Important links

http://www.thepoultrysite.com WORLD POULTRY INDUSTRY. http://www.epa.gov/agriculture/ag101/printpoultry.html#breed details on poultry industry. http://eands.dacnet.nic.in/latest_2006.htm

http://dahd.nic.in/census.htm http://nmppb.gov.in

http://www.fao.org/wairdocs/LEAD/x6170e/x6170e2p.htm#TopOfPage http://www.scribd.com/doc/52172390/PDCM-report-on-venky-1-1-1 http://www.poultryindia.co.in/ http://www.wattagnet.com/The_remarkable_evolution_of_the_egg.html - egg producing info http://www.fao.org/ag/againfo/programmes/en/pplpi/docarc/rep-0902_indiapoultry.pdf Gives info on poultry form http://www.iaiexpo.co.in/profiles.php?pf=pol poultry info http://www.thepoultryconsultancy.com/index.php?option=com_content&view=article&id=47&Itemid= 54 http://mospi.nic.in/mospi_new/admin/publication.aspx ------ Ministry Of Statistics and Programme
Implementation,

Indian Poultry Scenario In a continual endeavor to create a strong platform for Poultry World especially from India, SAARC countries, Middle East & African continent with the aim to interact and stay in tune with new trends in poultry rearing techniques, processed chicken meat, medicines, feed additives, health products, equipments, managements & other technical services. India, a market with Investment Friendly ambience. Indian Poultry Industry is booming which is emerging as the world's 2nd Largest market. Growing at the phenomenal rate of 12 to 15% every year. Poultry Industry in India is constantly on the rise with modern techniques and changing from live bird to fresh chilled and frozen product market. A new chapter began with the integrated poultry operations throughout the country.

As far as the agricultural sector's growth is concerned, it has grown by about 4.4% in 2007-08 as compared to earlier estimates of 2.6%. However, poultry which comes under the agricultural sector continued to maintain its healthy growth of 10% in the layer segment and 20% in the broiler segment.

Today, the poultry industry is a Rs.40,000 crore industry, providing direct and indirect employment to over 4 million persons. About 20 million agricultural farmers are also dependent for their livelihood on poultry industry especially maize and soya growers. Though the overall environment is favourable for continued growth of the industry, it faces new challenges in the form of steep increase in prices of maize and soya the most crucial ingredients of poultry feed which accounts for 80% of the production cost due to speculation in these commodities.

After the introduction of forward trading there was large scale speculation in maize and soya which pushed up the prices putting enormous pressure on margins, especially in the case of small farmers. Added to that was export of these commodities by private agencies. The poultry industry took up the issue with the Government to ban forward trading in maize and channelise the export of maize and soya meal through a designated government agency and to put a ceiling on the volume of export and ban on export by private parties. The Government has banned the export of maize till 15 October, 2008.
th

The industry is hopeful of getting a favourable response from the Government on the other issues also.

Meat and Meat Products Sector : Facts about India Livestock revolution is demand driven in comparison to the supply driven green revolution. With 485 million livestock population, India has vast potential for meeting the growing needs of increasing population. Poultry meat is the fastest growing animal protein in India. Percapita consumption has grown from 870 grams in 2000 to about 1.68 kg in 2005. This is expected to grow to 2Kg in 2009, as per CSO statistics.India is 8th in rank in world meat production, which is estimated at 4.9 million tonnes. Contribution of livestock to GDP decreased from 5.22% in 1999 -00 to 4.36% in 2004-05 at current prices (about 22.51% of agriculture and allied GDP). This rose to Rs.1239 billion during 2004-05 from Rs.935 billion in 1999 -00 with 24.72% share in agriculture and allied GDP. Contribution of livestock and fisheries sector to the total GDPduring 200607 was 5.26%. Mere 6% of production (about 100,000 MT) of poultry meat is sold in processedform. Of this only about 1% undergoes processing into value added products (Ready-to-eat/ Ready-to-cook). Processingof large animals is largely for the purpose of Exports. Total processing capacity in India is over 1 million MT per annum, of which 40-50% is utilized.Processing of meat products is licensed under Meat Food Products Order, (MFPO) 1973 which was being implemented by Ministry of Food Processing industries w.e.f. 19.03.2004 before being transferred to the Food Safety and Standards Authority of India in December 2008. Exports

Out of the total meat production estimated at 1.9 million MT about 21% is exported. India's exports of Animal products have increased from 12,66,333.38 MT with the value of Rs. 4109.93 Crores in 2006-07 to 21,01,759.49 MT with the value of Rs. 5104.63 Crores in 2007-08. Indias exports of poultry products has also increased from Rs. 318.17 Crores in 2006-07 to Rs 441.09 Crores in 2007-08 . Birds, eggs, in shell, fresh, preserved or cooked constitute the largest segment with about 50% share. Processed egg products accounted for about 48% of the exports. Indian buffalo meat is witnessing strong demand in international markets due to its lean character and near organic nature. Indias export of buffalo meat and sheep/goat meat products reached 4,83,478.29 MT and 8908.72 MT with the value of Rs. 3549.78 Crores and Rs. 134.10 Crores during 2007-08. Frozen bovine meat dominated the exports with a contribution of over 97%. The demand for bovine meat in international market has sparked a sudden increase in the meat exports from India. Indias exports of Processed Meat attained 1245.47 MT with the value of Rs. 12.96 Crores in 2007 -08. Indias export of sheep/goat meat has increased from 5777.52 Mt with the value of Rs 65.87 Crores in 2006-07 to 8908.72 Mt with the valued of Rs. 134.10 crores in 2007-08. The major destinations for export of Indian sheep/goat meat are Saudi Arabia, U.A.E, Qatar, Oman and Kuwait. Poultry meat is the fastest growing animal protein in India. nnGrowth Rate of Poultry Meat sector : 11% per annum (Source: FICCI) Poultry meat industry is moving from largely unorganized to the large organized players by way of more modern poultry processing plants. As the country's livestock industry is changing, India attempts to become a key player in the global meat market. The major destinations for export of Indian poultry products are U.A.E, Kuwait, Oman, Germany and Japan. Indias export of processed meat products like homogenized Meat Preparations, Meat Extracts & Meat Juices, Other Poultry Meat, Preserved Meats, Preserved Meat of bovine Animals and Sausages & Canned Meat has increased from Rs. 7.13 Crores in 2006-07 to Rs 12.96 Crores in 2007-08. Indias exports of Processed Meat attained 1245.47 MT with the value of Rs. 12.96 Crores in 2007-08. International markets for Indian Processed Meat products are Seychelles, U.A.E, Hong Kong, Germany and U.S.A. India, being a country with numerous states and vast area, has resources for production of animal casings of high quality with excellent calibration and shining colour. This makes India one of the major exporter of animal casing in the world. Animal products including the products or animal casing like bladders & stomachs, casings of Cattle and Sheep, Guts of animals etc. Indias export of animal casing products has reached to Rs. 6.84 Crores in 2007 -08. The major importer of Indian animal products and animal casings are Germany, Portugal, France, Spain and Italy.

Market size and Composition of Buffalo Meat &Poultry Products Market Size and Composition of Buffalo Meat & Poultry Products (Value in Rs. 000 crores) Years Market Size Processed Non-Processed 2002-03 14 3 11 2006-07 24 5 19 2010-11 35 11 24 2014-15 50 21 29

(Source: Ministry of Food Processing Industries, Technopak Analysis, * Projection Growth)

Factors affecting growth of the Meat and Poultry Sector More awareness and changing needs, lifestyles and global food consumption patterns of consumers. Availability of wider range of products. Openness to experimenting with processed and convenience meat and meat based products. Increased phenomenon of organized retailing. Increasing export opportunities. Increase in favorable regulatory environment and government support. Augmented investment inflows. Gaps in the Sector

There are traceability issues concerning this sector due to lack of focus. There needs to be an integrated view of development of meat sector workers. Issues related to packaging have not been addressed till now. Lack of adequate infrastructure Lack of forward and backward linkages in the food value chain Low level Research and Development, skill, technology and industry-academia work in Meat sector.

