ECONOMIC VIABILITY AND MARKETING OF MODERN POULTRY INDUSTRY: A CASE STUDY OF BROILER IN ANDHRA PRADESH

Transcription

1 ECONOMIC VIABILITY AND MARKETING OF MODERN POULTRY INDUSTRY: A CASE STUDY OF BROILER IN ANDHRA PRADESH BY EADULA VARUN REDDY B. Sc. (C. A. B. M.) THESIS SUBMITTED TO THE ACHARYA N. G. RANGA AGRICULTURAL UNIVERSITY IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION IN (AGRI BUSINESS MANAGEMENT) CHAIRPERSON: DR. ALDAS JANAIAH SCHOOL OF AGRIBUSINESS MANAGEMENT COLLEGE OF AGRICULTURE RAJENDRANAGAR, HYDERABAD ACHARYA N. G. RANGA AGRICULTURAL UNIVERSITY 2014

2 DECLARATION I, Mr. E. VARUN REDDY, hereby declare that the thesis entitled ECONOMIC VIABILITY AND MARKETING OF MODERN POULTRY INDUSTRY: A CASE STUDY OF BROILER IN ANDHRA PRADESH submitted to Acharya N. G. Ranga Agricultural University for the degree of Master of Business Administration in Agribusiness Management is the result of original research work done by me. I also declare that no material contained in the thesis has been published earlier in any manner. Place: Hyderabad Date: (E. VARUN REDDY) I. D. No. RMBA/

3 CERTIFICATE Mr. E.VARUN REDDY has satisfactorily prosecuted the course of research and that the thesis entitled ECONOMIC VIABILITY AND MARKETING OF MODERN POULTRY INDUSTRY: A CASE STUDY OF BROILER IN ANDHRA PRADESH submitted is the result of original research work and is of sufficiently high standard to warrant its presentation to the examination. I also certify that neither the thesis nor its part thereof has been previously submitted by him for a degree of any University. Date: Dr. ALDAS JANAIAH Chairperson

4 CERTIFICATE This is to certify that the thesis entitled ECONOMIC VIABILITY AND MARKETING OF MODERN POULTRY INDUSTRY: A CASE STUDY OF BROILER IN ANDHRA PRADESH submitted in partial fulfillment of the requirements for the degree of Master of Business Administration in Agribusiness Management of the Acharya N. G. Ranga Agricultural University, Hyderabad is a record of the bonafide original research work carried out by Mr. Varun Reddy under our guidance and supervision. No part of the thesis has been submitted by the student for any other degree or diploma. The published part and all the assistance received during the course of investigations have been duly acknowledged by the author of the thesis. Thesis approved by the student Advisory Committee Chairperson : Dr. ALDAS JANAIAH Associate Dean College of Agriculture, Jagityal, ANGRAU Karimnagar (Signature) Member : Dr. (Mrs.) P. RADHIKA Assistant Professor School of Agribusiness Management ANGRAU College of Agriculture, Rajendranagar, Hyderabad Member : Mr. M. H. V. BHAVE Associate Professor Department of Statistics and Mathematics College of Agriculture, Rajendranagar, ANGRAU Hyderabad (Signature) (Signature) Date of final viva-voce:

