india’s poultry sector: development and prospects. maurice

8/14/2019 Indias Poultry Sector: Development and Prospects. Maurice

1/67


2/67

Indias Poultry Sector: Development and Prospects. Maurice Landes, SureshPersaud, and John Dyck. Market and Trade Economics Division, EconomicResearch Service, U.S. Department of Agriculture, Agriculture and Trade ReportWRS-04-03.

Abstract

Poultry meat is the fastest growing component of global meat demand. India, theworlds second largest developing country, is contributing to the expansion throughthe rapid growth of its poultry sector. In India, poultry sector growth is beingdriven by rising incomes, together with the emergence of vertically integratedpoultry producers that have reduced consumer prices by lowering production andmarketing costs. Integrated production, a market transition from live birds tochilled and frozen products, and policies that help ensure supplies of competitivelypriced domestic or imported corn and soybeans are keys to future poultry industrygrowth in India and in other developing countries.

Keywords: India, developing countries, poultry, demand, prices, vertical integration,contract growing, feed, policy, trade, economic model.

Acknowledgments

The authors would like to thank Dr. A.P. Sachdev, Dr. V. Shunmugam, WeylandBeeghley, and Joe Carroll for their assistance in arranging study visits and interviewsin India. David Harvey made valuable contributions to this report. Appreciation isalso extended to Praveen Dixit, Shayle Shagam, and Joy Harwood for their reviews.John Weber, the editor, and designers Wynnice Pointer-Napper and Victor Phillips, Jr.provided excellent publication support. Financial support for this project wasprovided by the Emerging Markets Program of USDAs Foreign AgriculturalService.

Cover Photos: Chicken Center at INA Market in New Delhi, India.

1800 M Street, NWWashington, DC 20036-5831 January 2004


3/67

ii Indias Poultry Sector: Development and Prospects / WRS-04-03 Economic Research Service/USDA

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii

Map of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Recent Trends in Poultry Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . .2

Consumer Demand and Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Income and Price Sensitivity of Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Regional Demand Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Substitutes and Complements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Preferences for Dark and White Meat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Seasonality in Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Poultry Production: Structure and Technical Performance . . . . . . . . . . . . . .10The Role of Integrated Poultry Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .10Poultry Breeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Poultry Production Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Technical Performance Indicators and Production Costs by Region . . . . . . . .14

Poultry Marketing and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Live-Bird Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Processed Poultry Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Poultry Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Farm Price Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Farmers Compensation Under Integration . . . . . . . . . . . . . . . . . . . . . . . . . . .22Regional Variations in Retail Prices and Margins . . . . . . . . . . . . . . . . . . . . . .22Integration Leads to Lower Costs and Margins . . . . . . . . . . . . . . . . . . . . . . . .23Poultry Trade Policy and Import Potential . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Poultry Feed Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26Feed Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Feed Production and Consumption Trends . . . . . . . . . . . . . . . . . . . . . . . . . . .27Feed Price Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29Feed Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Prospects for Indias Poultry Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Income Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Poultry Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32Corn Trade Liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Integration and Corn Trade Liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .411.1-1.6: Poultry and Feed Data Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .412.1 2.4: India Poultry-Feed Model & Results . . . . . . . . . . . . . . . . . . . . . . . .50


4/67

Economic Research Service/USDA Indias Poultry Sector: Development and Prospects / WRS-04-03 iii

Executive Summary

Poultry meat is the fastest growing component of global meat production,consumption, and trade, with developing and transition economies playing aleading role in the expansion. In addition to providing opportunities to increasepoultry exports, rising poultry production spurs growth in global import demandfor feeds and other inputs and in investment opportunities in these sectors. India,

the worlds second largest developing economy, now has a large and rapidlyexpanding poultry sector. Expansion in India is being driven by rising incomes anda shift in industry structure toward integrated ownership and coordination of theinput, production, and marketing operations involved in poultry production(vertical integration). These factors, in addition to government policies affectingfeed supply levels, will help shape future growth in the poultry industry in India,as well as in emerging trade and investment opportunities.

Several key findings based on developments in Indias poultry market may provideinsights to prospects for poultry industry growth in other developing countries:

Poultry meat demand is highly price sensitive among low- and middle-incomeconsumers. Policies that protect the domestic poultry market may also slowgrowth in consumption and production.

Factors that discourage transport and distribution of poultry within India,including limited demand for frozen products, a poor and high-cost transportinfrastructure, and limited and unreliable cold chain, or frozen storage, facili-ties, are also strong impediments to poultry imports and may be as important astariffs in constraining trade.

Vertical integration can promote industry growth by enhancing production andmarketing efficiency and reducing consumer prices. In India, the gains in mar-keting efficiency appear more significant than in production efficiency.

Competitive feed prices are key to competitive poultry and egg production.Policies that protect local feed producers are also likely to slow growth in poul-try and egg output, imposing significant losses on producers and consumers.

Implications for U.S. Agriculture

Prospects for Indian imports of poultry meat are limited. Competitive local productioncosts, low demand for frozen meat, and poor cold chain facilities, as well as hightariffs, are major constraints to trade. Growth in demand for corn and soybean meal,however, will likely outstrip gains in local production, creating demand for cornimports and reducing exports of soybean meal. Indias corn import policy, and thepace of gains in corn and soybean productivity, will influence the amount of trade.

Foreign direct investment (FDI) has, so far, not been a major factor in the develop-ment of Indias poultry sector. But Indias fast-growing, competitive, and poten-tially large industry offers investment opportunities in input activities, such asbreeding, medicines, feed, and equipment, as well as vertical integration andprocessing. While the country permits FDI in these activities, investments areconstrained by market and policy uncertainty, poor power and transport infrastruc-ture, and high taxes on processed food.


5/67

iv Indias Poultry Sector: Development and Prospects / WRS-04-03 Economic Research Service/USDA

Incomes, Changing Market Structure, Drive Growth

Available data indicate that, since the early 1990s, poultry meat has been thefastest growing sector of animal product production and consumption in India.Factors driving the industrys expansion include quickening growth in per capitaincomes, a young and increasingly urban population, and declining real poultryprices. With recent studies suggesting that most Indians do not have strict vege-tarian dietary preferences, income and price are likely to continue to influence

rising demand.

The expanding role of poultry integrators, primarily in South and West India, hascontributed to declining poultry prices. Integration, typically encompassing enter-prises ranging from breeding, feed milling, and contract growing to wholesale andretail marketing, appears to have increased production efficiency and significantlyreduced marketing margins and consumer prices. Future industry expansion maydepend on the pace at which integrated poultry operations spread in the West, East,and, particularly, the affluent North.

Expansion of poultry sector integration, in turn, may depend on the pace of transi-tion in Indias poultry sector from a live-bird market to a chilled/frozen-productmarket. Live-bird sales now dominate the market, preventing exploitation of regional comparative advantages in production, or the use of storage, domesticproduct movements, and international trade to stabilize supplies and prices. A shiftto mechanical, and more hygienic, processing that would be an integral part of atransition to a chilled/frozen-product market may also have public health benefits,although there is little evidence that current practices are creating health problems.

Competitive Production Costs

Data also suggest that India is an internationally competitive producer of poultrymeat. Producer prices of whole birds in India, while higher than in Brazil, comparefavorably with those in other Asian countries and the United States. Poultryproduction in India benefits from improved management practices and the avail-ability of local supplies of corn and soybean meal at internationally competitiveprices. Competitive local prices, combined with high tariffs, poorly definedphytosanitary requirements, and a limited market for frozen poultry, are constraintsto significant poultry meat imports in the near term.

If recent trends in poultry and egg production in India are sustained, growth indemand for corn and soybean meal is likely to outpace gains in domestic produc-tion. For corn, variable domestic production, expanding feed use, and tariff andquota restrictions on corn imports could combine to constrain growth in both thepoultry and egg industries, raising production costs and consumer prices andslowing consumption. For soybean meal, the Indian poultry and egg industriesbenefit from local surpluses and ready availability, although rising internal demandmay erode exports.

Policies Affecting Market Integration and Feed Trade Key toFuture Growth

With the expansion of Indias poultry industry, the countrys government mustaddress a number of new issues, including economic tradeoffs between poultryproducers, feed producers, and consumers, potential public health concerns


6/67

Economic Research Service/USDA Indias Poultry Sector: Development and Prospects / WRS-04-03 v

associated with traditional slaughter and marketing practices, and appropriate tariff and nontariff policies for imports of poultry and industry inputs. Although govern-ment policy has traditionally given priority to promoting self-reliance in agricul-tural products, it is unclear how future policy will weigh the competing interestsof, among others, poultry and egg producers, consumers, and feed producers.

