An analysis of Profitability and Resource Use Efficiency of

Poultry Feed Mills in Bangladesh
 

M.A. Haque¹; T. Ahamed²; M. Akteruzzaman²³; A. Hashem⁴; S. Haque³; S. Akter⁵; M.M. Islam⁶;

M.S. Alamgir²; M.M. Islam⁷;
 

1: University of Tsukuba, Graduate School of Life and Environmental Sciences, 1: -1: -1:
Tennodai, Tsukuba University, Ibaraki, 3: 05: -8: 5: 7: 2: , Japan , +8: 1: 8: 02: 5: 5: 2: 2: 7: 2:
9: , Japan, 2: University of Tsukuba, Graduate School of Life
Corresponding author email: azadulbau@yahoo.com
Abstract:
The study examines the profitability and resource use efficiency analysis of poultry feed mills of Bangladesh
covering Dhaka, Gazipur, Narsingdi, Kishoreganj and Mymensingh districts. Thirty feed mills which
categorized as; high, medium and low quality on the basis of feed conversion ratio (FCR), were purposively
selected. The primary and secondary data were collected and analyse on Cobb-Douglas model. Four out
of six variables included in the model were explainied significantly. The feed production cost was estimated
Tk. 39295, Tk. 38643 and Tk. 37218 per metric tonne (MT) respectively. The cost of high quality feed was
more than medium and low quality feed and the gross return was Tk. 43160, Tk. 42330 and Tk. 40500 per
MT respectively. It indicates that high quality feed production was more profitable than the medium and
low feed production. The results of Cobb-Douglas model indicated that if the supply of quality of raw
materials increased, their efficiency would increase for low and medium. It was also found that the ratio of
MVP and MFC were less than one which indicated that the resources were over utilized for high quality
feed mills and three input out of six underutilized for medium and low quality feeds.
Acknowledegment: All praises for the Almighty Allah Whose blessings have enabled the author to complete
the task of this paper. I do hereby express my deep sense of gratitude and indebtedness to my respected
professor Dr. Md. Akteruzzaman, Department of Agricultural Economics, Md. Abul Hashem, Professor,
Department of Animal Science, Bangladesh Agricultural University, Mymensingh and Associate Professor
Tofael Ahamed, Tsukuba University, Japan for their guidance, suggestions and supervision. I am grateful
to Ministry of Science and Technology, Government of the Peoples’ Republic of Bangladesh for providing
financial support Special thanks to all of my friends, their encouragement and moral support .
JEL Codes: Q12, Q12
#1172 

 
 An analysis of Profitability and Resource Use Efficiency of Poultry Feed
Mills in Bangladesh

Abstract
The study aimed at examining the profitability and resource use efficiency analysis of poultry feed mills of
Bangladesh covering Dhaka, Gazipur, Narsingdi, Kishoreganj and Mymensingh district. To fulfill the
objectives the study, 30 feed mills which categorized as; high, medium and low quality on the basis of feed
conversion ratio (FCR) were purposively selected. The primary data were collected during March 2013 to
March 2014 by using survey schedule and KII. In addition the secondary data were collected from different
government documents. The resource use efficiency in poultry feeds production along with factors affecting.
The study also make substantial contribution in quantitative analysis of poultry feeds in the framework of
multiple regression models like Cobb-Douglas production analysis for different feed mills. Four out of six
variables included in the model were significant in explaining the variation in high, medium and low
quality poultry feed production. The feed production cost was estimated Tk. 39295, Tk. 38643 and Tk.
37218 per metric tonne (MT) respectively for high, medium and low quality feed mills. The cost of high
quality feed mills was more than medium and low quality feed and the gross return was Tk. 43160, Tk.
42330 and Tk. 40500 per MT respectively for high, medium and low quality studied feed mills. The gross
margin was Tk. 6486; Tk. 5957and Tk. 5285 per MT and net return were Tk. 3865, Tk. 3687and Tk.
3279per MT respectively. It indicates that gross return, gross margin and net return of high quality feed
mill was more than the medium and low quality feed mill. Six variables were included in the Cobb-Douglas
model and the results indicated that if the supply of quality of raw materials increased in low and medium
quality feed mills, their efficiency would increase. It was also found that the four variables out of six, the
ratio of MVP and MFC were less than one which indicated that the resources were over utilized for high
and three input out of six underutilized for medium and low quality feed mill that means there
opportunities to increased other variables for increasing output. In cases of high quality feed millers,
efficiency would increase if they are owner operator. Feed is an important factor for poultry farming but
applying high quality feed indicates the direction of intensive farming, for which input improved is
necessary because the study found that the ratio of MVP and MFC of all the inputs were not one. These
inequalities indicate that the farmers in the study areas have failed to show their efficiency in using all the
resources. As concluding observation, it may be suggested that poultry have scope to attain full efficiency
by reallocating the resources. Policy makers should fund the research of poultry feed production cost.