5 ACKNOWLEDGEMENTS In everyone s life, the day arises when one has to shape ones feelings in words. At the outset for me the time has come to gather the words for expressing my gratitude towards all those who helped me in building my career. I give all the praise and glory to the Lord Almighty for his love and grace as no success is possible without his blessings. I express my sincere and wholehearted thanks to my Major Advisor and Chairperson of the advisory committee Dr. Aldas Janaiah, Associate Dean College of Agriculture, Jagityal, ANGRAU, for reposing confidence in me and accepting as his student. I further extend my sincere gratitude for his timely guidance, diligence, studiousness and constant encouragement given to me throughout the course of the study and also for all his help in bringing out this thesis, without whom it was impossible to complete the research project. I profoundly thank my minor advisors Dr. P. Radhika, Assistant Professor, Department of Agribusiness Management, School of Agribusiness Management, College of Agriculture, ANGRAU, Hyderabad and Mr. M.H.V. Bhave, Associate Professor, Department of Statistics and Mathematics, College of Agriculture, Rajendranagar, Hyderabad. It is a great pleasure to be associated with them. I extend my heartfelt thanks to Dr. Seema Professor, Department of Agribusiness Management, School of Agribusiness Management, College of Agriculture, ANGRAU, Hyderabad for her valuable suggestions and encouragement in carrying out my research work. I wish to express sincere thanks to her for her inspiring guidance, invaluable advice, keen interest and moral support throughout the progress of my research work. My special thanks to Dr. Swaroopa Rani, Consultant for NIRD&PR, Hyderabad for guiding me personally in different phases of my research work. My sincere thanks to Suguna Poultry Private Limited, Hyderabad for their kind co- operation for compiling the data. I humbly express my deep sense of gratitude to the members of the Department of Agribusiness Management, for their concrete suggestions and timely help rendered throughout the study.

6 I would like to express my whole hearted thanks to Acharya N. G. Ranga Agricultural University for providing me an opportunity to carry my thesis work. I take this opportunity to express my heartfelt sense of love and honour to my beloved parents Smt. Aruna and Sri. Eadula Indra Reddy for their blessings, moral and financial support, constant encouragement and dedicated efforts to educate me to this level. I deeply express my gratitude to my loving brother Sandeep Reddy for being very supportive and source of inspiration and joy in my life. I thank my uncle and aunt Sri. Revath Reddy and Vijaya Rani for their blessings and support throughout the course of my study. I also thank my brother-in-law Nikhil who helped me out for collecting the data in various districts. I wish to express my heartfelt thanks to my fiancée Harika who has been a true support and pillar in all my endeavors. I extend my heartfelt thanks to my friends Narayana, Sri Lalitha, Madhavi, Karthik, Don and Sridevi for their constant encouragement, good cooperation and help rendered during the study and making it memorable one and personally I would like to express my gratitude to my senior and junior friends. I wish to express my sincere gratitude to all those unnamed who have helped in completion of my study. I deeply wish to extend my warm thanks to the other staff members and nonteaching staff of Department of Agribusiness Management, School of Agribusiness Management, College of Agriculture, for their help and encouragement in carrying out the programme and making it successful. Thanks one and all (E. VARUN REDDY)

7 LIST OF CONTENTS Chapter No. Title Page No. I INTRODUCTION II REVIEW OF LITERATURE III MATERIALS AND METHODS IV RESULTS AND DISCUSSION V SUMMARY AND CONCLUSIONS VI LITERATURE CITED APPENDICES

8 LIST OF TABLES S. No. Title Page No. 4.1 Growth of poultry industry in India and Andhra Pradesh during Growth of poultry industry in India and Andhra Pradesh during Compound annual growth rate in farm gate prices of broiler in Ranga Reddy district of Andhra Pradesh during Compound annual growth rate in farm gate prices of broiler in Ranga Reddy district of Andhra Pradesh during Compound annual growth rate in farm gate prices of broiler in Mahaboobnagar district of Andhra Pradesh during Compound annual growth rate in farm gate prices of broiler in Mahaboobnagar district of Andhra Pradesh during Compound annual growth rate in farm gate prices of broiler in Medak district of Andhra Pradesh during Compound annual growth rate in farm gate prices of broiler in Medak district of Andhra Pradesh during Family structure of sampled contract and non-contract broiler farmers 4.10 Educational status of the selected contract and non-contract broiler farmers 4.11 Occupational distribution of the selected contract and non-contract broiler farmers 4.12 Farm size of contract and non-contract broiler farmers 4.13 Different breeds of broilers reared by contract and non-contract farmers 4.14 Frequency distribution of factors affecting the selection of traits by contract and non-contract broiler farmers 4.15 Frequency distribution of system of farming adopted by the selected contract and non-contract broiler farmers 4.16 Feed conversion in the selected contract and non-contract broiler farming 4.17 Veterinary service, schedule and disposal of birds in contract and noncontract broiler farming 4.18 Total value of inputs procured by the contract farmers from the contract firm 4.19 Total value of inputs procured by non- contract farmers from the market 4.20 Costs in poultry production by contract and non-contract farmers 4.21 Costs and returns structure in production activities by contract and noncontract broiler farming 4.22 Average quantity of broilers marketed and returns obtained per batch under different marketing channels by non-contract broiler farmers 4.23 Price spread per kg bird in various marketing channels under noncontract farming