Poultry sector integration can yield substantial benefits for the sector and, particu-larly, consumers of poultry meat. Feed shortages, however, can have significantadverse effects on producers and consumers of poultry meat and, particularly, eggs.Although Indian corn producers may gain from higher prices associated withimport restrictions, these gains must be weighed against losses to producers andconsumers of poultry meat and eggs, as well as to the potential internationalcompetitiveness of Indian poultry production. Development and adoption of tech-nology that can improve the competitiveness of domestic feed production wouldallow all producers and consumers to benefit from poultry sector expansion.

Data Limitations Constrain Policymakers

Analysis of developments in Indias poultry sector is made difficult by the lack of reliable and timely official data on such variables as production, consumption, feeduse, and production and marketing costs. Information from industry sourcessuggests that production and consumption of poultry meat in India has grown byas much as 15 percent annually since the mid-1990s, far faster than indicated byofficial data. Based on these findings, poultry will likely grow in importance to theIndian diet and to farm income and create new pressures for appropriate policies inindustries that supply inputs to poultry producers, as well as in poultry processingand marketing activities. Better data and information will be needed to supportpublic and private sector decisionmaking.


7/67

vi Indias Poultry Sector: Development and Prospects / WRS-04-03 Economic Research Service/USDA

Map of India

Mumbai

Chennai

Kolkata

Arunachal Pradseh

Chinese line of control

Indian claim

Bhopal Jabalpur

Nor th Region

East Region

South Region

West Region

Pakistan China

Nepal

Bhutan

Burma

Bangladesh


8/67

Economic Research Service/USDA Indias Poultry Sector: Development and Prospects / WRS-04-03 1

S ince the 1970s, global production, consumption,and trade of poultry meat has grown faster thanthat of any other meat. During the 1990s, whendemand growth slowed for other meats, including fish,demand growth for poultry meat accelerated andpoultry continued to lead the expansion of meat trade. 1

Although demand for poultry meat was strong relativeto demand for other meats in developed countriesduring the 1990s, the rapid global gains in poultrymeat supply, demand, and trade were led by gains indeveloping countries (fig. 1). Expansion has been mostrapid in the developing Asia region, including China,South Asia, and Southeast Asia, as well as in LatinAmerica. The emergence of the poultry sectors indeveloping countries, such as India, has the potentialto affect global and U.S. markets for poultry products,feeds, and related inputs.

With a population of more than 1 billion and real percapita incomes now growing 3-4 percent annually,India constitutes a large potential market for poultrymeat. Poultry production and consumption in Indiaappear to be expanding rapidly, fueled by risingincomes as well as changes in the structure of poultryproduction and marketing. The key structural changespurring production growth is the emergence of inte-grated producers, which are combining breeding, feedmilling, contract growing, and marketing activities,and fostering improved productivity and reducedmarketing costs. Although the countrys expandingpoultry sector now relies on local supplies of corn andsoybean meal, it is unclear whether India will evolveover the longer term as an importer, or as a competi-

tive producer, of poultry and feed. Development of thesector may depend on the pace of change in the struc-ture of poultry production and marketing, as well asgovernment policies toward production and trade of poultry and feeds.

This report assesses the supply, demand, structure, andpolicy factors affecting the growth of the Indianpoultry industry. The objectives of the study aretwofold: to gain a better understanding of theprospects for the poultry industry in one of the worldslargest and fastest growing developing economies, andto take advantage of the information developed onIndias diverse sector to draw implications for growth

prospects in the poultry sectors in other developingcountries. To help meet these objectives, the studyanalyzes the impacts of alternate economic, technical,and policy assumptions on poultry supply and demandprospects and the implications for feed trade.

Indias Poultry Sector

Development and Prospects

Introduction

Figure 1

Growth of meat consumption by region, 1990-99

Source: FAOSTAT database.

Growth rate (percent)

Poultry FishMutton & goatPorkBovine

World Developedcountries

Transitionmarkets

Developingcountries

-8-6-4

-202468

10

1 See appendix table 1.1 for a complete summary of trends inmeat and fish supply, demand, and trade.


9/67

2 Indias Poultry Sector: Development and Prospects / WRS-04-03 Economic Research Service/USDA

Assessing recent trends in Indian poultry productionand consumption is complicated by poor andconflicting data. Government and industry sourcespublish very little reliable data on the Indian poultry

sector. Available government data consist only of peri-odic poultry population estimates, with the most recentestimates based on a 1992 livestock census. Govern-ment sources also report wholesale poultry prices for afew markets, but there are no official statistics onpoultry consumption, marketing, processing, or feeduse. The Food and Agriculture Organization of theUnited Nations (FAO) and the U.S. Department of Agriculture (USDA) publish estimates of Indianpoultry supply and use, but, in the absence of supporting survey information, these estimates do nothave a strong statistical foundation. Trade associations,including the Poultry Federation of India, also do notcurrently compile industrywide data. Thus, assess-ments of recent trends rely heavily on informationprovided through interviews with various industrysources. 2

USDA estimates that Indias poultry meat productiongrew about 6 percent annually during the 1980s, accel-erating to 11 percent annually in the 1990s and nearly19 percent during the 1997-2002 period (table 1 andfig. 2). With poultry production of 1.4 million tons in2002, India ranked as the sixth largest poultryproducer in the world, behind the United States,Brazil, the European Union, China, and Mexico.USDA estimates of Indian poultry production since themid-1990s were revised sharply upward in 2002 toreflect information from industry sources and aresignificantly higher than other official estimates. FAOestimates, which are based on Government of India(GOI) data, suggest much lower production andgrowth than the USDA data. A third set of estimates,included in a study by the U.S.A. Poultry & Egg

Export Council (USAPEEC) and reportedly derivedfrom official GOI and FAO data, is roughly consistentwith USDA data but ends in the mid-1990s.

The lack of timely national survey data makes it diffi-cult to assess actual production trends. Several factors,however, suggest that the most recent USDA series,

based primarily on private industry estimates, moreaccurately captures actual developments than the othersources. First, private industry estimates are morelikely to account for the rapid technical and structuralchange in the sector. The industry estimates are basedon technical parameters and assessments of breedwiseplacements of broiler parents and grandparents bycompanies familiar with the industry. The GOI esti-mates, by contrast, are based on surveys administered

Recent Trends in Poultry Supply and Demand

2 The data and information reported in this study are based pri-marily on ERS field research in India in August 2001. The ERSteam, comprising Suresh Persaud, Rip Landes, and David Harvey,traveled throughout India interviewing representatives of poultryhatcheries, producers, processors, wholesalers, retailers, feed pro-ducers, and poultry integrators, collecting data and information ontheir operations and local market developments. Invaluable supportfor the field research was provided by Dr. V. Shunmugam, FASAgricultural Specialist in the U.S. Embassy in New Delhi, and Dr.A.P. Sachdev, local representative of the U.S. Feed Grains Council,both of whom helped identify key industry contacts.

Table 1Growth rates of poultry productionin IndiaPeri od US DA FAO USAPEEC 1 Ind us try

average 2

G r o w th ra t es (p er c en t) 1980-90 6 .0 11 .7 -- --1990-00 11 .0 5 .3 7 .7 --1990-96 9 .8 5 .8 8 .3 --1997-02 18 .6 2 .5 -- 14 .8-- = Not avai lab le.1 USAPEEC is 1990-99 ins tead of 1990-2000 .2 Ind us try average is 1997-2001 ins tead of 1997-2002 .

S ource: FAOS TAT da tabase , Augus t 2002 .

Figure 2

Estimates of poultry production in India

Sources: USDA PS&D database , FAOSTAT database , U.S.A. Poultry & Egg Export Council.

Mil. tons

USDA

USAPEEC

Industry average

FAO

1981 8 3 85 87 8 9 91 93 9 5 97 99 2001 0 30

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8


10/67


to known poultry operators every several years, whichmay not reflect new capacity and technical change. 3

Second, trends in income growth and prices are consis-tent with faster growth in poultry consumption andproduction since the mid-1990s (table 2). Fastergrowth in income (per capita GDP) during the late1990s, together with population growth, suggests thatdemand increased. The lower growth rate for poultryprices relative to rates for all foods and all meats, at atime of rising demand, suggests that poultry meatproduction grew faster in the late 1990s than in theearlier periods. 4 Slower growth in the price of corn,which accounts for a large share of poultry productioncosts, also supports faster growth in poultry produc-tion, as well as slow growth in poultry prices, duringthe late 1990s.

Finally, most private sector sources of information,including hatcheries, feed suppliers, and integrators,report that the industry is expanding more rapidly thanthe 3-4 percent annual growth implied by the FAOdata. It should be noted that industry sources focusmostly on the organized commercial elements of thesector. However, the noncommercial elements of the

sector now reportedly account for only 10-20 percentof broiler supplies and are unlikely to alter broadindustry trends.

