Broiler Industry in Faisalabad

Factors affecting Profit of Broiler Industry in Faisalabad

Published on: 5/10/2012
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Abstract

The main objective of this study was to look at the profitability of broiler in the Faisalabad. The study has been conducted to investigate the main factors affects profits of broiler producers in the district. A profit function regression model was used as a decision support tool in commercial broiler production. Price of purchase chicks, cost of feed, cost of labor, mortality rate (%), feed conversion rate- FCR and cost of building and machinery depreciation, electricity, heating and cooling charges and rent on the profit of the broiler producer were investigated. The results of the study shown that each of these factors is with a specific effect on producer´s profit. This is the econometric result, Pf = Y = 58.533 – 0.181 X1 – 0.701X2 – 0.530X3 – 1.036X4 + 2.172X5 – 0.577X6. Amongst the independent variables entered in the model, only the statistical association of "labor costs (X3)" with the dependent variable is not found to be significant at p<0.05, and it is therefore dropped from the model. The rest have a strong statistical association with profit per kg live weight (p<0.05). As R2 value indicates that 72 percent of the variation of the profit of the farmers due to effect of the independent variables. It mean that if there is increase in Rs. 1 in the purchase price of chick there will be decrease in profit of Rs. 0.181. Similarly if there is increase of Rs. 1 in Feed, labor and miscellaneous cost profit will be reduce by Rs. 0.701, Rs. 0.530 and Rs. 0.577 respectively. And if mortality rate increase by 1 % then profit will be decrease by Rs. 1.036. The model estimates were quite compatible with the field observations.

Key words: broiler industry, profit function, producers, regression, profitability, Faisalabad

Introduction

The Agriculture sector plays a key role in the economy of Pakistan. It is the second largest sector which contributes 21 percent of GDP, and still it is a largest employer, absorbing 45 percent of the country´s total labor force. Agriculture sector also provides raw materials to industry as well as market for industrial products and also contributes substantially to Pakistan´s export earning. It is also very important in the sense that 67.5 percent of Pakistan´s population are living in rural areas and are directly or indirectly attached with agriculture for livelihood. Any development in agriculture will not only improve country´s economic growth to rise at a faster rate but will also benefit a large portion of the country´s population (GOP, 2011).

Livestock plays an important role in the country´s economy. Livestock sector contributes about 55.1 percent of the agriculture value added and 11.5 percent to Pakistan´s GDP during 2010-11. While other development sector experienced saturation and decline; there has been an increase in livestock sector in 2010-11. The Livestock sector having 55.1 percent stake in the agriculture sector was also impacted by the massive floods and witnessed marked slowdown recorded growth at 3.7 percent in 2010-11 as against 4.3 percent last year (GOP, 2011).

Poultry sector is one of the organized and important sector of agriculture industry of Pakistan. This sector generates direct or indirect income and employment for about 1.5 million people of country. Its contribution in agriculture value addition is 4.8 percent and livestock value addition is 9.8 percent. Its share in GDP is 1.1%. Poultry chicken meat constitutes 24.8 percent of the total meat production in the Pakistan. Poultry Development Policy anticipates sustainable distribution and supply of whole some poultry value added products, eggs and chicken meat to the domestic and international markets at reasonable competitive prices and it aims at enhancing and supporting private sector development for sustainable poultry chicken production. The strategy revolves around creating regulatory framework; and genetic development in rural area´s poultry and control on diseases, high technology poultry meat production under control house or environmental control house (ECH), processing and value addition at different stages, need based research and improvement and producer training and education developing, bio-security. The current investment in poultry industry is about Rs. 200 billion. Poultry sector has shown a robust growth of 8-10 percent annually which reflects its inherent potential. It envisages poultry sectors growth of 15-20 percent per annum (GOP, 2011).

The broiler producing has now become one of the key important parts of agriculture throughout the global village. Broiler producing in the Sub Continent South Asian countries is expanding rapidly and the rate of growth of commercial broiler and layer farms is phenomenal to meet the ever increasing desire, need and demand for food proteins through eggs and chicken. Broiler chicken meat production in Pakistan is almost 707 (´000) tonnes out of Asian´s production that is 28691.1(´000) tonnes. Pakistan constitutes 2.5 % of total meat production in Asia. Currently in Asia in chicken meat production, Pakistan is at 11th Rank (FAO, 2010). Now Pakistan´s broiler meat production has increased to 767(000) tones (GOP, 2011)

Modern broiler industries are much characterized by mass broiler production with a high turn over of capital but low profit margin per broiler (Ceveger and Yalcin, 2003). This condition characterized broiler enterprises in Pakistan. In Pakistan, Broiler farmers are rearing broilers without predicting the demand and supply condition in the market. the supply is high while prices are low and vice versa. Such a condition generates uncertainty in the broiler market and as a result of this; the farmers are unable to get reward from their business. Risk assessment, availability of the much necessary things related to production and a complete reliable information and control of production costs are the key important problems and issues regarding the successful broiler industry (Van Arendok, 1991).