Poultry Industry in India

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Poultry is one of the fastest growing segments of the agricultural sector in India today. While the production of agricultural crops has been rising at a rate of 1.5 to 2 percent per annum, that of eggs and broilers has been rising at a rate of 8 to 10 percent per annum. As a result, India is now the world's Second largest egg producer and the eighteenth largest producer of broilers. Driving this expansion are a combination of factors - growth in per capita income, a growing urban population and falling real poultry prices. In the context of this emerging scenario, questions are being raised about the impact of the scaling up of production-through structural factors, externalities and policies-on small-scale producers. Do the transaction costs, policy distortion and environment externalities place the small-scale producer at a disadvantage? Why do some poultry farms have higher income than others? Do large farms earn more profit per unit of output than small ones? What explains the differentials in profitability? This report *, which forms part of an ongoing international comparison study on poultry, seeks to address these questions. It attempts to assess the impact of policy and environmental factors on the scale of poultry operations in India as well as the implications of that impact for small-scale production. The study aims to collect and analyze consistent data. * See Mehta R., Nambiar R. G., et.al., itLivestock Industrialization, Trade and Social - Health Environment Impact in Developing Countries: A Case Study of Indian Poultry Sectorle, (Mimeo) Phase I project report submitted to IFPRI, May 2002. The report is organized into eight chapters. Chapter 1 provides a short review of the poultry industry in India - how it has grown over the past two or three decades, the structure of the industry, changes in the scale of operations, and so on. Chapter 2 discusses the objectives and scope of the study, along with hypotheses to be tested. Chapter 3 provides details about data and survey, focusing on survey location, sample size, timing of the survey, and problems encountered. In Chapter 4 the approach for estimating efficiency and scale economies is reviewed. Chapter 5 then presents data based on analyses of sample information about the accessibility of sample units to information, accessibility to assets, technology, production practices, environment, and marketing. These results are followed by estimates of mass balance results in Chapter 6. The empirical results based on application of the model outlined in Chapter 4 are discussed in Chapter 7. Finally, conclusions and policy discussions follow in Chapter 8. Transformation from a Backyard Activity to a Major Commercial Activity
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The poultry sector in India has undergone a paradigm shift in structure and operation. A significant feature of India's poultry industry has been its transformation from a mere backyard activity into a major commercial activity in just about four decades. This transformation has involved sizeable investments in breeding, hatching, rearing and processing. Farmers in India have moved from rearing non-descript birds to today rearing hybrids such as is Hyaline, lt is Shaver, ll and in Babcock, lt which ensure faster growth, good liveability, excellent feed conversion and high profits to the rearers. The industry has grown largely due to the initiative of private enterprise, minimal government intervention, considerable indigenous poultry genetics capabilities, and considerable support from the complementary veterinary health, poultry feed, poultry equipment, and poultry processing sectors. India is one of the few countries in the world that has put into place a sustained Specific Pathogen Free (SPF) egg production project. 1.2 Regional Variation in Poultry Development Another important aspect of poultry development in India is the significant variation in the industry across regions. Figure 1.1 illustrates egg production in India by state during 1998-99. The four southern states Andhra Pradesh, Karnataka, Kerala and Tamil Nadu - account for about 45 percent of the country's egg production, with a per capita consumption of 57 eggs and 0.5 kg. of broiler meat. The eastern and central

regions of India account for about 20 percent of egg production, with a per capita consumption of 18 eggs and 0.13 kg. of broiler meat. The northern and western regions of the country record much higher figures than the eastern and central regions with respect to per capita availability of eggs and broiler meat. Figure 1.2 shows egg production in India by region during 1992-93. 1.3 Growing Production of Eggs and Broilers Table eggs and broiler meat are the major end products of the poultry sector in India. Presently production of eggs is estimated to number about 37 billion, that of broilers 895 million, and that of poultry meat 735,000 tonnes. The value of egg and poultry production in India during 1980-2000 is illustrated in Figure 1.3. In addition, organized facilities have been set up over the years for the manufacture of egg powder and frozen, processed broiler meat essentially to cater to export markets and markets in the metropolitan areas of India. 1.4 Increasing Scale of Operation The growth of the poultry sector in India is also marked by an increase in the size of the poultry farm. In earlier years broiler farms had produced on average a few hundred birds (200-500 chicks) per cycle. Today units with fewer than 5,000 birds are becoming rare, and units with 5,000 to 50,000 birds per week cycle are common. Similarly, in layer farms, units with a flock size of 10,000 to 50,000 birds have become common. Small units are probably finding themselves at a disadvantage because of high feed and transport costs, expensive vaccines, and veterinary care services and the non-availability of credit. Some small units are reported to be shifting from layer to broiler production because output in broiler units can be realized in six weeks. 1.5 Structure of the Poultry Industry The structure of India's poultry industry varies from region to region. While independent and relatively small-scale producers account for the bulk of production, integrated large-scale producers do account for a growing share of output in some regions. Integrators include large regional firms that incorporate all aspects of production, including the raising of grandparent and parent flocks, rearing DOCs, contracting production, compounding feed, providing veterinary services, and wholesaling. 1.6 Concentration of Poultry Units Around Cities and Urban Centers There has also been a growing tendency for poultry units to be concentrated around urban areas because of the existence of ready markets for the end products of poultry production. 1.7 Low Per Capita Consumption Even though India is the world's fifth largest egg producer and the eighteenth largest producer of broilers, its per capita consumption of these products is poor - 37 eggs and 1 kg. of poultry meat per capita per annum. Here, again, there is considerable variation in per capita consumption between rural and urban areas and also across the region. Per capita consumption of eggs is only 7.7 per annum in rural areas compared with 17.8 per annum in urban areas. In seven states, per capita consumption is less than 3.5 per annum. Similarly, per capita consumption of poultry meat is 0.24 kg. in rural areas and 1.08 kg. in urban areas. 1.8 Slow Changes in Consumption Habits An analysis of consumption data originating from National Sample Survey (NSS) rounds reveals many interesting facts. First, 42 percent of households are vegetarian in that they do not eat fish, meat or eggs.

The remaining 68 percent of households are non-vegetarians. Over time there has been a gradual shift from vegetarianism to non-vegetarianism. The change is more visible in rural areas than in urban areas. For instance, between 1987-88 and 1999-2000, the proportion of households consuming only one of the three items - fish, meat or eggs - increased by only one percent in urban areas, while in rural areas this proportion increased by four percent. Second, calculation of income elasticity of demand for different commodity groups shows that the commodity group that includes meat, fish or eggs ranks second in the quantity of commodities consumed in rural areas (milk and milk products rank first), while in urban areas consumption of the meat, fish, or egg commodity group ranks third. The estimated income elasticity is 1.01 in rural areas and 0.66 in urban areas. Third, the price elasticity also follows the same order. Meat, fish or eggs have the high price elasticity of 0.75 in rural areas and 0.68 in urban areas. Fourth, estimates of income and price elasticities calculated for each of the four expenditure groups show that those elasticities tend to decline as one moves from the poor to the non-poor and the wealthy. The income elasticity is low for the wealthy - 0.5 in rural areas and 0.6 in urban areas. The other two income groups in rural areas have high-income elasticity - greater than unity. Price elasticities are greater than unity for the very poor and the poor in rural areas, and for the very poor in urban areas. A significant policy implication of these consumption habits is that there is lot of scope in raising the demand for poultry products in rural areas. 1.9 Exports Exports of poultry products from India comprise table eggs, meat, live birds and value-added products such as egg powder and frozen yolk. The value of aggregated exports was Rs. 1,683 million in 1996-97. Exports were expected to reach the level of Rs. 5 billion by the year 2000. 1.10 Employment Three decades ago, when egg and broiler production was 10 billion and 30 million, respectively, the total employment numbers in the poultry sector were not so encouraging. As income and employment in the crop sector started diminishing, the non-crop sector, which includes dairy and poultry, underwent a significant shift. With the demand for poultry increasing and production reaching 37 billion eggs and 1 billion broilers, this sector now employs around 1.6 million people. At least 80 percent of employment in the poultry sector is generated directly by these farmers, while 20 percent is engaged in feed, pharmaceuticals, equipment and other services required by the poultry sector. Additionally, there may be a similar number of people roughly 1.6 million who are engaged in marketing and other channels servicing the poultry sector. 1.11 Issues Relating to Animal Welfare and Environmental Pollution Issues relating to animal welfare and environmental pollution by poultry units have been of increasing concern in developed countries such as the U.S. and the European Union (E.U.). But in India these issues have not yet emerged as critical although they are discussed at length in various seminars and forums on poultry production. Considering globalization and the international trade in poultry products, however, these issues may assume significance in a few years because of pressures from importing countries such as those in the E.U. 1.12 Constraints on the Growth of the Poultry Industry A major constraint affecting the growth of the poultry industry in India is the lack of basic infrastructure such as storage and transportation, including cold chain. As a result, there are wild price fluctuations in the prices of poultry products, i.e., eggs and broilers. Another constraint to growth is an inefficient marketing system. The presence of so many market intermediaries harms both the producer and the consumer. A third problem relates to the price availability of feed resources. Maize or corn plays a major role in broiler production, as it constitutes 50 to 55 percent of broiler feed. As the broiler industry is growing at the rate of 15 percent per annum, the demand for maize is thus likely to increase. Presently