Trade or storage of poultry products in India is negli-gible, so the estimates of poultry consumption arevirtually identical to production (app. table 1.2).Again, while the consumption numbers constructedfrom the industry average production estimates, tradedata, and assumed storage behavior must be used withcaution, the faster consumption growth implied by theUSDA estimates is consistent with other information,including trends in income and prices, and the viewsof industry experts interviewed during field surveys. Inparticular, faster growth in per capita incomes anddeclining real poultry prices suggest that growth inpoultry consumption is likely to have increased signifi-cantly since the mid-1990s.

3 Although the industry methods are also susceptible to error, itdoes not appear that they have a consistent bias. For example, oneof the industry sources reported that its production estimate maybe understated because the marketing staff that does the assess-ments is rewarded based on market share performance and, hence,

has an incentive to underestimate competitor placements. On theother hand, another source indicated that its estimates may tend tooverstate production because some of the firms may have providedinflated numbers to suggest an impending oversupply that wouldlead competitors to reduce placements.

4 Assuming income- and own-price elasticities of demand of 1.7and -1.5, respectively, the implied growth rates of poultry con-sumption and production for the periods analyzed would be 1980-90: 10.5 percent; 1990-99: 9.3 percent; 1990-95: 4.5 percent; and1995-99: 14.7 percent.

Table 2Wholesale price and income growthin India

Wholesa le price indices Per capitaPeriod All food Poult ry Eggs , fish, Co rn 1 GDP

and mea t

1981/82=100 R s.

1979-81 92 123 2 87 87 5,3331989-91 201 165 193 167 7,0631994-96 335 277 378 290 8,0951998-2000 453 304 491 346 9,742

G r o w th ra t es (p er c en t)

1980-90 8 .1 4 .33 8.3 6 .8 2 .91990-99 9 .5 7 .0 10 .9 8 .4 3 .31990-95 10 .8 10 .9 14 .3 11 .6 2 .81995-99 7 .8 2 .3 6 .8 4 .5 3 .81 Inde x of average wholesa le prices in Bihar , Karna ta ka , and UttarP rades h.2 1982-84 average.3 1983-90 growth ra te.

S ou rces: Agri cultu ra l P ri c es in I ndia , GOI, vari ous iss ues ; Eco n o mi c S u rve y , GOI, various iss ues.


11/67


Growth in Indias Poultry Sector Relative to Other Countries

FAO data provide the most complete coverage of global poultry production and consumption for use incomparing growth in various countries and regions.According to FAO data, growth in Indias poultrysector was slow relative to growth in other devel-

oping countries in both the 1970s and 1990s but fastin the 1980s (table A-1). USDA estimates, however,may provide a more accurate assessment of thegrowth and structural change in the Indian poultry

industry, particularly during the 1990s (see page 2).A comparison of the USDA estimates for India withthe FAO data for other regions suggests that Indianpoultry production and consumption are nowexpanding at a pace consistent with other fast-

growing developing countries. According to USDAestimates, India is now the sixth largest poultryproducer in the world, after the United States, Brazil,the European Union, China, and Mexico.

Table A-1Growth rates of poultry production and consumption, by global region 1

P roduct ion Cons umptionRegi on 1970-80 1980-90 1990-99 1970-80 1980-90 1990-99

G r o w th ra t e (p er c en t)

World 5.8 4 .6 5 .3 5 .7 4 .7 5 .1Deve loped cou ntries 5.1 3 .5 2 .4 4 .8 3 .6 1 .9

United S ta tes 3.7 5 .0 4 .5 3 .2 5 .0 3 .1Transi tion mar ke ts 7.7 2 .6 -5 .3 7 .9 2 .6 -2 .9Deve loping cou ntries 7.5 6 .9 9 .1 7 .8 6 .5 9 .1Asia deve loped 8.6 2 .2 -0 .6 8 .7 3 .6 1 .7Asia deve loping 6.3 8 .2 9 .7 7 .2 7 .5 9 .8

S outh Asia 3.4 9 .6 6 .3 3 .5 9 .6 6 .3Ch ina 5.4 8 .8 13 .5 5 .4 9 .0 13 .6Eas t & S. Eas t Asia 6.5 7 .4 5 .9 6 .3 6 .9 5 .9

Near Eas t 9.0 7 .6 5 .3 12 .9 5 .0 5 .0La tin Ameri ca & Caribbean 9.9 5 .5 9 .0 9 .3 5 .4 9 .1Africa deve loping 5.6 6 .0 4 .6 6 .5 5 .5 4 .7

IndiaFAO da ta 3.2 11 .5 6 .0 3 .2 11 .5 6 .0US DA da ta 2 5.9 6 .3 9 .2 5 .9 6 .3 9 .2

1Compou nd ann ua l growth ra tes be tween 3-year averages cen tered on the years indica ted.21975-1980 growth ra tes ins tead of 1970-1980 .

S ources: FAOS TAT da tabase , Augus t 2002; U S DA PS &D da tabase , J an uar y 2003 .


12/67


13/67


average based on industry consumption estimates, butno firm data support this claim.

Income and Price Sensitivityof Demand

Growth in the Indian poultry industry is driven prima-rily by gains in real per capita incomes and changes inpoultry prices. All sources note the importance of incomes in driving poultry demand, and most recog-nize the important role of poultry prices. The degree towhich consumption responds to changes in income (orprice) can be expressed as an elasticity, which indi-cates the percentage change in consumption resultingfrom a 1-percent change in income (price). Formalestimates of income or price elasticities of demand forpoultry in India are not available. One recent studyprovides income elasticity estimates for meats of .85 (rural) and .63 (urban) and an own-price elasticityfor meats of -.88 (both rural and urban). 8 Given therelatively fast growth in poultry demand relative toother meats, it seems likely that the elasticities forpoultry are higher than these group averages. Forexample, USDA estimates of poultry consumption

growth since the mid-1990s (app. table 1.2), togetherwith growth rates in per capita income and real poultryprices (table 2) during the same period, are consistentwith elasticities of demand on the order of 1.7 forincome and -1.5 for price.

Current patterns of poultry consumption provide addi-tional evidence of the important roles of income andprice. First, poultry consumption is higher in urbanareas, where both average incomes and the number of high-income consumers are highest. Second, per capitapoultry consumption is higher, perhaps as much asfour times higher, in South India where retail poultryprices are significantly lower than in other regions.Given the evidence of sensitivity to both income andprice, the recent trends toward faster growth in percapita incomes, as well as declining real prices forpoultry, are likely to contribute to more rapid growthin poultry consumption.

Regional Demand Patterns

Indias States and regions are diverse in terms of economic factors affecting food demand, includingpopulation, income, and urbanization. The northernand eastern regions account for the largest shares of Indias population, but their populations tend to be less

Table 3Trends in animal product consumption in IndiaPeri od All Fish and Bovine Mutton and P ig Poult ry Milk Eggs

mea t sea food mea t goa t mea t mea t mea t

1,000 to ns

FAO es tima tes:1979-81 2,550 2,132 1,628 450 263 111 27,170 4961989-91 3,776 3,262 2,299 603 417 330 45,878 1,0091997-99 4,526 4,546 2,626 682 545 542 62,058 1,424


1980-90 4 .0 4 .3 3 .5 3 .0 4 .7 11 .5 5 .4 7 .41990-98 2 .3 4 .2 1 .7 1 .5 3 .4 6 .4 3 .8 4 .4

1,000 to ns

US DA es tima tes:1979-81 1,330 -- 601 408 72 214 -- 1,2021989-91 3,079 -- 1,802 827 -- 393 -- 1,2721999-01 2,722 -- 1,399 918 -- 1,050 -- 1,991


1980-90 8 .8 -- 11 .6 7 .3 -- 6 .3 -- 0 .71990-00 -- -- -2 .5 1 .0 -- 10 .3 -- 4 .6-- = Not avai lab le.

S ources: FAOS TAT da tabase , US DA PS &D da tabase.

8 P. Kumar, Food Demand and Supply Projections for India , Agri-cultural Economics Policy Paper 98-01, IARI, New Delhi, 1998.


14/67


Income Growth and Poultry Meat Demand: A Cross-Country Comparison

The rapid apparent growth in poultry demand inIndia is consistent with patterns reflected in cross-country data for countries in the Asia and Near Eastregion. Norton and Alwang provide estimates of income elasticities of demand for poultry and eggs

for a number of developing countries in Asia andother regions (table B-1). The estimates indicate thatpoultry demand is relatively responsive to income inIndia, compared with other developing countries.

