs and Rs. 0.022 lakhs was spent by the farmers
on procurement of litter material and supplements respectively. Farmers procured these
inputs independently. The total value of procurement of inputs per year amounted to Rs. 9.84
lakhs.
The value of feeds per batch amounted to Rs. 1.54 lakhs and the DOCs and
medicines value amounted to Rs 0.481 lakhs and 0.060 lakh respectively. Rs 0.020 lakh per
batch on litter material and Rs 0.005 lakh per batch on supplements was spent by the farmers
to procured them. Totally the value of procurement per batch in case of contract farmers
amounted to Rs 2.109 lakhs. The value of feed procurement per bird was about Rs. 35.89,
which was about 74 percent of value cost of procurement of inputs in production of poultry.
The value on DOCs and medicine procured per bird amounted to Rs. 11.16 and Rs. 1.31
respectively, which accounted for about 22.62 per cent and 2.67 per cent of the total value of
inputs procured by the farmer.
The value spent on litter material and supplements procurement per bird by the
farmer were accounted to Re. 0.43 and Re. 0.10 respectively per bird. This accounted for
0.90 percent and 0.10 percent respectively. Total value of inputs procured per bird was Rs.
48.89.
Total value of inputs procured by non-contract farmers
All the inputs were procured independently through various sources such as dealers,
integrators and local market. The current study estimated that a total of Rs. 6.915 lakhs per
year was spent for input. Rs. 4.977 was spent on feed procurement, Rs. 1.573 lakhs was
spent for procurement of DOCs, Rs 0.280 lakh spent on medicine. The amount spent on litter
material and supplements accounted to Rs. 0.054 lakh and Rs. 0.030 lakh respectively in a
year.
The value of feed procurement per batch amounted to Rs. 1.324 lakhs. Rs. 0.435
lakh was spent on DOCs, Rs. 0.074 was spent on medicines. The value of procurement of
other inputs such as litter material and supplements amounted to Rs. 0.014 lakh and Rs.
0.007 lakh respectively per batch. Totally the farmers spent about Rs. 1.84 lakhs on inputs
per batch. The total amount of inputs per bird in case of non-contract farmers amounted to
Rs. 52.81. The total amount of inputs procured, feed was major item of input as it accounted
for Rs. 38.02 (72%) per bird. Rs. 12.02 (22.76%) was spent on DOC. The amount spent on
medicine per bird was Rs. 2.14 (4.08). Other inputs like litter material and supplements were
accounted to Rs. 0.41 (0.79%) and Rs. 0.22 (0.41%).
Source of inputs procurement by non-contract farmers in a year
The study revealed that the non-contract farmers procured inputs through three
sources i.e. poultry dealers, integrators (Contracting firms) and the local market.
About 63.33% of the total farmers procured DOCs from poultry dealers, where as
20% procured from integrators and 16.67% farmers forayed into local markets for procuring
the DOCs.
In case of feeds, about 60% farmers procured the feeds from dealers and about 10%
procured it from integrators. 70% farmers procured medicines through dealers as compared
to 30% who choose local market for medicine procurement.
In case of supplements, 76.67% of farmers procured from the local markets and
about 23.33% of them procured it from poultry dealers. For litter material procurements about
63.33% farmers choose local market and about 36.67% bought it from poultry dealers.
Production management by contract and non-contract farmers
Comparison of costs in poultry production by Contract and non-contract farmers
In the present study, it was found that under contract poultry farming, the total
variable cost per year was Rs. 40,815.13 and in case of non-contract poultry farming it was
Rs. 7,31,520.30. The major items of variable costs incurred by both categories were that of
feeds, DOCs and medicines that amounted to Rs 4,97,770.06, Rs 1,57,369.69 and Rs
28,017.57 respectively. In case of contract farmers these inputs were supplied free of cost.
The total variable cost per batch (4274 chicks) was Rs. 8,787.90 in contract, whereas in case
of non-contract poultry farming it was Rs. 1,96,250.04 per batch (3482 chicks). The interest
on working capital for contract farming amounted to Rs. 879.30.00 and for non-contract
farming it was Rs. 2,891.30 per batch. Under contract farming the total variable costs per bird
was Rs. 2.09 (55.74% of total costs), whereas it was Rs. 56.36 (96.64% of total costs) per
bird in case of non-contract category.
Fixed costs
The fixed costs per year in case of contract farming amounted to Rs. 33,290.39 and
in case of non-contract category the fixed cost amounted to Rs. 25802.60. In contract
farming, the fixed cost per batch amounted to Rs. 7,097.52. On the other hand, the fixed
costs per batch in case of non-contract category amounted to Rs. 6808.06. The fixed cost per
bird was Rs. 1.66 and Rs. 1.94 for contract and non-contract category respectively.
Gross total costs incurred by contract and non-contract categories
In case of contract farming, the total costs incurred per year (Total variable + total
fixed cost) was Rs. 74,105.52. It was Rs. 15,885.42 per batch and was Rs. 3.75 per bird. In
case of non-contract category the total costs incurred per year, per batch and per bird was
Rs. 7,57,322.90, Rs. 2,03,058.10 and Rs. 58.31 respectively.
Marketing management of out-put by non-contract farmers
The present study revealed that the marketing of out-put by the contract farmers does
not arise because the farmer has to hand over all the produce at the pre agreed price to the
firm. How ever the non-contract farmers has to sell his produce through different channels in
the market.
Channels identified for marketing of broilers by non-contract farmers & returns obtained under
different channels of marketing
Under the present study, four channels were identified. It was found that the noncontract
farmers marketed maximum quantity of output through channel-I (3960 Kgs) followed
by channel II (2845 Kgs). The output under channel III and channel IV was 715 Kgs & 12
Kgs respectively. The average price received per Kg of live bird was found to be as high as
Rs. 31.00 per kg in channel IV and as low as Rs. 27 in channel-I. The average price
received in Channel-II and Channel III was Rs. 27.50 and Rs. 28.50 respectively per kg of
live bird.
Rs 2,07,357.00 were obtained by marketing all products. Under channel wise amount
obtained, the highest was Rs. 1,06,920.00 which was obtained under channel I. Rs.
78,237.00 followed this under channel-II. Under channel III and channel IV the value
obtained was Rs. 20,377.50 and Rs. 3,472.00 respectively. The average costs incurred on
handling, transportation, and loading & unloading, charges amounted to Rs. 1650.00.
Cost and Returns structure in production activities by contract and non-contract farmers
In case of contract farming the average out-puts produced and sold was 9396.60
Kgs. The average selling price/ procurement price per Kg of bird was Rs. 2.57. Thus the
gross returns realized per batch were Rs. 24149.26. The average net returns were Rs.
8263.84. The net return per bird was Rs. 1.94.
In case of non-contract farming the average output produced and sold was 7,632.00
Kgs. The average gross returns realized per batch by selling the produce were Rs.
2,07,357.00. The average net returns were Rs. 4,298.90. The net return per bird was Rs.
1.23.
The Meet-feed price ratio was 1.74 and on the other hand, the benefit-cost ratio in
case of contract poultry farming was 1.52. In case of the non-contract poultry farming these
ratios were 1.56 & 1.02 respectively.
Problems faced by the contract and non-contract poultry farmers
Problems faced by contract poultry farmers
Under the present study, problems were grouped under three clusters. Under high
aggregate cluster, problems such as delay in payment, Non-availability of credit in time, Lack
of storage facilities, Inadequate capital & Losses due to disease occurrences were clustered.
The degree of similarity values of this cluster ranged from 98 to 96. The similarity values of
medium aggregate cluster ranged between 84 and 82 and the variables were high labor /
wage rate, Influence of recent avian flu, Availability of supplement feeds, Irregular input
supply, Manipulations of norms, Contract termination, Market price fluctuations, poor services
by the firm, Partiality towards big farmers and Lack of technical guidance were grouped. In
the low aggregate cluster, the similarities values ranged from 78 to 62 with the variables such
as high initial investment, Non availability of medicines in time, Rigid norms, Difficulty in
achieving the prescribed standards, Mortality rate, High rejection rate, Low contract price,
Scarcity of water, No compensation to losses, High input costs, Availability of DOC in time,
Availability of labour and No insurance
Problems faced by non-contract farmers
Under the present study, 21 variables were grouped into different clusters.
Nine variables were found in the high aggregate cluster (similarity values from 96 to
92). The variables namely High initial investment, Inadequate capital, Scarcity of water,
Stability of channels, Lack of technical guidance, Non availability of medicines in time, Losses
due to disease occurrences, Influence of recent avian flu and Returns not assured were
grouped under this cluster.
The medium aggregate cluster (similarity values from 88 to 84) included five variables
viz.. Non availability of credit, Availability of DOC in time, Market fluctuations, Lack of storage
facilities and Lack of organized marketing. The low aggregate cluster (similarity values from
78 to 60) captured seven variables like Competition from established firms / outlets, Lack of
information about good breeds, Lack of market information, High labor / wage rate, Mortality
rate, Availability of supplementary feeds and Labor scarcity.
Problems faced by the contracting firms
The major problems faced by the integrator or contracting firm was the problem of
fluctuating demand for poultry products followed by the problem of poultry diseases and the
recent avian flu. The other problems were input diversion by farmers, farmers wont comply
with prescribed standards, extra contractual sales by farmers, selection of appropriate
farmers and procurement problems.
POLICY IMPLICATIONS
_ Majority of farmers considered poultry as secondary occupation in non-contract case
(because of small and marginal farming status of farmers in non contract farming
case), where as it was considered as primary occupation in contract farming case.
Therefore, the independent poultry farmers should be facilitated with supportive
measures, so as to enable them to take up the poultry as a primary occupation. This
can be done by setting up poultry producers co-operatives for small and marginal
farmers and subsidize the feeds and inputs of poultry to them.
_ The feeds contribute a major chunk (about 75 percent) to the total production costs.
The government should develop and adopt new technology for competitive domestic
feed production, which will have an impact directly on the production activities of
poultry farmer.
_ The study reveals that there is a difference in net returns per bird. This can be
regulated by the Government by fixing a Statutory Minimum Price after taking into
account, the risks involved in the industry.
_ Though the B:C ratio is more than unity in both, i.e. contract and non-contract farming
cases, it should be more than 2 for an enterprise to be more sustainable in the long
run. Therefore, higher efficiency in working can be achieved through reduction in the
cost of the feeds and DOCs either through Governments help or by contract firms
support.
_ It was observed from the study that neither the contracting firms nor any other
agencies provided poultry insurance to the birds. However, poultry insurance is being
extended by the insurance companies. Therefore the contracting firms should provide
insurance to their clients. At the same time, the government can extend its support by
paying fifty percent of the premium to the non-contract farmers.
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MANAGEMENT OF CONTRACT FARMING IN
LIVESTOCK : A CASE OF POULTRY INDUSTRY
SHIRAZ ZAKIR 2008 BASAVARAJ BANAKAR
Major Advisor
ABSTRACT
.