India grows only 11 million tonnes of maize and only 5 million tonnes are available for poultry, which is not sufficient if the current growth rate of the industry is to be maintained. 1.13 Policy Measures The policy measures that are required to improve the poultry industry must involve: (a) improving infrastructure facilities, which will help not only to stabilize the price of poultry products in the domestic market, but will also make them available in remote areas; (b) creating an efficient marketing channel that will help provide remunerative prices to producers (in other words, India's marketing set-up should also grow along professional lines); and (c) increasing maize production, which will involve using GM (genetically modified) seed varieties or, alternatively, will necessitate finding other sources of feed ingredients that can replace maize.

II. Major Objectives

2.1 Detailed Objectives of the Study The objectives of this study are to: analyze the mechanism through which the growing scale of poultry production and marketing operations under a changing industrial organization of the livestock sector affects environmental objectives. estimation the per unit cost differences between small, medium, and large-scale broiler and egg producers across different regions of India, and to break down these differences into four categories: greater technical/allocative efficiency, decreased transaction costs, differential subsidies for different scales of production, and differential investment in environment sustainability. Identify the domain for reform of existing policy incentives in the poultry sector to make that sector more competitive, and to identify policy options that will address environmental objectives more broadly through impacts on the scale of poultry operations and organization of the poultry sector.

2.2 Specific Research Questions The specific research questions addressed in this study are the following: Why do some poultry farms have higher nominal profits per unit of output than others? Why do some farms have higher negative environmental impact per unit of output than others? Do the negative environmental externalities explain relative competitiveness? To what extent are these differences across farms due to differences in transaction costs, environmental externalities, and policy subsidies, or togreater/less technical/allocative efficiency once these other factors have been taken into accounted. What is the relative importance of each of these explanatory factors across farm sizes? Do contract farmers earn higher nominal profits per unit compared with independents of similar scale?

2.3 Specific Hypotheses to be Tested The following are specific hypotheses to be tested in this study.

Small-scale producers reap lower profits per unit of output than do large producers (i.e., economies of scale). (Profits of small-scale producers are more sensitive to transaction costs than are those of largescale producers. Small farmers expend a higher amount of effort or investment in pollution abatement per unit of output than do large farmers; and this situation creates a lower capture of environmental externalities per unit of output by small farms. Small-scale producers are not less efficient if family labour is not costed and true environmental externalities are taken into account. Contract and cooperative farmers have higher nominal profits per unit compared with independents of similar scale. The higher profitability [of contract and cooperative farms?] is due in part to subsidies received by the integrating institution.

III. Approach

3.1 Methodological Challenges in Determining Scaling-Up of Livestock Production The primary methodological challenges of empirical work examining why livestock production is scalingup are, first, to define a quantitative measure of relative farm competitiveness in production and, second, to consider in a structured way all of the factors that differ across farms that might explain higher relative competitiveness across farms. Those factors include technical and allocative efficiency; asymmetries in access to assets (e.g., credit, liquidity, fixed capital) and information (e.g., education, experience); externalities (i.e., some farmers get away with uncompensated pollution while others do not); and policies (i.e., some farmers get a better deal from the state than others). The failure to consider all the relevant factors when explaining competitiveness (e.g., looking at the differential efficiency across farms while neglecting transaction cost differences, or vice versa) leads to biased estimates. Furthermore, the inclusion of explanatory factors of relative competitiveness that are themselves functions of relative competitiveness leads to simultaneity bias. For example, the relative competitiveness of a farm might be enhanced by its being recognized as a salesleader, but being recognized as a salesleader may depend on being more competitive than other farms. The two-way causality among the variables leads to bias in the empirical estimation of the effect of all variables unless appropriate procedures are used. 3.2 Defining a Farm-Specific Measure of Relative Competitiveness Relative competitiveness might be thought of as having the ability to produce at a lower unit cost of production than one's competitors. In fact, if large farms can produce livestock at a lower unit cost than small ones, they will clearly drive small farms out of the market over time. The market price that applies to both large and small farms will, by this reasoning, fall as large-scale producers expand production, and the small farmers will get squeezed out. The only way for smallholders to survive then will be if they produce for a few higher-priced niche markets - if they exist - that are not economically feasible for larger farms to serve, and to cut costs by remunerating their own (family) labor force at a wage lower than that a large farmer pays to hired labor. Even if small farmers act in such a way, it is unlikely that they will be able to stay in business long by doing so. The reverse is not necessarily true, however. If small farms can produce at lower unit costs than large farms, they may still be squeezed out because large-scale farms can remain profitable with very thin profit margins; they make up in volume what they lose in per unit profit. Very low per unit profits, coupled with a small sales volume, may not provide enough income for a smallholder to stay in business. Thus if large farms have lower per unit costs of production when all labor is costed at market wages, the next question

to consider is whether this finding still holds true if smallholders do not cost their family labor. If the finding does hold true, then there would be little reason for smallholders to stay in poultry business. If, on the other hand, small farms can produce at lower per unit costs in the same markets as large farms - perhaps by not costing their own labor at full market wage rates or for some other reason - then there is at least some hope that they will continue to exist. Thus having higher unit profit, with or without the cost of family labor, is a necessary but not sufficient condition for the competitiveness of smallholders. To obtain a more satisfactory measure of relative competitiveness that is not dependent on the issue of larger farms being able to expand production while small ones cannot it is necessary to examine the notion of efficiency. Small farmers are most likely to be able to stay in business - and perhaps even to gain market share - if they are more efficient users of farm resources, both in a technical sense (i.e., being on the production possibility frontier, given existing technology) and an allocative sense (being on the right place on the production frontier, given prevailing prices). If small farms are more efficient users of farm resources, perhaps because they put more care in producing per unit of input, then they have a market advantage over large-scale producers that will be difficult to surpass. This market advantage then yields a measurable index of relative competitiveness - relative farm efficiency in securing profit per unit of output. Ceteris paribus, farmers that are more efficient users of farm resources to secure profits per unit of output, are more likely to be able to maintain market share than larger producers who are less efficient in their use of resources. Over time, the more efficient producers are in a better position to invest more in their farm enterprise and to grow, regardless of their initial size. A standard way of assessing farm-specific relative profit efficiency is to estimate a is profit frontierly across a sample of farms, and then to measure how far each farm in the sample lies below the frontier. Conceptually, such a frontier can be thought of as a function mapping profit per unit to relative input and output prices and quantities of non-traded factors of production, where each point is the maximum profit per unit that a farm can achieve, given those relative prices and access to resources. Given a set of prices, the average farm with a given level of resources will fall below the frontier. Thus an ordinary least squares regression on data from a sample of farms with different sizes of profits per unit of output against input and output prices and fixed factor of production (e.g., land, labor) will always lie below the theoretical frontier. The frontier itself has to be estimated in some fashion by looking at data for farms that perform well at each level of resources. A variety of approaches to this are described by Fried, Lovell and Schmidt (1993). The measurement of if "most efficient" can be improved by estimating a stochastic profit frontier, which allows for measurement error in the econometric estimation of the frontier itself and thus for the fact that observations for some farms will lie above the estimated "best" frontier (see Battese 1992 for a survey of this literature). In the case of this study, the dependent variable is profit per unit of output, and the explanatory variables are farm-specific fixed resources (e.g., land, family labor, sunk capital), farmspecific input prices (e.g., for feed, medicines, stock), and farm-specific output prices. In the Philippines situation that was studied, farm resources such as land may be non-tradable inputs and must be accounted for in the frontier in terms of the amount available, and not in terms of their price. The unit prices received for output and prices paid for inputs can also be expected to vary greatly, and to reflect (and control for) quality differences and differential transactions costs such as bargaining power and riskiness. The actual performance of each farm in terms of unit profit can then be compared to an ideal unit profit for that farm, taking into account its resources and prevailing input prices. The difference between the ideal and the actual profit per unit for that farm is the farm's relative profit inefficiency. Following Ali and Flynn (1989), Figure 3.1 traces a profit frontier for a sample of farms: each dot corresponds to the actual outcome in terms of profit per unit of output for a specific farm relative to input prices; points on the stochastic frontier curve (estimated by maximum likelihood methods and labeled MLE. Maximum Likelihood Estimation) represent fully efficient farms (on the frontier); and all points below the stochastic frontier curve represent inefficient farms in terms of their specific resources at prevailing input prices