Keywords: Bangladesh, Poultry Feed Mills, Livestock, Raw Materials, Profit

1
1. Introduction
Livestock is playing an important role in the national economy by contributing
significantly to agriculture and to the gross national product of Bangladesh (Das et
al., 2008; Begum et al., 2011; Chowdhury, 2013; Uddin, 2014; DLS, 2016 and Haque,
2017). The agricultural sector contributes 12.57% in the GDP whereas livestock sector
contributes 2.15% in the GDP (BBS, 2014). Furthermore, it plays a pivotal role in the
rural socio-economic system as maximum households are directly involved in
livestock sub-sector. Poultry industry is one of the major among livestock sub-sectors
that committed to supply cheap sources of good quality nutritious animal protein to
the nation in terms of meat and eggs (Das et al., 2008). Total investment in poultry
industry was Tk. 150 billion with an annual turnover of Tk. 200 to 250 billion
(Chowdhury, 2013). Poultry meat production was 30.21 lac tons and egg production
67542.80 lac in 2013/14 (BER, 2014). Poultry plays a pivotal role in bridging the
protein gap of animal origin in Bangladesh (Haque 2017, Rashid, 2010). About 6
million people are employed in this industry and the number of commercial poultry
farms in Bangladesh were 114,000 in 2010; 98000 in 2011 and 75000 in 2012
(Chowdhury, 2013). The poultry industry in Bangladesh plays a crucial role in
economic growth and simultaneously creates numerous employment opportunities
for more than 6 million people (Chowdhury, 2013). Figure 1 represents that among
animal population in Bangladesh, poultry population was the highest in 2011-2012.
Poultry population was 2329.9 lac in 2005-06 and it reaches to 2932.35 lac in 2012-13
(BER, 2013).
500 3000
2800
2600
400 2400
2200
2000
300 1800
1600
1400
200 1200
1000
800
100 600
400
200
0 0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Cattle Buffalo Goat Sheep Duck Chicken

Figure 1: Numbers of livestock and poultry population in Bangladesh (in lac)

Source: BER, 2014 and DLS, 2016

2
Chowdhury (2013) pointed out that the per capita consumption of all meat is 14.67 kg
and that of egg is 31 numbers as against the requirements of 56 kg meat and 365 eggs,
respectively. The per capita poultry meat availability is approximately one-fifth of the
consumed meat (3 kg) which needs to be increased more than double to satisfy the
current demand of 7.67 kg while that of egg more than three times to meet the per
capita minimum requirement of 102 eggs (Begum et al., 2011).

This industry is particularly important in the sense that it is a significant source of

supply of protein and nutrition in a household's nutritional intake. Poultry is a
common enterprise in rural Bangladesh (Begum et al., 2011 and Haque 2017).
Although government introduced of poultry farms for multiplication and
distribution to village people in 1935, but commercial poultry production has been
started from 1980s in Bangladesh (Raha 2003). The poultry industry in Bangladesh is
very important for the reduction of poverty and creation of employment
opportunities (Haque 2017 and Rah 2003). In the recent times, the demand for milk
has increased by 6 percent and eggs by 5.2 percent. Fish and cattle production require
a longer time. But poultry production is relatively faster and easier, if public and
private sector initiatives go side by side (Uddin, 2014). The trends of milk, meat and
eggs productions were increasing from 2005/06 to 2012/13 (Figure 2).
75000 73038 40
72000
69000
66000 34.63 34.63 35
63000
60000
57000 56532 57424 30
54000 54220 53690
51000 26.5 51347
48000 46920 25.32 25
45000 23.65 23.32
42000 22.7 22.8 22.86 42110
39000 20
36000 18.91
33000
30000 15
27000
24000 12.64 12.79
21000 11.3 10.4 10.4 10.84
18000 10
15000
12000
9000 5
6000
3000
0 0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Egg Lac Milk Lacmt Meat Lacmt