9 4.24 Production constraints in contract and non- contract farming 4.25 Marketing constraints in contract and non- contract farming

10 LIST OF FIGURES Fig. Title No. 3.1 List of mandals in the selected districts of Andhra Pradesh 4.1 Trends in broiler growth in India and Andhra Pradesh during Trends in broiler meat production in India and Andhra Pradesh during Trends in broiler growth in India and Andhra Pradesh during Trends in broiler meat production in India and Andhra Pradesh during Average farm gate price in Rs/ kg of broiler in Ranga Reddy district from January to December during and Average farm gate price in Rs/ kg of broiler in Mahaboobnagar district from January to December during and Average farm gate price in Rs/ kg of broiler in Medak district from January to December during and Marketing channels of broilers by non-contract farmers Page No

11 ABSTRACT Name of the Author : E. Varun Reddy I. D. No. : RMBA/ Title of the Thesis : Economic viability and marketing of modern poultry industry: A case study of broiler in Andhra Pradesh Degree to which it is submitted : Master of Business Administration in Agribusiness Management Faculty : Agribusiness Management Major Advisor : Dr. Aldas Janaiah University : Acharya N. G. Ranga Agricultural University Year of Submission : 2014 Poultry industry in India is facing many problems in recent years due to price fluctuation and high cost of feeds. Hence, a study was undertaken to achieve the objectives of studying the growth of poultry industry in India with special emphasis on Andhra Pradesh, to analyze the price risk of broiler in the selected districts, to examine the marketing channels, to assess the economic viability, to analyze the production and marketing constraints in the contract and non-contract broiler farming. The primary data was collected from 75 contract and 25 non-contract poultry farmers of the selected districts by conducting personal interview. The secondary data on broilers grown, broiler meat produced in India and Andhra Pradesh and farm gate price of broiler in Ranga Reddy, Mahaboobnagar and Medak districts has been collected from magazines, journals, broiler hatcheries and various statistical websites. The number of broilers grown and meat production in India ranged from 215 Million to 1500 Million and 362 MT to 3160 MT respectively during Whereas, in Andhra Pradesh the number of broilers grown and meat production ranged from Million to Million and 89 MT to MT respectively during The minimum farm gate price of broiler chicken was noted in the months of December and January during the decades and and the maximum farm gate price was noted in June during the decade and In case of procurement management, the total value of inputs procured per bird was Rs and Rs under contract and non-contract farming respectively. The non-contract farmers procured their inputs from different sources like poultry dealers, integrators and local market. Under cost comparison, in case of contract farming, the total cost incurred was Rs per bird. In case of non-contract farming the total costs incurred per bird was Rs The net returns obtained per bird was Rs and Rs in case of contract and non- contract farming respectively. The feed conversion ratio was found to be 1.71 and 2.0 respectively under contract and non-

