Socio-economic analysis of the slaughtering systems in the poultry meat sector in Greater Jakarta Area

Transcription

1 Socio-economic analysis of the slaughtering systems in the poultry meat sector in Greater Jakarta Area By: Arief Daryanto, Diederik de Boer, Dikky Indrawan, Ferry Leenstra, Huub Mudde, Idqan Fahmi, Peter van Horne Study in the framework of the Inception Phase of the Dutch-Indonesian Program on Food Security: Poultry & Dairy Sector Components March 2014

2 Contents Executive Summary General introduction Research methodology Desk research Research findings on the slaughtering systems Slaughter point and wet market chain Small slaughterhouse chain Industrial slaughterhouse chain Economic comparison of the three slaughtering systems Rules and regulations Access to finance Markets (and consumers) Constraints for upgrading Conclusions and recommendations Conclusions Recommendations References Annex 1. Terms of Reference of the study Annex 2. List of interviewees Annex 3. Questionnaires socio-economic situation of slaughtering systems Annex 4. Map of Greater Jakarta Region with locations of semi-automated and fully automated slaughtering houses Annex 5. Relevant governmental regulations in Greater Jakarta Area March 2014 Page 2 of 66

3 Executive Summary Maastricht School of Management (MsM), the Management Program of the Bogor Agricultural University (IPB-MB), and Wageningen UR Agricultural Economic Research Institute (LEI) and Livestock Research executed jointly in the period November 2013 January 2014 a socio-economic analysis of the three dominant trading and slaughtering systems of the poultry sector in Greater Jakarta Area. This study was executed as part of the Inception Phase of the Livestock development program on Food Security, as proposed by a consortium lead by the Animal Sciences Group of Wageningen University and Research. A quick scan has been executed using desk research, site visits and semi-structured interviews with chain partners and stakeholders in poultry production chains, company visits and two group sessions. The study resulted in a qualitative description of the different poultry supply chains in which three slaughtering systems are part: i) the small-scale slaughter points; ii) the semi-automated slaughterhouses; and iii) the fully automated slaughterhouses. And it resulted in an overview of constraints and recommendations for upgrading the poultry slaughtering system towards more food secure processing. Slaughter points In the Jakarta Greater Area, the most important poultry meat chain is through slaughter points. It is estimated that 80 to 85% of the broilers are slaughtered this way. A typical slaughter point can handle up to birds per night with 5 workers.the birds are grown at small-scale farms and through traders the birds are transported to collecting farms. From collecting farms small numbers of birds are transported to slaughter points. After slaughter the carcass is directly transported to the traditional market. The slaughter point is close to the market in order to deliver the carcass fresh (read: warm) to the consumer. The birds are slaughtered manually, mainly during the evening and night and the carcasses with feet, head and all organs are sold the same night, next morning at the wet market. In Jakarta collection of blood and feathers is obligatory. In Bogor only feathers are collected. Waste water and (in the case of Bogor) blood goes directly into the river. Crates are not cleaned at the slaughter point. The slaughter point is in general paid after hours, mostly immediately after the vendor has sold the carcasses. Small slaughterhouses A small portion of the broilers is slaughtered in small slaughterhouses with a capacity from 5,000 to 25,000 chicken/day. In the Greater Jakarta Area, around 36 of these slaughter houses exist, of which 5 owned by the government. The birds are grown at small to medium scale farms and directly transported to the slaughterhouse, sometimes owned by a group of farmers. Directly after slaughter the carcasses are cooled and packed by piece in a plastic bag. In general stunning (water bath) and plucking are automated, the birds are transported by shackles, but all other work is done manually. Cooling is in water in large containers. Purchased ice blocks are used to cool the water. Small slaughter houses tend to focus on out-of-home market, small supermarket, vendors and very limited kiosks at the wet market. Feet, head and organs (intestines included) are marketed separately. The slaughter houses determine the quantities to be slaughtered on the price of slaughter ready birds. If they have own farms, these are treated as a separate business unit with hard bargaining on price of live birds. Most small slaughter houses harvest blood and feathers separately (gives revenues), but there is no waste water treatment. The small plants work with Indonesian copies of slaughter equipment. It is questionable if crates are cleaned. in Greater Jakarta Area March 2014 Page 3 of 66

4 Industrial slaughterhouses A minor part (10 to 15%) of the broilers is slaughtered in industrial slaughterhouses (> 80,000 per day). The birds are grown at medium scale to large farms and directly transported to the slaughterhouse. Directly after slaughter the carcasses are cooled and packed. Due to a lack of uniformity in some plants only stunning and plucking is automated. Degutting, cutting head and feed is often by hand. The large slaughter plants produce for the main supermarket chains, out-of-home market and also further processing (nuggets) is an important part of the business. The large plants do have HACCP and ISOcertificates. Not necessarily the quality of the process is better than with plants that have the state certificate (NKV). The whole chain is cooled with also delivering of a cooled final product to the customers. The large slaughter plants often have international equipment. It is questionable if crates are cleaned. Conclusions and recommendations The Indonesian poultry industry is on a cross-road. Both hygiene and prices are becoming important factors in the years to come demanding for up scaling in the sector. The slaughter points have many constraints for upgrading contrary to the industrial slaughterhouses whereby the semi-automated slaughterhouses are facing a mixture of constraints. In order to increase the hygiene level of small slaughter points, the business owners have to invest in hygiene knowledge, practice and machines. In order to improve the efficiency of their production the business needs to upscale. Both issues are difficult. No banks are providing loans to facilitate up-scaling. And in terms of hygiene, the low effort of enforcement of the government in controlling food-safety of the numerous slaughter points does not contribute to better food-safety. For the semi-automated slaughterhouses it can be concluded that up scaling interventions seem to be less costly as less businesses are involved but also because with a bit of additional support these businesses can become more hygiene conscious and can also develop more efficient production systems. It can be concluded that there is no difference in total costs for a slaughter point and a small slaughter house; an efficient and good managed small slaughter house could compete on price with the slaughter points. The larger industrial slaughterhouses do not need a lot of support as they are often working according to the latest efficiency and hygiene standards. Interventions should be focused on three main areas. First, access to finance needs to be improved to enable up-scaling aspirations. Next infrastructure needs to be upgraded (roads). Finally, the business and government need to work more together in developing and maintaining the required hygiene levels and in obtaining economies of scale in the production processes. Tax exemptions might be helpful in this process of upgrading. Concretely, it is recommended to: 1. Strengthening public-private cooperation at district level In order to address infrastructural, institutional and business constraints public-private partnerships should be developed. There is a need for increased cooperation among public and private parties in the sector. The aim would be to facilitate trust building among the key actors, to come up with scenarios, and to agree upon pilots that also involve private partners (B2B). 2. Upgrading semi-automated slaughter houses to become small integrators The smaller slaughter houses are essential for meeting the growing market needs and for creating a geographical net of slaughterhouses around Jakarta. Currently, they are too small to meet the growing in Greater Jakarta Area March 2014 Page 4 of 66

5 demand, the increasing competition (ASEAN) and have too little resources for the needed investments. Hence, the semi-automated slaughter houses will need to grow and innovate. 3. Slaughter house innovation Invest in designing new types of slaughter houses that are more cost effective and environmentally sustainable. Current systems for cooling and cleaning require a lot of water and (purchased) ice, and in many (smaller) slaughter houses coops and waste water are not cleaned. Intake of good quality water is another issue to consider and stunning of poultry according to Halal rules. 4. Availability of investment capital Explore the possibility for large investors and eventually the set-up of a security fund for the poultry sector. This might be completely public, but a public private partnership is also feasible. Investments are required in both the primary production of poultry (housing) and processing (slaughter plants). 5. Support to District and Provincial governments The district governments have a key role in law enforcement and economic development. The Provincial governments have an important coordinating role, and can co-fund district-level activities. Specific attention could be given to support districts to fulfil their pertinent role more adequately, through training, strategic plan development, monitoring mechanisms, and benchmarking. in Greater Jakarta Area March 2014 Page 5 of 66

6 1. General introduction Maastricht School of Management (MsM), the Management Program of the Bogor Agricultural University (IPB-MB), and Wageningen UR Agricultural Economic Research Institute (LEI) and Livestock Research executed jointly in the period November 2013 January 2014 a socio-economic analysis of the three dominant trading and slaughtering systems of the poultry sector in West Java. This study was executed as part of the Inception Phase of the Livestock development program on Food Security, as proposed by a consortium including the Animal Sciences Group, Centre for Development Innovation, and the Agricultural Economic Research Institute of Wageningen University and Research Centre, the Bogor Agricultural University, Maastricht School of Management, and Advance Consulting BV. This program aims to develop viable models for domestic production and supply of affordable, nutritious and safe animal-based products in Indonesia. With the development and testing of these models the program will contribute towards higher income levels of Indonesian smallholders and improved access to affordable and safe animal protein products among urban consumers. The focus will be on West Java as main production and sourcing area of dairy and poultry meat products for Jakarta and other main urban centres (Wageningen University and Research Centre, 2013). The slaughtering points and -houses play a pivotal role in the poultry sector. Professionalization and/or restructuring of the chain actors are vital in the process of improving food safety and hygiene standards. Besides the required technical capacity development, more clarity is needed on the economic and financial functioning of the slaughterhouses: what are the key incentives and hurdles for change? The executed socio-economic analysis of the three dominant trading and slaughtering systems provides this information. The study aims to get more information on opportunities for upgrading of the slaughtering practices from an economical and food safety point of view. This document is reporting the findings of this socio-economic study with the purpose to help give direction to the implementation of the foreseen livestock development program. It entails information on slaughtering practices, economics, food safety and environmental risks and government policies. It concludes with suggestions for project interventions. in Greater Jakarta Area March 2014 Page 6 of 66

7 2. Research methodology The study executed was aimed at identifying the drivers and constraints for change towards more food secure poultry meat processing in West Java. The expected results of the study as formulated in the research outline (Maastricht School of Management, Bogor Agricultural University, Wageningen University and Research Centre, 2013) are: 1. Qualitative description of the present situation of different poultry supply chains in which 3 slaughtering systems are part. These systems are: i) the small-scale slaughter points; ii) the semiautomated slaughterhouses; and iii) the fully automated slaughterhouses. This gives insight in: 2. Overview of drivers and constraints for upgrading the poultry slaughtering system towards more food secure processing. For the Terms of Reference of the study including a detailed work plan, see annex 1. In December 2013 and January 2014, a quick scan has been executed using desk research, site visits and semi-structured interviews with key chain partners and stakeholders in poultry production chains, company visits and two group sessions. See annex 2 for the full list of interviewees and site visits and annex 3 for the questionnaires. Table 2.1 Categorization and number of people interviewed, group sessions, and site visits Groups sessions In depth Interviews Site visits 4 persons from integrators / industrial slaughterhouse chain 4 representatives of the banking sector 1 company integrator / Industrial slaughterhouse 2 persons from small slaughter 2 government officials 2 small slaughter houses houses 1 representative of a farmer 2 representatives of farmer 1 collecting farm association associations 2 academia 1 farmer 1 slaughter point / wet market 1 specialty store Although initially it was the intention to focus the study on Jakarta only, it was decided to broaden this to the Greater Jakarta Area with a focus on the Bogor District. Greater Jakarta also includes Bogor, Depok, Tangerang and Bekasi and is also referred to Jabodetabek. The rationale for this decision was twofold: 1. The fully automated slaughterhouses are located outside Jakarta, as well as most of the semiautomated slaughterhouses. See annex 4 for a map of the Greater Jakarta Area on which these semi-and fully automated slaughterhouses are indicated. 2. Government regulations and practice differ per province which may impact on possible interventions. in Greater Jakarta Area March 2014 Page 7 of 66

8 The findings and draft report have been validated by senior experts: Dr Hartono, Chair of PINSAR (Poultry Farmer Association) Mr Don P. Utoyo, Chair of FMPI (Federation of the Indonesian Poultry Society). The study has been implemented and coordinated through the Bogor-based IPB-Centre for Sustainable Business Competitiveness (CSBC), a joint-venture of IPB and MsM 1. 1 CSBC is about bringing different (international) partners together to work towards concrete sustainable economic development in the Indonesian agricultural sector from a business perspective, based on cluster and value chain approaches. in Greater Jakarta Area March 2014 Page 8 of 66