Abstract
.
Keywords and Phrase: Total Quality Management (TQM), Productivity, Poultry Processing Plant (PPP).
I-Introduction
II-Literature Review:
The main objective of the current study is to explore and highlight out the impact of Implementation of total
quality management on poultry processing plants' productivity. Many researches have been undertaken abroad
in nearly similar fields to assess the correlation between implementation of TQM on productivity but there is
scarcity of the same researches locally. Many academics and practitioners advocate the positive effects of TQM
practices on productivity improvement. Jamshed, H. Khan [8], has studied the impact of implementation of
TQM on productivity in Pakistani SME and concluded that there is important and critical need for
implementation of TQM to sustain the survival of industries locally and internationally. Thomas J. fisher,[10]
argued that basing on several companies undertaking processes which are generally focused on total quality
management concept. He concluded that approaches have had a significant impact on operation and relationship
inside the organization which have probably contributed to their long-term viability. The direct impact of
quality-oriented process is greatly over shadowed by effects of other internal and external factors which
influence business performance [10]. Firms with effective TQM implementation can accomplish the internal
benefits such as improving quality, enhancing productivity, or realizing better operating income ;[11] Hendricks
and Singhal,[12].Arawati Agus et al,[13] in their empirical study explored the impact of TQM on productivity
and profitability. Their study investigated the following TQM practices as independents variable top
management commitment, customer focus, supplier relationship, training, Employee focus, benchmarking,
quality measurement, process improvement and zero defects. They concluded that there were positive effects of
all TQM practices on productivity and profitability. Literature review for QM researches that have been
undergone shows that TQM implementation has a potential effect on increasing competitiveness [14]; Bayazit &
Karpak,[15]. The independent variables used in the present study are TQM practices that considered to have
strong correlation with productivity measurement. Top management commitment is the main compass that
orientates the implementation of TQM towards creating, values, systems and goals to satisfy customer
expectation and improve organization performance and productivity [14]. The customer focus provides
awareness to the business to be updated to any environmental change in the field and undergoes the required
change needed for product quality and innovative action. Quality oriented training is the most important
practices to accustom employees (internal customers) to quality concept, methods and skills. Likewise the other
practices of TQM are of the same importance and dully advocated by both practitioners and researchers.