12 contract farming. The benefit cost ratio in case of contract farming was found to be 1.35 and 1.02 in non- contract farming. Four marketing channels were identified under non-contract farming which involved producers, commission agents, wholesalers, retailers and consumers. The price received per bird by the farmer in channel-iv (Producer-Consumer) was found to be highest(rs ) when compared to channel-i (Producer- Commission agent- Wholesaler- Retailer- Consumer), II (Producer- Wholesaler- Retailer- Consumer)and III(Producer- Retailer- Consumer). Even the customer is benefitted in this marketing channel by getting the birds cheaper compared to the other three channels. The major production problems in contract and non-contract farming were high cost of feed, high cost of chicks, high mortality rate, high labour costs and nonavailability of labour. High rejection rates, less compensation to the losses and low contract prices were found to be major production constraints in contract farming. Whereas, the major marketing constraints observed under contract and non-contract farming were lack of organized broiler marketing, high market fluctuations, lack of proper markets and high middle margins.

13 SYMBOLS AND ABBREVIATIONS & : And APEDA : Agricultural and Processed Food Products Export Development : At the rate of BCR : Benefit Cost Ratio CAGR : Compound Annual Growth rate CV : Coefficient of variation DOC : Day old chicks et al. : And co-workers FAO : Food and Agriculture Organization FCR : Feed Conversion Ratio Fig. : Figure GOI : Government of India i.e. : That is Kg : Kilograms MT : Metric Tonnes NECC : National Egg Coordination Committee No. : Number p.a. : Per Annum % : Per cent Rs. : Rupees SD : Standard Deviation S. No. : Serial Number Sq. Km. : Square Kilometres USDA : United States Department of Agriculture viz. : Namely

14 Chapter I INTRODUCTION The term Poultry is used for any kind of domesticated bird (chickens, turkeys, geese and ducks), captive-raised for the production of meat or eggs and the word is also used for the flesh of these birds used as food. The word poultry comes from the French/ Norman word "poulterie" itself derived from the Latin word "pullus" which means small animal. Humans first domesticated chickens of Indian origin for the purpose of cockfighting in Asia, Africa, and Europe. Very little formal attention was given to egg or meat production. Poultry farming refers to the raising of domesticated birds for the purpose of farming meat or eggs for food. Poultry farming in India was mostly a backyard venture till 1960s. Indigenous chicken constituted the major share. Their productivity was around eggs per bird per year. During the past three decades the poultry scenario in the country has changed dramatically. Today poultry farming has transformed itself into an organized industry. 1.1 BROILER INDUSTRY IN INDIA AND ANDHRA PRADESH India is the 5th major producer of broiler after the United States, Brazil, the European Union and China, with an annual production of 3,625 thousand metric tons (USDA Report, 2014). The broiler industry is growing at a rate of 10-12% per annum. The poultry industry as a whole provides employment to 5 million people directly or indirectly. Having a per capita egg consumption of 52 eggs and meat consumption of 2.8 Kg, India still stands much below the figures recommended by The National Committee of Human Nutrition (per capita egg consumption of 180 eggs & per capita meat consumption of 10.8 kg). India has exported 5,77, MT of poultry products to the world for the worth of Rs crore during the year and the major export destinations are Afghanistan, Saudi Arabia, Indonesia, Germany and The Netherlands (APEDA, 2013). The important poultry growing states in India are Andhra Pradesh, Tamilnadu, Madhya Pradesh, Gujarat, Haryana, Maharashtra and Punjab. Andhra Pradesh is the leading poultry meat producing state and it accounts for one- fifth of the poultry meat production in the country and about 30% of its broiler output is exported to other states