Figure 2: Production trends of milk, meat and eggs during 2005-2016

Source: BER, 2014 and DLS, 2016

3
Poultry feed mill industry as an agribusiness enterprise is comparatively new in
Bangladesh (Jabbar et a1., 2007, Raha 2007, Raha 2008 and PKB 2009). Total feed
business, especially, the business of concentrates was controlled by some feed
traders. Bangladesh is a feed deficit country. At present there are about 250
registered feed mills in our country (Uddin, 2014). These feed mills are not produced
sufficient amounts of feed. Shortage of feed is major constraints to the development
of poultry industry in Bangladesh There is a general agreement that low poultry
production in Bangladesh is mainly due to lack of feed staff. The major feed additives
are: toxin binder, mold inhibitor, enzymes, synthetic amino acids and vitamins, feed
premixes, vitamin-mineral premixes, trace minerals, organic acids, probiotics,
salmonella killer, antibiotic for therapeutic use through feeds (antibiotic as growth
promoter is strictly prohibited to use in the feed according to Feed Act 2010). Most of
the feed additives have been imported by the health companies and feed millers.
Major Feed ingredients that have been imported by the commercial feed millers are:
meat and bone meal, fish meal, protein concentrates, fish meal, soybean meal where
around 50% is locally produced (Uddin, 2014). Though, due to the government's
initiatives, supply situation of feed has improved slightly, but still supply is very
much inadequate in relation to high increasing demand. The expansion of
commercial feed industry in Bangladesh can possible to fulfill more than 80% of the
total compound feed requirements. Considering the existing growth rate of poultry,
cattle and aquaculture, the estimated annual compound feed requirement would be
10.60 million MT in 2020-21 (Uddin, 2014). Therefore, according to the estimation of
their existing production capacity, it is revealed that compound feed production will
meet only 26.11% of the total requirement in 2020-21 (Khaleduzzaman et al., 2012).
Hence, it indicates the potential of compound feed production in the country in
future.

By ensuring the supply of quality feed for livestock sub-sector, the feed mill industry
is enhancing the whole economy significantly through its forward linkage effect. The
feed mill industry improves the efficiency and digestibility of feed through scientific
formulation and processing and helps efficient use of scarce feed resources. This
industry also generates a number of employments in the processing plants and

4
involves a number of people in feed distribution channels. Realizing the importance
of this industry, the GOB is trying to make involved more private entrepreneurs here.
This study is a modest effort undertaken to examine resource allocations of feed
mills. The specific objectives are to determine the profitability of different quality
poultry feed mills and their resource use efficiency analysis.

2. Methodology
The study was mainly based on field survey in addition of some secondary
information. Purposive sampling technique was used in selected 30 feed mills. It was
categorized by high, medium and low quality feed mill on the basis of feed
conversion ratio (FCR). One more important part of research work is sample
selection. In a complete enumeration, the essential information is collected from
different stakeholders’. The field work conducted with feed miller, dealer, different
sizes of poultry farm owners and farmers. 30 feed mills were selected on the basis of
quality (FCR) from Dhaka, Gazipur, Narsingdi, Kishoreganj and Mymensingh
districts. FCR categorized on the basis of collected from firms level data from feed
performance. Table 1 shows that a multi-stage stratified sampling was adopted in this
study. The selected 30 feed mills categorized on the basis of feed conversion ratio
(FCR) that is high quality feed mills (FCR; below 1.5 to 1.6), medium quality feed
mills (FCR: 1.6 up to 1.7) and low quality feed mills (FCR: 1.7 up). The selected
commercial farms were categorized by flock size small scale: < 1000 birds, medium
scale: 1001-2000 birds and large scale: above 2000 birds.

Table 1: Distribution of sampled feed mills and poultry farms

Poultry farms
Number Small Medium Large scale Total
Quality of feed mills
of scale scale (Above farm
(FCR basis)
feed mills (< 1000 (1001-2000 2000 birds)
birds) birds)
High 10 20 10 10 40
Medium 10 20 10 10 40
Low 10 20 10 10 40
Total 30 60 30 30 120

5
In conformity with the objectives of the study, a structured questionnaire developed
for collecting relevant primary data from the poultry feed miller and farmers. The
present study covered approximately from March –December 2013 to July-December
2014 study period and data analyzed with a combination of tabular and statistical
techniques. For analyzing the data, descriptive statistics such as sum, average, ratio,
percentages, etc. was derived and calculated to present the results. In this study,
profit was calculated by deducting total costs from total returns. The following
equation was used to assess the profitability of poultry feed production. The
profitability of feed production was derived in terms of gross return, gross
margin, net return and benefit cost ratio (undiscounted) of different enterprise.
The formulas need for the calculation of profitability is discussed below:

Gross return
Gross return calculated by multiplying the total volume of output of an enterprise by
the average price in the harvesting period (Dillon and Hardaker, 1993). The following
equation will have used to estimate GR:
n
GRi= i1 QiPi