Figure 3.1: Frontier (MLE) Stochastic Profit Function for Sample Farms

Farm-specific profit efficiency (deviations below the frontier) are measured as the ratio of actual profit per unit (Yi in figure 3.1 for farm i) and ideal profit (Y*). Note that the curve denoting average profit for any given level of resources (shown as the locus of points Y in Figure 3.1) - estimated by Ordinary Least Squares Regression (OLS). [indicates?] less than ideal profit. The measure of farm efficiency embodied in Yi/Y* is bounded by 1 ("best" on the frontier), and 0 ("worst") or no profit. Farm-specific inefficiency is the distance below the frontier, (Y* - Yi). If small farms average significantly higher profit efficiency per unit of output when family labor is not costed the outlook for those farms is more encouraging. This is even more true if the higher profit efficiency holds when family labor is costed at the market wage rate. This methodology, however, allows one to go beyond simply making this determination; it also permits the investigation into which elements contribute most to explaining relative unit profit efficiency for large and small farms. Individual farms large or small - may lie well below the profit frontier for reasons other than technical or allocative inefficiency: farm-specific transaction cost barriers or policy distortions may also affect a farm's position relative to the frontier. 3.3 A Methodology to Decompose the Determinants of Relative Profitability Discussion of the measurement of a farm's relative competitiveness leads us to the principal methodological approach to deriving a farm-specific measure of relative inefficiency in securing profit per

unit of output - an approach that estimates a stochastic profit frontier (SPF) in the usual way. Once the SPF curve is developed, the relative profit inefficiency of each farm is explained - following the lead of Jondrow, et. al. (1982), Ali and Flynn (1989), and Battese and Coelli (1995) - in terms of the transaction cost barriers and farm-specific policy distortions faced by that farm. This approach first explains each farm's unit profit performance in terms of technical and allocative efficiency and, subsequently, in a second stage, explains differences in efficiency between farms in terms of farm-specific variations in transaction costs and policy distortions. 3.3.1 First stage: The Stochastic Profit Frontier The stochastic profit frontier (SPF), used in this study to estimate profit efficiency is defined as Yi = f(Xi,Wi,Pi; b)exp(vi - ui) (1) where Yi = profit per farm i normalized by quantity of output Qi (i.e., unit profit) defined as: Yi = ((PiQi - CiQi)/Qi) (2) where: PiQi represents total revenue from poultry (broiler and layer) per farm i in question (manure sales included); CiQi represents total variable costs, including costs for feed, day old chicks (DOC), hired labor, electricity, medicines, vaccines, water, depreciation, and securing revenue, and excluding the cost of family labor per farm i; and Qi represents the quantity of output per farm i; Xi = vector of fixed factors used to obtain i Y (e.g., stock of family labor, land, buildings and equipment, and fixed capital stock to control for differences in farm resources), normalized by quantity of output Qi; Wi = vector of farm-specific input prices; Pi = weighted-average output price (weights are the farm-specific transaction quantities); b = vector of unknown parameters to be estimated; and vi, ui, are random error terms. The error term (v) is distributed independently and identically as a two-sided normal random variable around the frontier to account for measurement error on both sides of the frontier, and the inefficiency term (u) is distributed independently as a one-sided (downwards) random variable relative to the frontier to allow for the fact that farms actually fall below the ideal efficiency point. Average efficiency can be easily estimated by OLS regression of unit profit per farm against farm-specific input and output prices and farm-specific fixed factors of production. The frontier, which shows ideal unit profits for any given level of farm resources and prevailing price levels, can only beestimated, however, if specific assumptions are made about the distributions of u and v across farms - and even then only by using a non-linear estimation technique such as Maximum Likelihood Estimation (MLE). The critical assumption is the distribution of the u (inefficiency) term. The approach of Battese and Coelli (1995), which allows for systematic differences across farms in the distribution of u, is adopted in order to not "assume away" what we want to investigate. For example, transaction cost factors and policy distortions that are different for different farms help to determine their relative profit inefficiency.

3.3.2 Second Stage: Technical Inefficiency Determinant Model Battese and Coelli (1995) base their approach on the assumption that the expected value of the farmspecific inefficiency effect for farm i can be modeled as a function of farm-specific characteristics (which of course vary across farms) and fixed coefficients, which do not. In other words, ,

where is the mean of a truncated-normal distribution of ui. The zik are k explanatory variables observed for farm i, associated with technical inefficiency effects (ui) and d is a vector of unknown coefficients to be estimated simultaneously with equation (1). Thus, the technical inefficiency effect, ui in equation (1), can then be specified as , where ei is the inefficiency error 2 term, defined by the truncation of the normal distribution with mean equal to zero and variance s . The truncation of ei occurs at (Battese and Coelli, 1995).
[60]

Specification of an estimation model A translog profit frontier is used to specify an estimation model because of the flexibility it allows in estimating parameters where it is not desirable to build in, through model specification, rigid assumptions about substitution relationships among inputs and factors. The full form of the model is:

where Yi is the normalized profit of the i-th farm defined in equation (2); Wij is the price of input j (j= hired labor, capital, feed, and DOC used by the i-th farm); Xik is the fixed factor k used by the i-th farm (k =is the normalized value of buildings and equipment, normalized total farm labor in hours and so on); and Di is a vector of scale dummy variables for farm i. The vi,uiare as previously defined. The akj, bjk are coefficients to be estimated by MLE using Frontier 4.1 software (Coelli, 1992). Normalizing by output quantity builds in an assumption of constant returns to scale. In order to allow for the fact that larger producers may be using higher grade technology than others one needs to control for non-Hicks neutral technical change on the right hand side (RHS) of the first stage of the stochastic profit functions. To deal with this problem, the parameterization of Hicks non-neutral technological change is

allowed by including the feed conversion ratio (FCR), which is probably closely correlated with both technology and managerial ability. The weighted average FCR per farm is calculated as: total feed used in kg. divided by total output in kg. of live-weight in the case of broilers (and in number of eggs in the case of layers). Translog profit frontiers share the use of logarithms in the dependent variables, and thus do not handle cases of negative or zero unit profits. Yet it is not unreasonable to suppose that some farms in lose money in some years. There is in fact no perfect fix for this problem, thus a "lesser-of-the-evils" approach is employed that is adequate for present purposes. A constant scalar is added to the unit profit data in each sample such that the unit profit of every farm is positive. As long as the cases of negative average farm profits are few (less than, say, five percent), and they are not very negative relative to average farm unit profit (so that the scalar is small relative to the mean), the resulting bias from a non-linear transformation of the data is judged to be of minor importance compared with the bias that would arise form using a less appropriate functional form or arbitrarily dropping the least efficient sample members. The technical inefficiency effects (ui s) generated in equation (3) are estimated within the MLE model specified above as:

(4) where Zi is the ith farm characteristic determining relative inefficiency and ei is distributed as above. The RHS variables of equation (4), represented by the Z, cover all the farm characteristics that proxy different levels of transaction costs faced by each farm. Those characteristics include access to credit for capital, experience in poultry production, age and education of household head, formal/informal trainings attended, subsidies represented by regional and contract dummies (for differences in policy distortions), access to markets for output, access to information, and the "instrumented" environmental cost (discussed in the next section). Two remaining methodological problems concern the measurement of the farm-specific data. First, some of the explanatory variables that one may wish to include in the second stage may not be observable at all, or in any event may be very hard to observe. This is especially true of transaction cost and externality variables. Second, some of the explanatory variables that one may wish to include in the second stage may be endogenous in the sense discussed above: the causality goes both ways, introducing simultaneity bias in estimation. This is particularly a problem for environmental externalities, since farmspecific differences here will help to determine relative unit profit efficiency as we define it, but themselves may be a function of the latter in some cases. 3.4 Measuring Farm-Specific Internalization of Environmental Externalities Two problems arise in trying to account for why some farms pollute more per unit of output than others when assessing why some farms have higher profits than others. The environmental externalities of livestock production are both hard to measure and, in many cases, determined simultaneously with the level of actual profit per unit. An externality is defined here as a return to an economic agent where part of the cost (or benefit) of undertaking an activity accrues to another entity that is not compensated (or charged) in the market. Negative externalities may be created in the production process for animal agriculture through odor, flies, and the nutrient-loading effects on soil of manure that is either mishandled or supplied in excess. Producers capture the benefit of negative externalities by receiving payment for livestock output but not bearing the full cost of their enterprise's impact, in terms of odor, flies, and poor water quality, for example, on surrounding communities. Producers that do not pay the full cost of production per unit may show up as "more efficient" (in financial terms) than producers who are otherwise similar but internalize some of the externality by cleaning up after their enterprise, or by making compensatory payments to surrounding communities.

The first problem relates to how the value of not paying for pollution created is measured, particularly if this differs by scale of farm, since that will lead to erroneous comparisons of unit profits across scale categories. Externalities of the sort involved are exceedingly difficult to measure. There is the "non-point source" issue, which basically concerns how to decide which farm's pollution run-off ended up in a river. Another issue that can arise concerns farmers themselves suffering from some of their own pollution, a fact that needs to be separated out of the externality. Yet another issue is that the negative effects of pollution carry over into future time periods. The costs of decreased sustainability are also very difficult to measure physically. Furthermore, the true consequences for sustainability from a given amount of manure will differ depending on soil type, temperature, rainfall, and so forth. In view of these many difficulties in conducting measurements, it is not practical in the present study to attempt to measure actual negative externalities. Instead, the focus is on differences across farms in terms of the amount of externality "internalized" when a farmer invests in pollution abatement by handling manure and dead stock in an ecologically sound manner. Higher expenditure per unit of output on a given farm for abatement of environmental externalities, with other things being equal, should be inversely correlated with the incursion of net negative environmental externalities per unit of output, under the assumptions above. Thus a farm that spends more per unit of output on environmental abatement is postulated to incur less negative environmental externalities than a farm that spends less on environmental services per unit of output. The heroic assumption that allows us to proxy environmental mitigation with the monetary value of manure management is that any amount of manure of any sort is equally polluting regardless of which farm it comes from if it is not spread on one's own or someone else's fields. This assumes that spreading manure on crops is uniformly good (despite run-off going into watercourses in some cases), and ignores the fact that farms close to population centers and watercourses probably produce more ecological harm per ton of manure - other things being equal - than farms farther away from people and watercourses. By the same logic, if one is willing to assume that the relationship is cardinal as well as ordinal - $1 per 100 kg. of output in abatement on farm A is twice as environmentally friendly as $0.50 per 100 kg. of output on a different farm - then we have a workable index that differentiates (inversely) across farms in terms of the amount of negative environmental externalities incurred. The assumptions are not perfect but the only feasible alternative - to ignore negative externalities altogether in econometric production work - seems worse. The components that go into the measurement of environmental mitigation include all costs of disposing of manure, including transport and other costs associated with manure disposal, the costs of disposing dead birds, the cost of controlling flies, and the cost of pollution payments. In addition, the spreading of manure on crops is considered to transform a potential externality (pollution) into a positive contribution to soil structure and fertility. It is difficult to cost this benefit accurately. The simple approach adopted is to value all the manure sold for spreading on others' fields (the reason for which it is purchased) at its sale value at the producing farm gate. Manure spread on one's own fields is valued at what it could have been sold for at the farm gate. Thus if manure is spread in the field and has any market value (i.e., people are not just dumping the manure) the latter is included in the internalization of the externality. The worst that any farm can do under this approach is to have no abatement expenditure at all per unit of output, yet this is actually the case for many farms. Having a working index of environmental mitigation creates a new problem and a new opportunity. The new problem is that this index, measured in rupees (Rp) per kg. Of broilers (or per egg in the case of layers), is in many cases simultaneously determined ith profits per unit. Thus profit per unit depends on environmental mitigation expenditures, but environmental mitigation expenditures are also influenced by profit. The new opportunity is the solution to the econometric problem, which involves creating an instrumental variable for environmental mitigation by regressing it on a series of exogenous determinants of environmental mitigation. Opportunity lies in the insights that the solution to this problem gives into why some farms are prone to spend more on environmental mitigation than others.

Among the factors accounted for in this study that might influence the amount of environmental mitigation expenditure across farms are farms' access to assets and information (transactions costs), farm characteristics such as location, and policy subsidies. Other examples of such variables include the education, experience, gender, and age of the household head; access to technical assistance; mortality rate; family labor; scale dummy; and other locational variables. The predicted value of the dependent variable from these regressions - environmental mitigation - can then be used as an explanatory variable in the second stage regression that explains why some farms are closer to the profit frontier than others. The measurement of environmental mitigation by the procedure above is only one approach to measuring the important environmental impact of livestock. The development of the measurement procedure was motivated by the need to incorporate environmental factors in the analysis of efficiency. More direct measures of environmental impact are possible, however, outside of this framework. The next section explores a methodology for directly assessing the interaction of animal density and environment. 3.5 A More Direct Approach: Mass Balance Calculations A proper application rate is the principal manure management practice that affects whether or not water resources are contaminated by manure nutrients, and in fact has very little to do with manure management technology per se. The above approach can be used to look at the effect on profitability of different efforts to mitigate environmental problems, yet this actually says little about the effectiveness of these measures or whether they are necessary. To know the latter one would have to actually follow the nutrient chain from each household to the final uptake source. Furthermore, to ensure that the uptake was actually occurring, one would have to conduct specific measurements of the disposal of the nutrients and the uptake. As noted above, such a measurement is beyond the ability of this project to address. It is possible, however, to estimate the potential of the externality in terms of the ability of a farm to utilize all the nutrients that it produces from the household survey conducted. If the manure produced exceeds the potential for on-farm use one needs to either (1) sell the manure, (2) transport the manure to an area where there is enough land for application, or (3) utilize a processing technology to transform the manure into a product that is profitable being transported a long distance or that does not need to be transported. Estimating the potential of the externality in this way may also help us understand why some farms may be investing more in manure mitigation technology than others, and it may also help us understand the differences across size of operations, particularly if large farms have limited land on which to dispose of manure. To determine whether a farmer has the ability to utilize all the manure on his own farm the balance of manure nutrients on the farm relative to the farm's potential to utilize the nutrients through crop production is calculated, based on the farm-level data collected in the household survey. From these numbers, the amount of nutrients in the manure is estimated in terms of organic nitrogen (N) and phosphate (P 2O5). These two nutrients were chosen because they are the nutrients for which regulations are primarily written, assuming that there is any regulation at all. The amount of chemical fertilizer applied per land unit was also included in the calculation, when available, to compute the mass balance of nutrients applied to the land. Crop assimilation capacity was estimated to determine whether a crop could assimilate all the nutrients produced on the farm. The amount of manure, if any, sold off-farm was then subtracted. 3.5.1 Animal Unit Calculations Nutrient values from poultry were calculated based on animal units, the most commonly used metric measurement unit for calculating nutrient levels. Animal unit conversions are used because it is recognized that the amount of manure produced from one broiler is not equivalent to the amount produced by one swine. This method is used to equate excretion across species. One animal unit is equal to the amount of manure produced by 250 broilers or layers, which is based on averages used by the U.S. Extension Service. Given that the level of nutrients present in the manure may also differ by species, based on what is eaten, the amount of different nutrients for each species also varies. For instance, 250

