Value addition in poultry production

Lecture Notes Prepared By

Dr. J.N. Ingweye

Neglected Underutilized Species & Agrofood Value Chains Research Group
Department of Animal Science
Faculty of Agriculture
University of Port Harcourt
Email: julius.ingweye@uniport.edu.ng

April 24, 2017

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Table of Contents
1.0 Introduction...........................................................................................................................................1
2.0 What is value?.......................................................................................................................................1
3.0 Value addition.......................................................................................................................................3
3.1 Why add value?.................................................................................................................................3
3.2 Who adds value?................................................................................................................................3
3.3 Ways of adding value........................................................................................................................4
3.4 Qualifications for adding value..........................................................................................................4
3.5 Capturing value vs creating value......................................................................................................4
3.6 Cost minimization and value addition................................................................................................5
3.7 Key facts about value addition in agriculture.....................................................................................5
3.8 Successful value addition..................................................................................................................5
3.9 Some facts about agrofood products..................................................................................................5
4.0 What is a value chain?...........................................................................................................................6
5.0 Conclusion.............................................................................................................................................6
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1.0 Introduction
Every poultry farmer produces the same broiler chicken and egg. Breeds, health condition, and
ages of the birds may differ but given same breed, health status, sex, ages and market, what
would differ? Nothing!

Egg is egg, no matter the farm it came from. However, to get better price and sell faster, you
must produce your egg or broiler differently or your egg or broiler meat must contain something
different or taste better to attract a better price than others. Therein lies the concept of value-
addition.

Adding value to poultry products is the process of transforming the poultry product from its
original state to a more valuable state e.g. egg→ cleaned egg → packaged egg; live broiler
chicken→ dressed chicken→ packaged chicken. It is making your eggs different from others or
your broiler birds different from others. Many raw commodities like eggs and meat, have value
in their original state though. But as a producer, you can get more value from your products if
you produce them differently; physically change them or coordinate with other agribusinesses to
change the way the product is marketed.

2.0 What is value?

Value is the regard that something is held to deserve. It is the importance, worth, usefulness or
utility of a product or service as perceived by customers. Usually, value is measured in monetary
terms. When customers evaluate a product’s value, they weigh its perceived value against the
asking price.

Because many customers take price important, most agrofood entrepreneurs focus their attention
on managing prices since raising prices can immediately boost profits. But that’s the easy part.
What consumers truly value, however, is difficult to tell and psychologically complicated. The
value in a product lies in the eye of the beholder (i.e. the customer). It means that the value of a
product differs from one customer to another. The right combinations of value pay-off the
entrepreneur in stronger customer loyalty, greater consumer willingness to try a brand, and
sustained revenue growth.

Because of the complicated nature of customer value perception, before accepting a customer’s
statement on value, it is important to probe for the underlying motivation for the verdict to have a
clearer idea of what the customer meant. There are various elements that make-up the value of a
product (Figure 1). The importance of each element varies with industry, culture, individuals and
demographics. For example, nostalgia may mean little to subsistence farmers in developing
countries, whereas makes money is vital to them.

In summary, “value” is usually created by focusing on the benefits the customer gets from the
product or service. These benefits come from:
Quality: What do customers mean by quality eggs? Does the product or service meet or exceed
customer expectations?
Functionality: What do they use the eggs or chicken for? Does the product or service provide
the function needed of it?
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Figure 1: Elements of value pyramid

Form: Is the product in a useful form?

Place: Is the product in the right place?
Time: Is the product in the right place at the right time?
Ease of possession: Is the product easy for the customer to obtain? A product must have one or
more of these qualities to generate additional value. Also, note that a product is a bundle of
benefits, hence, the more benefits there are in a product, the more customers will perceive the
product as having value.
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3.0 Value addition

Value addition means getting more from what you already have. Value added poultry production
is the process of increasing the economic value and consumer appeal of a poultry product. The
value of poultry products can be increased through changes in genetics, processing or
diversification. Value addition requires more time, labor and skill than typically seen in
farming operations. For value-addition to be successful the poultry farmer should identify
products that utilize local resources and fill a gap in the market. Adding value also adds cost
to the process but it also adds additional net cash returns that would cancel out the additional
costs and ensure better profits than if the entrepreneur depended on the raw product alone.
Value-addition ensures high premium to the producers while providing more acceptable
quality products customer. Value addition is driven by customer needs and preferences. All
raw livestock products have some value or are worth something, but, raw products are less
valuable than the processed, hence, attract less price.

Figure 2: Mapping value added along a value chain

Hea ding

Input provision Production Trading Proces sing Wholes aling Retailing Consuming

Value N110.5 N248.9 N261.4 N288.7 N302 N317

N110.5 N12.5 N2 7.3 N1 3.3 N1 5

Value added

3.1 Why add value?

Agro-entrepreneurs engage in adding value because value addition:
 Attracts higher return on investment (makes more money for the farm);
 Opens up new markets;
 Creates recognition for the farm;
 Expands the market season and;
 Makes positive contribution to the local economy and community;
 Meet changing tastes and preferences of consumers such as: convenience, quality, safety,
health, variety, price, and social and environmental consciousness;
 Helps you compete by differentiating a product in a highly competitive market.