Where,

GRi= Gross return from i-th product; Qi = Quantity of the i-th product; and
Pi = Average price of the i-th product and i = 1,2,3………………n.
Gross margin
Gross margin calculated by the difference between gross return and total variable
costs.
That is,
GM= GR- TVC
Where,
GM= Gross margin; GR= Gross return and TVC = Total variable cost.
Net return
Net return analysis considered fixed costs i.e., cost of land rent, interest on operating
capital, etc. Net return calculated by deducting all costs (variable and fixed) from the
gross return. To estimate the relative profitability of different agricultural enterprises,
profit equation of the following algebraic form was used:

6
    
n n
   PYi .Yi   PX i .X i  TFC
i1 i1

Where,

 = Net return; PY = Price per unit of the i-th produce; Yi = Quantity of the i-
i

th produce; PX i = Price per unit of the i-th inputs; X i = Quantity of the i-th inputs;

TFC = Total fixed costs; and i = 1,2,3,…n (number of items).

2.1 Empirical model selection

The study applied the marginal analysis procedure to estimate the economic
efficiency of the resource use in case of feed mills. Taru et al. (2010) also used this
procedure to find out the economics of broiler production. In order to determine the
economic efficiency of the resources used in poultry feed production, the marginal
value product (MVP) of each resource was compared with its marginal factor cost
(MFC) and the efficiency indicators computed. The mean estimates (output returns
and input costs) of the log-linearized Cobb-Douglas production function were used
in the computation of MVPs of each of the resource (input) with its MFC. A
statistically significant difference between a resource’s MVP and MFC suggests sub
optimality in the utilization of that resource. The MVP of a particular resource
represents the addition to gross return in value terms resulting from an addition of
one unit of that resource while other inputs are held constant. The most reliable,
perhaps the most useful estimate of MVP is obtained by taking resources (X i) as well
as gross return (Y) at their geometric mean. Since the variables of regression model
were measured in monetary value, the slope co-efficient to those explanatory
variables in the function represented the MVPs, which were calculated by
multiplying the production co-efficient of given resources with the ratio of geometric
mean (GM) of gross return to the geometric mean (GM) of the given resources.

That is;
ln Y = lna + bilnXi
dy y
 bi ( )
dx i xi

7
 Therefore,
Y(GM)
MVP (Xi) = bi
X (GM)
i
Where,
Y=Mean value (GM) of gross return in taka
Xi=Mean value (GM) of the ith variable input in taka
i=1, 2 and 3
GM= Geometric mean and
dy
= slope of production function as well as MVP of ith input.
dx i

The study adopted the method used by Oladeebo (2006) and Nzomoi (2006) where
the marginal value productivities (MVPs) for each resource is computed and
compared with their respective acquisition cost, marginal factor cost (MFC). The
optimum use of a particular input would be ascertained by the condition of equality
of MVP and MFC.

This can be shown in the following formula i.e.,

MVPx
1
MFCx
i

The economic efficiency of resource use was determined by the ratio of MVP to MFC.
The optimum amount of a variable input to be used when the ratio (r) of MVP to
MFC is equal to one. In this situation, concerning resource use, the farmer maximizes
his profits. Here the resource is efficiently used, that is optimum utilization of
resource hence the point of profit maximization. If r is <1; reveals that MVP < MFC,
the resource is excessively used or over utilized hence decreasing the quantity use of
that resource increases profits. Finally, If r > 1; reveals that MVP > MFC, the resource
is under used or being underutilized hence increasing its rate of use will increase
profit level.

8
2.2 Specifications of the model
To explore the effects of variable inputs, both linear and Cobb-Douglas production
function were estimated initially. The result of the Cobb-Douglas production
appeared to be superior on theoretical and econometric grounds. So the Cobb-
Douglas production was chosen under ordinary least squares (OLS) methods. The
coefficients understand this specification for production elasticity and if all the
related to the production are taken into account as the independent variables, the
sum of the output increasing constant or decreasing returns to scale. A production
function expresses the amount of output from a given bundle of inputs with fixed
technology. In economics, the Cobb-Douglas production function is widely used to
represent the relationship of an output to inputs. It was proposed and tested against
statistical evidence by Charles Cobb and Paul Douglas in 1928. It is a homogeneous
function that provides a scale factor enabling one to assess the return to scale and
interpret elasticity coefficient. It is also comparatively easy to estimate because in
logarithmic form it is linear (Beattie and Taylor, 1985). Efficiency means producers
wish to maximize profit within various constraints it is might lead to substantial
resource savings which have important implications for both policy formation and
farms management (Bravo-Ureta and Rieger 1991). In case of feed mills the
production technology could be specified by the linearized stochastic production
function representing Cobb-Douglas production technology. Related to this
specification a multiple regression model for the corresponding inputs was
developed to obtain the parameters for the measurement (elasticities) of resource use
efficiency of factor inputs. Several studies (Gani and Omonona, 2009; Fasasi, 2006;
Alene, 2002 and Anene, et al., 2010) used Cobb Douglas production function to
measure resource use efficiency. In this model, the factor inputs donated from X1 to
X6 representing; the implicit form of the model is as follows equation 1.