9 3. Desk research Poultry sector in Indonesia The poultry sector in Indonesia is a growing business fully geared towards the domestic market. The increase of personal income leads directly to higher meat consumption. In Indonesia that is mainly chicken meat given the predominant Muslim population and the high prices for beef: 87% of Indonesia s fresh meat consumption is chicken (OSK, 2012). Other sources estimate this at around 54% (PT Japfa Comfeed Indonesia Tbk, 2013). Given the low chicken meat consumption of around 6 kg per capita, lower compared to other countries in South East Asia, there are huge growth potentials (OSK, 2012) (Daryanto, 2011) (Indonesian Commercial Newsletter, 2011) (Pefindo, 2009). Between 2011 and 2015 the poultry meat production is estimated to grow from 600,000 tonnes towards 1,600,000 tonnes (Rabobank, 2011). More recent information from the Federation of the Indonesian Poultry Society FMPI (personal interview, 2014) indicate that the total chicken meat production has already grown to 2 mln tonnes, equals around 8 kg per capita. This figure is based on the number of day-old-chicks (DOC) sold. The poultry supply industry upstream of broiler growers in Indonesia is characterized by its oligopolistic nature with a few large players that control the market of day-old-chicks and feed. The two largest companies are Charoen Pokphand Indonesia and Japfa Comfeed, estimated to command more than half of the feed and breeding industry (OSK, 2012) (Rabobank, 2011). Both companies are integrators (upand down-stream) involved in most levels of the value chain, from feed production, hatching day old chicks, slaughter and further processing. Broiler farmers are involved through contract farming with these integrators (Rabobank, 2011). The same integrators dominate the market for DOCs and feed supplied to the independent small and medium scale farms. Given the fact that feed and DOC account for around 70% of the broiler costs (Embassy of the Kingdom of the Netherlands, 2013), this illustrates the powerful position of the big integrators. According to the Indonesian feed mill association GPMT, the capacity of the 68 biggest feed companies in Indonesia reaches to 18.5 million ton per year (Agrina, 2013). Broiler grandparent stock comes from the standard international breeding companies. Cobb and Aviagen (Ross broilers) share the market, as they do worldwide. The feed mills have to buy feed ingredients and the (grand)parent stock on the world market. According to Faiz Ahmad (Director of the Food Industry, Sea Product and Fisheries of the Ministry of Industry), the self-sufficiency in feed ingredients for poultry in Indonesia is about 20% (Indonesia Finance Today, 2013). Table 3.1 Indonesia animal feed and DOC production: capacity share of largest companies Animal feed DOC production Charoen Pokphand Indonesia 33% 31% Japfa Comfeed 21% 21% Cheil Jedang Feed Indonesia 8% 1% Malindo Feedmill 6% 8% Sierad Produce Tbk 5% 6% Wonokoyo 4% 5% Source: Rabobank International FAR research and industry sources (April 2013) in Greater Jakarta Area March 2014 Page 9 of 66

10 The large integrators are less dominant in the slaughtering process as 85% of all chicken is slaughtered in slaughter points. From the six DOC and feed suppliers listed in table 3.1, only Charoen Pokphand Indonesia, Japfa Comfeed and Sierad Produce have slaughter plants; Charoen Pokphand is the biggest and Sierad Produce the smallest. The large slaughter houses and the medium-sized, semi-automated slaughter houses together cater for around 15% of all chickens slaughtered. In their study on local power relations in relation to animal health policies, Charnoz and Forster (Charnoz & Forster, 2011) analyse the poultry sector in Indonesia as frozen in a stage of half modernization. Daryanto refers to the dualistic sector, both modern and traditional (Daryanto, 2011). At one hand large modern companies enhance the scale of poultry farming, working with numerous small holders some times in a contract farming system, but also as independent source of slaughter ready broilers. This socalled nucleus plasma model is common in many Indonesian agricultural industries, initiated by the Indonesian Ministry of Agriculture in 1978 to expand perennial crop production. It provided large companies with subsidized loans and long-term land lease contracts under the condition of providing inputs, credit, and services to smallholders (OECD, 2012). The sector is further characterized by too few and mostly pre-industrial slaughter houses, inappropriate transport systems, and live markets (Charnoz & Forster, 2011). Table 3.2 presents the key figures above indicating the size of the sector with more than one million chicken slaughtered daily in the (semi) automated houses. It is an estimate on national, Indonesian level. Table 3.2 Chicken meat consumption and slaughter capacities in Indonesia, rough estimates Estimated total chicken meat production in Indonesia (kg) (FMPI, 2014) 2,000,000,000 kg/year Consumption per person in Indoensia (250 mln inhabitants) % of chicken slaughtered by (semi) automated houses (kg) 300,000,000 kg/capita kg/year number of chicken slaughtered/year (slaughtered weight = 70% of live bird) 333,333,333 chicken/year number of chicken slaughtered per day by (semi) automated houses, effective 300 days/year 1,111,111 chicken/day capacity 1 big slaughter house/day at least 80,000 chicken/day capacity semi-automated slaughter house/day 5-25,000 chicken/day Poultry sector in Greater Jakarta Area The largest concentration of broiler farms in Indonesia is in the Greater Jakarta Area because of the largest consumer market, with sales averaged more than 1,125,000 chickens daily (2009) (Indonesian Commercial Newsletter, 2011). Table 3.3 presents an overview of the growth in annual chicken sales per year. in Greater Jakarta Area March 2014 Page 10 of 66

11 Table 3.3 Chicken sales in Greater Jakarta Area, number of chickens slaughtered per year Jakarta 96,265, ,574, ,742,000 *) Bogor 40,880,000 76,650,000 Tangerang 40,150,000 74,095,000 Bekasi 60,650,000 Depok 27,740,000 Total 410,709,000 Source: Indonesian Commercial Newsletter, August 2011 *) estimation Poultry chain characteristics The poultry chain can be characterized by using the types of governance value chains as identified by Gereffi et al. (Gereffi, Humphrey, & Sturgeon, 2005): 1. Market value chains whereby the costs of switching to new partners is low 2. Modular value chains, whereby products are made by a customer specification 3. Relational value chains with complex relations between buyers and sellers 4. Captive value chains in which network suppliers are dependent on large buyers 5. Hierarchical value chains; this is a vertical integrated chain. The characteristics of these types of value chains are based on three factors: A. The complexity of information and knowledge transfer that is required to sustain a particular transaction, particularly with respect to product and process specifications; B. The extent to which this information and knowledge can be codified and, therefore, transmitted efficiently and without transaction-specific investment between the parties to the transaction; and C. The capabilities of actual and potential suppliers in relation to the requirements of the transaction. The poultry sector in Indonesia is a market driven chain whereby the complexity of the transactions is low and the ability to codify transactions and the capabilities in the supply chain are high. It is interesting to note that if regulations would be enforced more, the complexity of the information and knowledge required will increase and the chain will be become a modular value chain. In these types of chains there are often less actors involved as the transactions become more complex. These chains are also easier to regulate. Pefindo (2009) identifies four key success factors for the poultry industry from a business perspective: Market position and scale of production are important for increasing competitiveness: economies of scale are essential Vertical integration is beneficial for reducing risks of oversupply and enables for lower production costs Diversification in terms of suppliers, locations, markets, and customers are essential to prevent concentration and stabilize the revenue and profitability. Given the importance of proximity with the final consumer, and minimizing freight costs, this asks for regionalization Operating management to be improved for controlling costs and expenditures. in Greater Jakarta Area March 2014 Page 11 of 66

12 Slaughtering In the report on poultry value chains in the Jakarta region (Sudarman, et al., 2008) it was concluded that the traditional market retailers see little threat from processed chicken due to their lower price and because their chicken is perceived to be fresher than product ex modern slaughterhouses. The latter is countered in the findings of the 2014 consumer survey executed in parallel to this study, stating that the perception for wet markets and modern markets are indifferent for performance on safety and selling safe poultry meat (Tacken, Immink, Indrawan, Snoek, & Sumarwan, 2014 (forthcoming)). In the same report, Sudarman et all conclude that slaughter points in traditional markets play a dual role of butchering and retailing poultry products. The slaughter points keep live poultry, slaughter it directly in the market, and dispose the waste abruptly with poor application of sanitary procedures. The slaughter points are a high risk for Avian Influenza transmission (Sudarman, et al., 2008). Governmental context The government encourages self-sufficiency in meeting the country s poultry needs. This limits the threat of import (OSK, 2012), but likewise limits the incentives for change. When working in Indonesia the relation between the government and the larger society needs to be understood. This is well explained by Paul Forster in the context of the Avian Influenza (Forster, 2009). He explains the little trust in government because of Indonesia being a young democracy emerging from decades of autocratic rule, the tendency to compromise, hence little is changing, and the robust reality on the ground. The poultry sector in Asia The chicken meat production in Indonesia is less cost-effective than in surrounding countries, like Malaysia and Thailand. Indonesia needs to address hygiene levels in the poultry sector and need to produce more efficient in order to keep up with competition from abroad. Currently, the Indonesian poultry industry cannot compete on price and quality with imported products. By January 2016, the ASEAN economic integration will start to materialize, although conditions are still being negotiated. It is highly unlikely that import restrictions on agricultural products will disappear easily, but the principle remains that the sector is vulnerable for international competition. In addition, it should be stated that the majority of the poultry sector in Indonesia is currently traditional, selling non-frozen chicken. Thus, in case of an increase of (frozen) imported chicken meat, it will affect mainly the industrial cold chain in Indonesia. Food safety Given the importance of poultry meat consumption for Indonesia and the expected growth in meat consumption within the next couple of years, food safety and animal health issues are of extreme importance. Environmental, food safety and veterinary health risks are present in the small slaughter points and wet market chain which is by far the biggest chain as explained above. According to several studies (Embassy of the Kingdom of the Netherlands, 2013), 80% of the chicken collector yards were contaminated with live H5N1 HPAI. This poses both human and veterinary health risks. Avian influenza and other infectious diseases are a continuing risk, especially due to close contact between humans and poultry (collector farms, slaughter points). During production, the routine treatment with three different antibiotics for 3 days each week during the first 3 weeks of a broiler live (slaughter at 4-5 weeks of age), Is a potential risk for the development of antibiotic resistance. Microbiological quality of poultry products is probably not a huge problem, due to cooking habits and food knowledge of the Indonesian population, with exception of bacteria resistant to antibiotics. in Greater Jakarta Area March 2014 Page 12 of 66

13 Concluding, we can state that the Indonesian chicken industry as it stands now is on a cross-road. Both hygiene and prices are becoming important factors in the years to come. The ASEAN economic integration will force Indonesia to eventually open up its poultry market. Neighbouring countries like Thailand and the Philippines can produce chickens cheaper and an influx of cheap frozen import chickens from abroad is eminent. At the same time the pressure for a more hygienic poultry chain from the government, ASEAN and consumer groups and donors becomes an important force demanding for change. Both hygiene and price will demand for up scaling in the sector whereby up scaling of the semislaughter houses seems to be most realistic as they are already in the process of becoming more hygienic and becoming also more industrialized. in Greater Jakarta Area March 2014 Page 13 of 66

14 4. Research findings on the slaughtering systems Three types of production chain can be distinguished in the Greater Jakarta region, characterized by the slaughtering and marketing system: Slaughter points and wet market chain Semi-automated slaughter houses Industrial slaughter plants, part of integrated poultry production The slaughter points and the semi-automated slaughter houses are part of a complicated network of several chain actors. In this chapter the three chains are described in more detail after which a comparison is given on the cost flow in each chain. Further, information is presented on the role of the government in regulating the sector, and credit facilities offered by banks. Last, an overview is given on possible drivers and constraints for upgrading of the slaughtering sector in Greater Jakarta region. 4.1 Slaughter point and wet market chain In the Jakarta Greater Area, the most important poultry meat chain is through slaughter points. It is estimated that 80 to 85% of the broilers are slaughtered this way. The birds are grown at small-scale farms and through traders the birds are transported to collecting farms. From collecting farms small numbers of birds are transported to slaughter points. After slaughter the carcass is directly transported to the traditional market. The slaughter point is close to the market in order to deliver the carcass fresh (read: warm) to the consumer. Figure 4.1 gives the overview of the chain. Figure 4.1 Overview of slaughter point and wet market chain FARMERS TRADERS COLLECTING FARM SLAUGHTER POINT RETAILER: traditional market in Greater Jakarta Area March 2014 Page 14 of 66 CONSUMERS

