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Integrated Contract Broiler Farming: An Evaluation Case Study in India

P.V.K. Sasidhar, Associate Professor, Indira Gandhi National Open University (IGNOU), School of Extension and Development Studies, New Delhi -110068 (India)

Murari Suvedi, Professor, Michigan State University (MSU), Department of Community, Agriculture, Recreation and Resource Studies, East Lansing, MI - 48824 (USA)


Project Overview

This project concept proposes evaluating value chain development through integrated contract broiler farming in India’s Karnataka and Andhra Pradesh states. Although India’s backyard poultry dates back to pre-historic period, the modern commercial poultry production came into focus only in late 1980s. The poultry sector’s contribution to total value of outputs from livestock sector has gone up from 2.2 % in 1951 to about 12.8 % in 2009-10, with an annual production of 55 billion eggs and 3.0 MMT of broiler meat (Economic Survey of India, 2009-10). The expansion in supply has been spurred by rising incomes and has resulted in lower poultry prices in south India where much of the growth has occurred (USDA, 2004). The impressive growth in the poultry sector in general and broiler industry in particular is the result of technological breakthroughs in breeding, feeding and health, and sizeable investments from the private sector. However, these efforts have concentrated on productivity and production by neglecting several front end activities such as wholesaling, processing, retailing and equitable inclusive development. Also, per capita consumption of eggs and chicken in rural India is less than half that in urban areas (Mehta et al., 2003; Saran, et.al, 2005). So, the very big challenge before the broiler industry and policy makers is enhancing the poultry production and processing on one side and reaching the fruits of poultry revolution to small rural farmers in terms of raising income and providing food security on the other side.

Even though commercialization can yield substantial gains, the transition from subsistence farming to market driven broiler production is burdened with risk (Von and Kennedy, 1994). The important issues connected with commercial broiler production are: i) Market volatility which makes the broiler rearing a risky enterprise, ii) Taste shifts of consumer in favour of processed chicken and small farmers are too distant from consumers to track their preferences, and iii) Lack of capital and technical expertise among small broiler farmers. These problems are serious enough that they could effectively choke off participation in markets except the large farmers. One of the value chain development arrangements that enable market access by small broiler farmers in South India now is extension and advisory services (EAS) provision by large private poultry companies through integrated contract broiler farming. The nature of contracting has been instrumental in removing small broiler farmer’s risk through buyback guarantee and also provision of coping against production failure. Provision of quality inputs such as chicks, feed and medicine has helped the farmers raise quality chickens. Apparently, balanced contracts that benefit both parties in terms of assured markets, competitive price and guarantee against risk have resulted in successful value chain development through contract broiler farming (Gulati, 2008).

What is Contract Farming or Integration?

A farmer interested in broiler poultry farming has two options (Rajiajwani, 2012):

a. Non Contract Farming : In this scenario the farmer is responsible for all the expenses and activities viz., EAS from private veterinarians, procurement of day old chicks, feed, overhead farm expenses (water/heating/cooling/disinfecting the farm etc), medical costs, transportation and market risk.

b. Contract Farming / Integration : In this case, the integrator provides EAS, supplies the day old chicks, feed, medications, veterinary supplies and implements that may be required (E.g. : water dispensers, feeders etc). The integrator also bears the marketing responsibility (risk) and the expense involved in transportation (to and from the farm). The contract farmer provides his labor and space for the shed and other related services or equipment that may be required. Since the major chunk of the expense ( working capital) is borne by the integrator-he is the absolute owner of the moveable stocks ( broiler) on the farm and the farmer’s role is like that of a ‘care-taker’ who gets a pre-determined price which is listed in the contract. This payment to the farmer is linked to various parameters such as the feed conversion ratio, mortality of birds etc. A farmer is rewarded for surpassing the set standards and penalized if any of the agreed criteria is not met.

Justification for the Study

Integrated broiler farming was first introduced in India by Suguna in Tamil Nadu during early 1990s. Later it spread mainly to Karnataka, Andhra Pradesh, Maharashtra and other states of India. As a result, today more than 85% of poultry meat in South India comes from integrated farms. The major private integrators operating in the southern and western region of the country include Venkateswara, Suguna, Pioneer, Diamond Riverdale, Star Chick, Gold Chick, Godrej Real Gold, Godrej Agro Vet, Santhi, Peninsula, Skylark and Komarla. No doubt, integrated farming has contributed for the rapid growth of Indian broiler industry, but the question to be studied remains, whether provision of EAS by large private poultry companies through integrated contract broiler farming is really making good profits to small farmers compared to independent farming or just it is also a socially acceptable way of exploiting the small farmers by private firms.