chickens produce 298 pounds (135.1 kg.) of nitrogen per year and 209 pounds (94.8 kg.) of P2O5 per year. Different countries have different conversions/limits. According to the European Community Directive, for example, the number of manure-producing animals per hectare of land for 0 to 16 weeks is limited to two dairy cows, four ground stock/beef cattle, 16 fattening pigs, five sows with piglets, 100 turkeys or ducks, 133 laying hens, or 285 ground hens. This numerical limit is equivalent to a limit of 170 kg/ha/yr of total nitrogen (including that deposited while grazing) in zones deemed vulnerable in terms of nitrate leaching (Williams 1992). It is expected that the above conversion factors will be lower for many of the developing countries, since the amount of nitrogen and phosphate excreted in animal manure depends on diets, species, and age of animal (Faassen and van Dijk, 1987). 3.5.2 Total Nutrient Production From animal unit estimations, the total nutrient deposition from poultry for each household was estimated such that the total nutrient deposited by household h was the sum of the nutrient produced by animal units of poultry type l in household h. If data on commercial fertilizer use was available it was added to this calculation in order to come up with total nutrient use on the farm, including both organic and inorganic nutrients, using the following formula:

where: l = Poultry category (broilers and layers) n = Nutrient type h = Household

AUlh = Animal units of poultry type l in household h

Estimation of crop up-take the capacity of these nutrients to be utilized at the household level is estimated by assuming that all the available land was planted with crops that would uptake the nutrients. This estimation is done to determine whether a household has the potential to utilize all the nutrients [61] produced, given the current number of animals in the household. The capacity for each household to use the nutrients produced by livestock operations is computed as the area of cropland available to the household multiplied by the nutrient uptake of the crops planted on the land. To determine this, we calculated the potential for rice to take up these nutrients under the assumption that all the available cropland was planted with rice. And, for the purpose of the calculation, we assumed that the nitrogen uptake for rice production is 100 kg. per hectare and that phosphorous uptake is 32 kg. per hectare. Again, it is recognized that the actual figure arrived at depends on the type

of soil and the ability of the soil to utilize nutrients, and that tropical soils require far more nutrients than other types. 3.5.3 Mass Balance In order to determine the nutrient balance on the farm the difference between manure nutrient production and nutrient consumption is calculated. The mass balance (MB) for each nutrient of interest (nitrogen or phosphorous) is expressed by the following equation:

where: Ah = Area of cropland on household h b = Total nutrient uptake by rice

n

The result is indicative of a household's potential assimilative capacity for nutrients based on the current number of animals on their property. A positive mass balance would imply that there is sufficient land to assimilate the nutrients produced, while a negative mass balance suggests that there is not enough land to absorb the nutrients. 3.5.4 Manure Sold Off-Farm Although manure is a potentially valuable fertilizer - and soil conditioner - areas with concentrated poultry production may not have adequate cropland for nutrient utilization stemming from by-products on livestock. Therefore, exporting nutrients from concentrated areas to surrounding areas may be both environmentally and economically beneficial. Markets for poultry manure do exist in India. Though there may be a market for poultry manure, the market for unprocessed manure may be seasonal as crops need fertilizer only during certain periods of their growing cycle throughout the year. To determine whether the households in this study that do not have the ability to absorb all the nutrients on their own farms are getting rid of excess nutrients through the market the amount of that which is sold or given away is subtracted from the amount of that which is produced. The results are then compared across various sizes of operations to see how various sizes of producers are handling the potential problem.
[60]

The log-likelihood function of this model is presented in the appendix of Battese and Coelli (1993). Estimation of the likelihood function also requires the specification of a relationship among the variance parameters such that , where the parameter has value between 0 and 1. [61] It is recognized that in this analysis the ability for the household to absorb on all land overestimates what can be absorbed. Unfortunately, it is necessary to use this estimate as most of the surveys are not detailed enough to delineate crop acreage from building area.

IV. Data and Survey Empirical investigation of the hypotheses in the study is complicated by the poor availability of data. Very little reliable data on the Indian poultry sector is available from government and industry sources. Available government data consist of only periodic poultry population estimates, with the most recent estimates based on 1997 livestock census. Trade associations, including the Poultry Federation of India, do not compile industry-wide data either. As a result, the study must rely on primary data. Therefore, it was decided that relevant data would be assembled through an intensive sample survey in the two states of India Andhra Pradesh and Haryana (See Figure 4.1), where the poultry industry has grown rapidly during the last two or three decades. A copy of a sample questionnaire is provided in Annex 1. The sample size was fixed at 160 sample households/units in each of the two sample locations. Before discussing sample composition, this chapter will look briefly at the poultry industry in Andhra Pradesh and Haryana. 4.1 Location of Sample and Its Characteristics 4.1.1 Andhra Pradesh Andhra Pradesh, an area of 1275 lakh sq. kms., is India's fifth largest state and is located in the South East part of the country. The state has a population of 757.28 lakhs as per the 2001 census. Andhra Pradesh's urban population accounts for 27.1 percent of the state's total population and is spread out in 210 towns and urban conglomerations. The rural population, 27.9 percent of total population, resides in 28,123 villages across the state. The Net State Domestic Product is estimated at Rs. 50,679 crores and per capita income at Rs. 7,155, based on 1999-2000 prices. Agriculture contributes 40percent of the state's income, while industry and services contribute 17 percent and 43 percent, respectively. Andhra Pradesh leads India in the production of eggs and broilers (5.8 billion eggs and 140 million broilers in 1997-98). Total poultry population as per the 1999 livestock census is 65.53 million. Table 4.1 displays the distribution of the poultry population across various districts in the state, as of 1999. There are, as per available information, 7,000 poultry farms in the state, and most of those (about 80 %) are [62] commercial farms with more than 10,000 birds. 4.1.2 Haryana Haryana, an area of 44,212 lakh sq. kms., is a relatively small state located in the northern part of India. The state has a population of 194.2 lakhs as per the 2001 census. The Net State Domestic Product is estimated at Rs.7,545 crores and per capita income at Rs. 3,997 in 1997-98 (at 1980-81 prices). The state ranked 10 in egg production (637 million eggs in 1997-98). Table 4.2 provides some salient features of the poultry population in Haryana by district. One can see from looking at column 3 of the table that the poultry population is high in three districts - Panchakula, Karnal and Jind. Within these districts, there are high concentration areas and low concentration areas. While selecting the sample, however, care was taken to ensure a fair distribution of the sample between high and low concentration areas. 4.2 Sample Size and Composition It should be borne in mind that in India no census of poultry farms has ever been conducted. Hence selecting a sample without adequate information on the population of poultry farms has been difficult. In order to overcome this difficulty a multi-pronged approach was sought. First, a directory listing the names and addresses of the poultry farms (especially for Haryana) was consulted, even though the information
th

in the directory was old and did not contain the names of new entrants. Second, institutions such as the National Egg Coordination Council, which kept records of its members, were consulted. Third, integrators helped to provide lists of poultry farms in their respective areas. All of this information was pooled, which enabled researchers to gain an approximate idea of the size of the poultry population in the two survey locations. Next, using their subjective judgment, while at the same time leaving enough scope to capture diverse characteristics of poultry units such as nearness to urban/rural areas or main road/kutcha road, researchers drew an adequate number of sample observations - 160 each in Andhra Pradesh and Haryana. Details of this sample include the number of broiler or layer farms in the two states and are shown in Table 4.3. Box 4.1: Shift in contract farming due to hanging demand for layers/broilers Contract farming in layers started more than two decades ago. These farms were primarily used for exporting egg powder. Domestic demand for egg powder has been negligible. As the export demand increased, the number of egg powder plants also increased. In 1996, there were, for instance, six plants that were exporting egg products to the E.U. and other developed countries. However, due to the institution of new residue limits for pesticides and an instance for submission and execution of RMP by E.U. to India, the export of egg powder declined significantly. In fact, after 1996 the capacity utilization of almost all the units became negligible, leading to the closure of three units. Because of this closure of egg powder plants, contract farms for layers also declined drastically. In fact, a number of these contract farms shifted their production from layers to broilers. This shift was basically due to increased demand for processed pieces of broilers used by a chain of retail outlets like McDonald's. During the last 2-3 years, export of egg powder has started to increase again. Three of the six plants that were closed due to the E.U.'s sanitary standards were upgraded to higher standards and HACCP compliance. Now, probably because of this new trend, contract farms are emerging as they develop good rapport with the integrators.