15 Deviations to this chain occur, often increasing the complexity. In many cases, more than one trader is involved (hence a trader selling to another trader), and also traders may operate between the collecting farm and the slaughter point: this trader could be the same person as the slaughter, but not per se. In case of immediate need for cash, a farmer may transport chicken directly to a collector farm (hence shortening the chain). Poultry farmers There are no poultry farmers in DKI Jakarta Province; most of the supply comes from poultry farms located outside DKI Jakarta of which the majority is located in West Java, Banten, and South Sumatra Provinces. Poultry farmers can be independent, contracted by a slaughter plant, or owned by an integrator. Some interviewee state that the independent farmers seem to disappear. They tend to organize themselves in groups for negotiations on day old chicks (DOC s), feed and medication. Independent small farmers tend to come into financial problems, due to the volatile prices of slaughter ready chickens. A farmer with slaughter ready chickens has to sell and cannot wait for better prices. He needs cash to buy DOC s and feed for the next round. Farmers that cannot manage to finance the next round of broiler production are either incorporated into a group (taken over by another farmer) or the location is taken over by an integrator. In general, traditional broiler farms (bamboo, slatted floors, and natural ventilation) have one or more houses with a maximum of about 2000 birds/house. Traders or brokers When (independent) poultry farmers have a slaughter ready flock, they need immediate payment to be able to invest in a next round of DOC s, feed and medication. This is where brokers or traders come in. They do not physically interfere with the birds, but function more or less as a banking system. They provide the farmer with cash payment, and receive the payments from the slaughter point or slaughter house about two to four weeks later. One interviewee states that the average interest for this cash flow system is 3.5-4% per month. Most brokers work with a limited number of farmers (6-10). More is not possible because of the amount of money and the risk involved. Collector farm From the farm the birds can either go directly to a slaughter point or slaughter house or to a collector farm in DKI Jakarta Province. The latter comes in for delivering live chickens to smaller slaughter points. At the collector farms the birds are housed in floor pens and from these pens they are sold the same or the other day in quantities of (60 is the maximum number that can be transported on a motor cycle). In general the birds at the collector farm can come from small to medium scale farms. A collector farm handles mostly broilers. However on the collector farm we visited we also saw broiler parent stock and spend layers. The collector farm often has slaughter facilities, but in general the birds are slaughtered at other locations. A typical collector farm can handle birds a day. The birds arrive with small trucks, the majority leaves in bundles on a motorcycle. A trial by FAO to clean and disinfect trucks was abandoned, as the drivers were not willing to wait for cleaning. What we did see is that crates are not cleaned at the collector farm and very likely not at all before re-use. Slaughter point A slaughter point is a facility where broilers are slaughtered for the traditional market (wet market). The slaughter points often appear in groups, at the board of the river and close to market places. The birds are slaughtered manually, mainly during the evening and night and the carcasses with feet, head and all in Greater Jakarta Area March 2014 Page 15 of 66

16 organs are sold the same night, next morning at the wet market. A typical slaughter point can handle up to birds per night with 5 workers. The slaughter point we did see was at the base floor of the house of the owner. The workers are often family members or neighbors. In a neighborhood with a number of slaughter points almost all inhabitants are connected to the slaughter points and consequently there is no complaining on the presence of the slaughter points in a residential area. In Jakarta collection of blood and feathers is obligatory. In Bogor only feathers are collected. Waste water and (in the case of Bogor) blood goes directly into the river. The slaughter point is in general paid after hours, mostly immediately after the vendor has sold the carcasses. Crates are not cleaned at the slaughter point. 4.2 Small slaughterhouse chain A small portion of the broilers is slaughtered in small slaughterhouses. In the Greater Jakarta Area, around 36 of these slaughter houses exist, of which 5 owned by the government. The birds are grown at small to medium scale farms and directly transported to the slaughterhouse, sometimes owned by a group of farmers. According to statistics of the government of West Java, up to 11% of chicken may die in transport due to the heat, long distance between the farm and the slaughter house, and traffic jams. Directly after slaughter the carcasses are cooled and packed by piece in a plastic bag. Figure 4.2 gives the overview of the chain. Figure 4.2 Overview of small slaughterhouse chain FARMERS SMALL SLAUGHTER HOUSE RETAILER: small supermarket, out of home, vendor CONSUMERS Small slaughter house The capacity of small slaughter houses is from 5,000 to 25,000 chicken/day. In general stunning (water bath) and plucking are automated, the birds are transported by shackles, but all other work is done manually. Due to large variation within flocks the use of automated degutting gives too many losses. Cooling is in water in large containers. Purchased ice blocks (from ices factories and transported by truck) are used to cool the water. Small slaughter houses tend to focus on out-of-home market, small in Greater Jakarta Area March 2014 Page 16 of 66

17 supermarket, vendors and very limited kiosks at the wet market. Both small slaughterhouses we did visit did also cut up birds and marinated whole birds or parts according to client specification. Feet, head and organs (intestines included) are marketed separately. The small slaughter houses we did visit did try to combine the slaughter with cold store. In that case fluctuations in price of live birds can be balanced. When the birds are cheap the store is filled, when they are expensive the cooling system is used reversed to thaw carcasses from the cold store to sell as fresh. Further processing and cold store is the live line for slaughter houses, because margins in slaughtering are too low to become profitable. They do not work according to capacity, but determine the quantities to be slaughtered on the price of slaughter ready birds. If they have own farms, these are treated as a separate business unit with hard bargaining on price of live birds. This was the case for the two small slaughterhouses we did visit were both owners were also involved in broiler farming. To our impression most small slaughter houses harvest blood and feathers separately (gives revenues), but there is no waste water treatment. Transport of the final produce can be with cooled transport which can be owned by the slaughter plant. The small plants work with Indonesian copies of slaughter equipment. It is questionable if crates are cleaned. 4.3 Industrial slaughterhouse chain A minor part (10 to 15%) of the broilers is slaughtered in industrial slaughterhouses. The birds are grown at medium scale to large farms and directly transported to the slaughterhouse. Directly after slaughter the carcasses are cooled and packed. Figure 4.3 gives the overview of the chain. Figure 4.3 Overview of industrial slaughterhouse chain FARMERS SLAUGHTER HOUSE RETAILER: large supermarket, fast food restaurants CONSUMERS in Greater Jakarta Area March 2014 Page 17 of 66

18 Poultry farmers The large integrators normally work with bigger farms (e.g. for CP more than 5,000 birds). The farms can be either contracted (nucleus plasma model) or completely owned by the integrator. Production on contract means that the farmer gets the DOC s and feed from the integrator and delivers the slaughter ready to the same integrator. The integrator owns the birds and the farmer is paid a compensation for doing the work and supplying the poultry house. Some interviewee state that the number of contract farmers appears to diminish. Dependent on the market price and the demand from the integrator, farmers also supply to the other two slaughtering chains. Due to volatility in prices of slaughter ready birds the willingness of slaughter plants to have long term appointments is reduced. Especially the integrators tend to work more and more with farms with climate controlled housing. With this modern system the performance is better and also the uniformity (in final weight) of the birds is improved (which is important for automated slaughter). Farms with closed houses have in general two stories, closed floors and mechanical ventilation. The standard farm with closed housing has 25,000 birds. The integrations and larger farmers are in general able to finance this cash flow themselves, so traders and brokers are not part of the production chain. Industrial slaughter houses The number of industrial slaughter houses (> 80,000 per day) is small. Only the large integrators have such facilities. According to several sources, these slaughter plants do frequently not use their full capacity as a mechanism to influence prices for live chicken. Due to a lack of uniformity in some plants only stunning and plucking is automated. Degutting, cutting head and feed is often by hand. The large slaughter plants produce for the main supermarket chains, out-of-home market and also further processing (nuggets) is an important part of the business. The large plants do have HACCP and ISO-certificates. Not necessarily the quality of the process is better than with plants that have the state certificate (NKV). The whole chain is cooled with also delivering of a cooled final product to the customers. The large slaughter plants often have international equipment. It is questionable if crates are cleaned. The large processor we did visit had water cleaning facilities for cleaning the incoming water and the waste water. in Greater Jakarta Area March 2014 Page 18 of 66

19 4.4. Economic comparison of the three slaughtering systems Based on the information collected during our visits (interviews, visits, and group sessions) we did compare the cost of the three production chains: slaughter point, small slaughterhouse and large slaughterhouse. This is an indicative model to illustrate the differences in costs at the different links in the production chain and presenting an average. However in every stage there is a wide variation between companies. Table 4.4 gives the results. Table 4.4 Economic comparison of three slaughtering systems in Greater Jakarta region (prices in Rps) slaughter Point Small Slaughter House Large slaughter house birds/day birds/day over birds/day assumptions unit * Live weight at farm (kg) yield carcass (%)** carcass weight (kg) live birds, costs per kg live weight: Price/kg Live weight LW transport from farm LW Collecting Farm fee LW transport to slaughter place LW A: total cost at gate slaugher house LW carcass, costs per kg carcass weight: costs carcass weight CW Slaughter costs *** CW Revenues organs, int **** CW B: Net Slaughter costs CW Profit/finance/risk CW packing CW C: total cost leaving sl.house Transport to market CW market fee (estimate) D: total calculated costs at consumer level CW *_LW is live weight; CW is carcass weight **_the yield in large slaughterhouses is lower because the final product is different (carcass without head and feet). ***_ Differences between companies. Large slaughterhouses have e.g higher costs for labour and waste/water treatment. ****_revenues are higher for slaughter points/houses close to the wet markets The comparison is based on slaughter points in which 1,000 to 2,000 birds per day are slaughtered. For a small slaughter house the scale is 5,000 to 25,000 birds per day. The large slaughter houses slaughter more than 50,000 birds a day. For all systems the calculations are based on the slaughter of 1.3 kg broiler. This is the average weight of broilers for the whole birds market in Jakarta. Large slaughter houses also slaughter broilers at higher live weight. However, these birds are used for cut-up and further processing (e.g nugget etc). In the comparison we strictly focus on the market of whole birds in either the wet market (slaughter points), mini market/kiosk/vendors (small slaughter houses) or super- /hypermarket (large slaughter houses). The slaughter points and small slaughter houses deliver a carcass with head and feet to their customers. The large slaughterhouses deliver, in general, a carcass without head and feet. Because of this difference the assumption for carcass yield for the large slaughterhouses is lower. in Greater Jakarta Area March 2014 Page 19 of 66

20 The total costs at the gate of the slaughter place are higher in the first production chain. See line A in table 4.4. This is a result of a longer production chain. Birds are transported from the farm to a collecting farm and later (in small numbers) transported to the slaughter point. The additional costs for the slaughter points are estimated to be 900 Rps per kg live weight. The interviewees mention costs in a range from 500 to 1,500 Rps. The net slaughter costs per kg carcass weight (cw) for the three chains are respectively 300, 900 and 1,500 Rps per kg CW. See line B in table 4.4. The net slaughter costs are the difference of the slaughter costs and the revenues of organs and intestines. The costs for small and large slaughter houses are higher due to higher costs for building, equipment and labor wages. Large slaughter houses also have additional costs for waste- and water treatment. At the same time slaughter points have higher revenues for organs and intestines. With a close and direct connection to the wet market slaughter points get a higher price for intestines. Although most interviewees agree on this it was difficult to estimate the difference in price. Another interviewee stated there is no difference in revenue between the three slaughter systems. The next step is to calculate the total costs leaving the slaughterhouse. See line C in table 4.4. Compared to the slaughter points the small and large slaughter houses have additional cost for finance/risk, meeting national qualifications standards, and for packaging. At the gate leaving the slaughter house the additional cost for a small slaughterhouse is 100 Rps per kg and 3,537 Rps per kg carcass weight for the large slaughterhouse. It can be concluded that there is no difference in total costs for a slaughter point and a small slaughter house. Taking into account the large number of assumptions and the variation in estimates by the interviewees we can state that an efficient and good managed small slaughter house could compete on price with the slaughter points. This is confirmed by an interviewee who stated that the breakeven point for a small slaughter house is at 4,000 birds per day. In the last part of table 4.4 (see line D) we estimated the total cost at consumer level. Based on the costs at the slaughter house, the costs of transport to the market and a market fee are added. It should be noted that in this comparison the three slaughter systems have different markets. The slaughter points deliver the carcass to the traditional/wet market. The small slaughter houses deliver the carcass to mini market/kiosk/vendor and the large slaughterhouses deliver the carcass (without head and feet) through a cold chain to super- and hypermarkets. The price at the wet market is the lowest because the slaughter points are close to the wet market (low transport costs) and the market fee is low. The consumer price is the highest in super-/hypermarket because of higher costs at the slaughter house, transport in a cold chain and a higher market fee. This comparison of the costs and the conclusion that the consumer price at the wet market is the lowest, is the more relevant because the consumer research that has been executed in parallel to this study, concluded clearly that price (together with health) is the most important food choice motive for poultry meat (Tacken, Immink, Indrawan, Snoek, & Sumarwan, 2014 (forthcoming)). Asymmetric price transmissions It is important to understand that the calculation of the production costs as presented in table 4.4 cannot be copied directly to the day-to-day pricing in the market. There is an asymmetric relation between the off-farm price and the market/retail price in the large slaughter house chain (asymmetric price transmission). Positive or negative changes in the off-farm price for live chicken are not directly in Greater Jakarta Area March 2014 Page 20 of 66