The relationship between per capita income andconsumption of total meat and poultry for a number of Asia and Near East countries is shown in figures B-1and B-2. This analysis is based on 1999 FAO consump-tion data and 1999 World Bank national per capitaincome data that are adjusted for differences in thepurchasing power of national currencies. The figures,graphed in logarithms to provide a clearer picture, indi-cate that total meat consumption is strongly related toper capita income, particularly when countries reachthe equivalent of about $3,000 of per capita income ona purchasing power parity (PPP) basis. Indias 1999PPP income is estimated at $2,230.

Among the meats analyzed in the region, poultrymeat consumption is shown to be the most responsiveto income and to have the strongest statistical rela-tionship with income (table B-2). Fish is the nextmost responsive to income. 1 Mutton and goat meatconsumption has a very weak and insignificant rela-

tionship with income among the countries analyzed.

Patterns of meat consumption in India may differ fromother countries in the Asia and Near East region due todifferences in availability, price, consumer preference,and other factors. Indian consumption of pork and beef

appears not to be showing the signs of income respon-siveness revealed in a number of the other countries inthe region. On the other hand, traditional preferencesand relatively high local prices may lead Indiandemand for mutton and goat meat to be more respon-sive to income than in many other countries in theregion. However, in the case of poultry, internationalcomparisons provide support for the prospects for rela-tively rapid growth in poultry consumption.

Table B-1Income elasticities of demand for poultryand eggs for selected countries

Cou ntry Poult ry Eggs

India 1.50 1 .00Ind onesia 1.50 1 .20

Egypt 1 .30 0 .70Ken ya 1.20 1 .30Turkey 1.20 0 .80S outh Ko rea 1.00 0 .80Nigeria 1.00 1 .20Ph ilipp ines 1.00 1 .00Mexico 0 .93 0 .59Ma laysia 0.87 0 .73Bra zil 0.64 0 .55Thai land 0.50 0 .50S ource: Norton and Alwang , p . 43 .

Figure B-1

Total meat consumption and income for selectedAsian countriesLog of kgs/year per capita

0

1

2

3

4

5

6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5Log of per capita income (PPP)

y = 0.599 x - 1.3 706R 2 = 0.583 1

Figure B-2

Poultry meat consumption and income for selectedAsian countriesLog of kgs/year per capita

Log of per capita income (PPP)

y = 1.0283 x - 6.693R 2 = 0.5574

-1012345

6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5

Sources: E RS calculations using FAOSTAT per capita consumption andWorld Bank per capita income data.

Table B-2Implied income elasticities of demand formeats for Asia and the Near East

Mea t Income e las ticity R-square n

Tota l mea t 0.60 0 .58 22Poult ry 1.03 0 .56 22Po rk 0.48 0 .08 14Bee f 0.37 0 .29 22Mutto n & goa t -0.10 0 .00 21Fish 0 .59 0 .25 22n = number of Asia and Near Eas t cou ntries. Near Eas t cou ntriesare excluded for ana lysis of po rk.

S ou rces: Computed from FAO p er capita cons umption and WorldBan k per ca pita purchasing power pari ty (PPP) income da ta.

1 Muslim majority countries are excluded from the analysisof pork consumption.


15/67


urbanized than in the southern and western areas (fig.4 and app. table 1.3). In contrast, the southern andwestern regions are the most urbanized and have thehighest average per capita incomes. The northernregion also has areas with relatively high incomes andurbanization, but its averages are weighed down bylow incomes and urbanization in Uttar Pradesh, by farIndias largest State. The eastern region, includingIndias poorest State, Bihar, has substantially loweraverage per capita incomes and urbanization thanIndias other regions.

High incomes and urbanization in the South aresupportive of the regions rapid gains in poultrydemand, supply, and commercialization. These factorsalso support the rapid growth now extant in thewestern region, particularly around the large Mumbaimarket. The northern region, where the poultryindustry is not growing as rapidly as in the South orWest, does, however, have areas of high income andurbanization, particularly in Delhi, Haryana, andPunjab, that can support growth in poultry demand.Demand fundamentals in the eastern region, however,suggest that poultry demand growth may remain slowrelative to the other regions.

Substitutes and Complements

The degree to which consumers switch between, orsubstitute, different foods because of changes in pricecan be expressed as cross-price elasticities of demand.

Formal estimates of cross-price relationships betweenpoultry and other foods in India are not available. Basedon information supplied by industry and academicsources, fish is an important substitute for poultry, andthere is a strong correlation between the prices of thesecommodities. Goat meat is also a significant substitutefor poultry meat based on relative prices. Given theirdifferent uses in food preparation and the diet, eggs and,particularly, milk were not considered strong substitutesfor poultry meat.

Most likely some substitution between cereals andpulses and poultry meat occurs among middle- andlower income consumers, if not among higher incomeconsumers. Cereals and pulses account for a large, andrelatively price-inelastic, share of the diet, so relativeprices are likely to affect allocations to poultry. Pulsesand cereals, as well as milk and eggs, are importantsources of dietary protein, but there is little evidencethat consumers substitute among foods on the basis of protein content. Most consumers, reportedly, areunaware of the protein content of their daily menu.Instead, they maximize variety on the plate subject to abudget constraint.

Poultry meat is still somewhat of a luxury good inIndia, but its status is changing. In the past, chickenwas considered to be a delicacy and was more expen-sive than mutton. But, with the strong gains in poultryproduction over the years, poultry prices are nowlower than mutton prices and consumption among

middle-class consumers is expanding rapidly.Although the price of beef is lower than poultry, and thequantity consumed is significantly higher according toavailable data, it is not clear whether beef will be amajor source of competition for poultry. At present, incontrast to the relatively universal appeal of poultry,beef consumption is mostly in Kerala and Tamil Naduand, to a lesser extent, in West Bengal and the north-eastern States where beef slaughter is permitted. From asocioeconomic standpoint, beef is consumed primarilyby Muslims and the relatively poor.

Preferences for Dark and White Meat

Indian consumers prepare poultry in a variety of ways,the most popular being curries, kabobs, and tandoori(barbecue) dishes. Although these dishes are generallymade with a mix of white and dark meat, industrysources claim that Indian consumers have a preferencefor the dark meat portions. This preference for dark

Figure 4

Regionwise population and income in India

Source: Economic Survey , 2001/02 , Ministry of Finance , Government of India , 2002.

Millions

D e l h i

( U T )

H a r y a

n a

H . P r a d e s h

J . & K

a s h m

i r

P u n j a b

R a j a s

t h a n

U . P r a d e s h

A s s a m B i h

a r

O r i s s

a

W . B e n g

a l

G u j a r

a t

M . P r a d e s h

M a h a

r a s h t r

a

A . P r

a d e s h

K a r n a t a k

a K e

r a l a

T a m i l N

a d u

0

25

5075

100

125

150

175

200

0

5

1015

20

25

30

35

40

Production(left axis)

Per capita income

East18%

urban

South33%

urban

West35%

urban

North26%

urban

Net State product/capita , 1,000 rs.


16/67


meat is not, however, reflected in noticeable pricepremiums for dark meat. 9 Sales of chicken parts arelimited to high-end urban shops, but per kilogramprices for dark and white meat parts were the same, orvery nearly the same, in all the markets visited. It ispossible, however, that these prices are skewed by thenature of the clientele in such shops, and that manyconsumers would pay some premium for dark meatpieces if they were widely available.

Seasonality in Demand

Perhaps the most significant impacts of religious prac-tices on consumption of poultry and other meats inIndia are the strong seasonal patterns in demand in

some regions. Seasonal religious observances can leadto significant fluctuations in demand. In some cases,religious practices prohibit meat for specified periods,and in others, celebrations and festivals lead toincreases in meat demand. In the Mumbai region, reli-gious observances significantly reduce poultryconsumption for about 3 months of the year, althoughsome festivals can lead to offsetting increases indemand. In Calcutta, on the other hand, an increase inpoultry consumption is associated with the Durga Pujafestival, and no significant seasonal downswings inconsumption are reported.

With limited frozen storage facilities or interregionalmovement of live birds, the seasonal swings indemand contribute to volatility in market prices of poultry meat in some regions. For example, duringAugust 2001, a seasonal drop in demand helped pushprices in the Mumbai market down sharply, and belowproduction costs for most producers in the region.

9 This is in contrast to East Asian markets, in which dark meatprices are higher than white meat prices, and to North American

markets, where prices for white meat are higher than for dark meat. These international differences in price for poultry cuts drovemuch of the growth in global poultry meat trade in the 1990s.


17/67


The structure and costs of production in the Indianpoultry meat industry vary from region to region.While independent and relatively small-scaleproducers still account for most production, relatively

large-scale integrated producers account for a growingshare of output in some regions. Integrated operationsinclude large regional firms that incorporate all aspectsof production, including raising grandparent andparent flocks, rearing day-old-chicks (DOC),contracting production, compounding feed, providingveterinary services, and wholesaling. 10 Most integratedfirms also have some presence in retail marketing,largely for the purpose of establishing price leadershipand having influence over wholesale-retail margins(see section on poultry marketing). Some integrators(about six to eight nationwide) also process a share of their production in modern, automated, or semi-auto-mated plants.