The abnormal profit which is extracted by intermediaries decreases the profit of broiler producers and discourages them to a great extend to expand the production units. The middleman´s profit share also needs to be decrease in order to reduce prices at final retail level (Parkhurst, 1967). It is crucial necessary to enable the broiler farmers to sell their output at reasonable prices as well as it is also necessary for consumers to purchase their needs at minimum cost (Maqbool et al., 2005a). It was calculated that the profit as a %age of purchase price and sale price was 7.29 and 6.75%, respectively. The share of intermediaries such as commission agents and retailers was about 75% (Qazi, 1989). Others researchers such as Chohan (1992) and Maqbool et al. (2005b) estimated higher share of producer than that of intermediaries such as commission agents and retailers in the broiler industry.

Materials and Methods

Due to the limitation of time and money it is much difficult to take all the broiler farmers of Faisalabad. Therefore, all five Tehsil were selected. Three union councils were selected randomly from each three Tehsil e.g. Faisalabad, Jarranwala and Sammundri. From each union council ten broiler farmers were selected randomly, because these tehsils were abundant with broiler farms. And fifteen broiler farmers were selected rendomly from each other two tehsils, e.g Tandliawala and Chak Jhumrah, So total 120 farmers were interviewed.

Regression analysis shows the relationship between dependent and independent variables. Profit function was estimated using following functional form.

Profit function

The regression equation was estimated by applying a stepwise regression procedure in the SPSS Statistical Package, version 17. In the stepwise procedure, independent variables are included in the equation respectively starting from a variable having the highest correlation with a dependent variable having the highest correlation with a dependent variable and the ones that deemed to be statistically insignificant at p<0.05 are automatically dropped from the equation. Thus, the best model explaining the dependent variable can be without a need of trial and error of several models. The relationship between dependent Y and each independent variable Xi in the established model was examined in scatter diagrams and all the independent variables were found to have a linear relationship.

RESULT AND DISCUSSION

R2

R2 represents that 72 % of the profit is described by these variables such as purchase price per chick, feed cost, labor cost, mortality rate, FCR and miscellaneous cost such as Cost of Building and Machinery Depreciation, electricity, Heating and Cooling Charges and land rent etc. and remaining 28 percent is described by other variables which are not included in the model such as experience, farm location, family size, education of the respondent, sale price of chicks per kg (LW), veterinary and marketing cost. This is because of much less chance of losses in broiler farming if it managed properly specially when environmental control house or control shed was introduced, these result are very close to ideal.

A researcher of Jordan showed 99 percent R2 in his study of broiler farming. This is much less as compared to this because student researcher takes all farms such as Large that are environmental control house or control shed, medium and small broiler farmer. But this researcher took only large farmers where losses by other factors are merely seemed.

Adjusted R2

Adjusted R2 means adjusted for degree of freedom. It is used for cross sectional data, the values of adjusted R2 in my analysis was 0.707 which is significant. The value of adjusted R2 means that all independent variables explained 70.7 %variation in dependent variable. This R2 is high as compared to other business of live stock and agriculture based ventures.

F- Ratio

F-ratio implies that all independent variable are significant or non significant factors for causing variation in dependent variable. The F- value in our analysis which was significant explained the overall appropriateness of the model. It also explained that model was correctly specified. As the first attempt during the model building procedure, various types of relationships (e.g. linear and quadratic) between the dependent variable (Y) and each independent variable (Xi) were examined on the scatter graphs. The relationship between Y and Xi´s except that of X3 were observed to be linear.

The model results are estimated with stepwise regression method and the relevant statistical techniques are shown in table No. 13 the R2 of the model is 72 percent which means that the independent variables included in the model explains 72 percent of the variation occurring in the profit kg-1 LW. The Beta values (B) in the Table No. 4.15 are the estimated coefficient of the equation and they indicate how much Rs. change shall realize in the dependent variable (Rs. kg-1 LW) against a 1 unit change in each Xi. Y: Profit (Pakistani Rs.) kg-1 Live Weight (LW) is the dependent variable. The model could be written as follow:

Pf = Y = 58.533 – 0.181 X1 – 0.701X2 – 0.530X3 – 1.036X4 + 2.172X5 – 0.577X6

As result in Table No. 4.15 shows that none of the independent variable entered in the model significant at p<0.05 except "Labor Cost kg-1 LW" and so all of them excluded labor cost included in the model. As can be seen from the table, amongst the independent variables entered in the model, only the statistical association of "labor costs (X3)" with the dependent variable is not found to be significant at p<0.05, and it is therefore dropped from the model. The rest have a strong statistical association with profit per kg live weight (p<0.05). As R2 value indicates that 72 percent of the variation of the profit of the farmers due to effect of the independent variables. The estimated coefficients are depicted by beta (B) values. Each of these coefficients demonstrates the marginal impact of an independent variable in question on the profit kg-1 LW. From the model one can predict the type and magnitude of the change in any of the investigated factors on the profit of the broiler rearer.

It mean that if there is increase in Rs. 1 in the purchase price of chick there will be decrease in profit of Rs. 0.181. Similarly if there is increase of Rs. 1 in Feed, labor and miscellaneous cost profit will be reduce by Rs. 0.701, Rs. 0.530 and Rs. 0.577 respectively. And if mortality rate increase by 1 % then profit will be decrease by Rs. 1.036.

Also if feed conversion rate- FCR (kg feed consumed to gain 1 kg weight) profit will be increase by profit Rs. 2.172. Profit will be increase to a limit because after 8 weak broiler gain less weight as compare to feed and other cost so profit start declining. It is clear that a rise in the purchase prize of the chicken (Rs. per kg LW) which is resembled X1 by Rs. 1 will result in a decrease in the profit per kg by nearly Rs. 0.181. On the other hand, the rises in X2, X3, X4, and X6 will lead to a drop in the profit per kg LW by Rs. 0.701, Rs. 0.530, Rs.1.036 and Rs. 0.577 respectively. While a rise in FCR which is resembles by X5 the profit will increase to Rs. 2.172 in the profit. In this profit will increase to a limit, because as the production cycle increase the profit will be decline due to increase in the feed and others costs.

As the correlation matrix shows, the model estimates were quite compatible with field observations. In the field observation, the most important factors affecting profit in this study were the price of the feed and feed conversion rate. The matrix shows a strong negative relation between the dependent variable (profit) and these two factors such as price of feed and FCR.

Summary

Broiler industry is the one of the profitable business in agriculture enterprises. Broiler industry which introduced in 1930´s become a proper and sophisticated business in 1960´s is now fulfilling the food protein requirement of human being. It is giving the livelihood for large number of people of the world. In past year there were many problems and issues regarding diseases and mortality rate due to temperature variation or heat stress. These problems are successfully resolved by the researchers by introducing the Environmental Control house or Control Shed where mortality rate reduced to 2-3 percent as compared to open house where mortality rate was 10-15 percent. But still control shed require a heavy investment so it is beyond the approach of small and medium farmers. Big tycoons of the country are building control shed which increase the supply of the broiler. So most of the broiler output is now exporting in this year creating much less supply is now available for the domestic use resulting in high price in the local market. In one hand it is fruitful for export earning on the other hand it creating the shortage of supply of broiler chicken in the country level.

References

Ceveger, Y. and C. Yalcin. 2003. A Quantitative Model to Determine Factors Affecting Profits of Broiler Enterprises. Turkish Journal Veterinary Animal Science, 27: 1201-1205.

Chohan, T.Z., 1992. Marketing of poultry and Poultry Products in Jhang Tehsil. M.Sc. Thesis, University of Agriculture, Faisalabad, Pakistan.

Government of Pakistan (GOP) 2011. Economic Survey of Pakistan (2010-11). Economic Advisor´s Wing, Finance Division, Islamabad Pakistan.

Maqbool, A., K. bakhsh, I. Hassan, M.W.A. Chattha and S.A. Ahmad, 2005a. Marketing of Commercial Poultry in Faisalabad city (Pakistan). Journal of Agriculture Social Science, 1: 327-331.

Maqbool, A., M.N. Sarwar and K. Bakhsh, 2005b. Modernization of Poultry Farming. Dawn, Economic and Business Review, 03 January.

Parkhurst, R. T. 1967. Comercial Broiler Production. Agriculture Handbook 320, Government Printing Office, Washington DC., USA.

Qazi, H. M. 1989. A Study on the Marketing of Poultry and Poultry Products in Sargodha Tehsil. M.Sc. Thesis, University of Agriculture, Faisalabad, Pakistan.

Van arendonk, J. A. M. 1991. Use of Profit Equations to determine Relative economic Value of Dairy cattle herd Life and production from Field data. Journal of Dairy Science, 74: 1101-1107.

 
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