21 leading to price changes for the consumers. This may lead to huge price differences in the same day in the different chains. 4.5 Rules and regulations The regulatory environment is complex because of the three governmental levels that impact on the poultry meat chains. As a consequence of the dekonsentrasi powers are divided between the national, provincial and district government (as laid down in Government Regulation No ). With different political parties that may be in power at different level, coordination and consistency are the more difficult. The most relevant national laws and provincial and local regulations in Greater Jakarta Area are listed in table 4.5. A brief summary of each of these is presented in Annex 5 of this report. Table 4.5 Overview of relevant laws and regulations No. Type of regulation Regulation number / subject 1 Law of the Republic of Indonesia No. 7 of 1996 on Food 2 Law of the Republic of Indonesia No. 18 Year 2009 on Animal Husbandry and Animal Health 3 Law of the Republic of Indonesia No. 18 of 2012 on Food 4 Regulation of the Minister of Agriculture Number 381/Kpts/OT.140/10/2005 on Guidelines for Certification of Veterinary Control Business Unit Food of Animal Origin 5 West Java Provincial Regulation Number 18 of 2008 on Fees Animal Disease Testing Services, Materials of Animal Origin and Quality Feed / Raw Feed 6 West Java Provincial Regulation No. 22 of 2012 on the Implementation of Animal Husbandry and Animal Health 7 Local Regulation Bekasi No. 9 of 2012 on Retribution 8 Bekasi District Regulation Number 6 of 2007 on Fees Animal Husbandry, Fisheries and Marine 9 Bogor Regency Regulation No. 29 of 2011 on Business Services Levy 10 Local Regulation Bogor Number 5 of 2012 on Business Services Levy 11 Local Regulation Bogor No. 3 of 2009 on Levy Investigation and slaughtering 12 Local Regulation Depok Number 22 of 2003 on fisheries permits, ranches and slaughterhouses 13 Local Regulation Depok No. 7 of 2011 on Levy Slaughterhouse 14 Jakarta Provincial Regulation No. 4 of 2007 on Control Maintenance and Poultry Peradaran 15 Jakarta Governor Regulation No. 146 of 2007 on Guidelines for the Implementation of Regional Regulation no. 4 of Jakarta Governor Regulation No. 147 of 2007 on the Provincial Committee for Avian Influenza Control and pandemic preparedness 17 Tangerang District Regulation Number 7 of 2009 concerning maintenance and Poultry Disease Control Flu (Avian Influenza) in Greater Jakarta Area March 2014 Page 21 of 66

22 The national framework for quality assurance and control is that all slaughtering houses have to hold a NKV certificate (Nomor Kontrol Veteriner). The NKV is formulated by the Ministry of Agriculture. In addition, Halal certification is required, formulated and issued by the national religious leaders (MUI: Majelis Ulama Indonesia) in cooperation with the Ministry of Religious Affairs. The Halal slaughtering process is described in the Ministerial Guidelines on chicken slaughtering (Ministry of Agriculture, Indonesia, 2006): The animal needs to be alive, healthy and clean; stress prior to slaughtering should be avoided. The head of the animal needs to face Mekka The butcher has to be a Moslem, adult and has a sound mind, and has to say the correct Koran phrases before slaughtering ( basmallah ) The throat and main veins of the chicken needs to be cut with one incision by a sharp and clean knife, after which blood need to flow freely; conducting subsequent process only after bleeding has stopped Proper and hygienic slaughtering needs to be conducted and environment s sanitation to be maintained. In its operations with the poultry sector, the government is referring to these formal requirements as ASUH (Aman, Sehat, Utuh, Halal) which stands for Safety, Healthy, Intact, and Halal. In the Province of West Java with its predominant Moslim population, the acronym HAUS is used instead given the highest priority to Halal. Small slaughter points which constitute the largest part of the slaughtering capacity - have nor NKV nor Halal certification and are not subject to NKV inspection; the slaughter houses do. The Provincial government (in this case the provinces of Jakarta, Java Barat, and Banten) has the responsibility to develop and implement annual livestock development plans, to monitor over- and undersupply and trying to stabilize prices, to coordinate the districts, to act as facilitator among key stakeholders in the province, to act upon disease outbreaks, to inspect cross-provincial transport/trade, and to execute quality controls. Instruments are: Monthly meetings with all the districts representatives Financial support to district government initiatives 2 Regular meetings with poultry sector stakeholders Assessing NKV applications and issuing the certificates An animal husbandry website on which the daily prices are published. The Government of West Java website is A mobile lab and veterinary officers that sometime go in the field, accompanying district officers for on-situ animal health quality control A 9-step action plan against Avian Influenza Provincial border control. A 9-steps procedure is in place in case there will be an Avian Influenza outbreak. This procedure (set-up after the 2003 outbreak) is the responsibility of the provincial government. Environmental regulations are part of the NKV / ASUH, and inspections fall under the responsibility of the districts. The province 2 An example is the Pasar Hewan Higenis initiative (Hygienic Animal Market), piloted in Bogor and Sukabumi in 2009/2010. This Indonesian government project was focusing on ayam kampung in the framework of the AI National Prevention Program. in Greater Jakarta Area March 2014 Page 22 of 66

23 gives no specific attention to this. According to the informant of the Province of West Java, NKV / ASUH is in order for all the registered slaughter houses. Otherwise they are not allowed to operate. Inspection however is not their authority. In Jakarta the regulation states that it is not allowed to have live chicken in town. This implies that if enforced, the small-scale slaughter points need to disappear. In this study, the research team assumes that this regulation will not change after the upcoming Presidential elections. After the Avian Influenza outbreak in 2003, the government started to build slaughter houses just outside residential areas in designated places (Jakarta and direct surrounding provinces). These houses are rented by private parties. The government policy is to slowly withdraw from this business, to be taken over by private companies. The actual enforcement of the law is the responsibility of the districts. However, the districts lack capacity (or commitment?) to actually implement this. Staff works at regular office hours, whilst the moving around with live chicken, the slaughtering, and selling takes place in the middle of the night. So far, government officials only seem to move when there is an outbreak of a disease (AI). For the Bogor district it is the policy to get good quality Halal chickens, to create in each sub-district one slaughter house (in the Bogor district alone there are already 40 sub-districts), and to ensure that each traditional market has a semi-automated slaughterhouse. This plan has yet to be realized. The district regulations are: The location of a slaughterhouse should be suitable for industry not housing A site-plan needs to be submitted (40% building-60% open air) Building permit needs to be in order Water treatment permit needs to be in order Waste treatment permit needs to be in order 70% of the work force should be local workers Preferably a well should be available The slaughterhouse needs to have a valid NKV (audit every 5 years) A contract with a veterinarian for regular inspection should be in place The financial administration needs to be in order: each year a financial self-assessment has to take place and sent to the tax office Halal certification needs to be in order If sales takes place outside of the district, then a Animal health product safety certificate is needed Animal welfare certificate is needed In case the slaughter house is government property, a retribution fee of 50 Rps per chicken needs to be paid (also the amount of 100 Rps is mentioned in a regulation, see annex 5) There is a corporate tax of 30% over profit. In addition, before being able to obtain a business permit, one needs to have an AMDAL certificate (Indonesian Environmental Feasibility Assessment). These certificates are issued by district authorities, but according to informants this is not a transparent and fair process. in Greater Jakarta Area March 2014 Page 23 of 66

24 The implementation and enforcement of all the regulations, whether by the provincial government or district authorities, is often cumbersome and in most cases non-existent. Regulations are mainly focusing on issuing new permits and handling emergencies. There is no policy let alone implementation to deal with existing unwanted practices like slaughtering points and a vision on transition policies. Concluding, the provincial governments are of importance for their coordinating, planning, and monitoring role. In addition, issuing NKV certificates gives them a powerful instrument for regulating the sector. No specific attention is given to environmental issues (like water and waste management). When it comes to concrete improvements of the slaughtering practices, the district governments are more important giving their responsibility to enforce the law. 4.6 Access to finance It is difficult for slaughter point or house owners to get credit because all permits should be in order which is never really the case. In the case of slaughter points, basic criteria for loans like collateral, a bank account, and financial book keeping are not in place. As a way to overcome this situation, some banks are also active in micro credit. BRI is the biggest bank in Indonesia for micro credit, whilst for instance Rabobank is not offering micro-credit. We can state that only the big companies that own the fully automated slaughtering houses are bankable. In addition, the more risky, the higher the interest up to a level that is not feasible for a small company (23 25%). This hampers the possibility for upgrading and enlarging of existing slaughtering practices. All banks have categories of financial products dependent on the amount of the loan, see table 4.6 for a comparison between BRI and Rabobank (according to one source Mandiri Bank is also becoming active in the poultry sector). Table 4.6 Financial products of BRI and Rabobank Indonesia: loans and interest rates (January 2014) BRI Rabobank Indonesia Micro credit up to 100 million Rps (23%) - People based credit million Rps (23%) - SME / retail 100 million to 5 billion Rps (15%) 500 million Rps - 10 billion (14%) Commercial loans 5 billion to 50 billion Rps (15%) billion Rps (12/13%) Corporate 50 billion + Rps (13%) 100 billion + Rps (12/13%) We can conclude that innovative financing instruments will be needed to back-up the desired upgrading. Or to seek for non-commercial funding mechanisms as offered by a diversity of foundations. The Rabobank Foundation is supporting only smallholder cooperatives and/or farmer groups in the rural area of Indonesia through small grants (up to 20 million Rps), technical assistance, a guarantee for a loan, and a soft loan. The slaughtering business is not within their mandate. Another foundation operational in Indonesia, Ford Foundation, has previous experience with supporting micro credit institutes in Indonesia. The current emphasis of the foundation is focusing on rural development in East Indonesia; however a program to also support urban development is being explored. In any case, the focus is on small holders /SMEs. in Greater Jakarta Area March 2014 Page 24 of 66

25 4.7 Markets (and consumers) The Jakarta Greater Area composes out of more than 27 million consumers. In and around Jakarta several markets can be distinguished. Consumers buy whole chickens at the traditional wet market, in a kiosk, or in small or large supermarkets. Each marketing channel has its own sourcing. In general the traditional market gets the birds from a slaughter point and the large supermarkets get the whole birds from the large slaughterhouses. Traditional market Most consumers prefer to buy their chicken at the traditional market. There are no reliable data about the total number of wet markets, but it is understood that at least one wet market exist per village/community. A chicken should be warm (= fresh). Cool chicken is associated with too long dead, not healthy. In most of the cases poultry is purchased to prepare immediately, the same day. This system (slaughter point and wet market) is responsible for 80-85% of poultry production and consumption (Personal note Indrawan, 2013). Broilers entering the wet market can come from all types of farms. Kiosk / vendor From the slaughter point the carcasses go directly to vendors or to a kiosk, which distributes them to vendors. In both cases cash flow has to be arranged. Vendors sell the carcasses from a stall at the street or at a covered market. Prices are to some extent negotiable. The later after slaughtering, the lower the price. Carcasses that are not sold in time are traded to ready to eat stalls (after preparation shelf life is extended significantly) or treated with formalin for sales the next day, from under the counter. Supermarket and other cooled outlets Supermarkets have a shelf with different types of poultry and also parts. Sales of poultry through supermarkets are rather limited. Supermarkets can use left over poultry in their ready to eat products. One of the integrators (Sierad) is experimenting with own shops (Bel Mart, 14 in 2013), providing poultry meat, eggs and some long shelf food products (rice, spices). They aim with these cooled products and personal service on higher middle class. CP also has its own outlets for poultry (Prima Freshmart) of which 94 in Jakarta Greater Area. Some consumers use the supermarket to check for prices of chicken. The (consumer) market price for chicken is set at the wet market. Table 4.7 gives the main characteristics of the three marketing channels. Table 4.7 Comparison of the different markets Slaughter Point Small Slaughter House Large slaughter house temperatur warm cooled cooled product with head and feet with head and feet without head en feet packing none plastic bag per bird consumer package, labeled slaughter manual partly-automated partly/fully automated enviroment not controlled semi controlled waste/water cleaning market, main outlets wet market local supermarket super/hypermarket in Greater Jakarta Area March 2014 Page 25 of 66