15 in India. The major broiler producing districts in the state are Medak, Ranga Reddy, Nalgonda, Mahaboobnagar, Chittoor, Krishna and Godavari. In revenue terms, poultry's contribution to the state's annual GDP is estimated at Rs. 20,000 crore with employment close to 20 lakh people (Sudhakar, 2013). Major drivers of consumption are an expanding middle class, increasing employment levels and incomes, new demand for ready-to-eat products and the growing presence of affordable quick service restaurants, and a general preference for poultry meat over other meats due to low prices and cultural and religious nonpreferences for pork and beef. A moderate shift in the consumption pattern from vegetarianism to non-vegetarianism is also helping the industry by increasing the demand for poultry products. The future outlook for Indian poultry also appears to be very favourable. The most conservative estimates predict a two- to three-fold increase in poultry production over the next ten or fifteen years. However, a worrisome feature of the accelerated growth and the on-going structural change seems to be its potential impact on the future of small and marginal producers. Chickens raised intensively for meat are often called Broilers. Broilers are floor-raised on litter such as wood shavings or rice hulls, indoors in climate-controlled housing. Under modern farming methods, meat chickens reared indoors reach slaughter weight at 5 to 6 weeks of age. Broilers are not raised in cages. They are raised in large, open structures known as grow out houses which are equipped with mechanical systems to deliver feed and water to the birds. They have ventilation systems and heaters that function as needed. There are estimated to be roughly one lakh layer farmers and an equal number of broiler farmers. About 70 percent of these are smallscale ( birds) and medium-scale ( birds) farmers. Only 10 percent are large-scale farmers with units varying from 50,000 to 4 lakh birds (Mehta et al., 2002). Large farms require a good level of automation. Automation has become necessary for a number of reasons, such as hygiene and sanitation, disease prevention and, in the case of hatchery operations, to produce a greater number of chicks in a single hatch and to ensure better quality chicks. The whole organized poultry sector uses hybrid varieties of poultry and has adopted cages. The small and marginal farmers generally operate on the deep litter system. In terms of technology, farmers have

16 adopted new feeding and water systems and new management, healthcare and hygiene practices. One major aspect that can be observed in the poultry sector is it is highly prone to production and market risk, which in turn affect the profitability of broiler production particularly on the small farms. In order to reduce the risks to the producers and sustain the profitability in the industry, some of the major firms began integrating their activities with that of the broiler producers through the contract farming. Approximately per cent of the broiler sector is integrated, with the remainder operating as independent producers. 1.2 CONTRACT AND NON-CONTRACT FARMING Contract Farming can be defined as an agreement between farmers and processing or marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices. In a poultry contract, the hatcheries provide day-old chick, feed and medicines to the contract growers. The contract growers supply land, labour and other variable inputs. At the end of the production cycle the farmer receives a net price that is the price set by a group of poultry companies (not the retail price). Thus the farmers receive considerable price insurance. For the deviations of the retail price from the industry price farmers receive an incentive. This practice lessens the incentives to default on the part of the growers and reflects the competition from the non- contract sector. Integrators take the broilers at around 42 days of age, and farmers are paid growing charges according to agreed rates. The farmers are given an incentive bonus if the FCR and/or mortality rate is better than the contracted level. Thus, the farmers get considerable price insurance. Moreover, the advantage is that there are no intermediaries, only integrator farmer wholesaler in the market. Farmers do not have to make any investments in working capital. There is also no risk to farmers from fluctuations in selling process and therefore get a fixed income. This arrangement has encouraged a number of small farmers to enter the poultry business in order to supplement their income with a stable return on their investment. Vertical coordination in agricultural supply channels helps to lower the transaction costs and market risk of smallholders. The key players in integration include Venkateshwara hatcheries, Suguna, Sneha, Godrej, Shanti, Jaffa, Arumbagh, Skylark etc. Integration not only contributes to greater production efficiencies including