Box 4.2: Types of contract farming in India Under integration, farmers are largely insulated from the volatility of producer prices in the regional live bird market. The integrator provides the Day Old Chick (DOC), feed, medicine, veterinary services, and lifting of the mature birds. The farmer provides the house and equipment to the integrator's specification, power, fuel, labour and management. Under the standard contract, the integrator pays the farmer a flat rate per live weight to harvested bird, plus a potential performance bonus (or penalty). However, this varies from region to region. In the south, for example, contract growers pay the farmer Rs. 2.20 per kg. of harvested bird, based on FCR of 2 and mortality of four percent, and an incentive of 50 paise per kg. for lower mortality and FCR. In the west, the contract terms are seen as more liberal - one integrator in the region reportedly offers Rs. 3 per kg. of live weight based on an FCR of 2 and mortality of four percent. In the North, there is only one integrator in the belt of Haryana and Punjab. The contract term depends on 22 factors, the most important being weight of the broiler, mortality, feed, medicine, litter, electricity, and kerosene. Apart from these factors, the integrator also pays an incentive for loyalty. The revenue varies from Rs. 1.5 to 2.5. In the East, in the Calcutta area, the practice is that the integrator rents houses from local farmers and landlords, with the integrator then providing all equipment, labour, management and variable inputs, with the exception of electricity and water. The rates paid by the integrator to the farmer are reported to be Rs.3 per kg. live weight. 4.3 Timing and Extent of Surveys The field survey was carried out in Andhra Pradesh and Haryana during October - December 2002. The data originating from the survey was checked and cross-checked for consistency, and the farms where gaps or inconsistencies were found were revisited in January 2003 in order to fill those gaps.

4.4 Problems Encountered Several problems were encountered during the survey, and some of the important ones are described below. First, as already cited in the preceding section, there is no up-to-date, comprehensive list of poultry units in the two states as no census of poultry farms has ever been conducted in India. The Animal Husbandry Division that poultry comes under does not maintain any systematic data on poultry units, even though poultry has now emerged as a significant commercial activity in India. Even the National Egg Coordination Council (NECC) and the Poultry Federation do not have complete lists of poultry units. Thus drawing a representative sample has been difficult. Second, most farmers that were administered detailed questionnaire schedules were found to be keeping improper records of farm management details, and, in most cases, gave answers from memory. Hence the data collected from the survey is to be taken only as approximate data. Third, somewhat different data collection methods were used in Andhra Pradesh and Haryana. In addition, the teams for the two locations were different, and different languages are spoken in the two regions - Telegu in Andhra Pradesh and Hindi in Haryana. Thus many problems were encountered. For example, in the schedulescollected from Haryana egg production is stated on a monthly basis, while in Andhra Pradesh it is stated in terms of percentage of laying and its duration. Fourth, information on capital investment reported in the questionnaire schedules is highly misleading, as poultry owners generally acquire much more land than is required for the poultry unit. In India, land is not treated merely as an income-yielding asset, and it has high appreciation values, particularly in the vicinity of urban areas. When poultry owners take out an institutional loan for capital investment, their land is shown as a share of that investment. It is more appropriate to consider only the costs of buildings, machinery and equipment - and not the land - as capital investments in the unit. Fifth, the origin of the feed procured by the farmers could not be properly obtained. For example, maize used for feed comes from Maharashtra or North Telengana, and there are three or four places of procurement for each feed ingredient. Yet the respondents only indicated the market where they procured the feed. 4.5 Why the Sample is Representative The survey sample is representative of the two states in India - Andhra Pradesh and Haryana - where commercialisation of poultry has come a long way, where the industrialization of poultry farming has been expanding the scale of poultry operations. These two states can be considered as the states in India that have exhibited the greatest growth in poultry development to date, likely potential for future development and scales of activity. 4.6 How Data was Handled As stated in a preceding section, the survey was conducted by two separate teams, one in Andhra Pradesh and another in Haryana. Both teams, which had separately assembled their data, worked together to merge the data. Also as stated earlier, there were many problems related to data collection as well as to the congruency of the data collected. Yet the two teams thoroughly checked and re-checked the data to ensure that the data sets were consistent.

4.7 Variables and Methodology for Estimation of Revenue, Cost, and Profit Estimation of revenue, cost and profit per annum involves a complex procedure in the case of the poultry industry because of the differences in the production structure between layer and broiler units as well as the differences in the reference period used for different input items. The complexity will be less if only layer or broiler units are studied. A layer unit, in general, consists of a number of batches in order to have a continuous flow of income. Data on output and most of the inputs are collected for only the latest completed batch, which makes up only a part of the unit. The size of the unit is expressed in terms of the total number of birds in all of the batches at a point of time. For instance, if a unit maintains three different batches of 10,000 birds each, the size of the unit is 30,000 birds. Each batch will be completed in about 72 weeks, or 17 months. There will be a gap of two to three weeks after the completion of the batch to clean and disinfect the sheds before commencing the next batch. The duration of the batch varies from 72 weeks to 80 weeks, depending on the production rate of eggs. The completion of all of the batches marks one cycle and it coincides with the duration of a batch. The number of birds existing on the day of visit is not necessarily the correct indicator of the size of the unit, as some bird sheds may be vacant on that day after the completion of a batch and a new batch has not yet commenced. It is proper to use the information on the size of the unit when all batches are present on the farm. Since each unit has a gap at a different time, information on the current size of each unit is collected separately. The duration of a batch is about 72 weeks for a layer unit and about seven weeks in the case of a broiler unit. Annual estimates have to be derived for both types of units. Furthermore, the data available for a batch has to be multiplied for a cycle. The following method is used to derive the annual estimates for all of the broiler and layer units. In order to derive the annual output of a layer unit from the output farm of batch, a multiplier is constructed as the product of two factors, one for converting the batch estimate (about 72 weeks) for one year and the other for converting the estimate for one batch to the estimate for the entire unit. If x is the duration of the batch (in weeks) and y (in weeks) is the gap between two batches, the first factor is 52/(x + y). For example, if the gap between two batches is two weeks and the duration of the batch is 72 weeks, the factor is 0.7027. The factor for converting the estimate of the batch for the estimate for the year is the ratio of the size of the unit to the size of the batch. If a layer unit of 10,000 birds has 2,500 layers in the latest completed batch, the second conversion factor becomes four. The multiplier for the above unit is 2.8108 (0.7027 x 4.0). Since broiler output is collected for all the batches maintained in a year, multiplier is unity for output. Certain input items, however, are collected for the latest batch and for these items the multiplier is the ratio of unit size to the size of the batch. Thus only one of the two factors of the multiplier for layers will be applicable for the broiler. Revenue from a layer unit comes from eggs. As there is some spoilage of eggs, the value of eggs is based on the production of eggs minus the value of spoilage. A broiler unit produces, and brings in revenue from, meat and manure. Information on the quantity of these outputs and their corresponding prices is available. The value of manure is calculated as the total value of manure used either by the farm or by others and is valued at market price. Data on inputs are collected for various reference periods. Information on some inputs, such as regular workers, is collected for the year and on other inputs, such as casual workers or feed, is instead collected for the batch. Information on feed is collected for different stages of the bird, and data on feed are available for the latest completed batch. On the other hand, expenditure data on electricity, water, telephone, and other items are available for the entire unit. Cost items are classified into two categories: those items representing the entire unit per year are taken as they are without applying any multiplier, and cost items representing the batch are converted to annual estimates for the entire unit using the multiplier. A list of important variables, including cost items for broilers and layers under these three categories, is provided in Annex 2.