Indias poultry industry also has a number of smaller,partially integrated firms that typically omit one ormore of the major input enterprises, such as breedingor feed milling, and may have little or no contractproduction. Large-scale integrated producers are mostprominent in the southern and western regions.Smaller, independent, and sometimes partially inte-grated producers account for most poultry productionin the northern and eastern regions.

Commercial broilers and eggs are produced by sepa-rate enterprises using specialized broiler and layerbreeds and distinct management practices. Jointproduction of poultry meat and eggs from dual-purpose birds is confined to noncommercial back yard operations. Although data on noncommercialproduction of poultry and eggs is not available,industry sources indicate that this industry segment isdeclining and probably accounts for only 10-20percent of Indias total output. This study excludes

analysis of this component of production.

The Role of IntegratedPoultry Production

Poultry integrators have been expanding most rapidlyin southern India, particularly in the Coimbatore areaof Tamil Nadu, where, reportedly, integrators nowaccount for about 75 percent of production andconsumption. Integrators have recently become moreprevalent in western India, including Pune, Nashik,and Mumbai, where they now account for about 35percent of production and consumption. In northernand eastern India, integration has moved more slowly,

Poultry Production: Structure and Technical Performance

Data Collection Methods

The data used in this study were collected during a

field survey by an ERS team that visited India inAugust 2001. Because of significant regional varia-tions in poultry demand and in the structure of poultry production, the team traveled throughout thecountry, visiting Delhi, Punjab, and Haryana in theNorth; Ahmedabad, Mumbai, Pune, and Nashik inthe West; Coimbatore, Hyderabad, and Bangalore inthe South; and the Calcutta region in the East. In theabsence of a reliable listing of producers fromwhich to draw a sample, and to contain data collec-tion costs, survey respondents were selected basedon recommendations of industry sources, who iden-

tified individuals that had both knowledge of theindustry and reliable records.

In each region, the team visited poultry hatcheries,producers, processors, wholesalers, retailers, andfeed producers, asking each respondent the sameoperations-related questions. The production andmarketing cost data are based on 18 respondents (4in the North, 5 in the West, 8 in the South, 1 in theEast) who provided complete and consistent data.Although the sample size is small for such a largecountry, the variation in responses within regions isgenerally small, increasing confidence in the relia-bility of the regional and national averages. Becauseof the small sample size, however, the results shouldbe interpreted with caution. In particular, the samplesize is very small in the East (1) and is likely skewedtoward larger integrated operators in the West.

10 The poultry breeding chain starts with pure line flocks thatare multiplied into grandparents and then parents, which arethe source of eggs for the day-old chicks (DOC) used in broilerenterprises. Smaller enterprises may simply purchase DOCs from ahatchery, while larger enterprises can reduce DOC costs by inte-grating maintenance of parent and grandparent flocks into theiroperation.


18/67


accounting for about 10 percent of the market. In theNorth, integrators have found it difficult to enlist andmanage contract growers and, despite the presence of the large and affluent Delhi market, there are no major,fully integrated contract growers in the region. In theEast, lower per capita incomes and low demand forpoultry meat are likely contributors to the slow rate of growth.

In southern India, the process of integration began in themid-1990s and accelerated rapidly as independentgrowers found the guaranteed returns of contractfarming preferable to the vagaries of market returns. Asintegration expanded, some formerly independent hatch-eries and feed millers found it necessary to become inte-grators themselves or risk going out of business.Integration has brought two important changes to thepoultry industry in southern India: lower average costsof production through improved technology andmanagement practices and, particularly, a collapsing of the margins previously commanded for the variousproduction inputs; and smaller producer-retail marginsand lower retail prices for poultry meat, which has beena key demand stimulus in the southern and westernregions (see section on poultry marketing and prices).

In the last 2-3 years, several integrators have begun tooperate around the Mumbai market in western India,primarily in the Pune and Nashik areas. They includepoultry integrators who are expanding from southernIndia, ventures by national or regional hatchery and feed

businesses, and local poultry wholesaling firms, allcompeting to enlist contract growers and expand marketshare in the region. This competition, combined withseasonally weak demand due to religious observances,led at times to severely depressed producer and retailprices in the Mumbai market in 2001.

For integrators to succeed in the Mumbai market asthey have in southern India, they must overcome thedominant role of the traditional Mumbai wholesaletrade. Traditional trading relationships, together withthe high cost of establishing an effective retail pres-

ence, may prevent integrators from competing downmarketing margins and expanding their share of themarket. The firms that are entering this market,however, all have significant financial resources andplan to address this issue through strategic links withexisting food retailing operations.

Integrators are also expanding in the areas of Banga-lore and Hyderabad in the South and Calcutta in the

East. The only major region where large integratorshave not yet made significant inroads is in North India,including the large Delhi market. In this region, someindividual producers have expanded into feed mixingand direct retail marketing. No producers, however, areinvolved in rearing parent or grandparent flocks, andvery few are contracting out production. The lack of poultry integration in the North may be due to difficul-ties in enforcing contract-farming agreements. 11 Also,climatic extremes of hot and cold make poultryproduction more management- and capital intensive inthe North, compared with the other regions. Lastly,unlike other regions where the integrators have flour-ished, the Punjab-Haryana-Western Uttar Pradesh areanear Delhi is heavily irrigated and highly productivefor crop farming. As a result, allocating managementand labor to contract farming for the margins fixed instandard broiler contracts may be less appealing.Contract models that call for farmers to serve only as

the owner of the houses, with the integrator providingall labor and management, may be more successful inthis region (see section on farmers compensationunder integration).

According to most of the survey respondents, theprimary constraint in expanding integrated poultryoperations is marketing. Most integrators sell the bulk of their output as live birds in the wholesale markets,with a small share sold in retail markets as either liveor dressed birds or products. With limited demand orcapacity for frozen products, and the high cost of

moving live birds to distant markets, integrators aremostly confined to their local regional market and itsseasonal demand patterns (see section on marketing).Another common concern among survey respondentsis high interest rates. Producers or integrators lookingto expand facilities can expect to pay interest rates of about 15 percent on commercial loans that, at thecurrent rate of wholesale price inflation, imply a 9-10percent real cost of borrowing. In general, the avail-ability of feed grain or oil meal was not considered tobe a significant problem, although seasonal shortagesof corn can and have resulted in higher prices. Only in

northern India did integrators regard enlistment, organ-ization, or management of contract farmers as a signif-icant problem.

11 At present, India does not have a law covering contract farm-ing and the contracts between farmers and contractors cannot tech-nically be enforced. Integrators and growers in other regionsappear to be working together smoothly despite this problem, butthis is not the case in North India.


19/67


So far, foreign direct investment (FDI) has been aminor factor in the expansion of integrated poultryoperations in India. A large integrator in both thesouthern and western regions operates a processingfacility built recently with the assistance of privateSaudi Arabian investment. Two large Asian integrators,Japfa from Indonesia and CP from Thailand, havebeen in the feed business in India for several years buthave, so far, not expanded into poultry integration.

Poultry Breeds

Although a number of poultry breeds are available inIndia, the Cobb 100 breed owned by VenkateshwaraHatcheries (VH) currently accounts for 60-70 percentof all broilers in India. VH has a nationwide infrastruc-ture that supplies its breed to broiler operators, eitheras grandparents, parents, or DOCs, and also providescomprehensive veterinary services to its growers. Atpresent, all broilers supplied by VH are the Cobb 100,a relatively older breed based on breeding stock imported from the United States and benefiting from along period of adaptation to Indian climatic anddisease conditions. A Cobb 500 line, based on morerecently imported breeding stock, is reported to beunder development, as is a Cobb 400 line, based on across between the Cobb 500 and the acclimatizedCobb 100. Other breeds present in India include Ross(U.K.), Hybro (Netherlands), Hubbard (U.S.), Avian(U.S.), and Anak (Israel).

The dominant position of VH and its Cobb 100 inbroiler breeding in India stems from a combination of factors: government restrictions on imports of grand-parent lines that were in place until 1995, and theentrepreneurial skills of the late VH founder, who isknown as the founder of the Indian poultry industry.Prior to loosening restrictions on imports of grand-parent stock, only pure line imports were permitted.Cobb became one of the few imported pure line breedsavailable in India, and the breed was developed, accli-matized, and spread throughout the country as VHbuilt a nationwide infrastructure of hatcheries andveterinary services. Most of the other imported breedsnow present in India have entered only since 1995. Asa result, promoters of other breeds have had a muchshorter period to acclimatize their breeds to Indianconditions, establish products in the marketplace, anddevelop production facilities and marketing networks.