17 lower FCR and mortality rates, but also reduces marketing margins as a result of the increased market power of the integrator. Besides reducing production costs, the integrators have helped to cut consumer prices by cutting into the traditionally large marketing margins. The integrators have tended to establish wholesale and retail price leadership in the markets where they operate by reducing the number of intermediaries or by selling directly through their own retail outlets (e.g. in Coimbatore). Although poultry industry is able to make strides in production and profit, the growth of poultry industry is hindered due to certain constraints like escalating feed prices, lack of basic infrastructure such as storage and transportation, including cold chain which results in unpredictable price fluctuations of poultry meat, non-availability of day old chicks, inefficient marketing channels due to the presence of market intermediaries which harms both the producer and the consumer. During the last years, several efforts were made by various agencies like poultry marketing centres, poultry corporations, NECC, wholesale agents in organising egg marketing business. But in case of broiler marketing, there is no organized sector to ensure reasonable pricing policy which is beneficial both to the producers and consumers. Hence, the study has been undertaken with the following objectives. 1.3 OBJECTIVES OF INVESTIGATION 1. To study the growth of poultry industry with special emphasis on broiler production in Andhra Pradesh over the period. 2. To analyse the price risk of broiler in the selected districts of Andhra Pradesh over the period. 3. To examine the marketing channels under contract and individual farming. 4. To assess the economic viability of production of broiler under contract and individual farming. 5. To analyse the constraints in broiler production and marketing. 1.4 SCOPE OF THE STUDY The results of the present study would be useful in finding out the facts regarding the farm gate price of poultry meat, economics of broiler production and marketing in various districts of Andhra Pradesh such as Medak, Ranga Reddy and Mahaboobnagar districts and the constraints in production of broiler under contract and non-contract farming. The study also provides information on the resource utilization

18 for the optimal use of inputs. Further, the information on the cost structure will be of great utility to the financing institutions. The present study also helps in studying the present market structure, price spread and role of middlemen which will be of great relevance to the policy makers in fixing the remunerative prices and to improve the efficiency in marketing of broilers. 1.5 LIMITATIONS OF THE STUDY Since, the survey method was adopted for the study, the information provided was on recall memory of the respondents. There is no uniform protocol where in the growth patterns and methods are systemized on a large farms and these are confined to individual growers or otherwise regions. This breaks the uniformity in rearing practices and other production applications. No systematic comparative study was carried out on the poultry integration and independent businesses, thus the statistics lacks dimension. The contractual terms are not disclosed as such and hence this has led to some speculation in the processes of poultry integration. 1.6 PRESENTATION OF THE STUDY The study has been presented under the following chapter. Chapter I Chapter II Chapter III Chapter IV Chapter V Chapter VI Introduction Review of literature Materials and methods Results and discussion Summary and conclusions Literature cited

19 Chapter II REVIEW OF LITERATURE Review of literature provides information regarding the previous work 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 carry out the research work and enables to arrive at meaningful results. Keeping the above things in view, the available literature relevant to the objectives of the present study was reviewed and presented under the following headings. 2.1Contract Vs non-contract farming 2.2Economics of production and marketing in poultry 2.3 Problems encountered in poultry farming 2.1CONTRACT VS NON CONTRACT FARMING Murthy and Madhuri (2013) found that in contract farming major benefits come from reduction in transaction costs and assurance of regular income for broilers farmers and revealed that contract farming can be advantageous to the producer for the overall development and improvement. Kalamkar (2012) analyzed production-related aspects of broiler farming under contract and independent management, and has examined inputs and services provision arrangements. About two-thirds of the contracts are of long duration of three years, and the remaining are of two years or eleven months duration. Surprisingly, none of the contract farmer possesses a copy of the agreement with him. The average net return per kg of live weight as well as per bird has been found higher in non-contract than contract farmers. The average net returns per bird increased with increase in the size of the farm for both the groups. Baba (2007) 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.

20 Begum (2005) undertook study in Bangladesh to identify incentives for poultry farmers to participate in contract farming in Bangladesh. The study 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 immediately. 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. 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 whereas 62 per cent of the farmers were without any land holdings. 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. Anonymous (1999) reported the 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 were covered under the scheme. The estimated availability of maize and soybean to the company after harvest was 4032 MTs and 150 MTs, respectively.