III-Problem Statement:
Total quality management as a new managerial philosophy that becomes an urgent need for any
organization to outperform over competitors. Since total quality management is a cost factor overall
organizational levels, there should a clear explanation of the TQM implementation value added comparatively
with quality cost. Productivity as a business excellence determinant has to be measured against degree of
implementation of TQM to clarify the importance of TQM implementation. Thereby the key question of this
study is:
Is the implementation of TQM has a positive effects on poultry processing plants' productivity?
The above stated question can be considered as a major question of the study but there are some factors
positively or negatively affect the total revenue or the total cost of the plant which can be postulated in the
following seven hypnoses:
H1. Top Manage commitment has a positive impact on plant productivity
H2. Customer Focus has a positive impact on plant productivity
H3. Continual Improvement has a positive impact on plant productivity
H4. Cooperation & Teamwork has a positive impact on plant productivity
H5.Rewards & training has a positive impact on plant productivity
H6. Measurement system has a positive impact on plant productivity
H7. Prevention Focus has a positive impact on plant productivity
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IV-Research Methodology:
Due to high confidentiality of in poultry in Saudi Arabia the present study used qualitative statistical method to
answer the questions of the study. The study questions mainly depend on the degree of implementation of TQM
and the corresponding productivity index. There are five steps used in the methodology:
1. Using appropriate constructs to measure degree of implementation of TQM and the corresponding
productivity index.
2. Research population and sample
3. Data collection methods
4. Data presentation and analysis.
1-1 TQM Construct:
The effective implementation of total quality management was gauged through inspection of TQM
implementation requirements which used in many previous studies. Suairy, Haifa [16] ] in her study to
the extent of harmonization of employees' values against Quality principles used commitment of top
management, customer focus, rewards, training, teamwork, cooperation, measurement system,
continual improvement, focus on prevention rather than inspection. Micaela Martnez-Costa and Angel
R. Martnez-Lorente,[17] in their study they used Leadership, rewards system, process control,
feedback, process management, performance, teamwork and customers orientation as variables for
measuring degree of TQM implementation. Many previous researches stated different construct and
parameter according to the nature of the study. This study used principles that have positive or negative
impacts on productivity parameter variables (annual revenue and total annual). Thereby this study used
the followings: top management commitment, rewards & training, customer focus, cooperation and
teamwork, measurement system and analysis, prevention focus and continual improvement.
1-2 Productivity Construct:
Productivity is how efficiently a firm or any organization can change input into output in form of
goods and services as stated in below formula: [18]
Productivity = output/ input = annual revenue/ annual cost
From above formula point of view, productivity is proportional with factors that positively affect
annual revenue and reciprocally proportional with that positively affect annual cost and vice versa. So
in order to construct a parameter to gauge productivity we have to point out factors that correlated with
TQM, cost and revenue. The postulated factors for revenue are production rate, efficiency,
effectiveness, competitiveness. The cost factors were compared against the value added of quality
against quality cost such as deterioration of raw material and rework etc.
2- Research Population and Sample:
Three out of eight poultry processing plants that effectively implement total quality management were
purposively used to represent the whole community. The sample survey respondents were purposively selected
from each plant which encompassed staffs that are aware of TQM requirements and its implementation. The
sample consisted of 75 respondents included quality team, production supervisors, quality and production
managers and Management representative (MR) in quality council.
3- Data Collection Method:
Data was collected by questionnaires tools. The questionnaire consisted of three parts. The first part
was about the demographic profile the respondents. The second part was design to measure the degree of
implementation of TQM. The third part of the questionnaire was designed to measure the corresponding
productivity index.
4-Data Presentation and Analysis:
SPSS was used to analyze the collected data. Data analysis was undergone in three stages. In the first
stage reliability of data will be checked by using Cronbach's Alpha which measure internal consistency or gage
correlation of items in the survey instrument. In the second stage Pearson correlation was applied to assess the
strength of the relationship between dependent and independent variables. In the third stage multiple regression
Elhaj Abdelmoula.Elsiddig Musa et al. / International Journal of Engineering Science and Technology (IJEST)
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analysis was applied to check association of variables with each other and the extent of variance which
determines the coefficient of determination independent variable.
V- Research Findings and Discussion
V-1-Reliability of Data:
The construct was tested by using SPSS. The reliability was tested by using Cronbach's Alpha. Tab 1
illustrates test results:
Tab 1: Reliability Test
In review the Alpha coefficients values for constructs variables, it was found that most of the
coefficients of independent variables lay in the range between 0.737 and 0.887 which means the
construct was reliable to measure the degree of implementation of quality practices. On the other hand
only two variables are of less reliability comparing with the values of the remaining dependent
variables. These variables are customer focus 0.503 and measurement system 0.684 but both of them
are over 0.500 which to some extent are considered reliable values but comparatively weak with the
others variables. The coefficient of dependent variable '' productivity'' was found to be 0.747 which
lays in the acceptable range.This means that individual constructs were reliable to measure the parameters
of productivity.
V.2 Research Sample Demographic Analysis:
In demographic analysis of the sample, it was found that 91.6% of respondents are less than
40 years and more than 75% having qualification of bachelor and above. 45.8% of staff having
professional experience more that 5 years where as about 37.5 % having experience varies between 5
and 2 years. This indicates that the study sample is well educated with a good experience in quality
management which creates rational answers of questionnaire. Despite that there is a weakness in
training programs where there were 43.5 % of the respondents have never attended any training
program where as those attending fundamental knowledge in TQM course were about 37% and those
attended professional course are only 16.7% and the remains are missed answer.
SN. Variables No. of
Items
Reliability
coefficient
1. Top management commitment 4 0737.
2. Customer Focus 4 0.5o3
3. Continual Improvement 6 0.828
4. Cooperation & Teamwork 6 0.825
5. Prevention Focus 8 0.877
6. Measurement System 5 0.684
7. Rewards & Training 5 0.887
8. Productivity 24 0.747
Elhaj Abdelmoula.Elsiddig Musa et al. / International Journal of Engineering Science and Technology (IJEST)
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Tab 2. Respondents Profile
V.3 Correlation Analysis:
The correlation coefficient is utilized in assessing the relationship between the dependent
variables and independent ones. This coefficient answered the three questions, the first one is there any
relationship between the two foresaid variables, if so what the direction of this relationship (positive or
negative impact etc.) and it also answer the magnitude of this correlation. [19]
The values of correlations between dependent variable productivity (PRD) and independent variables
TQM practices was found that there is a positive correlation between productivity and TQM practices
in the construct as illustrated in Tab.2 and fig. 1
Tab2. Correlation between TQM practices and productivity
PRD MC CF Coop&twk Meas -syst Con-
Imv
Rew&
Traing
PrevF
PRD 1 0.630 0.687 0.715 o.666 0.640 0.637 0.819
MC 0.630 1 0.706 0.744 0.785 0.708 0.690 0.852
CF 0.687 0.706 1 0.758 0.755 0.714 0.311 0.823
Coop&twk 0.715 0.744 0.785 1 0.651 0.617 0.569 0.875
Meas-syst 0.666 0.785 0.755 0.651 1 0.332 0.387 0.718
Con-Imv 0.666 0.708 0.417 0.617 0.333 1 0.860 0.768
Rew&traing 0.637 0.690 0.311 0.596 0.376 0.860 1 0.735
PrevF 0.819 0.852 0.823 0.875 0.718 0.768 0.735 1
Value of correlation of dependent variable productivity with management commitment (MC) is 0.630,
0.687 with customer focus (CF) and the same manner the other variables. High correlations were found
between productivity and prevention focus (PrevF) and cooperation and teamwork o.819, 0.715
respectively. In addition to the correlation of TQM practices with productivity there correlation
between TQM variable with each other which are statistically significant e.g. the correlation between
prevention focus management commitment, customer focus and cooperation & teamwork were found
to be 0.852, 0.823, 0.875 respectively and so on as stated in tab.2.
Variables Freq. % Variables freq %
Nationality Specialization Field
1- Saudi 42 58.3 Veterinary 9 12.5
2- Non-Saudi 30 41.7 Animal Production 30 41.7
Missed answer 0 0 Food Technology 15 20.8
Total 72 100 Science 12 16.7
Age Other 6 8.3
Less than 2oyrs 0 0 Missed answers 0 0
20 -30 yrs 33 45.8 Total 72 100
31-40 yrs 33 45.8 Training in Quality Field
Over 40yrs 6 8.4 None 30 43.5
Missed answer 0 0 Fundamental courses 27 37.5
Total 72 1oo Professional courses 12 16.7
Academic Qualification Missed answers 3 4.2
Primary - intermediate 0 0 Total 72 100
High school 0 0 Experience
Diploma 15 20.8 Less Than 1 Yrs 3 4.2
Bachelor 51 70.8 1-2 yrs 18 25
High Studies 3 4.3 Above 2 Yrs.- 5yrs 9 12.5
Missed answer 3 4.3 Above 5 Yrs. 33 45.8
Total 72 100 Missed Answers 9 12.5
Total 72 100
Elhaj Abdelmoula.Elsiddig Musa et al. / International Journal of Engineering Science and Technology (IJEST)
ISSN : 0975-5462 Vol. 3 No. 5 May 2011 4430
Fig. 1 Correlation between Quality practices and productivity
The degree of implementation of TQM in the study sample as illustrated in fig 2 shows high value of
implementation of measurement system and analysis of 4.7 value and less value of implementation of rewards
and training of 2.82 value. The overall degree of implementation of TQM practices can be arranged as follow
starting from high degree of implementation to the less one, measurement system and analysis, customer Focus,
management commitment, cooperation and teamwork, continual improvement, rewards and training.
Fig. 3
V.4 Multiple Regression Analysis
Multiple regression analysis is technique that used to explore the nature of a relationship between two
groups of continuous random variables. Regression model is used to quantify the relationship between the two
groups. Multiple regression equation method involves a linear combination of explanatory variables
(independent) [20]. The present study consist of seven independent variables which encompass top management
commitment, Customer focus, measurement system and analysis, cooperation and teamwork, continual
improvement, prevention focus and Reward & training. Accordingly a multiple regression equation was
developed as follows:
Prod = 0 + 1 MC+ 2 CF+ 3 MS+ 4 CTWK+ 5 CIMV+ 6 PrevF+ 7 RWDTR +
Where as:
Prod= Mean productivity
Y
0
0.2
0.4
0.6
0.8
1
1.2
PRD
MC
CF
Coop&twk
Meas-syst
Con-Imv
Rew&traing
PrevF
Y
Elhaj Abdelmoula.Elsiddig Musa et al. / International Journal of Engineering Science and Technology (IJEST)
ISSN : 0975-5462 Vol. 3 No. 5 May 2011 4431
0= constant of proportionality
MC= management commitment
CF= Customer Focus
MS= Measurement System and analysis
CTWK= Cooperation & Teamwork
CIMV= Continuous Improvement
PrevF= Prevention Focus
RWDTR= reward and training
= error
The regression equation can be stated as follow as per details in tab. 4
Prod = 0.837 +0.383MC+ 0.378 MS+ 0.230CIMV+0.495 PrevF+ 0.153 RWDTR +
In the model summary Tab.3 shows the result on entering of seven independent variables against productivity. R
(0.890) is a correlation of the seven dependent variables with productivity. Taking in consideration the
interaction and correlation between the dependents variables, the regression models shows R 2 as (0.792) which
indicated that 89% of variation in productivity value of the studied sample can be dully explained by the seven
dependents variables. This value of R2 substantiates the model and the hypotheses of the study.
Tab. 3 Model Summary
Model R R-Squared Adjusted R
Squared
Std. Error of
the Estimate
1 0.890a 0.792 0.719 0.22140
Reference to the seven developed hypotheses regarding the independent variables which advocate the positive
relationship with poultry processing plants' productivity, tab. 4 shows the values of -coefficients of these
predictor variables.
Tab. 4 Coefficients a
Model
Un-standardized
Coefficients
Standardized
Coefficients
Std. Error T Sig.
1 constant 0.837 0.512 1.635 0.120
MC -o.383 0.134 -0.746 -2.851 0.011
CF -0.016 0.197 -0.020 -0.082 0.936
CTWK -0.027 0.113 -0.57 -0.242 0.936
CIMV 0.230 0.122 0.413 1.883 0.077
MS 0.378 0.145 0.564 2.603 0.015
PrevF 0.495 0.225 0.811 2.197 0.042
RWDTR 0.153 0/054 0.396 2.843 0.006
The values of -Coefficients of prevention Focus, management commitment, measurement system and reward
& training are statistically significant and dully substantiate our hypotheses regarding these four variables.
Where as customer focus and cooperation and teamwork -Coefficients are not statistically significant and of
less contributions in the in the regression equation that measured the productivity. The continual improvement
-Coefficient is of considerable value in the regression equation and its statistical significance can be estimated
in a considerable range.
VI- Conclusion:

Gracious

The present study is a correlation and causal study. The correlation study presented a positive correlation
between all dependant variables (TQM practices) against poultry processing plants (PPP) productivity. The
causal study was undergone by the aid of multiple regression analysis. The findings of multiple regression
analysis indicate that some independent variables such as prevention focus (PrevF), Management commitment
(MC) Rewards and training , measurement system and analysis are considered as major and critical
determinants of productivity parameter. Also continual improvement (CIMV) is considered as statistically
significant factor where as customer focus and cooperation and teamwork are not of the required significance to
be considered as critical factors. These findings validate the previous studies that reviewed in the present study.
Elhaj Abdelmoula.Elsiddig Musa et al. / International Journal of Engineering Science and Technology (IJEST)
ISSN : 0975-5462 Vol. 3 No. 5 May 2011 4432
This study can be utilized by firms that target to maximize their productivity by using and activating the critical
factors in productivity parameter.

View publication stats Introduction

Risk is an inherent feature of modern poultry production. Production systems are complex
and both the intermediate products (hatching eggs, day-old chicks etc.) and end products
(meat and eggs) are perishable. Poultry production is based on a pyramid such as is
illustrated in figure 1.
At the apex of the pyramid is a very small population of elite breeding birds. Successive
generations both within the primary breeding company and at the level of commercial
farms means that 1 male selected by the primary breeder could theoretically contribute
genes to up to 20 million broiler chickens. In this way genetic progress can be rapidly
distributed among the commercial poultry population, but, on the other hand, genetic and
infectious problems can be too. For all of these reasons the practices of hazard
identification, followed by informal risk assessment and implementation of risk
management measures have for many years been the normal way of doing things in the
poultry industry. The sorts of routine hazards which must be considered are:

Physical, - incubation or brooding conditions, weather extremes etc.


Chemical - raw material (litter, feed, water) quality and contaminants etc.
Biological - Animal genetics, microbes, parasites etc.