Y = f (X1, X2, X3, X4, X5, X6, Vi-Ui ) ……………………….. (1)

Where,
Y = Value of output; X1= Cost of ingredients; X2= Cost of additives
X3= Cost of machineries
X4= Cost of human labour

9
 X5= Operational cost
X6 = Cost of electricity
Vi= Symmetric disturbance term accounting for random shocks and other
statistical noise.
Ui = Non-negative random errors depicting inefficiency in production

Among other fitted functional forms, the double log form was chosen based on
goodness of fit depending on the highest value of adjusted R² and t-value. The form
is presented below (equation 2):

lnY = lnβ + β1lnX1 + β2InX2 + β3lnX3 + β4lnX4 + β5lnX5 + β6lnX6 + βnlnXn + Vi-Ui …(2)

Where,
ln = Natural logarithm
β= constant
Y, X1, X2 … X6, and Vi-Ui is as defined in equation (1).

3. Results and Discussions

3.1 Production cost of poultry feed mills

The term cost generally refers to outlay funds for poultry feed mill. Cost items are
classified into two major groups e.g., fixed cost and variable cost and these together
equaled total cost. In the present study high quality poultry feed production cost was
higher than medium and low quality of poultry feed. High quality poultry feed
production cost was Tk. 39295per metric ton (39.29Tk./kg) where medium and low
quality of poultry feed production cost per metric ton was Tk.38643 (38.63 per kg)
and Tk. 37218 (37.49 per kg) respectively (Table 2).All variable and fixed cost is
decreasing with feed quality because of quality feed depends on the cost of different
items of feed production possess.

In the study average gross return from high quality poultry feed production was
higher than average medium and low quality of poultry feed. High quality poultry
feed gross return was Tk. 43160 per metric ton where Tk. 42330 and Tk. 40500 per
metric ton respectively average medium and low quality of poultry feed (Table 3).

10
Table 2: Production cost of different quality poultry feeds mills
Item High quality Medium Low quality
(Tk./MT) quality (Tk./MT)
(Tk./MT)
A. Variable cost
Raw Material cost 32203.9 32082 31389

Electricity cost 450.41 440 400.7

Marketing cost 3000 2888.3 2552.8

Maintenance cost 120.33 100.88 110

Interest on working capital 900.04 862.6 763

Total variable cost 36674 36373 35215

B. Fixed cost

Land use cost 320.73 290 250

Machinery, tools and equipment 820.24 739.33 687.8

cost
Building, Warehouse and others 400.53 350.7 300
cost
Salary and Wages cost 1030.1 850 730

Electrification gas/generator cost 20 10 10

Permanent labor cost 30 30 28

Total fixed cost 2621 2270.03 2005.8

Total cost(A+B) 39295 38643 37218

Source: Authors’ estimation based on field survey, 2014

Table 3: Return from different poultry feed mills

Item Total quantity Sales Gross return Gross
(MT/Month) price (Taka) return
Tk./kg (Tk./MT)
High quality feed 11321 43.16 488614360 43160
Medium quality feed 6778 42.33 286912740 42330
Low quality feed 1743 40.5 70591500 40500
All average 6614 42 282039533 41997
Source: Authors’ estimation based on field survey, 2014

11
 Average gross margin, net return and BCR was Tk. 6058, Tk. 3438 and 1.1 per ton
respectively for high quality poultry feed mill, Tk. 5957, Tk. 3687, 1.12 for average
medium quality poultry feed mill and Tk. 5285, Tk.3282 and 1.10 for average low
quality poultry feed (Table 4). In this study area high quality feed production per
month was more than medium and low quality feed production because of high
quality feed demand higher than medium and low quality feed.

Table 4: Total return, gross margin, net return, BCR (undiscounted) for different
poultry feed production
Item High Medium Low
quality feed quality feed quality feed
Taka/MT Taka/MT Taka/MT
A. A. Gross return(GR) 43160 42330 40500
B. Variable cost(VC) 37102 36373 35215
C. Fixed cost(FC) 2620 2270 2003
D. Total cost (TC)= (B+C) 39722 38643 37218
E. Gross margin(GM)= (A-B) 6058 5957 5285
F. Net return (NR)=( E-C) 3438 3687 3282
G. Benefit cost ratio(BCR= A/D) 1.10 1.12 1.10
H. Net return per taka
investment (F/D) 0.10 0.11 0.1

Source: Authors’ estimation based on field survey, 2014

3.2 Empirical Estimation of Different Quality Poultry Feed Mills and their
Production
The result of Cobb-Douglas production was presented in Table 5. The result showed
that the model was accurate in explaining the determinants of adopting in high,
medium and low quality poultry feed production. In the selected areas for producing
of high, medium and low quality poultry feed the following inputs namely
concentrated ingredients, additives, machineries, labour, working capital were
considered as priory explanatory variables and these variables were considered to be
mostly responsible for poultry feed production which are discussed below.