21 Key and Runsten (1999) examined the cause of the observed variations in the scale of production and the success of small holder 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. 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 grower s 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. 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. Freivalds (1989) analyzed and discussed the market experiences of best-dressed chicken in Jamaica while studying the growth and integration of broiler production in Jamaica. He opined that the integration has increased the bargaining position of the farmers. The researcher also studied the grower s equity and structure of poultry industry before recommending the concepts of integration. 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 researchers found that independent turkey growing is

22 less beneficial compared to that of contract growing mainly because of high cost of production in case of independent growers. 2.2 ECONOMICS OF POULTRY PRODUCTION AND ITS MARKETING CHANNELS Gosh et al. (2011) stated that the price of broiler increased from Rs.70 to Rs.135 in April 2009 to April 2010 and in the consecutive years i.e., April April 2011 it ranged from Rs.82 to Rs.150.The fluctuations in the prices were attributed to factors like out-break of bird-flu, increase in feed prices, festive occasions etc. Ramdurget al. (2010) analysed the seasonal changes and growth performance in the prices of eggs and chicken in Dharwad district of Karnataka and revealed that the supply of chicken had grown significantly at 2.30 per cent per annum during 1996 to 2003 which was due to the increased consumption of chicken. The seasonal prices for chicken were highest in the month of December and January and lowest in the month of April. Singh et al. (2010) studied the cost and return analysis of different sizes of broiler farms in the Punjab state and the primary data was collected from 140 broiler farmers for the period March 2008 to February 2009 in three districts, viz. Ludhiana, Hoshiarpur and Muktsar. The study has shown that the total fixed investments per bird have been highest on small farms, followed by medium and large farms. The total variable cost per bird has been reported highest on small farms, followed by medium and large farms. The total cost of meat production per bird has been found highest on small broiler farms, followed by medium and large farms. The net returns per bird over the variable costs have been recorded highest on large farms and economies of scale prevail on these farms. The meat-feed price ratio and benefit-cost ratio have been found to increase with increase in farm-size of broiler farms, which indicates better utilization of inputs on large farms. On the basis of net present value, benefit-cost ratio and internal rate of return, investment in broiler farming has been found profitable in all farm-sizes, it being most profitable on large farms, followed by medium and small farms. The small broiler farms have been observed highly sensitive to increase in costs and decrease in net returns. Gangwaret al. (2010) studied the marketing of broilers/chicken meat in the national capital region (NCR) Delhi. They have compared in two distinct kinds of markets, viz. organized (shopping malls, organized multi-product retailers) and

23 unorganized or primarily wet markets (exclusive chicken dressers, poultry meat retailers, etc.).the most prominent channel in the unorganized broiler market has been found as: producer-wholesaler- dresser-cum-retailers consumer, whereas the same in the organized market as producer - commission agent- supplier-distributor- shopping Malls/ hotels/ retailer-consumer. The price spread and producers share in consumers rupee, in the most efficient unorganized marketing channel have been found as Rs 10480, Rs 30220, Rs per ton (live wt. basis) and 62 per cent, respectively, whereas the corresponding figures in the most efficient organized marketing channel were Rs 12750, Rs 76350, Rs per ton and 43 per cent. Singh et al. (2010) analysed the economics of broiler production in Punjab and revealed that the total fixed costs per bird was highest on small farms, followed by medium and large farms. The total cost of meat production per bird has been found highest on small broiler farms, followed by medium and large farms. The net returns per bird over the variable costs have been recorded highest on large farms. The meat to feed price ratio and benefit cost ratio was found to increase with increase in farm size of the broiler farms. Rajendranet al. (2008) studied the cost of production of broiler inpalladam area of Tamil Nadu and revealed that the fixed cost on broiler production was 12.30, and per cent of the total cost in small, medium and large farms, respectively. Whereas the variable cost was found to be 87.70, and per cent respectively in small, medium and large farms respectively. As the farm size increased, the variable cost also increased. 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%. Sundararajanet al. (2004) studied the trend and seasonal variations of egg prices in pondichery and revealed that the prices are high during the months of June, July, November, December and January and low during the months of MarchandApril. Kumar and Rai (2004) studied the economic status of poultry farming enterprises in Andaman & Nicobar Islands. The study compared the investment