Most of these hazards are of no direct relevance to food safety, and formal risk assessment
is often not required because the magnitude of risk is patently obvious (such as, for
instance, the effects of a power failure in a hatchery or controlled environment farm).
Probably the first example of a risk assessment and management exercise in modern
poultry production was the Pullorum Disease eradication programme initiated in the
1930's. This disease is caused by a host-specific strain of Salmonella which causes severe
disease. There is a high rate of maternal transmission (from hen to chick), yet low
transmission among mature hens. The development of a simple on-farm blood test allowed
the implementation of a test-and-remove-reactors programme to develop breeding flocks
free from the disease. Similar strategies (with some modifications) have been applied to
eradication programmes for a number of other diseases, such as Mycoplasmosis, Avian
Leucosis and so on. Nasty
Quality Systems
The above example demonstrates that we have been practising risk management in the
poultry industry for some time, even if we did not always call it this. Other practices aimed
at controlling and improving product quality have, however, a more obvious and direct
relationship to risk analysis. One such system has been developed by and promoted by the
American management consultant W. Edwards Deming from the 50's to the present. His
main innovation was to use a statistical approach to solve practical problems, but he also
promoted a concept of "continuous improvement" and "Total Quality Management". One
tool used to good effect by Deming is the "Quality Circle", one version of which is
illustrated in Figure 2 below. This is characterised by a data-collection phase, analysis of
the data, planning an intervention, and implementing the intervention. Then the process
starts all over again. It could be argued that, in one way or another (with some insight, luck
and serendipity thrown in), most technological developments are based on this approach.
The strength of this approach is that is essentially experimental, at least in the sense that it
has a specific goal. Any results obtained, however, are immediately applicable because
they are generated under practical conditions. On the debit side it could be said that it is
reactive rather than proactive, that it may not take into account unintended side-effects, and
that it may actually introduce cyclical variation. All of these risks associated with this
model can, once they are recognised, be taken account of.

The HACCP (Hazard analysis and critical control points) system (Cross, 1996) could be
viewed as a specific application of the Deming circle. What it adds is the recognition that
in any production process there will be a whole series of possible quality circles. It, in
effect, states that such activities should be concentrated on those points of the production
chain which are known to most affect end product quality - the critical control points. It is
also intended to be proactive in that it aims to identify and control hazards before they
cause an adverse effect.
Quantitative Risk Analysis.
The analysis component of both the "Deming Circle" and the HACCP system will
commonly involve collating available information and calculating the effects of various
"what-if" scenarios. Electronic spread-sheet programmes are an extremely convenient,
quick, simple and transparent way of carrying out this analysis for simple models or
systems. The technique of quantitative risk analysis (QRA) has recently been developed to
more accurately represent risk in systems composed of a web of interacting factors. The
key difference in quantitative risk assessment is that it attempts to "take into account every
possible value for each variable and weights each possible scenario by the probability of its
occurrence" (Vose, 1996). It has been proposed that techniques of quantitative risk
assessment should be incorporated into HACCP systems as soon as there is sufficient
information to allow this (Notermans & Mead, 1996). A number of mathematical
techniques have been developed for the purpose of QRA (for example, exact algebraic
solution and Monte Carlo Simulation). These techniques allow incorporation of both
distributions derived from data and from expert opinion in the model. For details of the
mathematical techniques, and the software tools available for this purpose the reader is
referred to Vose (1996).

In order to use these techniques there are 2 basic requirements:

1. Enough must be known about the nature of the problem, and the relationship between its
parts so that the structure of the model can be created.
2. The distribution of the relevant variables must be capable of estimation from either the
available data or from expert opinion or a combination of the two

Risk Analysis and Management in Practical examples relevant to poultry

1. Salmonella infection on meat

The general principles of risk assessment as applied to the food chain have been reviewed
recently (Ahl and Buntain, 1997). The depiction of a food chain in Figure 3 was adapted
from a figure in that paper. The concept of a food chain is particularly relevant to the
control of chemical and microbiological hazards in food. Risk assessment has been
proposed as a possible valuable tool in this area (Kindred, 1996) though there are still very
few references in the literature to practical application of these techniques to poultry
production.
These concepts of risk assessment have considerable promise for the control of food-borne
infections , such as Salmonella sp.(Notermans & Teunis 1996). In fact work is already
ongoing at the UK Central Veterinary Laboratory to develop QRA models for this purpose
(Kelly et al 1998). The UK has one of the most sophisticated regimes in the world for the
testing and reporting of Salmonellainfections in food producing animals and their
environment. In addition to official tests required by legislation a large number of tests are
carried out in accordance with agreements between producers and retailers and under
voluntary monitoring exercises. The pattern of occurrence of different serotypes
of Salmonella sp. in chickens is actually quite different from that which is reported to
occur in the human population, however some serotypes of considerable human health
importance (e.g. S.enteritidis, and S.typhimurium ) are capable of establishing themselves
in poultry production systems. Unfortunately Salmonella sp. are widely dispersed in nature
- Figure 4 attempts to illustrate some of the complexity this introduces in any model of this
infection. The thicker arrows indicate what are, in the authors opinion, the greater risks of
transmission of these infections. Note that other infected chickens (either parents, or other
commercial flocks) are only one of a large number of possibilities.
There is a voluminous literature on the epidemiology of Salmonella infections. Recently
the strategies to control both Salmonella and Campylobacter on raw poultry products have
been reviewed (White et al. 1997). This body of published information in conjunction with
expert opinion already forms the basis of control programmes in most countries. In spite of
the considerable knowledge accumulated there is still much uncertainty about what will
happen in any given combination of circumstances. One possible risk analysis pathway is
shown in Figure 5, but it needs to be kept in mind that there are multiple other pathways by
which infection may occur. A recent paper (Vose, 1997) illustrates 2 mathematical
approaches to the calculation of risk in an example similar to this. It is hoped that this
approach will allow the industry to better allocate resources among the broad range of
control measures now available.
2. Digestive Enhancers

Recently considerable attention has been focused on the use of antimicrobial digestive
enhancers in animal agriculture. It has been suggested that there is a risk that such use has
a significant impact on the ability of doctors to control certain rare but serious infections,
by transfer of infection or resistance genes from the animal to the human population. To
people unfamiliar with agricultural production systems digestive enhancement may seem a
trivial use for anti-bacterials. The effects of such use are, however, far from trivial. In
addition to their direct economic effects, they can have a significant benefit for animal
welfare. Sometimes they act directly by helping control a specific disease such as necrotic
enteritis in poultry, but they may also improve welfare by improving the utilisation of
nutrients and reducing the volume or moisture of undigested material deposited in the
animals environment. Wider environmental issues are also significant. It is currently
estimated that the use of digestive enhancers in pigs and broiler chickens in the UK saves
290500 tonnes of feed, 11620 lorry journeys, 714000 cubic metres of water and avoids the
need for 25538 hectares of arable land planted with cereals. In addition 532000 cubic
metres of pig slurry do not need to be spread. These savings are made every year we
continue to use these products. There are also benefits for society and the consumer
through the maintenance of animal agriculture and food processing in the Europe, both of
which provide employment and revenue. Under the current, more liberal, international
trade agreements it is inevitable that unilateral bans on these production aids will result in
production moving to other countries. To address medical and public concerns about the
use of these compounds FEFANA (the European federation of feed additive manufacturers)
plans to carry out a detailed survey on resistance patterns in intestinal bacteria from the
major food species in a number of European countries. It is to be hoped that the results of
this information and various other research initiatives in this area will provide sufficient
information to develop an adequate risk assessment of this issue.