26 The main difference for the small and large slaughterhouses is the cooling of the carcass and the packaging. Part of the slaughter process is automated with birds on shackles resulting in a more hygienic way of the slaughtering (not on the floor like in slaughter points). Some small slaughterhouses have waste water control and all large slaughterhouses have some kind of waste control and water cleaning system. 4.8 Constraints for upgrading There are several constraints in the value chain whereby the focus of this paragraph is on the current production systems of poultry meat slaughtering. Per system (slaughter points, semi-automated slaughterhouses, and the fully automated slaughterhouses) there are differences in level of constraints. The categorization of Kaplinski and Morris (2002) is used, identifying these value chain constraints in: 1. Access to finance 2. Access to markets 3. Access to knowledge 4. Access to infrastructure 5. Access to institutions. These constraints are defined as follows: Ad 1. The access to finance is defined as: The level of access to formal financial instruments (loans): having (or in potential able to have) collateral, a bank account, professional book keeping. Ad 2. The level of access to the end consumers, in this case the people living in the Greater Jakarta Area. Ad 3. The level of access to knowledge on i) food safety, ii) environmental sustainability (waste management), and iii) running a business. Ad 4. The level of access to in particular i) roads, ii) electricity, iii) clean water, IV) facilities, and v) information communication technology. Ad 5. The level of access to policy, rules and regulations as well as the actual presence of chainsupportive institutions like associations. Below the findings are put in table 4.8. The operationalization and explanation is described below the table. Table 4.8 Constraints for upgrading per slaughtering system Slaughter points Semi-automated slaughterhouses Constraints in access to finance YES +/- NO Constraints in access to markets NO NO NO Constraints in access to knowledge PROBABLY YES MAYBE NO Constraints in access to infrastructure i) Roads NO YES YES ii) Electricity YES NO NO iii) Clean water YES +/- NO iv) Facilities YES +/- NO Fully automated slaughterhouses in Greater Jakarta Area March 2014 Page 26 of 66

27 v) ICT +/- +/- NO Constraints in access to YES +/- NO institutions 1. Access to finance Cash flow is an important factor in the poultry chain. Most small slaughter point owners cannot wait for payments more than a day. Here brokers come in. They are not matchmakers but financers. For entrepreneurs that want to scale up, getting money is difficult. Almost all banks work according to the western system. Sharia banking is very rare. Currently banks only provide loans if there is security (a building, land or any real estate) and the business is formally licensed. Almost all slaughter points are informal and therefore have no access to capital from banks. To a lesser extent also small slaughterhouses face these problems but often the larger the business the easier it gets to obtain financing. Industrial slaughterhouses do not face any problems in obtaining financing. 2. Access to markets Access to the final consumers in the greater Jakarta area is not considered as a constraint for none of the slaughtering systems. The sector is market driven with a growing demand, and end-consumers that can be reached easily via a meshed network of wet markets or retail. 3. Access to knowledge The level of access to knowledge on i) food safety, ii) environmental sustainability (waste management), and iii) running a business is more difficult to analyze. The analysis has not resulted in a clear picture on whether the level of knowledge is actually a constraint. The findings are however clear that in many cases the day-to-day practice is questionable, for sure at the slaughter points, but also at the semi-automated slaughterhouses. If knowledge exists, it is often not applied. The risks of environmental pollution (river water, chemical and microbiological contamination) are huge, just as the risks for chemical contamination of the meat through the live broiler (no drug withdrawal period in broiler production) or due to (mis)use of disinfectants and formaline to treat carcasses. The large number of slaughter points, their micro level of operations, and (most likely) minimal educational background from the people involved, are constraining training or other capacity building opportunities. Access to such options is easier for staff of small and industrial slaughterhouses, because of the more restrictive and organized number, and in case of the industrial slaughterhouses professional organizations. 4. Access to infrastructure A good physical infrastructure of roads is of eminent importance for the poultry sector. An increase of the economy of scale will need roads that can handle larger (quantities of) trucks. However, most country roads can only take small trucks (up to 3 ton of bagged feed, 2000 broilers). Larger vehicles are for most farms out of the question because of the poor state of infrastructure. Industrial slaughter plants, where birds/day are handled, are located close to high ways to handle the multitude of logistical dealings and traffic. For the small slaughter points the roads are less a constraint because they have adapted to the network of small roads, operating with small quantities and with motor cycles and small trucks. Access to electricity is important as a precondition for upgrading to a cold chain. Electricity is not available at slaughter points, and cannot be guaranteed in near future either. Electricity is available at in Greater Jakarta Area March 2014 Page 27 of 66

28 the small and industrial slaughterhouses; sometimes even generators are present to take over electricity supply in case of power cuts. Upgrading the slaughtering practice towards a more food secure and environmentally sustainable operation needs clean water and a (waste) water management system. Farms, slaughter points and slaughter plants have all their own water system (surface water or deep well ground water). The large slaughter plants have a water treatment system, and (some) quality control on the water. Access to clean water for slaughter points and small slaughter plants is a risk factor. Regarding access to facilities it is relevant to note that the big integrators, who own the fully automated slaughterhouses, also own feed mills and (grand)parent stocks. As a result, the integrators are in the position to influence the input up-stream and are able to influence the sector. Due to the vertical integration, they can control the distribution of costs and profits through the production chain. They also sell feed and day-old-chicks to independent farmers. Feed caters for around 70% of the on-farm costs. Information communication technology (ICT) is important for running a professional business with fully up-to-date market information (supply, demand, and prices), monitoring of key performance indicators, and running modern processing equipment. For small slaughterhouses, investing in ICT is costly, and would need additional resources. For slaughter points the picture is mixed: they do not have the resources for investing in ICT, but also do not need to do so. Access to market prices is important, but can be obtained easily via mobile phones. 5. Access to institutions Access to institutions is concerning the level of access to policy, rules and regulations as well as the actual presence of chain-supportive institutions like associations. The rules and regulations in itself are not constraining, neither the information on these rules and regulations, but the fact that they are hardly enforced by the respective authorities. The district governments have a key role in law enforcement and the Provincial governments have an important coordinating, planning, and monitoring role. The implementation of these roles needs attention. In addition, transparent mechanisms for market-oriented policy development, implementation and monitoring are absent. Certification requirements for starting-up a new slaughterhouse are known, however in practice not required for the slaughter points. Part of these regulations is the tax system. The big, fully automated slaughtering houses pay a corporate tax of 25% over profit. All the other companies and small holders are not paying tax, but small slaughterhouses pay a fee per bird slaughtered. Upon the moment scaling up takes place, these businesses will become more visible hence taxes are to be paid, if profit is made. By keeping it small (or informally networked) one stays below the radar. This factor contributes significantly to the uneven competition between slaughter points and more mechanized, more hygienic larger scale slaughterhouses. An association of the large companies does exist: ARPHUIN, Asosiasi Rumah Potong Hewan dan Unggas Indonesia/Indonesian Slaughterhouse Association. Also some of the smaller slaughterhouses are member. The main chain actors in the sector do not sufficiently cooperate for the benefit of the sector in Greater Jakarta Area March 2014 Page 28 of 66

29 as a whole. As a result, no strategizing and coordinated planning is taken place. It also results in large short term fluctuations in prices of poultry. Charnoz and Forster state that these price fluctuations are caused on purpose by the big companies for speculation by fluctuating the level of production (Charnoz & Forster, 2011). This is causing problems for farmers and slaughterhouses. When prices are high slaughterhouses take a lower number of birds because the higher costs cannot be transferred to the market. Production in the chain is not efficient in this way and is hampering modernization and upgrading. Also prices of DOCs can vary highly, again controlled by the same big companies. This is causing problems in the planning of breeder flocks and hatcheries. The slaughter points are not organized formally but informally, often intertwined with family or other social networks. In the wet market system in Jakarta there are to people involved (IPB, 2013), that generate a daily income. Most of them not have a full time job, but the income is sufficient to survive with a family. The number of people that make serious money in this system is difficult to estimate. Between all players in the system there are close connections, either as family or as business partners. To replace such a system requires at least alternatives for the ones now having an income from the system. On international level, the relevant institution is ASEAN. By January 2016, the ASEAN economic integration will start to materialize, although it is unlikely that import restrictions on poultry products will disappear easily. But the principle remains that the sector is vulnerable for international competition. In case of an increase of (frozen) imported chicken meat to Indonesia, it will affect mainly the industrial cold chain with the industrial slaughterhouses. It is expected that the large (multinational) companies that own the industrial slaughterhouses have access to the political leaders, lobbying for their business interests. In summary one can state that the slaughter points have many constraints for upgrading contrary to the industrial slaughterhouses whereby the semi-automated slaughterhouses are facing a mixture of constraints. in Greater Jakarta Area March 2014 Page 29 of 66

30 5. Conclusions and recommendations 5.1 Conclusions Indonesia is growing rapidly. With an increase of on average 6% of GPD per year also the purchasing power of the average Indonesian is growing. As a result domestic poultry meat production will double in the next 5-6 years. In addition the society is becoming gradually more food-cautious and food-safety is increasingly becoming an issue. However, a primary motive of consumers of what kind of poultry to buy remains price (source consumer survey). Improvement of both hygiene levels and efficiency in the production system in order to reduce price is therefore required. This study concentrated on the possibility of upgrading poultry slaughtering processes. Three systems were identified: slaughtering points, semi-automated slaughtering houses and large, fully automated slaughter industries. Small informal slaughter points are characterized by the fact that it is often an informal part-time business of individual households. The number of chickens slaughtered per day is small and food-safety regulations are often not adhered to. In order to increase the hygiene level, the business owners have to invest in hygiene knowledge, practice and machines. In order to improve the efficiency of their production systems the business needs to upscale. But as these businesses are informal no banks are providing loans to facilitate up-scaling. And in terms of hygiene, the low effort of enforcement of the government in controlling food-safety does not contribute to better food-safety. Moreover, there are also many small slaughter points which are often dispersed all over the Greater Jakarta Area which makes control difficult especially as slaughtering is occurring during night hours, the time government officials are resting. Upgrading seems to be only possible if these informal businesses can become formal and are willing to upscale. Both issues are found to be difficult. Many businesses are part-time and are not willing to upscale and even if they would like to do so they lack the finance and or the space and as a result they are also not investing in better hygiene processes. Changing the attitude of the owners as well as changing the status of the businesses would be very costly, just because there are so many. Moreover, if they change, it is still no guarantee that they will be successful as a small slaughterhouse because that would require additional business and technical skills. The semi-automated slaughterhouses are limited in number (36) and are often characterized by the fact that these are formal businesses, full-time in operation and that the managers are having more business and technical skills than the slaughter points. However, access to capital remains often difficult which has implications for both up scaling possibilities and improved hygiene level. In general it can be concluded that up scaling interventions at this system seems to be less costly as less businesses are involved but also because with a bit of extra support these businesses can become more hygiene conscious and can also develop more efficient production systems. The larger industrial slaughterhouses do not need a lot of support as they are often working already according to the latest efficiency and hygiene standards. As a model for best practice they are of interest for the smaller slaughter houses. in Greater Jakarta Area March 2014 Page 30 of 66