12
3.2.1 Factors affecting on output for high quality poultry feed mills
Four out of six variables included in the model were significant in explaining the
variation in high quality poultry feed production. These variables were discussed
below.

The regression coefficient of ingredients for high quality feed mills was positively
significant at 10 percent probability level and it was 0.11. It indicates that 1 percent
increased on of this ingredient, keeping other factors held constant, would result in
an increase of feed production i. e., output level by 0.11 percent. In poultry feed mill
ingredients was most important among all other inputs. The high quality poultry
feed mills used good quality and amount of ingredients such as maize, rice polish
and rice bran, oil cake and coconut cake, fish meal and dry fish, meat and bone meal,
Dob, full fat soybean and soybean meal, protein concentrates, salt and others than
medium and low quality feed mills. If feed millers increase amount of good quality
ingredients of feeds production, then feeds quality also increase, and it has effects on
broiler production as a result body weight gain and farmers gets more benefit than
medium and low quality feed user farms. The regression coefficient of additives for
medium quality feed mills was positively significant at 5 percent probability level
and it was 0.72. It indicates that 5 percent increased on of this input, keeping other
factors held constant, would result in an increase of feed production by 0.72 percent.
Feed additives commonly used by poultry feed mills are toxin binder, mold inhibitor,
methuen, thiamin, lysine & enzymes, vitamins and feed premixes and other costs.
The high quality poultry feed mills used comparatively good quality feed additives
and its amount more than medium and low quality feeds. Its effects on broiler
production which is influenced body weight gain more than medium and low quality
feeds users farms. As a result farmer’s gets benefits more than medium and low
quality feeds user broiler because of benefits depends on body weights gain that is
feed conversion ratio (FCR).

The regression coefficient of machineries for high quality feed mills was positively
significant at 1 percent probability level and it was 0.75. It indicates that 1 percent
increased on of this input, keeping other factors held constant, would result in an
increase of feed production by 0.75 percent. Poultry feed mills generally used main

13
machinery, spare part, air compressor, crusher, generator, substation, water supply,
electrification, lab equipment, pick-up, motor and other cost. Cost of machineries
(tools and equipment) respectively a high quality feed mills was the highest than
medium and low quality feed mills. That means high quality feed mills used high
quality and high capacity machineries. It has also effect on feed production which is
influence on feed quality.

The regression coefficient of operational cost for high quality feed mills was
positively significant at 5 percent probability level and it was 0.22. It indicates that 5
percent increased on of this input, keeping other factors held constant, would result
in an increase of feed production by 0.22 percent. That means interest on working
capital for continuing all operation of feed production. If the amount of money
needed to meet the expenses on hired or purchased inputs was treated as operating
capital, then the positive effects on output. As a result, feed millers can smoothly run
when money flow increases his business. High quality feed millers used operational
capital more than medium and low quality feed mills as a result benefits also more
than medium and low quality feed mills. The co-efficient of multiple determination,
R2 was 0.84 for high quality poultry feed production which indicates that about 84
percent of the variation in poultry feed production were explained by the
independent explanatory variables included in the model. The summation of all the
elasticities (regression coefficients) of high quality poultry feed production of the
resources in Table 5 was 2.06, which more than one. This implies that one percent in
the quantity of all the variable inputs together will result in 2.06 percent decrease in
poultry feed production. The result also indicates an increasing return to scale which
is the characteristics of stage one of the production function.

3.2.2 Factors affecting on output for medium quality poultry feed mills
Four out of six variables included in the model were significant in explaining the
variation in medium quality poultry feed production. These variables were discussed
below.

The regression coefficient of ingredients for medium quality feed mills was positively
significant at 5 percent probability level and it was 0.13. It indicates that 5 percent

14
 increased on of this input, keeping other factors held constant, would result in an
increase of feed production by 0.13 percent. The medium quality poultry feed mills
used good quality ingredients and its amount less than high quality feeds. Its effects
on broiler production body weight gain less than high quality feeds users farms. As a
result medium quality farmer’s gets benefits less than high quality feeds user
farmers. The regression coefficient of additives for medium quality feed mills was
positively significant at 1 percent probability level and it was 0.65. It indicates that 1
percent increased on of this input, keeping other factors held constant, would result
in an increase of feed production by 0.65 percent. The medium quality poultry feed
mills used comparatively less quality feed additives and its amount less than high
quality feeds. Its effects on broiler production which is influenced body weight gain
less than high and low quality feeds users farms. As a result medium quality farmer’s
gets benefits more than low quality feeds user broiler because of benefits depends on
body weights gain that is FCR.