24 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 and Rs respectively. The net returns per bird were Rs 8.36 for small farms and was Rs and Rs 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. 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. Ashutosh et al. (2002) studied the production and marketing of broilers in Jabalpur district of Madhya Pradesh and revealed that the broiler market is not as organised as the egg market and mainly three channels are operating which include Channel- I: Producer- Consumer, Channel-II: Producer- Retailer- Consumer and Channel-III: Producer- Wholesaler- Retailer- Consumer which commanded 90 per cent share of the total broiler market. 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 returns were calculated to find out the profitability of broiler production. The total costs per bird were estimated at Tk , Tk , Tk and Tk for small, medium, large and all broiler farms respectively. On the return side, the average gross returns per bird per batch stood at Tk , Tk , Tk and Tk 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 , Tk , Tk and Tk , respectively. Findings of the study clearly indicate that all broiler farms made good profit and the large farms, however, earned a little higher profit.

25 Kumar and Mahalathi (2000) studied the Price-spread, marketing costs and margin in eggs in different marketing channels in South-West M.P. and revealed that the producer's share ofconsumer's rupee in egg marketing was highest under producerconsumer direct channel than other channels where in one or more middlemen existed. 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 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. Ashutosh and Shrivastava (1999) studied the economics of poultry production and marketing in Jabalpur district. Results revealed 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 per broiler was invested to start a broiler farm. The total cost of broiler production per bird was Rs of which variable and fixed costs constituted 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 and Rs respectively. 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 The fixed and variable costs contributed were 7.54 per cent and 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

26 3.85 per cent respectively of the production cost. The average gross return per bird was Rs Income from the sale of eggs, spent hens, manure and empty gunny bags contributed per cent, per cent, 0.84 per cent and 0.83 per cent respectively to the total returns. Singh (1995) in his study on broiler marketing in Ambala and Gurgaon districts of Haryana state concluded that the most important channel is producer-wholesalerretailer- consumer and the price spread was found to decrease with the elimination of intermediaries. Two indices (concentration ratio and the Hirschman Herfindahl index) were used to analyse market structure. The indices revealed an absence of monopoly in broiler marketing. 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 worked out at Rs 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 which accounted for 8.17 per cent and electricity charges accounted for 1.3 per cent of the total costs. The study also concluded that 98 per cent of the returns from broiler farming were through sale of broilers. 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 was Rs , Rs and Rs for small, medium and large farms respectively. The gross income per bird was Rs , Rs and Rs for small, medium and large farms there by giving a net return of Rs. 9.39, Rs and Rs per bird per year respectively. 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

27 ranged from Rs 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, and per cent on small, medium and large units respectively with per cent for the average farm. Singh and Bhullar (1987) in their comparative study of poultry farming in Punjab and Andhra Pradesh indicated that the total cost of maintenance was Rs 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. 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 on small farms to Rs on large farms. 2.3 PROBLEMS IN CONTRACT FARMING Kalamkar (2012) opined that the contract farmers face problems like delay in supply of inputs, high feed prices, delay in lifting the produce, delay in payment, low price, and sometime even rejection of output. Beside these problems, low growing charges, delay in providing chicks, delay in providing veterinary services, high visiting charges and deduction of tax at source are some other problems being faced by the contract farmers. Prabhu et al. (2008) studied the marketing channels and constraints in minibroiler marketing in Dharmapuri district of Tamil Nadu and revealed that farmers considered poor credit facility as the foremost constraint followed by high feed cost. 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.

28 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), un remunerative 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. 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. 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 are being related to policy and input decisions. Shiva Kumar Gupta (2002) studied the major constraints 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 are 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 honour the contract, as they knew that farmers had no alternative but to sell the products to them at lower prices. 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.