31 Finally if the constraints are observed more closely it can be concluded that interventions should be focused on three main areas. First of all access to finance what is a key driver for change. To improve the access to finance it is required to develop further up-scaling aspirations. Next infrastructure needs to be upgraded; especially narrow roads are an obstacle for trucks to transport large quantities of chickens affecting the production process. Finally, the business and government need to work more together in developing and maintaining the required hygiene levels but also in obtaining economies of scale in their production processes. Tax exemptions might for example be helpful in this process of upgrading. 5.2 Recommendations In line with the conclusions as formulated above, it is recommended that possible interventions should focus on specific aspects to be successful: 1. Strengthening public-private cooperation at district level In order to address infrastructural, institutional and business constraints public-private partnerships should be developed. There is a need for increased cooperation among public and private parties in the sector. Given the importance of geographical diversification and the important role of district authorities, it is suggested to help bring together public and private parties on district level. The aim would be to facilitate trust building among the key actors, to come up with scenarios, and to agree upon pilots that also involve private partners (B2B). Scenarios that could be developed in these district platforms could be on requirements for hardware (poultry houses, slaughter houses, parent stock, hatcheries, feed production, etc.), software (capacity building in the private and public sector) and orgware/infrastructure (hard: infrastructure: building plots, road access, water availability and quality and soft: building permits, organisation among public and private sector, veterinary infrastructure, etc.). Scenarios may focus on different scales of production (based on small holders to large farms and slaughter plants) and different organisation models (independent producers, integrated situation). 2. Upgrading semi-automated slaughter houses to become small integrators The smaller slaughter houses are essential for meeting the growing market needs and for creating a geographical net of slaughterhouses around Jakarta. In the current situation however, they are too small to meet the growing demand, the increasing competition (ASEAN) and have too little resources for the needed investments. Hence, the semi-automated slaughter houses will need to grow and innovate. The way forward is to support the semi-automated slaughter houses to become small integrators, able to have control of input, throughput and output. This could be combined with: 3. Slaughter house innovation It is worthwhile investing in designing new types of slaughter houses that are more cost effective and environmentally sustainable. Slaughter houses in Indonesia use in general international equipment, but with quite a lot manual labour. Besides, systems for cooling and cleaning require a lot of water and (purchased) ice. In many (smaller) slaughter houses coops and waste water are not cleaned. Intake of in Greater Jakarta Area March 2014 Page 31 of 66

32 good quality water is another issue to consider and stunning of poultry according to Halal rules. Also different systems are used for climatising the slaughter plant. 4. Availability of investment capital It is recommended to explore the possibility for large investors and eventually the set-up of a security fund for the poultry sector. This might be completely public, but a public private partnership is also feasible. Availability of capital for investments is a crucial factor for further development of the poultry sector in Indonesia. Many smaller entrepreneurs mention the availability of capital against affordable interest as a major problem for investments they would like to do. Investments are required in both the primary production of poultry (housing) and processing (slaughter plants). In several countries the poultry (agricultural) sector was and is supported by loans at a reduced interest rate. The reduced interest rate is obtained by facilitating the bank sector with a security safety net fund. This security fund reduces the risk for the financial sector and promotes further business development in the poultry sector. 5. Support to District and Provincial governments The district governments have a key role in law enforcement and district specific economic development. The Provincial governments have an important coordinating role, and can co-fund districtlevel activities. Specific attention could be given to support districts to fulfil their pertinent role more adequately, through training, strategic plan development, monitoring mechanisms, and benchmarking. in Greater Jakarta Area March 2014 Page 32 of 66

33 6. References ACIAR. (2010, December). Evaluation of a Potential Niche Market for poultry products from biosecure farms in Indonesia. Case study: Bali, West Java and South Sulawesi. ACIAR. Agrina. (2013, November 16). Yang Fresh Masih Pilihan. Retrieved from Agrina: Charnoz, O., & Forster, P. (2011). The Global Health Impact on Local Power Relations; Fragmented Governance, Big Business and Organisational Bias in Indonesian Animal Health Policies. Working Paper WP 02/2011. LSE Global Governance. Daryanto, A. (2011, March). Contract Farming in the Broiler Supply Chain in Indonesia; Linking Farmers to Markets. Bogor: IPB. Embassy of the Kingdom of the Netherlands. (2013). Identification Mission on the Livestock Component of the Dutch-Indonesian Programme on Food Security. Jakarta: Embassy of the Kingdom of the Netherlands. FAO. (2011). A value chain approach to animal diseases risk management. Animal production and health guidelines, no 4. Forster, P. (2009). The Political Economy of Avian Influenza in Indonesia. STEPS Working Paper 17. Brighton: STEPS Centre. Gereffi, G., Humphrey, J., & Sturgeon, T. (2005). The governance of global value chains. Review of International Political Economy, Indonesia Finance Today. (2013, November 25). 2014: Animal Feed Industry Growth Potentially Decelerates. Retrieved from Indonesia Finance Today: Potentially-Decelerates Indonesian Commercial Newsletter. (2011, August). The Market of Broilers in Jakarta and Surrounding Areas. Retrieved from DATACON: Kaplinsky, R., & Morris, M. (2002). A Handbook for Value Chain Research. Institute of Development Studies. Maastricht School of Management, Bogor Agricultural University, Wageningen University and Research Centre. (2013). Dutch-Indonesian Program on Food Security: Poultry & Dairy Sector Components Work Plan Inception Phase; Work packages 1 and 2. Proposal. in Greater Jakarta Area March 2014 Page 33 of 66

34 Ministry of Agriculture, Indonesia. (2006). Guidelines on chicken slaughtering and chicken meat handling in small scale chicken slaughterhouses. Jakarta: Ministry of Agriculture, Indonesia. Mudde, H., Indrawan, D., & Fahmi, I. (2012). Multi-sector partnerships for sustainable business development in Indonesia: the role of higher education. Working Paper No 2013/01. Maastricht: Maastricht School of Management. OECD. (2012). OECD Review of Agricultural Policies: Indonesia Retrieved from OECD Publishing: OSK. (2012, November). Indonesia Equity. Sector Update: Poultry Sector. Prospects Abound in Poultry Business. OSK Research. Pefindo. (2009). Poultry Industry. Pefindo. PT Japfa Comfeed Indonesia Tbk. (2013, December). JAPFA Investor Presentation. Rabobank. (2011). Kumar, P. Indonesia Animal Protein Industry. Rabobank Industry Note # 292. November Rabobank. Rabobank International. (2013). FAR research and industry sources. Sudarman, A., Sumiati, Ekowati, H., setiyono, A., Mulatsih, S., & Kusumaningrum, R. (2008). Poultry value chain study and avian influenza risk assessment in Jakarta surrounding area. Final report. Bogor: Center for Tropical Animal Studies (Centras), Bogor Agricultural University, for the Food and Agricultural Organization (FAO). Tacken, G., Immink, V., Indrawan, D., Snoek, H., & Sumarwan, U. (2014 (forthcoming)). Preferences for poultry meat. Consumer study in the Jakarta region. Wageningen: WUR. The Poultry Site. (2014, January 24). The Poultry News: Chinese Consumers' Tastes Are Changing. Retrieved from The Poultry Site: USAID. (2013). Strategies against flu emergence. Final report. USAID. (2013, February). Indonesia s Poultry Value Chain. Costs, Margins, Prices, and other Issues. Wageningen University and Research Centre. (2013). Dutch-Indonesian Programme on Food Security. Poultry & Dairy Sector Components. Work plan and cost estimate. Animal Sciences Group. Wageningen: Wageningen University and Research Centre. in Greater Jakarta Area March 2014 Page 34 of 66

35 Annex 1. Terms of Reference of the study Goal To identify the drivers and constraints for change towards more food secure poultry processing in West Java. Strategies will be developed to support such a transition. Results of the Inception Phase 1. Qualitative description of the present situation of different poultry supply chains in which 3 slaughtering system are part (small-scale, semi-automated and fully automated). This gives insight in: 2. Overview of drivers and constraints for upgrading the poultry slaughtering system towards more food secure processing. Methodology Desk research Qualitative survey among chain partners and stakeholders in and around Jakarta Number of semi-structured interviews: 30 Activities 1. Define and agree upon work plan, planning and task division 2. Desk research: collect and analyse previously executed research and chain partners and stakeholders mapping 3. Design research methodology, research questions, units of analysis, sampling, identification of selection criteria 4. Identify relevant chain partners and stakeholders for each of the supply chains 5. Research operationalization: design and pre-test 3 questionnaires & translation EN -> bahasa Indonesia 6. Conduct chain actors & stakeholder interviews 7. Identifying drivers and constraints for upgrading the poultry slaughtering system 8. Validation 9. Analyzing and reporting Roles MsM IPB LEI ASG Coordination Desk research Desk research Desk research and Research Research Research management methodology methodology methodology Liaison with IPB Chain partners Research Chain partners Desk research Research and stakeholders operationaliza tion and stakeholders methodology identification Chain partners interviews Research Research and (support) operationalizatio operationalizati stakeholders Analysis n on interviews Chain partners Testing and (support) and stakeholders organizing Analysis interviews interviews in Greater Jakarta Area March 2014 Page 35 of 66

36 (support) Validation Analysis Reporting Translations Chain partners and stakeholders interviews Validation Analysis Missions (5 working days + 2 travel days) 1. MsM/Huub Mudde: Project management 2. MsM/Diederik de Boer: Validation and analysis 3. LEI/Peter van Horne: Support in chain actor interviews 4. ASG/Ferry Leenstra: Support in chain actor in Greater Jakarta Area March 2014 Page 36 of 66

37 Socio-economic analysis (work package 2.1) Outputs & activities Responsible Oct November December January February 1 Define and agree upon work plan, planning and task division 2 Desk research: collect and analyse previously executed research and chain partners and stakeholders mapping 3 Design research methodology, research questions, units of analysis, sampling, identification of selection criteria 4 Identify relevant chain partners and stakeholders for each of the supply chains 5 Research operationalization: design and pretest 3 questionnaires & translation EN -> bahasa Indonesia 6 Conduct chain actors & stakeholder interviews 7 Identifying drivers and constraints for upgrading the poultry slaughtering system MsM IPB LEI ASG I II III IV I II III IV I II III IV V I II III IV X X*) X X X X X X X X X X X X X X X 8 Validation X 9 Analyzing and reporting X X Coordination and management, incl liaison with IPB X X X X X X X X X X X X X Total days *) Details to sort out with IPB management during mission **) Christmas / new year break in the Netherlands Version February 7, 2014 Page 37 of 66

38 Detailed work Plan 1. Define and agree upon work plan, planning and task division This work plan is developed in this phase of the project. The theoretical models (relevant for the research questions), that are the base for the consumer study in the inception phase of the project are selected and the research objectives are defined. At the start, a working session will be organized at MsM with the key Dutch experts. 2. Desk research: collect and analyse previously executed research and stakeholder mapping Result: Recommendations / guidance for research / conceptual framework Action: IPB, LEI, ASG, MSM 3. Desk research: collect and analyse previously executed research and chain partners and stakeholders mapping In this phase of the project the results of the desk research are translated to a research methodology. In this methodology, the goal of the socio-economic analysis will be further detailed defined, the sample will be determined, and the locations will be selected based on agreed criteria. Result: Detailed research methodology and protocol Action: IPB, LEI, MSM 4. Identify relevant chain actors (direct/indirect) and stakeholders for each of the slaughtering systems Result: list of relevant stakeholders to interview Possible chain actors (direct/indirect): Owners / managers of small scale slaughtering facilities, semi-automated slaughterhouses and fully automated slaughterhouses Farmers and Farmers Associations (a/o GOPAN) Middlemen and traders Private sector (a/o Pt. Sierad, Pt. Charoen Popkhand) Providers of feed, DOC and credit Retail (Hypermarket, Indomarket) Investors / banks Inspectorate Provincial and national government Members of the Indonesian Poultry Advisory Council. For each of the slaughterhouse systems a detailed description of persons involved, their role will be made. Action: IPB 5. Research operationalization: design and pre-test 3 questionnaires & translation EN -> bahasa Indonesia In this phase of the project separate semi-structured questionnaires will be developed for farmers, traders and slaughter facility owners are designed and tested on basis of the developed research methodology. If the questionnaires are completed they are translated from English to Bahasa Indonesia and tested in Bogor region, whether it is workable. Version February 7, 2014 Page 38 of 66