Keeping this in view, this proposal aims at evaluating EAS through integrated contract broiler farming in India’s Karnataka and Andhra Pradesh states with the following objectives.

Objectives

  1. To identify and rank the factors that influence participation or non-participation of small farmers in contract farming. 
  2. To assess the contract farmers’ accessibility to information, technology, inputs and services as compared to independent farmers. 
  3. To evaluate the technical and economic performance of contract and independent broiler farming systems. 
  4. To find out the constraints in contract broiler farming and to suggest policy interventions. 

Methodology

Evaluation Design: Follow-up evaluation will be conducted by adapting Bennett’s hierarchy evaluation model (Table 1, not included here). Survey method reinforced with case studies and focus group discussions will be conducted for qualitative data.

Locale & Respondents of the Evaluation: The evaluation study will be conducted in India’s Karnataka and Andhra Pradesh states by survey method. These states are selected mainly because of their contribution to poultry revolution, huge presence of contract broiler farms and big contract firms in the region. About 4600 farms in Karnataka and 6000 farms in Andhra Pradesh are under contract broiler farming. Three districts each in Karnataka (Chitradurga, Davanagire and Bellari) and Andhra Pradesh (Ranga Reddy, Mahaboobnagar and East Godavari) are purposively selected based on highest number of contract broiler farms. From every district, 20 contract farmers will be randomly selected to arrive a total of 120 farmers from both the states. Another 120 non-contract poultry farmers will be selected from the same districts as control group. Thus the primary data will be collected from total 240 respondents by personal interview method. Eight case studies (4 contract and 4 non-contract broiler farmers) and two focus group discussions with all stakeholders will be conducted to assess the qualitative data. 

What Lessons the Case Illustrates

  • The case illustrate, whether value chain development through integrated contract broiler farming and provision of EAS by large private poultry companies is really a win-win situation for both integrators and farmers or it is also a socially acceptable way of exploiting the small farmers by private firms. 
  • The case show how contract and independent farmers incur significantly different production and marketing costs and earn different marketing margins.
  • How balanced contracts that benefit both parties in terms of assured markets, competitive price and guarantee against risk have resulted in successful value chain development through contract broiler farming. 

The Importance to MEAS in Guiding Future MEAS Efforts

The poultry EAS in South India have undergone significant change in the recent past due to vertically integrated contract poultry farming initiated by private companies. Coverage of about 85 % of broiler poultry under contract farming in South India clearly demonstrates its efficiency, effectiveness and sustainability. However, there are some reports that provision of EAS by large private poultry companies is a socially acceptable way of exploiting the small farmers. Hence, there is a need for comprehensive evaluation of EAS under contract broiler farming to establish its SWOT parameters and suggest measures for improvement.

Report Delivery Date

December 2012 (Six months from date of grant release)

Proposer’s Involvement

The Principal Investigator (Dr. P.V.K. Sasidhar) will personally collect the data with the help of PhD student and Research and Teaching Assistant who are already working in the school. 

Prof. Murari Suvedi will design overall evaluation study, analysis of the data and report preparation. 

References

Economic Survey of India 2009-10. Agriculture and Food Management. http://exim.indiamart.com/economic-survey09-10/pdfs/chapter08.pdf

Gulati, Ashok. (2008). Fragmenting Bottom and Consolidating Top: India’s Changing Food System and Implications for Small Holders, in India: Some aspects of Economic and Social development (eds.) S.Mahendra Dev and K.S. Babu. Academic Foundation, India.

Mehta, R., R.G. Nambiar, C. Delgado and S. Subramanyam (2003). Policy, technical and environmental determinants and implications of the scaling-up of broiler and egg production in India. Annex II of the IFPRI-FAO Final Report Livestock Industrialization, Trade and Social-Health-Environmental Impacts in Developing Countries, phase II, International food Policy Research Institute, Washington DC.

Saran, S., Sasidhar, P.V.K, Sastry,K.V.H. and Rajvir Singh (2005). Indian poultry industry: Current scenario and future prospects. Indian Journal of Animal Sciences, 75 (8): 992-998.

USDA, (2004), India’s Poultry Sector, Development and Prospects, Agriculture and Trade Reports, Economics Research Service, WRS-04-03.

von Braun, J., and E. Kennedy. 1994. Ed. Agricultural Commercialization, Economic Development, and Nutrition. Johns Hopkins University Press.
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