Industry sources report that the dominant role of theCobb 100 breed and VH in the Indian broiler hatchery

industry has both advantages and disadvantages for thegrowth of the broiler industry. On the technical side,the well-acclimatized Cobb 100 is known for its hardi-ness in Indian climate and disease conditions. It hasalso proved to be a good breeders bird, producing arelatively high number of hatching eggs per parent,compared with other breeds. Another advantage is thegenerally ready availability of chicks and veterinarysupport services from VHs widespread operations.The Cobb 100, however, is primarily a layer and,hence, provides a relatively low 75-percent meat yield,compared with 77-78 percent for newer, specializedbroiler breeds. The Cobb 100 is also a very old breed,with superior breeds available internationally.

Perhaps a more significant concern with the dominantrole of the Cobb 100 relates to the implications of concentration and market power in the broiler chick business. Several integrators indicated that their alloca-tions of grandparents, parents, or DOCs have beenreduced in certain market conditions, ostensibly tosupport broiler prices, but also having the effect of limiting the growth of some integrators. With theowner of the Cobb 100 breed also venturing into inte-grated operations, other firms feel they are at acompetitive disadvantage. Several integrators resortedto importing and developing their own breeding opera-tions because they felt they could not rely on sufficientallocations of Cobb 100s to meet their needs andexpansion plans. Data collected from study respon-dents suggest that firms that integrate grandparent

breeding enterprises into their business, as opposed topurchasing Cobb 100 parents or DOCs, experiencedsignificant cost savings (table 4).

With the expansion of large-scale integrators sincethe mid-1990s, and the liberalization of grandparentimports in 1995, imports of breeding stock of variousinternational breeds have increased. Given theapparent cost advantages to integrated firms, this trendis likely to continue. But it is unclear how long it willtake for the new breeds to become sufficiently accli-

Table 4Average day-old-chick costs in IndiaRegi on Integra tors Other farms

R s / bird

North NA 11 .79

Wes t 8.75 14 .00

S outh 7 .89 10 .00

Eas t 10 .00 N ANA = Not avai lab le.

S ou rce: ERS field s urve y, Augus t 2001 .


20/67


matized to Indian conditions to counter the hardinessand breeding advantages of the Cobb 100. AlthoughIndian firms are importing breeding stock and tech-nology from foreign breeders, there is currently noFDI in broiler breeding in India.

Poultry Production Practices

Poultry production practices in India vary acrossregions, based on differences in climate and on thepresence of poultry integrators, who impose a standardlevel of technology and operational efficiency onpoultry enterprises. In general, the larger and/or inte-grated operations, particularly in southern India andthe Mumbai region, appear to be quite technically andeconomically efficient, with operators exhibitingstrong knowledge of correct breeding, feeding, veteri-nary, and rearing practices. In general, technicalperformance indicators for these operations, includingnumbers of DOCs per parent, days-to-market, feedconversion, and mortality, are comparable withaverage levels achieved in U.S. operations.

Facilities and equipment. Climate conditions aremost suited to poultry production in southern India,where average temperatures, though fairly high, tendto avoid the extreme heat of the eastern and westernregions, and the extremes of both hot and cold foundin northern India. The capacities of houses range from8,000 to 20,000 birds and from 6,000 to 15,000 squarefeet. Based on the field survey, production facilitiesand equipment in the four regions can be characterizedas follows:

South . In the South, poultry houses tend to be built of brick pillars, with open sides, tile roofs, and concretefloors. Cooling, when needed, is provided by ceilingfans, and heating is unnecessary except for brooding.Bedding is generally paddy husks. Manual feedersand bell-type drinkers are most common, with littleuse of automatic watering and feeding systems.

West . In the Mumbai region, where average summer

temperatures are higher than in the South, housesare also built of brick with tile roofs and concretefloors, but tend to be mostly enclosed with evapora-tive automatic cooling systems. Automatic wateringand feeding systems are more common in this area.

East . In the region north of Calcutta, houses areconstructed of brick pillars with open sides, verysimilar to houses in the South, although side cur-tains are generally present to help hold in warmth in

the slightly cooler winters. Feeding and drinkingequipment is generally manual, and ceiling fansprovide summer cooling.

North . In the North (Punjab, Haryana, western U.P.),both summer and winter weather are more extremethan in the other regions. Houses are built of brick and concrete and have either enclosed sides or side

curtains and concrete floors. Some houses haveautomatic systems for both evaporative cooling andheating. Because land prices are significantly higherin this region, two-storied houses are common. Bothmanual and automatic watering and feeding equip-ment is seen in this region.

Breeding practices. While independent operatorsgenerally purchase DOCs from local hatcheries, suchas VH, integrators generally produce their own chicksfrom either parent stock or grandparent stock raised intheir own facilities. For integrators, producing DOCs

from their own parent or grandparent operations is akey source of savings. Integrators reported DOC costsfrom their own grandparent operations of Rs6-10 perchick, compared with costs of Rs10-15 per chick forother operations. In addition, market prices of DOCsare, reportedly, quite volatile depending on localsupply and demand conditions. At times, market DOCprices can crash to as low as Rs3 and rise to as high asRs16-18. Recently, hatcheries in some areas jointlyagreed to destroy hatching eggs because of largesurpluses of DOCs.

The parent and grandparent operations visited wererun with strict standards of environmental control andsanitation to protect the health and productivity of theflocks. According to industry sources familiar withboth Indian and U.S. practices, it is typical for Indianpoultry breeding operations to achieve levels of performance, in terms of eggs per parent and hatchingpercentage, superior to those achieved in U.S. opera-tions. Using Cobb 100 parents or grandparents,growers typically achieve about 170-180 eggs perparent with a hatching percentage of 90 percent orhigher. These relatively high levels of productivity areattributed to the hardiness of the Cobb 100 breed, aswell as higher labor inputs relative to U.S. operations.

Feeding practices. Growers tend to cite feed costs asthe critical component of controlling and loweringproduction costs. Reducing feed costs includes steps toimprove feed conversion, including innovations suchas pelletization and automated feeding, as well asimprovements in feed purchasing and logistics.


21/67


Poultry farmers have a strong understanding of theimportance of balanced feed rations. They recognizecorn and soybean meal as technically superior ingredi-ents for broiler rations, with corn generally accountingfor most of the energy in the feed ration and soybeanmeal providing most of the protein. Most operators,however, use substitutes for both the energy andprotein ingredients in the ration based on changes inrelative market prices. The most common corn substi-tutes for energy are broken rice, millet, and wheat(table 5). Fish meal, sunflower meal (decorticated),and peanut meal are the most common protein substi-tutes for soybean meal.

Given the key role of feed costs in overall costs of production, feed conversion rates (FCR) are a majorconcern for growers, most of whom have a clearunderstanding of their FCR, as well as the impacts of alternative ration ingredients on FCRs. Most operatorsuse mash-type feeds, but a number are beginning toexperiment with pelletized feeds. Although pelletizedfeeds are more expensive than mash feeds by Rs0.50-1.00 per kg, or about 5-10 percent, they result in lesswastage, assure a more balanced ration for each bird,and lower FCR. Several operators that use pelletizedfeed report about a 0.1-kg improvement in the FCR.

The price volatility of local feeds, particularly corn,and the absence of futures markets to manage pricerisk make it difficult to control and predict feed prices.Some operators pursue a strategy of buying and

storing ingredients when prices are low, but others donot because of the difficulty in accurately predictingprice movements. Concerns with feed costs tend to begreatest in southern India, where both corn andsoybean meal are not available locally and must bepurchased from suppliers in central and northern India.Feed imports are normally not an economically viableoption because of large national surpluses of soybean

meal and a restrictive tariff-rate quota (TRQ) regimefor corn imports (see feed trade policy section).

Most poultry integrators include feed milling as one of their integrated enterprises. Most also indicate signifi-cant cost savings, as well as more consistent quality,from producing their own feed. A number of feedmilling companies, threatened by integrated operationscutting into their customer base, have evolved intopoultry integrators.

Veterinary practices. Poultry operators also appear tohave a strong understanding of the steps needed tosafeguard the health of their flocks. Most independentgrowers retain consultant veterinarians to monitor andaddress health problems in the flocks. Poultry integra-tors provide medicines and veterinary services as partof their package of inputs for contract growers. Diag-nostic facilities and medicines are readily available.Outbreaks of flock-threatening diseases, thoughpossible, are rare.

Foreign direct investment in poultry inputs. FDI inpoultry production inputs is most common in the areaof pharmaceuticals, as most of the companies oper-ating in India are multinational corporations or Indian

joint ventures with multinationals. Although someitems are imported, most drugs and vaccines forpoultry production are produced in India.