39 Result: Validated questionnaires Action: IPB, LEI, MsM 6. Conduct chain actors & stakeholder semi-structured interviews, around 30 in total In all three slaughtering systems persons in the different links will be interviewed with a prime focus on the slaughterhouse actors: Small scale slaughtering: total around 10 interviews with slaughter man, traders and farmers Small semi-automated slaughterhouse: total 10 interviews with slaughter man, traders and farmers Automated Slaughterhouses: total 3 interviews with integrated company and farmers. Besides about 7 interviews will be carried out with inspectorate, provincial and national government, retail and credit providers. In the interviews with the farmers the focus will be on the following aspects: - Size of the farm - Supply of day old chicks and feed - Disease control - Conditions on delivering the broilers ( batch size, quality, transport) - Method of payment (conditions, credit, personal contacts) In the interviews with the slaughter man the focus will be on the following aspects: - Size of the company, structure and organization, ownership, part of integration etc. - Supply of birds (transport, logistics, bird quality, live weight) - Method of slaughter (stunning, scalding, offal disposal, water cleaning) - Storage (cooling facilities, quality control) - Method of payment - Food safety Action: IPB, MsM, LEI, and ASG IPB will hold the interviews in all links in the three supply chains. Researchers of LEI, ASG, and MsM will join in the fieldwork. In total 3 persons of MsM, LEI and ASG will cooperate for each 1 week (5 working days) with an IPB researcher to get an impression of the actual field situation. 7. Identifying drivers and constraints for upgrading the poultry slaughtering system Based on the results of the interviews a number of potential incentive mechanisms to improve food security and food safety for the different parts of the supply chain will be developed. Result: list of most potential options for upgrading in the different slaughtering systems Action: IPB, MsM 8. Validation The tentative results of the interviews will be validated among a selection of experts Result: validated results Action: IPB, MsM 9. Analyzing and reporting Final analysis of the results and formulation of possible scenarios for upgrading of the slaughtering systems during project implementation Version February 7, 2014 Page 39 of 66

40 Result: Scenarios for upgrading Action: MsM, LEI, IPB, ASG Experts Diederik de Boer, MsM (lead) Arief Daryanto, IPB (IPB-lead) Peter van Horne (WUR/LEI-lead) Ferry Leenstra / Adriaan Vernooij/ Sander Lourens (WUR/ASG) Idqan Fahmi, IPB Dikky Indrawan, IPB Huub Mudde, MsM Ron Bergevoet, WUR/LEI Version February 7, 2014 Page 40 of 66

41 Annex 2. List of interviewees Monday December 16th 2013, market visits and 2 workshops Morning, market visits Visit Pasar Bogor Supermarket Giantin Bogor Afternoon Session / workshop with integrators at Bogor University - Mr. Aryo Widiwardhono, Managing Director - Foods Division PT. Sierad Produce, TBK - Mr. Daud, Director PT. Sierad Slaughterhouse - Mr. Ferdiansyah Gunawan Tjoe, Director PT. Charoen Pokphan Indonesia, Tbk - Mr. Ahmad Dawami, Senior Vice President Director PT. Japfa Comfeed. Chairman of ARPHUIN (Asosiasi Rumah Potong Hewan dan Unggas Indonesia/Indonesian Slaughterhouse Association) Evening Session / workshop with small slaughterhouses at Bogor University - Mr. Nono Tri Kesowo, Director of Inasa Farmers and Small slaughterhouse (rents a local government facility) - Mr. Asep Syaeful, Director of CV. Jambu Raya Farmers and Small slaughterhouse at CIpaku Bogor - Mr. Tri Hadianto - Farmers - Chairman of GOPAN (Gabungan Organisasi Peternak Ayam Nasional/Association of National Broiler Farms Organization) Tuesday December 17, Farm, trader, 2 small slaughterhouse and slaughter point - Farmer. Small broiler farm - Small slaughterhouse of Mr Nono + cooling and freezing facilities - Mr. Wayan, Broker/Trader of Broiler in Jakarta Greater Area (lunch time) - Small slaughterhouse of Mr Asep Syaeful, Jumbo Raya. - Mr. Anto, Small slaughter point at Kebon Pedes Bogor (at night Wednesday December 18, 2013, Large slaughterhouse Morning visit to Sierad industrial poultry slaughterhouse in Bogor and interview with: Mrs Indra, Quality Control and Purchase Manager at PT. Sierad Slaughterhouse Mrs Meta, Public Relation at PT. Sierad Slaughterhouse Afternoon visit to Collector farm in Jakartha - Mr. Asrori Gagarin, Manager of PD Dharma Jaya (Jakarta owned enterprise. Manager of Collecting Farm Area at Pulo Gadung, DKI Jakarta Thursday December 19, Interview and shop Dr. Denny Lukman, Lecturer of Faculty of Veterinary IPB Visit to poultry store, Bell Food Saturday December 20, Interview Mr. Eddy Heutink, Head poultry production Pt. Charoen Pokphand Jaya Farm Wednesday January 16, 2014 Project meeting with Ivo Claassen and Frank Joosten Thursday January 17, 2014 Interview with Mr. Sutrisno, Director Animal Health and Fishery Agency, Bogor District Version February 7, 2014 Page 41 of 66

42 Friday January 18, 2014 Interview with Prof. Dr. Sjamsulbahre, Professor in the Toxicology, IPB, coordinator A I. Monday, January 20, 2014 Interview with Mrs. Liestiowaty, Deputy President, Corporate Clients, BRI Tuesday, January 21, 2014 Interview with Dr. Hartono, President, PINSAR Wednesday January 22, 2014 Interview with Mrs. Agung, Branchmanager, BRI Bogor Interview with Prof. Dr. Arief Sunanto, IPB Thursday January 23 Project meeting with Dr. Fahmi, IPB Mrs Windy Sarawati, Head of Branch, Rabobank International Indonesia, Bogor Branch Friday January 24 Mr. Stephen Widjaja, Project Manager Rabobank Foundation Indonesia (Jakarta) Saturday January 25/Sunday January 26/ Monday January 27 Desk study and report writing Tuesday January 28 Meeting with Arief Daryanto, IPB-MB Report writing Wednesday January 29 Dr Hartono, Chair of PINSAR (Poultry Farmer Association): validation meeting Final meeting with Arief Daryanto, IPB-MB Report writing Thursday January 30 Mr Kusmayadi, former Head of Livestock Department of the Province of West Java (till January 24, 2014) Mr Rafiuddin Palinrungi, Ford Foundation Indonesia (by phone) Version February 7, 2014 Page 42 of 66

43 Annex 3. Questionnaires socio-economic situation of slaughtering systems Method Is semi structured interview. Based on chain with farmer, trader, slaughter and market. Questionnaire divided in general, input, output, costs, food safety/disease control, strategy/future. A Slaughtherplace / small slaughterhouse General Company name: Location of place: Interview with: name, position Number of birds slaughtered per day (average): How many days per year: (any season fluctuations?) Number of workers: Process Describe the process of the slaughter (see annex): Arrival/Stunning/killing/bleeding/scalding/plucking/washing/evisceration/ grading/weighing/ cooling/portioning/ packing... Final product is: whole carcass/parts/. Delivered warm (not cooled), cooled (0-4 oc), deepfrozen (< - 20 oc). Input Supply: How many birds supplied today/yesterday: From how many different flocks/farms? Flock size ranges from to.. Fluctuations in supply in range:. to.. Method of supply: crates, boxes, Weight of the birds, in average: Variation in weight in range from. to.. Are there any quality conditions on the birds supplied? In weight (certain range), full fed, foot pads, Type of birds? International breeds, native breed, dual purpose, spend hens.. Prices: Buying price of the birds (per bird or per kg live weight)..rp (at this moment) Is there any market price published of the live weight bird (is this an accurate and reliable price). Any quality payments on the live birds? Bonus or discount. (specify) Method of payment: cash/other Output Product: How many birds are sold today/yesterday: In how many batches Average weight of the bird (carcass weight) Version February 7, 2014 Page 43 of 66

44 Describe the dressed bird: (photo) With feet and head on,. Warm, cooled or frozen Do you deliver the products to selling points, or does the buyer do the logistics? Revenue Revenue price per bird:. Rp Other revenues: Intestine.. Blood.. Head/feet Feathers Eatable organs Method of payment: cash/other Environment: Describe method of disposal of water, blood, intestine Costs Costs: estimate the costs per day (later we will divide the cost by the number of slaughtered birds or the weight of the carcass weight) Costs of workers: Number of workers: Daily working hours per worker: Cost of a working day (payment to the worker): Other costs per worker/day (tax, social tax etc) Building: Size of the building for slaughter (including storage): m2 Investment of the building (replacement in 2013) per m2 Equipment: Investment of the all equipment in the slaughterhouse:.. RP Interest rate for loans on building and equipment Other variable costs (in R per day or month or year): Electricity: kwh / Cost of electricity Heating (building, water): Rp Water: amount, price, source (own well, tube). Offal: any cost for disposal of offal, intestine, waste water.. (any revenues are already mentioned in output) Food safety Are samples taken from the birds for analyses on microbes? Salmonella, other.., how often? Can you show results? Are blood samples collected for analysis on AI and/or other diseases? How often? When and how is the slaughter plant cleaned? Do you sample the slaughter plant after cleaning for microbes? How often Can you show results? Strategy What are the main problems for the companies: Scale of production, regulations, consumer demand, high input prices, low output prices, environment, food safety, logistics (get live birds in time and deliver products in time), getting loans for investments,. Version February 7, 2014 Page 44 of 66

45 What are the future plans for the company: Grow in size, increase quality (food safety certificates), invest in cooling,. Expand the chain, i.e. contract farms, own farms, or contracts with buyers (supermarkets, others ) Invest in training and quality of farmers Cooperation with other parties (DOC, feed mill, ) What are the weak point in the current situation of the company? What are the strong point in the current situation of the company? What are the treats for the company? What are the opportunities for the company? B Farmer General Farm name: Location of farm: Interview with: name, position (owner, manager, worker) Number of birds housed (average): Number of poultry houses: Number of workers: Type of farm: contract or independent (describe) Farm Describe the farm: Type of housing (natural ventilation, mechanical ventilation/ type of heating/ slats, litter, cages, ) Position of poultry houses Other agriculture/fish on farm Number of flocks per year Depopulation: how many birds per day. Describe Input Supply of day old chicks (doc): Method of transport, breed, quality.. Always from the same hatchery? Which one? Supply of feed: Type of feed, supply in bags,. Which supplier? Always the same? On a contract? Veterinarian service and medication: By who, specify vaccinations, medications Method of payment doc and feed (cash, conditions, credit) Output Final weight (gram) Batch size Catching: who, how often, method Method of transport Sales to trader, middle man or direct to slaughterhouse Is the price dependent on quality of the chickens (how?) Quality: foot pads, cleanness, Version February 7, 2014 Page 45 of 66

46 Do you get information from the slaughter plant on the quality of your chickens? Method of payment (cash, conditions, credit) Performance Feed conversion (kg/kg) Mortality (% of number at day 1) Number of days (to final weight) growth rate (gram/day) EPI performance index? empty days between flocks Costs Costs in general of last flock (mention month) Costs of doc (RP per piece) Cost of feed (Rp per kg) Other costs (Rp per flock) Electricity Heating Vet/ medication (antibiotics) Cleaning and disinfection Litter Manure disposal Catching Workers: Cost of a worker per day. Including any social tax or other costs. Investment: Investment in building Investment in equipment Interest rate on loan for investment Revenues: Manure sales Sales selected birds Disease control / food safety What hygienic measures are taken (specific clothing and/or boots for the farm, for each house? Dip tank for boots? Hand washing?) How is the farm cleaned after a flock? How long is the farm (house) empty before new DOC s enter? Are samples taken for disease control, by whom? Can you show results? How do you dispose of dead birds? (buried, incineration, composted) Do you report excessive mortality? To whom? Strategy What are the future plans for the farm: Increase size Improving quality of the birds Housing systems/ equipment upgrading Cooperation with feed mill, hatchery, slaughter plant (integration, contracts,.. Version February 7, 2014 Page 46 of 66