3.2 Who adds value?

In a poultry value chain, all actors can add value. They include:
o Input supplier
o Producer
o Trader
o Processor
o Wholesaler
o Retailer
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o Consumer
Normally, the actor that adds value reaps the benefits proportionate to his value-added effort. But
this is not always the case because some actors add more value than others, yet benefit less than
them.
But why? The reasons could be:
 Structural issues
 Monopoly
 Counterfeiting
 Copying
This is common where investments, copyrights and trademarks are not protected.

3.3 Ways of adding value

Ways through which value of poultry farm produce can be added:
 Cleaning,
 Freezing the processed chicken
 Packaging
 Processing (cutting into parts)
 Distributing
 Cooking/roasting
 Combining with other products (e.g. vegetables)
 Drying the meat
 Smoking the meat
 Labeling the package with name of farm
 Resizing (sell in parts)
 Transporting for customers
 Reputation and relationships (trust to deliver on agreed time and date, no cheating)
 Increasing shelf life of meat and eggs
 Unique appearance (colour of shell, yolk or meat)
 Provide recipes/cookbook (recipe on preparing chicken pepper soup)
 Take unique approach to business (e.g. way you handle customer complaints)
 slaughtering and dressing.
Non-food value-added activities include
 Producing energy from agricultural products e.g. electricity production from animal
waste to reduce farm fuel costs;
 producing organic products perceived healthier, local and fresher, hence, attracting better
prices;
 Farm entertainment and agritourism.

3.4 Qualifications for adding value

To add value, you must be willing and able to:
 Take risk;
 Have adequate capital for investment;
 Have management skills and;
 Have personal skills e.g. ability to interact with the public and inner drive to succeed.
N/B: Necessary to choose what you love doing and that fits your personality and goals.
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3.5 Capturing value vs creating value

Value (in the form of superior product or service) can be added to products by:
 Capturing value (by coordination: Coordination is changing the distribution of value in
the agrofood chain. In a chain, each actor strives to ‘capture’ as much of the consumer
naira as possible by engaging in e.g. direct marketing, vertical integration and
cooperatives)
 Creating value (by innovation: Innovation is improving existing processes, products and
services or creating new ones e.g. better customer experience, creating brand names,
giving enhanced services and product characteristics or just new products).

Value creation and capturing are business strategies. A created-value strategy relies on products
or services that are unique or different from the mainstream equivalent which quality attribute
e.g. brand image e.g. peak milk and identification with a specific geographic region (e.g. Ogoja
garri). Creating value can pose higher production risks than capturing value. Creating value also
requires learning new production and marketing skills, dealing with food safety, labeling, and
other regulations. Demand for the innovative product must also be created through advertising
which is expensive. Marketing risks may be lower and if the demand can be established, there is
potential for higher stable profits and little direct competition. The amount of value-added is
affected by whether the enterprise is capturing or creating value.

3.6 Cost minimization and value addition

Before poultry entrepreneurs explore value-addition, they must minimize production costs. Only
low costs and efficient and profitable firms will survive. Adding value cannot take the place of
good management.

3.7 Key facts about value addition in agriculture

 Value added is usually measured by the price of the product at a point in the chain while
value captured/share is measured by gross margin
 Processing and marketing risks are relatively low when capturing value but such
businesses witness narrow profit margins and stiff competition
 Smallholders that cannot compete with large-scale businesses on price need to target
niche markets by using value creation strategy for highest likelihood of success
 Many producers combine aspects of capturing and creating value in their ventures
 Value may be added but not captured fully by the firm that added it.

3.8 Successful value addition

Value added livestock production would have been successful if:
o The customer base is expanded
o The business receives a greater share of the revenue (value share)
o The producer receives strategic advantage in the market place
o All the above combine to help the business make more money.

Livestock producers used to have the ‘produce-then-sell mentality’ or production orientation or

push strategy whereby the producer rear livestock, hoped to find a buyer and take whatever price
was offered. However, today’s agriculture has gone beyond that level. We are now in a market
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orientation era where the pull strategy is used. In this era, the producer must first determine what
the customer wants in the livestock product, then create the required product for the customer at
a profit though.

3.9 Some facts about agrofood products

Before adding value to your products, it is important to know the basic characteristics of
agricultural products. This knowledge will enable you add value appropriately. Highly perishable
 Highly nutritious
 Bulky
 Higher diseases risk
 Weak difference among products (Rare intrinsic difference among eggs from different
farms)

4.0 What is a value chain?

Figure 3: Simple livestock value chain map

Input
Producer Trader Processor Wholesaler Retailer Consumer
supplier

The value chain is a full range of activities, implemented by actors (producer, processors, traders,
wholesalers, retailers, consumers and service providers) to bring a product or service from
conception through the different phases of production to delivery to consumers and disposal after
use. Increasingly, the value chain approach is now used as an entry point for engaging
smallholder farmers to high value markets.

5.0 Conclusion
There is no simple blueprint for success for adding value to poultry. However,principles that if
upheld may increase success rate include:
 Start small and grow naturally;
 Make decisions based on good records;
 Create a high-quality product;
 Follow demand-driven production;
 Get the partners involved;
 Keep yourself informed;
 Have a plan for tomorrow;
 Evaluate the business continuously;
 Persevere when facing difficulties;
 Capitalize the business adequately;
 Let the business be focused;
 Establish a loyal customer base;
 Choose something you love to do which fits your personality and goals.
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Adding value to your farm products can be a great way to increase farm income, diversify
production, and enter new markets. Understanding the risks and rewards of different approaches
to adding value, investigating the options for adding value, and careful business planning are all
important to success.