The major Indian feed companies are Indian owned. Twoforeign companies, Japfa from Indonesia and CP fromThailand, now have feed operations in India, but they donot account for major market shares. Most poultryequipment, including feeders, waterers, and climaticcontrols, is produced by Indian-owned companies. Someequipment, however, is imported and some items areproduced in joint ventures with foreign companies.

Technical Performance and ProductionCosts by Region

Summary performance indicators, including days-to-market, weight, FCRs, and mortality rates and variableproduction costs for the operations visited, are shownin table 6. The results should be interpreted withcaution because they are based on a small number of firms that may not represent overall regional ornational averages. In particular, the sample is verysmall (1) in the East and is likely skewed toward largerintegrated operators in the West. In general, however,the indicators suggest greater technical efficiency in

Table 5Major poultry ration ingredients in IndiaEnerg y P rotein Other

Co rn S oybean mea l S oy o ilBroken rice Fish mea l S unflower oilPear l mille t S unflower mea l1 Minera lsWhea t Pean ut mea lS orghum Rice branRice bran Mea t mea l

S hares:60-65 % 30-35 % 5%1Deco rtica ted.

S ource: ERS field surve y, Augus t 2001 .


22/67


the South and West, compared with the North andEast. Findings also suggest greater technical efficiencyin those operations employing automatic climatecontrols in their houses, regardless of region. Opera-tions in the South, as well as the firm surveyed in theEast, tend to achieve roughly equivalent or better tech-

nical performance than the other regions withouthaving to use costly environmental controls (other thansimple ceiling fans).

FCRs and days-to-market are generally higher in theNorth, at least in part because of higher market weights.Mortality rates are also highest in the North, where theextremes of hot and cold temperatures are most prob-lematic. Growers in this region clearly face the greatestchallenge from climatic conditions, which they cite as akey reason that their costs are higher than in the South.Northern Indian growers, however, have less difficulty

with corn supplies because of local production.

Variable production costs by region. Average vari-able costs of production are lowest in the South,followed by the West, East, and North (fig. 5).However, the range of average variable productioncosts across regions, from Rs25.92 per kg to Rs29.44per kg, is not very large. Feed is the largest componentof costs, ranging from about 55 percent of total vari-

able costs in the North to about 64 percent in theSouth. DOCs are the second largest cost component,ranging from 17 percent of variable costs in the Southto about 23 percent in the North.

South . Variable production costs in the South aver-age Rs25.92 per kg. Some of the larger integratorsin the region reported costs below Rs25.00 per kg.The South has the lowest total costs despite facingthe highest feed prices (both corn and soybean mealgenerally must be shipped from greater distancesthan in the other regions). DOC costs are lowest inthe South, and mortality costs are also low relativeto two other regions. The greater cost efficiency inthe South likely stems both from favorable climateand better management by the integrated poultryoperations. Relatively low energy costs for bothheating and cooling hold down other costs in theSouth.

West . Average variable costs in the sample of westernregion operations were Rs26.75 per kg, with thisregion having the lowest feed costs per kg of outputand the lowest mortality costs. Producers in thisregion benefit from close proximity to MadhyaPradesh, which produces soybean meal and corn, andto Karnataka and Andhra Pradesh, which also pro-duce corn. As noted earlier, however, all of the firmsvisited in this region were relatively large and well-managed integrated operators using climatic controlsin their houses; hence, these findings may not beindicative of the region as a whole. Other costs are

Table 6Summary of performance indicators andvariable costs for poultry in India, by regionVariab le North Wes t S outh E as t

Harves t weig ht(kg / bird ) 1.83 1 .68 1 .89 1 .50

FCR (k g /kg) 1.88 1 .88 1 .85 1 .90Morta lity ra te

(per cen t) 4.3 3 .9 3 .9 3 .9

R s /k g , l ive h arves t weig ht

DOC co s t 6.72 6 .14 4 .35 6 .67Feed 16 .13 15 .96 16 .58 17 .10Morta lity 0.71 0 .65 0 .62 0 .75Other 1 5.88 4 .87 4 .38 3 .98

Tota l variab le co s ts 29 .44 27 .63 25 .93 28 .50

(US $/kg) (0.62) (0 .59) (0 .55) (0 .60)

Feed share (p

erc

ent) 54

.8 57

.8 63

.9 60

.0

Feed price (Rs /kg) 8.58 8 .55 8 .97 9 .00

1Includes medi cines , lab or, energ y, grower fees , and overhead.

S ource: ERS field s tudy, Augus t 2001 .

Figure 5

Variable poultry production costs in India,by region

Source: E RS field survey , August 2001.

Rs/kg , live weight

DOC OtherMortalityFeed

North West South East0

5

10

15

20

25

30


23/67


relatively high in this region, in part due to the energycosts associated with operating climate controls.

East . The eastern region had the third highest totalfor variable production costs, although the sampleconsists of only one, relatively large, integratedoperator. Based on the data from this firm, thisregion has the highest feed costs, due to relatively

high feed prices and FCR, as well as relatively highmortality and DOC costs.

North . Average total variable production costs werehighest in the sample of northern India producers, atRs29.44 per kg. The benefits of relatively low feedprices in this region are offset by relatively highFCRs, DOC costs, mortality rates, and energy costs.To some extent, performance and costs are affectedby the climatic extremes in this region. The absenceof integrated poultry operations probably alsoaffects costs, particularly for DOCs.

Fixed production costs by region. Data were collectedon fixed costs of production, including housing, equip-ment, and, where applicable, environmental controls(table 7 and fig. 6). As expected, given differences inclimate and production practices, there are sizableregional differences in fixed costs of production. Fixedcosts tend to be lowest in the South and the East andhighest in the West and North. In both the South andEast, the favorable climate permits relatively lowhousing costs, automatic climate controls are generallyunnecessary, and most producers use lower cost manualfeeding and watering equipment.

By contrast, costs of both housing and equipment aresignificantly higher in the North and, at least for theoperations visited, in the West. On a square-foot basis,housing and equipment costs in the West and North aretwo to three times higher than for typical producers in

the South or East. With interest rates on bank borrowingfor poultry operations of about 15 percent, according tomost respondents, the differences in fixed costs cantranslate into significant differences in interest costsacross the regions. Assuming a 15-percent interest rate,financing of 100 percent of construction costs, and sixflocks per year per house, interest costs are Rs2.96-4.72per square foot per flock in the North and West, andRs1.65-1.72 in the South and East.

Although estimates of land costs are not availableacross all regions, industry sources indicate that landcosts are highest in the North (Punjab, Haryana,western Uttar Pradesh), where farm land is more likelyto be irrigated and more productive for crop farming.In the Punjab region, farmers quoted land pricesranging from of Rs150,000 to 1,200,000 ($3,100-$25,000) per acre, depending on location.

Overall, the data collected suggest that lower fixedcosts may tend to hold down poultry costs and pricesand favor industry expansion in the South and East.However, because it is not feasible to ship largenumbers of live birds across regions, producers in the

South and East will not be able to exploit this advan-tage until there is a larger market for processed chilledor frozen poultry (see section on marketing). The rela-tively high fixed costs in the North and the West mayalso tend to restrict the participation of smallergrowers in industry expansion in this region. While theintegrated operations in the South and East tend toenlist both small and large growers, growers in theWest and North may have to be larger firms withgreater financial resources to invest.

Table 7Summary of fixed costs of production forpoultry in India, by regionVariab le North Wes t S outh A1 S outh B 1 Eas t

R s / s q . ft .

Hou se 72 .92 100 .00 67 .13 52 .83 57 .50Equ ipmen t 45 .43 88 .61 51 .53 13 .15 11 .11Tota l 118 .35 188 .61 118 .66 65 .98 68 .61

R s / s q . ft . /flock

Mem o:Interes t co s t2 2.96 4 .72 2 .97 1 .65 1 .721S outh A includes a ll res ponden ts ; S outh B excludes one , h igh-co s tres ponden t.2Ass uming a 15-p er cen t interes t ra te and six flocks per year.

S ource: ERS field s tudy, Augus t 2001 .

Figure 6

Fixed poultry production costs in India, by region

Source: E RS field survey , August 2001.

Rs/sq. ft

Equipment House

North West South A 1 South B 1 East0

25

50

75

100

125

150

175

200

1South A includes all respondents ; South B excludes onehigh-cost respondent.


24/67


Indias Production Costs Relative to Other Countries

To assess the relative competitiveness of Indianpoultry production, Indian variable production costand farm price data can be compared with data forother countries, including the United States, Brazil,and several Asian countries (tables D-1 and D-2).