The Precautionary Principle

There seems to be a growing tendency for society to demand zero risk, while accepting
zero responsibility, indeed this seems to be the central message of many "consumerist"
organisations. The political response to this (if the pressure groups are sufficiently vocal) is
to apply "the precautionary principle" - i.e. risk, no matter how small, is unacceptable.
Although this may appear at first glance to be reasonable, it fails to take into account the
complex web of interacting factors which make up real-life food production systems. Most
importantly, it assumes that the precaution itself introduces no risk. Take, for example, the
Swedish proposal to extend their ban on digestive enhancers throughout Europe. There is
no evidence that this will actually improve human health, but it will certainly reduce the
already meagre profitability of European poultry companies, making it even more difficult
to justify the investments required to further reduce the level of Salmonella infections. It is
also likely to increase the proportion of poultry meat sourced from third countries, many of
which have limited control programmes for food-borne infections and no or very lax
controls on the use of antibiotics in food animals. Thus implementation of a ban on a
European basis may actually be counter-productive in the things it is seeking to achieve! A
full risk assessment of these issues should be able to take account of all such factors.

Conclusions

The poultry industry is a large and well-organised system for the efficient production of
animal protein foods. It has a long history of pragmatic measures for the control of animal
health and other risks. More recently a structured approach of cyclic data collection,
analysis, planning, and implementation has become the norm. This process underpins most
technological developments. Quantitative risk assessment techniques hold considerable
promise for analysing and allocating resources in complex production systems. However
they are complex and cannot produce zero-risk. Whether they can produce information in a
form appropriate for communication of risk to the general public has yet to be seen. It is, in
any case, vital that all discussions of the results of risk analysis make the assumptions on
which the analysis is based totally clear.

Indian Poultry Industry Through the ages:

Poultry is one of the fastest growing segments of the agricultural sector in India today. Driving this
expansion are a combination of factors - growth in per capita income, a growing urban population and
falling real poultry prices. Compared with meat, poultry industry has registered significant growth.
India ranks fifth in the world with annual egg production of 1.61 million tones. Poultry exports are
mostly to Maldives and Oman. Indian poultry meat products have good markets in Japan, Malaysia,
Indonesia and Singapore.1

India has gifted the world the species Red jungle and Silver jungle fowls, out of whose progenies,
domesticated and crossbreed have emerged the "Pure lines" of today. The history of poultry in India is
about 5000 years old. But the strange paradox of this country is that although it introduced poultry to
1
http://www.agriculture-industry-india.com/agricultural-commodities/eggs.html
the world it itself remained indifferent to it for a long time. The main factor was religious taboo for
poultry products in many Indian communities. But the total credit for developing the poultry in this
country should go to the Christian Missionary Organization and some British people who brought
some superior exotic breeds in beginning of 20 th century. In 1950 the production of egg was only 1.8
billion eggs, in 1995 it was 27 billion eggs and in 2005 it is 42 billion eggs. The poultry industry can
be classified into broiler industry and layer industry. Late Dr.B.V.Rao, called Father of Modern
Poultry in India.Dr.B.V.Rao was instrumental in setting up the National Egg Coordination Committee
in 1982,it is a charitable trust with 24 zones and 118 local committees has about 25,000 farmers as its
members spread out all over India helping the layer farmers obtain reasonable, remunerative, viable
price for eggs. Broiler industry is concerned with poultry meat and layer industry is concerned with
egg production. BROMARK (Broiler marketing Cooperative Society): Bromark, also a brainchild of
late Dr.B.V.Rao is an all India Broiler Farmers' Body registered under the Multi State Cooperative
Societies Act in 1994. The objective of the Bromark is to ensure the gap between producers price and
consumer price is reduced and promote the consumption of chicken meat by advertising on its
nutritive value.

2. Present Scenario:

The poultry sector in India has undergone a paradigm shift in structure and operation. A significant
feature of India's poultry industry has been its transformation from a mere backyard activity into a
major commercial activity in just about four decades. This transformation has involved sizeable
investments in breeding, hatching, rearing and processing. Farmers in India have moved from rearing
non-descript birds to today rearing hybrids such as is Hyaline, lt is Shaver, ll and in Babcock, lt which
ensure faster growth, good liveability, excellent feed conversion and high profits to the rearers. The
industry has grown largely due to the initiative of private enterprise, minimal government intervention,
considerable indigenous poultry genetics capabilities, and considerable support from the
complementary veterinary health, poultry feed, poultry equipment, and poultry processing sectors.
India is one of the few countries in the world that has put into place a sustained Specific Pathogen Free
(SPF) egg production project.2

The output of eggs is increasing at the rate of 4-6 % and broiler at 8-10 % per annum. The per capita
consumption is 36 eggs only and poultry meat is 850 gm against the recommended consumption of
180 eggs and 10.8 Kg poultry meat per person per annum as by the Nutritional Advisory Committee.
More than 100 million people are employed in this industry. It accounts about 3 % of the total GNP
and 10 % of the total GNP attributed to livestock products. This sector is growing rapidly at the rate of
15 to 20 % and it is about Rs 65 billion-mega industry. It accounts a turnover of more than Rs 95
billon at the retail level.3

2
http://www.fao.org/WAIRDOCS/LEAD/X6170E/x6170e2k.htm
3
http://www.poultrysolutions.com/knowledg/about/i_poultry.htm
But one very dark part of this industry is that it is dependent on imported pure-line and grand parents.
The parents and commercial birds from these imported lines are multiplied in commercially run
hatcheries.

3. Present Consumption:

In the domestic market the consumption of poultry meat is low due to many reasons; the main reason
is the low purchasing power of people. Just just 25% population living in urban areas consumes about
75-80 % of eggs and poultry meat. The per capita consumption of egg is100 and poultry meat is 1.2
Kg per person per annum in urban areas. In rural area it is only 15 eggs and 0.15 Kg poultry meat.

Another important aspect of poultry development in India is the significant variation in the industry
across regions. The four southern states - Andhra Pradesh, Karnataka, Kerala and Tamil Nadu -
account for about 45 percent of the country's egg production, with a per capita consumption of 57 eggs
and 0.5 kg. of broiler meat. The eastern and central regions of India account for about 20 percent of
egg production, with a per capita consumption of 18 eggs and 0.13 kg. of broiler meat. The northern
and western regions of the country record much higher figures than the eastern and central regions
with respect to per capita availability of eggs and broiler meat. Graph 3[ see Annexure] shows egg
production in India by region during 1992-93.