Table 5: Estimation of different quality poultry feed mills

Explanatory variables High quality feed Medium quality feed Low quality feed

Coefficient t-value Coefficient t-value Coefficient t-value

Intercept 10.38 7.47 9.12 6.12 4.12 3.21

Ingredients cost(X1) 0.11*** 2.95 0.13** 3.27 0.50*** 2.03

Additives cost (X2) 0.72** 2.91 0.65* 2.10 0.61** 2.98

Machineries cost (X3) 0.75* 5.64 0.55 1.23 0.25 1.45

Human labour cost (X4) 0.13 1.75 0.15 1.21 0.17 1.40

Operational cost (X5) 0.22** 2.50 0.14* 2.45 0.10 1.11

Electricity cost (X6) 0.13 0.49 0.02 0.34 0.01* 2.23

Value of R2 0.84 0.80 0.77

df 29 29 29

Return to scale 2.06 1.64 1.64

The regression coefficient of operational cost for high quality feed mills was
positively significant at 5 percent probability level and it was 0.14. It indicates that 5
percent increased on of this input, keeping other factors held constant, would result

15
in an increase of feed production by 0.14 percent. That means interest on working
capital for continuing all operation of feed production. If the amount of money
needed to meet the expenses on hired or purchased inputs was treated as operating
capital then the positive effects on output. As a result feed millers can smoothly run
when money flow increases his business. Medium quality feed millers operational
capital used less than high quality feed mills as a result also benefits less than high
and more than low quality feed mills. The co-efficient of multiple determination, R2
was 0.80 for medium quality poultry feed production which indicates that about 84
percent of the variation in poultry feed production were explained by the
independent variable (explanatory) included in the model. The summation of all the
elasticities (regression coefficients) of medium quality poultry feed production of the
resources in Table 5 was 1.64, which more than one. This implies that one percent in
the quantity of all the variable inputs together will result in 1.64 percent decrease in
poultry feed production. The result also indicates an increasing return to scale which
is the characteristics of stage one of the production function.

3.2.3 Factors affecting on output for low quality feed mills

Four out of six variables included in the model were significant in explaining the
variation in low quality poultry feed production. These variables were discussed
below.

The regression coefficient of ingredients for low quality feed mills was positively
significant at 10 percent probability level and it was 0.50. It indicates that 10 percent
increased on of this input, keeping other factors held constant, would result in an
increase of feed production by 0.50 percent. The low quality poultry feed mills used
less quality ingredients and its amount less than high and medium quality feed mills.
Its effects on broiler production weight gain less than high and medium quality feeds
users farms. As a result low quality farmer’s gets benefits less than high and medium
quality feeds user farmers. The regression coefficient of additives for low quality feed
mills was positively significant at 5 percent probability level and it was 0.61. It
indicates that 5 percent increased on of this input, keeping other factors held
constant, would result in an increase of feed production by 0.61 percent. The
regression coefficient of electricity cost for low quality feed mills was positively

16
significant at 5 percent probability level and it was 0.61. It indicates that 5 percent
increased on of this input, keeping other factors held constant, would result in an
increase of feed production by 0.61 percent. The co-efficient of multiple
determination, R2 was 0.77 for low quality poultry feed production which indicates
that about 84 percent of the variation in poultry feed production were explained by
the independent explanatory variables included in the model. The summation of all
the regression coefficients of the equations for poultry feed production was equal to
1.64, which more than one. This implies that the production function exhibits
increasing returns to scale i.e., if all the inputs specified in the respective function is
increased by 1 percent feed mills income will decrease by 1.64 percent for low quality
feed production

3.2 Resource use efficiency for high, medium and low quality feed mills
The estimated marginal value products (MVPs) of different inputs of high, medium
and low quality feeds production are presented in Table 6.

Table 6 shows that the ratios of MVP and MFC of high quality feed ingredients (X 1)
and additives cost (X2) was positive but less than one, its indicates that these two
inputs were under used or being underutilized on the feed mills during the
production process hence increasing their rate of use will increase output and
optimum level i.e. the production function with these inputs inefficiently combined.
And the ratios of MVP and MFC of machineries cost (X3), cost of human labour (X4),
operational cost (X5) and electricity cost (X6) were greater than unity, indicating that
these inputs were excessively used or over utilized hence decreasing quantity of the
inputs use will increase output and optimum level i.e. the production function with
these inputs inefficiently combined. This confirms the hypothesis that and profit
level. This confirms the hypothesis that resources are not efficiently utilized.