47 What are the main constraints in farming: Money to invest Supply of doc or feed Market demand for live birds Find good workers Environmental regulations Other.. C Trader General Company name: Location of place: Interview with: name, position Number of birds traded per day (average): How many days per year: (any season fluctuations?) Number of workers: Input (from farmers) How many birds collected today/yesterday From how many farms: Method; crates, boxes, Method of transport: moped, small truck, large truck Weight of the birds, on average: Variation in weight in range from. to.. Are there any quality conditions on the birds supplied? In weight (certain range), full fed, Type of birds? International breeds, native breed, dual purpose.. Prices: Price of the birds (per bird or per kg live weight)..rp (at this moment) Is there any market price published of the live weight bird (is this an accurate and reliable price). Any quality payments on the live birds? Bonus or discount. (specify) Method of payment: cash/credit/other Output (sales to slaughter-point/houses) To what slaughter points/houses the birds are delivered: Batch size Quality conditions Always the same slaughter point? If more than one, why? Prices: Price of the birds (per bird or per kg live weight)..rp (at this moment) Is there any market price published of the live weight bird (is this an accurate and reliable price). Any quality payments on the live birds? Bonus or discount. (specify) Method of payment: cash/credit/other Version February 7, 2014 Page 47 of 66

48 Costs Investment in transport vehicles (replacement 2013) Cost of fuel Bird losses Interest on Capital input ( running money ) Costs of any collecting place (building, area) Margin per bird (in average) Food safety / disease control Do you take samples for Salmonella, AI, other purposes? How often? Can you show results? Strategy What will be the policy when slaughterhouse will improve quality standards or upscale their size? Disease control? How can food safety be improved? D Large scale automated Slaughterhouse / Integrator Basically same questions as under A. Annex (slaughter process in general) Receiving areas The inlet to the plant is normally designed in such a way that fluctuations in bird deliveries can be dealt with adequately. This is necessary since the processing capacity has a fixed maximum. At regular intervals birds are unloaded onto the holding areas and attached by their feet to a conveyor belt, transported to the slaughter area. Slaughtering and packing The birds are suspended from the conveyor after which the following actions take place: - Stunning; - Killing and bleeding by cutting the jugular veins; - Collection of blood. The conveyor travels through a blood collection tunnel at a preselected travelling speed; - Scalding. To loosen the feathers, the birds are held in water of temperatures ranging from 50 C to 60 C; - Defeathering. Feathers are mechanically abraded from the scalded birds, usually by rotating rubber fingers. Removed feathers drop in underlying troughs; - Washing. The defeathered carcasses receive a spray wash prior to evisceration; - Opening of the carcass by cutting manually; - Inspection of the viscera; - Evisceration, removal of head, feet and viscera; - Sorting of the viscera to recover heart, liver and gizzard; - Final washing to remove blood and to loosen tissues; - Chilling of the carcasses in a waterbath; - Draining; - Grading, weighing and packing; and - Chilling and freezing. Version February 7, 2014 Page 48 of 66

49 Annex 4. Map of Greater Jakarta Region with locations of semi-automated and fully automated slaughtering houses Source: Authors compilation based on KESMAVET, Veterinary Public Health Laboratory; MUI, Majelis Ulama Indonesia Version February 7, 2014 Page 49 of 66

50 JAKARTA Rumah Potong Unggas Rawa Kepiting (Public Governance Slaughterhouse) jalan rawa Kepiting, Kawasan Industri Pulo Gadung, Kelurahan Jatinegara RT 09 RW 10, Kecamatan Cakung, Kota Administrasi Jakarta Timur Rumah Pemotongan Unggas cakung (Public Governance Slaughterhouse) Jalan raya Penggilingan, Kecamatan cakung, Kota administrasi Jakarta Timur Rumah Pemotongan Unggas Petukanganan Utara (Public Governance Slaughterhouse) Jalan Mochtar (Kawasan Kebun Bibit Petukangan Utara), Kelurahan petukangan Utara, Kecamatan Pesanggarahan, Kota Adminsitrasi Jakarta Selatan Rumah Pemotongan Unggas PT Kartika Eka Dharma (Small / Semi Automated Slaughterhouse) Jalan swadarma Raya No. 69, Kelurahan Srengseng, Kecamatan kembangan, Kota Administrasi Jakarta Barat. Rumah pemotongan Unggas Pulogadung (Public Governance Slaughterhouse) Jalan Palad No.2 (Kawasan RPH Pulogadung), Kelurahan Pulogadung, Kecamatan Pulogadung, Kota Administrasi Jakarta Timur Kode Pos: Phone: Sari Niaga Pacific (SNP) Subanga (Small / Semi Automated Slaughterhouse); Jl Kamboja 2-E RT 005/01 Tomang, Grogol Petamburan Jakarta Barat DKI Jakarta Telepon Lainnya: (021) , RPA PT Unggas Prakarsa (UP) (Small / Semi Automated Slaughterhouse) Jalan Kalibaru Timur Iv A 14 No. - Rt.003/001 Kel : Kali Baru, Kec : Cilincing, JAKARTA UTARA DKI JAKARTA - INDONESIA Version February 7, 2014 Page 50 of 66

51 BOGOR PT Belfoods Indonesia. (Automated Slaughterhouse) (Slaughter House & Processing). Citra Indah Complex Kav. PA1-2, Jl. Raya Jonggol Km. 23.3, Jonggol Tel : +(62-21) Fax : +(62-21) RPA Putra Mandiri /Starfood (Small / Semi Automated Slaughterhouse) Jl Branta Citeureup, Kab Bgr. Fax: Suwandi. HP1 : HP2 : PT Ciomas Adisatwa (JAPFA) (Automated Slaughterhouse) Jalan Raya Parung Km. 24,, Gang Sawo No 25, Desa Jampang, Bogor, Jawa Barat. Agri Mustika Indonesia (AMI) (Small / Semi Automated Slaughterhouse) Jl.Raya Alfalah.Gg.Damai Rt.01/09 no.10,cikaret.kel.harapan Jaya- Cibinong, Kota Bogor Version February 7, 2014 Page 51 of 66

52 RPHU SK Cibinong (Public Governance Slaughterhouse) Gg H Ashari, Cibinong, Jawa Barat UPTD. RPH DINAS PERTANIAN (Public Governance Slaughterhouse) Jl. KH. Abdullah Bin Nuh RT 02/01 Kel. Bubulak Kec. Bogor Barat Kota Bogor UD. SEJAHTERA (Small / Semi Automated Slaughterhouse) Cibarengkok RT 05 / 04 Ds. Pengasinan Kec. Gunung Sindur Kab. Bogor PT. RAJA JEVA NISI (Small / Semi Automated Slaughterhouse) Gg. Belibis No. 62 RT 01/07 Kebon Kepi Pengasinan Gunung Sindur Kab. Bogor Mina Samudra (Small / Semi Automated Slaughterhouse) Kp Lengis, Ds Warung Menteng, Cijeruk, Kab Bogor Jambu Raya (Slaughter Point) Jl Pamoyanan Sari 9 RT 002/01 Cijeruk Bogor Jawa Barat Version February 7, 2014 Page 52 of 66

53 Telepon Lainnya: (0251) , Fax: (0251) CV. BUANA (Small / Semi Automated Slaughterhouse) Jl. Raya Kemang, Parung Km. 26 Kab. Bogor CV. DUIKIAN JAYA (Slaughter Point) Jl. Ds. Cihauk Jl. Sukabakti RT 01/01 Parung Kab. Bogor PT. PUTERA HASTA KARSA SWADAYA (Slaughter Point) Jl. H. Nawi No. 42 RT 06/02 Ds. Waru Kec. Parung Kab. Bogor CV. TRI TUNGGAL SEJAHTERA (Slaughter Point) Kp. Lebak Wangi No. 54 RT 03/02 Ds. Parung Kec. Parung Kab. Bogor PT. RAJA JEVA NISI (Slaughter Point) Gg. Belibis No. 62 RT 01/07 Kebon Kepi Pengasinan Gunung Sindur Kab. Bogor UD. SEJAHTERA (Slaughter Point) Cibarengkok RT 05 / 04 Ds. Pengasinan Kec. Gunung Sindur Kab. Bogor RPA. PAK EDI (Slaughter Point) Jl. Tapos Kranji Barat no. 25 Cibinong Bogor Sentra Pemotongan Ayam : RPA tradisioanal di daerah Pondok Rumput, Kebon Pedes Bogor NUR CHICKEN (Slaughter Point) Jl. Manunggal Bakti I No. 34 RT 06/08 Kel. Kebon Pedes Kec. Tanah Sareal, Kota Bogor PEMOTONGAN AYAM H. Ir. SONY (Slaughter Point) Jl. Manunggal Bakti I No. 19 RT 06/08 Kel. Kebon Pedes Kec. Tanah Sareal, Kota Bogor PEMOTONGAN AYAM H. SAIMAN (Slaughter Point) Kebon Anggrek Lebak RT 04/02 Kel. Kebon Pedes Kec.Tanah Sareal Kota, Bogor PEMOTONGAN AYAM H. SURATNO (Slaughter Point) Jl. Manunggal Bakti Jaya No. 4 Kel. Kebon Pedes Kec. Tanah Sareal, Kota Bogor PEMOTONGAN AYAM KALIJO (Slaughter Point) Version February 7, 2014 Page 53 of 66

54 Pondok Rumput Gg. Tambak 2 A RT 06/11 Kel. Kebon Pedes Kec. Tanah Sareal, Kota Bogor PEMOTONGAN AYAM MULYONO (Slaughter Point) Pondok Rumput RT 0 3/11 Kel. Kebon Pedes Kec. Tanah Sareal, Kota Bogor PEMOTONGAN AYAM SUTARNO (Slaughter Point) Jl. Manunggal Jaya No. 9 RT 02/02 Kel. Kebon Pedes Kec.Tanah Sareal, Kota Bogor PEMOTONGAN AYAM SUYATMI (Slaughter Point) Jl. Manunggal Bakti I No. 4 3 RT 06/0 8 Kel. Kebon Pedes Kec. Tanah Sareal, Kota Bogor DEPOK Komp. Rumah Pemotongan Hewan (RPH) Tapos (Public Governance Slaughterhouse) Jl. Raya Tapos - Cimanggis-Depok-Jawa Barat Amindo Mina Sejahtera (Small / Semi Automated Slaughterhouse) Jl KSU RRI Kampung Serab RT 001/05, Kel Kuala Kencana, Kec Sukmajaya Depok Bichick PT - Rumah Pemotongan Hewan (Small / Semi Automated Slaughterhouse) Perumnas Depok II Jl Flamboyan 10 Perumnas Depok II Tgh Sukamaju, Sukmajaya Depok Jawa Barat PT Ayam Prima Esa (Small / Semi Automated Slaughterhouse) alan Pemuda No. - Rt.006/ Kel : Sawangan Baru, Kec : Sawangan, DEPOK JAWA BARAT - INDONESIA Version February 7, 2014 Page 54 of 66

55 TANGERANG PT. Japfa Santori Indonesia (Automated Slaughterhouse) Office: Jl Raya Serang Km 20,2. Cikupa - Tangerang. Tel : +(62-21) Tel : +(62-21) Fax : +(62-21) Fax: +(62-21) PT CITRA GUNA LESTARI (Small / Semi Automated Slaughterhouse) Jalan Talaga Mas Raya No. 29 Kel Bojong Kec Cikupa, Tangerang RPA PT Bangkit Setia Sentosa Primatama (BSSP) (Small / Semi Automated Slaughterhouse) Jalan Bumi Mas Raya No. 5, Kawasan Industri Cikupamas Kel : Cikupa, Kec : Cikupa, Tangerang BANTEN - INDONESIA PD. Petra Food (Small / Semi Automated Slaughterhouse) Jalan Raya Serpong Km.7 Komplek Multiguna Blok F19 Serpong Tangerang Sawung Prima (Small / Semi Automated Slaughterhouse) Jl Aria Putera 22 Ciputat Version February 7, 2014 Page 55 of 66

56 BEKASI Rumah Pemotongan Unggas Duta Makmur (Small / Semi Automated Slaughterhouse) Jl. Raya Pasar Babelan kec. Babelan Bekasi Rumah Potong Unggas Skala Kecil RPU SK Pusaka Unggas (Small / Semi Automated Slaughterhouse) ds Segara makmur, Kec. Taruma Jaya, Bekasi Version February 7, 2014 Page 56 of 66