4. SWOT Analysis of Poultry Industry in India:

4.1 STRENGTHS

1. Fresh, chilled chicken availability in whole, cutups, de-boned, formed or in processed, further
processed, ready to cook, ready to eat form. Product sales will expand but it is unlikely that the
frozen segment will see big expansion. Contribute to promotion of consumption. This will widen
the end product markets; take new concepts to existing consumption centers and lower consumer
prices.
2. Increasing use of enzymes formulations and pro-biotic, higher off take and lower margins in
vitamin formulations for feed use are very likely.

3. Costs will mean user prices will not be lower, perhaps marginally higher.

4. We will see surprisingly more successes than failures in end product distribution.
5. Rationalized pricing of breeder and commercial stock

6. From now and through the years up to 2010, India will see major changes in the way chicken is
sold. Live chicken sales at retail level will continue to thrive, but the entry of bigger players in this
segment will give it a big lift. Cleaner outlets, with emphasis on sanitation and hygiene, reduced
contamination, and the use of small feathering plucking machines, accurate weighing machines
will help cut out the image of chicken shops as dangerously dirty places to buy food. As more
outlets of this type open, existing retailers will see sense and improve conditions of their own
outlets.

7. Improved FCRs due to quality controls, upgraded, more efficient feed production by feed
commoners. New feed milling technologies and equipment, bigger capacity mills (500 tones/day)
and many more small feed mills (200 tones/day) will become necessary

8. Manufacturers in a single area may initially have to operate at below capacity, but in a short term
will be able to gain business strengths and become viable. In the 5 years from 1999, feed
manufacturing units will handle bigger than current volumes

9. Purchase terms of feed raw materials will ease and supply of better quality materials will be easier.
No significant rise in commodity prices will occur in the months up to end March 1999, except for
very brief periods if supply lines are interrupted. The first 10 years will be marked by steady (if not
falling ) prices of cereals and oilseed extractions. Any short term prices rises that occur in 1999
will not translate into significant annual increase over average 1998 prices

10. Better breeding stock performance, improvements triggered by competition.

11. Broilers will reach newer consumption centers, either through food stores in chilled form or
through superior, cleaner and hygienically-maintained live bird outlets. Such developments will
reduce pressure on existing markets in the metros and improve trade relations.

12. Important for the layer segment would be emergence of competition in the breeder and commercial
layer markets.

13. Stabilisation and re-emergence of the fledgling egg processing industry and resumption of egg
product exports.

14. Feed units will open in areas where there are none, in existing poultry production regions and in
upcoming ones. This will mean total feed output will go up.

15. Pelleted feeds will gain increasing market shares.


16. Restricted credit and better screening of feed distributors customers' credit worthiness will
improve collections for feed sold and recovery of outstanding.

17. The feed additives and poultry health products business will register a steady growth. Lower tariffs
will benefit importers but higher marketing Increasing use of enzymes and probiotics, higher
offtake and lower margins in vitamin formulations for feed use are very likely for manufacturers
and repackers.

18. Marketing of branded eggs in consumer packs would bring value addition and promote
consumption.

19. Fewer players in the pharma-vet products and feed additives business will come with "me-too"
products.

20. More utilization of eggs and chicken by catering establishments and by those manufacturing
convenience foods.

21. Industry's ability to operate on even lower margins, bigger volumes, narrowing the farmer-to-
consumer price gap.

22. Widening reach of wholesale egg trade and distribution network and retail sales.

23. Positive role of integrators and corporates in promoting live and fresh chilled chicken sales at retail
and institutional levels will give more strength to the industry.

4.2 WEAKNESSES

1. Lower feeding stuffs prices and improved availability consequent to higher domestic production,
falling exports and imports of raw materials
2. Lower bad debts and write-offs will offset higher energy and labor costs

3. Positive and negative impact of fewer but bigger operators at breeder and commercial levels

4.3 OPPORTUNITIES OF GROWTH

The first opportunity that was created in July 1991 when devaluation of the rupee and subsequently
full conversion of rupee was done, which put India on a relatively competitive front.

1. Eighty percent of Indian population is non-vegetarian as per a survey by Anthropology Survey


of India. Moreover poultry has no religious sentiments.
2. Government policies relating to investments in poultry and ancillary industries, taxation,
import duties, excise levies are positive
3. Increase in income generation vis--vis purchasing power in the rural poor and marginal
farmers. Thus increase of demand in domestic market and also due to conversion from
vegetarianism.
4. Consumer awareness, perception and acceptability of eggs and chicken as healthy food is
increasing
5. As per experts the value added poultry products will have high demand and also increase
consumer acceptance in coming days.
6. The National Egg Coordination Committee has plans to raise the per capita consumption of
eggs in India to180 by 2015.
7. The country has developed strong research and development network to provide necessary
support. The Indian Council of Agricultural Research is the nodal organization for agricultural
research in the country is playing vital role. It undertakes research in its own institutes Central
Avian Research Institute, Izatnagar and Project Directorate on Poultry Hyderabad and also in
state agricultural universities through All India Coordinated Research Projects and Cess Fund
Projects.
8. Many countries, which are non-traditional poultry growers, are giving incentives to their
poultry industry thus the global demand is increasing.
9. Concept of organic chicken as in India chicken is traditionally raised in backyards and is
called "free range birds".
10. We export about 24 million tons of soybean cake to Europe. So instead of exporting cake we
can export eggs there.
11. Indian eggs are cheapest in the world market 50cents a Kg.
12. India is gifted with natural sunshine, cultivable land and sufficient rains. Even by providing
water to the land we can make poultry feed for the whole world.
13. A study on Indian Food Industry done by the CII and McKinsey predicted that Indian poultry
sector has growth potential of 20% per annum and has set a target of Rs 4,80,000 crores a year
by 2005.
14. The potential is so huge that if the per capita consumption is increased by one egg or about 50
gm of poultry meat can create employment for about 25000 people. (Source: The Hindu
Survey of Indian Agriculture, 2000).
15. The poultry business gives quick turnover the growth cycle is very fast only 45 days. It
generates fast cash. So farmers can take interest in the business.
16. The cost of production of both eggs and chicken meat in India is less than the international
prices. Thus it can get the chance of establishing itself in the world market.
17. The productivity is also as per USA (305 eggs per bird per year). In Namakkal region of Tamil
Nadu it is 300per bird per year.
18. The pesticide and antibiotic residues in Indian poultry products are 0.15 ppm while the Global
acceptance is only 0.3 ppm.
19. Although the global players are trying to import their products in India but Indians prefer fresh
poultry products than imported frozen and chilled products. So imported products will find few
takers.
20. Eggs and chicken meat are the cheapest sources of animal protein as compared to any other
source.
21. General economic conditions and available disposable incomes.
22. Demand generated in the 12 to 24 age group has increased.
23. Competition following lifting of import trade controls and import duties under WTO
obligations, arrival of bigger quantities of imported chicken and table eggs in the Indian
market.
24. Increasing use of information technology, websites, and hot news via e-mail.