17
Table 6: Resource use efficiency in high, medium and low quality feeds production
Parameters GM Elasticity MVP MFC Efficiency Description

High quality feed

Y 43160.00 - - - -

Ingredients cost (X1) 29076.50 0.11 0.16 28.00 0.01 underutilized

Additives cost (X2) 3472.14 0.72 0.56 3.00 0.19 underutilized

Machineries cost (X3) 713.02 0.75 10.58 0.70 15.11 over utilized
Human labour cost (X4) 907.00 0.13 1.39 0.90 1.54 over utilized
Operational cost (X5) 749.00 0.22 1.12 0.75 1.49 over utilized
Electricity cost (X6) 213.00 0.15 7.11 0.33 21.54 over utilized
Medium quality
Y 42330.00 - - - -

Ingredients cost (X1) 28896.60 0.13 0.11 23.00 0.004 underutilized

Additives cost (X2) 3185.60 0.65 0.56 2.00 0.28 underutilized

Machineries cost (X3) 513.00 0.55 3.58 0.70 5.11 over utilized
Human labour cost (X4) 417.00 0.15 1.39 0.90 1.54 over utilized
Operational cost (X5) 649.00 0.14 0.23 0.65 0.35 underutilized
Electricity cost (X6) 111.00 0.02 3.11 0.18 17.27 over utilized
Low quality feed
Y 40500.00 - - - -

Ingredients cost (X1) 27917.00 0.50 0.16 28.00 0.01 underutilized

Additives cost (X2) 3127.40 0.61 0.56 3.00 0.19 underutilized

Machineries cost (X3) 444.00 0.25 0.60 1.82 0.32 underutilized

Human labour cost (X4) 567.00 0.17 1.39 0.90 1.54 over utilized
Operational cost (X5) 812.00 0.10 1.12 0.75 1.49 over utilized
Electricity cost (X6) 121.00 0.01 16.11 0.33 48.82 over utilized

Source: Author’s estimation based on field survey, 2014

Note: MVP=Marginal value product=MPP*Product price; and
MFC=Marginal factor cost=Input price

18
Table 6 shows that the ratios of MVP and MFC of medium quality feeds of
ingredients (X1), additives cost (X2) and operational cost (X5) was positive but less
than one, its indicates that these three inputs were under used or being underutilized
on the feed mills during the production process hence increasing their rate of use will
increase output and optimum level i.e. the production function with these inputs
inefficiently combined. And the ratios of MVP and MFC of machineries cost (X3), cost
of human labour (X4) and electricity cost (X6) were greater than unity, indicating that
these inputs were excessively used or over utilized hence decreasing quantity of the
inputs use will increase output and optimum level i.e. the production function with
these inputs inefficiently combined. This confirms the hypothesis that and profit
level. This confirms the hypothesis that resources are not efficiently utilized.

Table 6 shows that the ratios of MVP and MFC of low quality feed ingredients (X1),
additives cost (X2) and machineries cost (X3) was positive but less than one, its
indicates that these three inputs were under used or being underutilized on the feed
mills during the production process hence increasing their rate of use will increase
output and optimum level i.e. the production function with these inputs inefficiently
combined. And the ratios of MVP and MFC of cost of human labour (X 4), operational
cost (X5) and electricity cost (X6) were greater than unity, indicating that these inputs
were excessively used or over utilized hence decreasing quantity of the inputs use
will increase output and optimum level i.e. the production function with these inputs
inefficiently combined. This confirms the hypothesis that and profit level. This
confirms the hypothesis that resources are not efficiently utilized.

4. Conclusion
It could be concluded that the high quality poultry feed production cost was higher than
medium and low quality feed production cost. Also gross return, gross margin and net
returns of high quality feed mills were higher than medium and low quality feed mills. The

findings of the paper if low and medium quality feed mills can increase ingredients
and additives supply, then their efficiency will increase. In cases of high quality feed
mills, efficiency will increase if they are owner operator. Feed is an important factor
for poultry farming but applying high quality feed indicates the direction of intensive
farming, for which input improved is necessary because the study found that the

19
ratio of MVP and MFC of all the inputs were not one. These inequalities indicate that
the farmers in the study areas have failed to show their efficiency in using all the
resources. As concluding observation, it may be suggested that poultry feed mills
have scope to attain full efficiency by reallocating the resources.

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