Economies of scale and contact farming in poultry and egg production in Southeast Asia Mohammad Jabbar S M Fakhrul Islam Viroj NaRanong Rajesh Mehta A.C. Costales Chris Delgado Marites Tiongco

Background Rapid growth in demand for livestock products Rapid industrialisation and increasing scale of operation of non-ruminant livestock production to respond to market opportunities, often supported by policy in terms of access to capital and subsidies, pollution control, property rights, infrastructure and institution building Consequently rural poor may be unduly disadvantaged and deprived of the opportunity to benefit from the livestock revolution

Relevant questions….. Are there real economies of scale in non-ruminant livestock production in the region? If so, what are the sources of economies of scale? Differences in technical/allocative efficiency? Differences in input prices paid or output prices received? Differences in overall transactions costs? Differences in investment to deal with environmental problems? Differences in policy induced benefits or costs? What policy measures may be taken to remove any artificial economies of scale to allow fair competition?

Studies on poultry and egg production as cases CountryBroilerLayer Total sample Bangladesh India Thailand Stratified sampling based on geographic location (state/province/district), size and type of farm (independent vs contract where applicable) Bangladesh and India - a small number of farms were contract growers, all others were independent farms Thailand – nearly all broiler farms and a few layer farms were contract growers under different arrangements, others were independent farms

Frontier profit function results : Average efficiency of farms (%) Country Broiler farms Layer farms Bangladesh30*82 India68**78 Thailand81***54* *including a few contract farms **excluding contract farms ***nearly all are contract farms In Bangladesh and India, layer farms are more efficient, opposite in Thailand where all broiler farms are contract growers.

Efficiency of layer and broiler farms in Bangladesh by size of farm Broiler farms Layer farms

Profitability of layer and broiler (Independent vs Contract) farms in India by size of farm Layer farms Broiler farms

Profit per kilogram by scale, with and without contracts, Broiler Farms, Philippines, 2002

Efficiency of layer and broiler farms in Thailand by size of farm Layer farms Broiler farms

Significant factors affecting efficiency- Bangladesh FactorBroilerLayer Scale of operation ++ N of batches produced/year +- Mean weight at sale +na Mean survival rate +na Space used/100 bird +- N of visits extension and vet +ns Education of operator -ns Contract farming dummy nsns Selling at home dummy nsns

Significant factors affecting efficiency- India FactorsBroilerLayer Age of decision makerns+ Education of decision maker-ns Estimated pollution abatement costns- Access to credit dummynsns Information source :Radio/Tv=1nsns Output market distance (km)nsns State dummyHaryana=1-+ l

Significant factors affecting efficiency- Thailand FactorBroilerLayer Bird density (1 km radius)+na Housing area/birdna+ Female head of household+ns Operator’s educationns- Expected environmental costns+ Operator’s age-ns Distance from nearest community-ns

FactorPooledIndependentSmallholdersLarge & price contract AgeNS NS NS+ Education NS NS ++ Experience NS NS NS_ Training NS NS NS+ Phone service+ NS+- Feed credit++++ Significant factors affecting efficiency- Philippines

Conclusions In Bangladesh and India, average efficiency of layer farms much higher than broiler farms. In Thailand, broiler farms are more efficient and they are all contract farms. In Bangladesh larger farms are more efficient principally because of better technical performance and extension support. In Thailand, larger farms are more efficient but the differences are minimal. In India, smaller farms are more profitable, whether they are more efficient is unclear. Efficiency of independent and contract farms did not differ significantly in Bangladesh, the result is unclear in India. In Thailand feed import quota is biased toward large farms, which benefit them unduly. It appears that economies of scale is most likely to push the industry toward larger size, while smaller operators may change from independent producers to various forms of contract growers. Thailand is ahead in this but others are likely to follow quickly.