4.4 THREATS

1. Poor infrastructure for export is hindering the export of poultry products.


2. Competition from international players on opening up duty-free imports, lifting of trade
barriers.
3. Lack of FDI in India in this sector and very less number of state of art processing plants and
post harvest technology are available.
4. Increasing propaganda and demonstrations by organizations on promoting vegetarianism and
Animal rights.
5. Occurrence of Salmonella and Cholesterol in poultry meat.
6. Many countries are dumping their poultry products i.e. exporting eggs at prices lower than
production cost.
7. Many countries are protecting their poultry industry from foreign competition by protective
measures like restricting imports, keeping egg prices at lower level etc.
8. Unavailability of breed, lack of integration, no link between consumer demand and need and
leakage value are some limiting factors of poultry industry today.
9. Stiff competition from Sri Lanka, Pakistan, Brazil and France, all these countries provide
subsidies, export incentives to exporters, and keep their price low.

5. Latest Trends in Poultry Sector:

5.1) Designer eggs:

One of the ways to market a new product is to change the old product. The contents of the chicken egg
can be changed in such ways as to be more healthful and appealing to a segment of our consumers
who are willing to pay for those changes in the egg. "Designer eggs" are those in which the content
has been modified from the standard egg. There are various types of Designer eggs which are highly
popular in western countries and in certain cities in India like Banglore (KOOL KOMESTIBLES PVT LTD).

5.1.a. Omega-3 eggs: The types of fatty acids found in the yolk of an egg are directly related to the
types of fat fed to the chicken. Thus, adding products high in omega-3 fatty acids, such as flaxseed,
marine algae, fish and fish oil, to chicken feed can increase the omega-3 fatty acid content in the egg
yolk. Omega-3 fatty acids are important for optimal development of an infant's brain and eyes. These
fats also have many other important benefits, including helping reduce one's risk of arteriosclerosis
and stroke. Omega-3 fatty acid-enriched eggs taste and cook like other eggs, but typically have a
darker yolk color

5.1.b. Eggs with lower saturated fat and cholesterol: Some designer egg manufacturers have focused
on lowering the cholesterol and ratio of saturated to unsaturated fat in their eggs. This is generally
done by feeding the chickens an all-vegetarian diet high in canola oil. To market a product as being
lower in cholesterol or saturated fat, the product must have 25 percent less of the nutrient in question
than the standard product. A large egg contains approximately 200-220 milligrams of cholesterol.

5.1.c. Cage-free or free-roaming eggs: The majority of commercial egg-laying chickens around the
world are housed in cages. Caging hens reduces the spread of disease by separating birds from their
feces, reduces that amount of dust and ammonia present in the hen house and reduces the amount of
physical labor required to manage chickens and collect the eggs. However, this system can be viewed
as being less humane to the chicken; therefore, there is a niche market for eggs produced by chickens
raised in a cage-free or free-roaming system. Typically, birds raised in a cage-free or free-roaming
system are kept inside and maintained on the floor of the poultry house. Only if the label says "free-
range" can you expect that the chickens were allowed to graze or roam outdoors. India can trap this
market since most of the poultry in India are free roaming birds.

5.1.d. Organic eggs: To be label as organically produced eggs, the eggs must be produced from hens
that have been fed certified-organic feed produced without synthetic pesticides or herbicides,
antibiotics or genetically-modified crops. In addition, synthetic pesticides cannot be used to control
parasites that may affect the chicken. Typically, organic eggs also are produced from hens in cage-free
systems .This market can also be tapped by Indian farmers.The cost incurred will be for labor and cost
of labeling in India labor is cheap and Labeling can be done at a price of 5% of the total output by the
nodal agency.

5.2) Computing poultry ration on day to day basis:

The feed cost constitutes about 80% of the total cost of production. Prices of feed have increased 40
% whereas the price of produce has increased only by 2-4 %. So in order to lower the price there is a
unique method devised by Namakkal Hatcheries in Tamil Nadu .They compute the poultry feed by
calculating DCP and TDN using the most cheaply available feed ingredients on day to day basis. So
the cost of feed can be reduced drastically .For example if the relative price of maize has increased
compared to yesterday they will replace maize with a comparatively cheaper cereal, but the final
protein (DCP) and total nutrients (TDN)will be the same.

6. Recommendations:

1. As the poultry industry is among the fastest growing in the world, its potential to attract to big-
time foreign investment is negligible and that is why it is necessary to change it needs greater
integration, better cost-effectiveness and improvement in the distribution.
2. There should be proper storage facility for maize as it is produced as rain-fed crop and
therefore subjects to vagaries of monsoon. Maize production has not been able to keep pace
with its consumption by animal feed sector.
3. The poultry companies have to encourage direct procurement of maize from the farmers by
using contract farming, models that are currently use in oilseeds and wheat.
4. Indian poultry industry needs good branding system in order to increase the consumption of
chicken.
5. More retail outlets, mass gathering and creating awareness home to home about the nutrient
values of chicken and egg.
6. Reduce the feed cost by integration and even 50-paisa reduction per Kg of feed can make all
the difference in the net realization.
7. Collection of reliable, updated statistics necessary for immediate and long term planning and
thus help preventing surplus, shortages etc.
8. Develop mechanism to counter anti-meat lobbies.
9. Developing efficient, independent, authority for disease monitoring, biological quality control.

7. References:

1. http://www.poultrysolutions.com/knowledg/about/i_poultry.htm

2. www.mhr-viandes.com

3. www.poultrytimesofindia.com

4. www.financialexpress.com
5. www.thehindubusinessline.com

6. Chakrabarti, A. 2003. Hand Book Of Animal Husbandry, Kalyani Publishers.

7. http://www.poultrysolutions.com/knowledg/about/swot.htm#Strength

8. http://www.fao.org/WAIRDOCS/LEAD/X6170E/x6170e2k.htm

9. http://www.agriculture-industry-india.com/agricultural-commodities/eggs.html

10. www.blonnet.com/2004/02/06/stories/2004020600211100.htm

11. www.aponline.gov.in/quick%20links/vision2020/c12.pdf

12. www.ers.usda.gov/publications/WRS0403/WRS0403i.pdf

13. www.indiaagronet.com/indiaagronet/ poultry_management/Poultry_3.htm

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8. Annexure:

Table 1 Future Projections (Source www.poultrysoutions.com)

Human Population in India

2000 2005 2010

00,000 00,000 00,000

1006,8 1082,2 1152,3

Table Egg Production (tones)

1,845,250 2,355,000 3,151,520

Table Egg Production (million no)


33,550 42,818 57,300

Per Capita Annual Egg Consumption(Kg / person)

1,833 2,176 2,735

Per Capita Annual Egg Consumption (No. of eggs)

33.32 39.56 49.73

Broiler Chicken Meat Production (000 tons)

Graph 1
Poultry sector size in major countries (2001)
18,000
16,000
14,000
12,000
1 ,0 0 0 to n s

10,000
8,000
6,000
4,000
2,000
0
United China EU-15 Brazil Mexico Thailand India Japan
States

Production Consumption Imports Exports

Graph 2

Graph 3
Egg Production and Poultry in India 1998 2000
[Source: . http://www.fao.org/WAIRDOCS/LEAD/X6170E/x6170e2k.htm]