The Indian cost data comprise costs of day-old-chicks (DOC), feed, mortality, medicines, labor, andpower reported on the basis of a kilogram of live-weight production, a common industry approach forcomputing variable costs. Data for other countries arethose reported by USDAs Foreign AgriculturalService in annual attache reports on the poultryindustry in each country. Although the costaccounting methods may vary across countries, it islikely that all the estimates include the key costitemsDOCs, feed, and mortalitywhich generallyaccount for 80-85 percent of the variable costs of poultry production. Thus, although accountingmethods may vary, the data should still be useful forcomparison purposes.

The comparisons suggest that, while Brazil is thelowest cost producer, production costs in thesouthern, western, and eastern regions of India arevery competitive with those in other countries,including the United States. Poultry costs in theseIndian regions appear to be competitive with those in

Thailand, a major exporter of poultry meat, andsignificantly lower than those in East Asia and otherparts of Southeast Asia.

Data that would permit more detailed comparisons

across countries are not available, so it is unclear howIndia compares on key productivity measures andmajor itemized costs. Given the dominant role of feedcosts in the total variable costs of poultry meat produc-tion, it is likely that feed prices and feed use efficiencyare important factors in Indias apparent competitive-ness. The two other relatively low-cost producersamong the countries compared, Brazil and the UnitedStates, are, like India, large producers of soybeans andcorn. Significant local production of both corn andsoybean meal allow producers to benefit from rela-tively low transport and handling costs, and to avoid

the costs of tariffs on imported feeds.

As the least developed among the countriescompared in tables D-1 and D-2, India also has theleast developed poultry sector, with a relatively smallshare of production from operations that use the mostadvanced technology. Indian poultry producers likelybenefit from lower labor costs but may also pay rela-tively high real interest rates for operating and invest-ment capital.

Table D-1Broiler variable costs of production bycountry

Cou ntry 1999 2000 2001

$/k g , l iveweig ht

Argen tina -- 0.93 --Bra zil 0.59 0 .47 0 .38Ma laysia 0.74 0 .72 --Ph ilipp ines -- 0.86 0 .94S outh Ko rea 0.91 0 .85 --Taiwan -- 1.03 --Thai land 0.74 0 .65 0 .61United S ta tes 0.54 0 .56 0 .56

India:North -- -- 0 .62Wes t -- -- 0.59S outh -- -- 0 .55Eas t -- -- 0.60

-- = Not avai lab le.

S ources: Foreign Agricultu ra l Servi ce , US DA, various a tta chere po rts ; Poult r y Y earb ook, Eco nomic R esear ch Servi ce , US DA.

Table D-2Broiler farm gate prices by country

Cou ntry 1999 2000 2001

$/k g , l iveweig ht

Bra zil 0.44 0 .50 0 .48Ind onesia 0.94 0 .79 0 .74Ma laysia 0.83 0 .83 --Ph ilipp ines 1.34 1 .17 0 .78S outh Ko rea 1.02 1 .05 --Taiwan 1.18 1 .08 1 .03Thai land 0.71 0 .64 0 .68United S ta tes 0.82 0 .76 0 .87

India:North -- -- 0 .84Wes t -- -- 0.48S outh -- -- 0 .52Eas t -- -- 0.66

-- = Not avai lab le.

S ou rces: Foreign Agricultu ra l Servi ce , US DA, vari ous a ttach ere po rts ; Poult r y Y earb ook, Eco nomic R esear ch Servi ce , US DA.


25/67


Most poultry meat in India is marketed to consumersin the form of live birds, with only a small share of output now marketed as chilled, frozen, or furtherprocessed products. The costs of moving live birds,

including transport, shrinkage, and mortality costs,severely limit interregional movements. As a result,Indian poultry markets are regional, rather thannational, in scope and there is limited potential forlow-cost producers to market their product in highercost regions. The limited information on costs andmarket price behavior collected for this study suggeststhat the presence of poultry integrators in a region hasa significant impact on the returns received by poultryproducers and the margins between producer andconsumer prices. For example, retail prices andproducer-retail margins were found to be significantlyhigher in the northern region, where poultry integratorsare least active.

Live-Bird Preference

The Indian broiler sector operates almost completely asa live-bird market, with poultry retailed as live birds andslaughtered for customers in retail shops. This practiceis in accordance both with the lack of cold chain facili-ties, which limits capacity to market chilled or frozenproducts, and with consumer preference. Consumers

have more confidence in the quality of fresh poultrymeat that is slaughtered in their presence; frozen orchilled meat may have problems that can only bedetected when it is thawed. Even when refrigeration isavailable, consumers lack confidence in chilled orfrozen meat because of the unreliability of electricalpower. The preference for fresh meat also extends to thebelief that it is superior in taste and texture.

Poor sanitary conditions are common in Indias retailpoultry shops. In general, however, consumers andmerchants share a belief that there is minimal healthrisk because the Indian style of cooking kills bacteriathat could otherwise lead to food poisoning or disease.Most Indian meat preparations are well cooked, andsome locally used spices are reportedly effective inkilling foodborne bacteria. Aside from a recentcampaign to improve sanitary conditions in poultryshops in New Delhi, there is no evidence thatconsumers or public health officials are greatlyconcerned with current practices. The move to license

and inspect poultry slaughter within Delhi appears tohave been motivated more by the urgings of the nascentpoultry processing industry than by any documentedpublic health concern associated with the quality of the

product or the disposal of slaughter waste.

The dominance of the live-bird market restricts themovement of poultry because of the high transport,mortality, and shrinkage costs associated with movinglive birds over Indias poor roads. In particular, thelive-bird preference severely limits movement of poultry from low-cost producing areas, particularly insouthern and western India, to higher cost areas, suchas northern India. In a market where poultryconsumers are sensitive to price, this limitation canslow the growth in both consumption and productionof poultry.

The consumer preference for live birds also restrictsthe potential for poultry imports, since imports wouldhave to be frozen or chilled. Although there is somedemand for frozen or chilled poultry products by insti-tutions (hotels, fast food restaurant chains) and, to alesser extent, high-end urban consumers, this smallsegment of demand is currently met by the smalldomestic processing sector.

Processed Poultry DemandProcessed poultry products, including chilled or frozenpoultry, as well as further processed items, currentlyaccount for a small share of urban householdconsumption and a negligible share of rural consump-tion. Chilled whole birds and parts can be found inmarkets and higher end shops in major cities and arealso consumed in institutional settings, includingrestaurants and hotels. Frozen birds and parts are moredifficult to find at the retail level but can be found inshops in major cities, and are also marketed by proces-sors directly to hotels and restaurants. Frozen, furtherprocessed items, such as heat-and-serve dishes, can befound in high-end shops in the major cities.

It is difficult to determine the exact size of the chilledbird market. The Ghazipur market near Delhi, thelargest poultry market in India, provides about 40percent of the birds consumed in Delhi, and about 60percent of those birds are dressed in a nearby facility.

Poultry Marketing and Prices


26/67


27/67


28/67


pricing seems to be discouraged by the strong pricesensitivity of poultry demand.

In Bangalore, integrated growers now also appear tohave more influence over poultry marketing. In thepast, independent growers often sold on credit, withwholesalers often delaying payment. Now, with theintegrated growers having more influence, it is a cash

market and volumes have increased as producer-retailmargins have been reduced. The Coimbatore BCCprice is now the reference price used by the Kar-nataka Hatcheries Association (KHA) to set the Ban-galore live-bird price. Sellers are allowed to bargainwithin an Rs3 range of the price fixed by the KHA.

West . In the Mumbai region, the producer price for-mation process begins with a daily rate set and pub-lished by an influential group of Mumbai whole-salers. The published price is the reference price off which producer and wholesale prices are set fornearby areas, including the major producing areas of Pune and Nashik. Presumably, these wholesalers setthe daily price based on their reading of supply anddemand conditions, but there is no transparency tothe process. It is unclear how the entry of the inte-grators will affect this system. It is likely that, asthey account for a rising share of supplies, the inte-grators will gain more influence over Mumbaiwholesale (and retail) pricing. However, the highcost of establishing a sufficient presence in Mumbairetail markets may make this process more difficultthan in the South.

East . In contrast to the other regions visited, theCalcutta region does not appear to have a central-ized price discovery mechanism, either in the formof a large central market or a group of traders. Mar-ket prices appear to be fairly volatile. The largestsingle player in the market, an integrator, does notappear to be large enough to exert price leadership.

North . The northern region would appear to be theclosest to having an open-market mechanism forsetting regional wholesale and producer prices. TheGhazipur market near Delhi handles about 100,000

birds per day, about 40 percent of total Delhi con-sumption. The live birds are sold in batches at con-current auctions involving market agents and pro-ducers. The remaining Delhi supplies a

india’s poultry sector: development and prospects. maurice

Documents