Table 4.1: Poultry Population in Andhra Pradesh by District, 1999 District Poultry population Percentage to state (000) Srikakulam 1226 1.87 Vizinagaram 1890 2.88 Visakhapatanam 2673 4.08 East Godavari 7703 11.75 West Godavari 7481 11.42 Krishna 3621 5.53 Guntur 2874 1.38 Prakasam 1377 2.10 Nellure 1601 2.44 Chittoor 4231 6.46 Cuddapah 1430 2.18 Anantpur 1099 1.67 Karnool 849 1.29 Rayalaseema 7609 11.61 Mehabobnagar 3213 4.90 Ranga Reddy 10018 15.29 Hyderabad 17 0.03 Medak 2832 4.32 Nalgoda 3447 5.26 Nizawabad 849 1.30 Adilabad 649 1.00 Karimnagar 2353 3.59 Warangal 2387 3.67 Khamam 1711 2.61 State (Andhra Pradesh) 65531 100.0 Source: Government of Andhra Pradesh Livestock Census of Andhra Pradesh, 2000.

Ashish argade 9550277788 3.91 lakhs 213 production Table 4.2: Features of the Poultry Population in Haryana by District (1997) District Poultry population Poultry population per Poultry population per thousand (00) sq. km. human being Ambala 5949 379 642 Panchakula 20117 2465 5428 Yamunanagar 6765 385 709 Kurukshetra 2456 202 330 Kaithal 1927 69 202

Karnal Panipat Rahtak Jhajjar Faridabad Gurgaon Gurgaon Rewari Mohendragarh Bhiwari Jind Hissar Fatehabad Sinsa Total

13028 1577 1879 1026 426 1476 9286 746 1081 3151 1131 2499 4666 2869 92229

527 126 83 62 23 70 336 48 64 61 413 66 187 67 209

1077 201 152 112 52 86 698 103 137 238 1012 178 360 274 483

Source: Government of Haryana, Statistical Abstract of Haryana, 1998 Table 4.3: Details of Sample from Indian Poultry Survey, 2002 S. No. Farm category No. of farms Andhra Pradesh Haryana Layers 1 Layer small (<10,000 birds) 22 41 2 Layer large (>=10,000 birds) 58 40 Total (Layers) 80 81 Broilers 3 Broiler small independent 58 35 (<10,000 birds) Broiler independent large

Total 63 98 161 93

35

43

(>=10,000 birds) Sub-total (Broiler independent) 5 Broiler Contract small (<10,000 birds) 6 Broiler-Contract large(>=10,000 birds) Sub Total (Broiler independent) Total (Broiler) Grand Total Source of Data: Indian Poultry Survey, 2002.

66 13 1 14 80 160

70 4 5 9 79 160

136 17 6 23 159 320

V. Profile of Survey Sample

What do the survey data reveal about the accessibility of the units to infrastructure, information, assets, technology, environment and marketing? An examination of this question follows. 5.1 Accessibility to Information Tables 5.1, 5.2 and 5.3 summarise the findings about the level of education and experience of the sample households. One can see from Table 5.1 that only one-fourth of the units reported to having had any training in agriculture/poultry; and an insignificant proportion of the units had technically qualified personnel managing the units. An inspection of Table 5.2 shows that at least half of the sample households had had primary and secondary level education. It is also worth noting in Table 5.3 that about 40 percent of sample units reported to having 10 or more years of experience in running the poultry units. 5.2 Accessibility to Infrastructure How are the units placed with respect to their accessibility to urban areas? Are they close to or far away from an urban area? Similarly, are they close to a residential area? Tables 5.4 and 5.5 help us to gain some insight into these aspects. First, look at the data in Table 5.4, which indicates that the distance from the location of the unit to the nearest town is around 7 kms. on average, and that the average distance to the nearest highway is 42 kms. A glance at the data in Table 5.5 tells us that more than half of the sample units are close to a residential area. Roughly one-third of the units are far away from a residential area. Tables 5.6 and 5.7 report accessibility of the sample units to municipal water, telephone, electricity, and a computer. Table 5.6 shows that all the sample units surveyed were found to have electricity. Similarly, most of the units (70 %) have telephone facility. Only a small proportion of the units (12.5 %) reported having access to a computer, and still a smaller percentage have access to a municipal water supply. As indicated in Table 5.7, for most of the sample units, the main source of water is bore well. 5.3 Accessibility to Assets What are the sources of finance fixed as well as working capital for the units surveyed? The answer to this question is provided in Tables 5.8 and 5.9. Table 5.8 displays the distribution of units drawing on their own funds, institutional credit, private loans, and Rural Development Programmes for fixed capital. A glance at this data shows that 80 percent of the sample units drew from their own funds, about 65 percent reported drawing from institutional agencies, and less than 20 percent depended on private loans. The proportion of the units that depended on Rural Development Programmes for credit is shown to be very small. Similarly, Table 5.9 reports the sources of working capital for the sample units. About half of the units reported to having drawn on institutional credit, while about one-third drew from their own funds. Less than one-fifth of the units depended on private loans. 5.4 Technology/Production Practices The age structure of sample units is displayed in Table 5.10. One can say from a casual inspection of this data that layer units in general are 10 to 15 years old, while broiler units are less than 10 years old. For

example, out of a total of 161 layer units, some 83 fall in the age group of 10 to 15 years and above. Conversely, 96 broiler units out of a total of 159 fall in the age group of 10 years and below. Does the survey shed some light on scale of operations? The data documented in Table 5.11 seek to provide an answer to this query. The table records distribution of units by initial (first year of production) and present (at the time of survey, October-December 2002) size. An inspection of this data shows that there has been a gradual shift from small to large-size units, especially among layer units. For instance, out of a total 118 small layer units, 74 units that were initially small (i.e., when production began) are still small; but 44 units that were small initially have managed to become large-size units at the time of the survey. Conversely, among broiler units only 13 out of a total of 140 units have managed to grow in size, while the remaining 127 units continue to remain as small units. Table 5.12 indicates the distribution of units by basic characteristics such as whether the units use the deep litter or cage system, are proprietorships or partnerships, or are located in rural or urban areas. An inspection of these data show that the deep litter system is relatively common among broiler units, while the cage system is popular among layer units. Similarly, proprietorship is the most common form of industrial organization among all the units 309 out of 320 units are proprietor owned. Yet another important feature is that virtually all the units are located in rural areas. What is the mortality rate of birds at various stages? Data arrayed in Table 5.13 help to provide an answer to this question. For instance, in the case of layers, about 30 percent die at the chick stage, 33 percent at the grower stage, and the rest at layer stages. The overall mortality for layers works out to be 10 percent. Similarly, for broilers, the overall mortality rate is four percent 40 percent die at the chick stage, 35 percent at the grower stage, and the rest at the broiler stage. The average yield of eggs per bird among the sample units is reported in Table 5.14. According to these data, the average yield of eggs per bird is 289. About 42 percent of units reported an average yield of 300 eggs per bird, 44.7 percent reported an average yield ranging from 250-299 eggs per bird, and the rest reported fewer than 250 eggs per bird. Table 5.15 exhibits data relating to the average number of hired and family workers per unit. An inspection of these data shows that an average total of 6.1 workers per annum worked on a poultry unit. Of that total, 60 percent were hired male workers and 25 percent were hired female workers. The remaining 15 percent were made up of family labour. 5.5 Access to Marketing Details regarding the sale of output by the sample units to various agencies are reported in Table 5.16. A casual glance at these data shows that the units tend to sell the bulk of their output to wholesale merchants. 5.6 Environmental Factors How do the sample units dispose of dead birds? How many of them receive complaints about environment pollution? How much do they spend on cleaning up the environment? Answers to these questions follow from Tables 5.17 to 5.19. First, look at Table 5.17. About half of the sample units responded by saying that they bury dead birds on their own land, while the rest responded that they dispose of them by incineration or other means. The figures in Table 5.18 illustrate the negative environmental effects generated by the sample units. About one-third of the layer units and one-tenth of the broiler units reported having received public complaints. Similarly, about 10 percent of layer units and two percent of broiler units reported disposing of dead birds on public land.

Instances of sample units spending on pollution abatement are also frequent and is shown in Table 5.19. The data arrayed in this table document that all of the units have been spending on control of flies, removal of dead birds, and shed cleaning. For example, layer units have been spending Rs. 300 to Rs. 900 per batch to control flies while broiler units have been spending Rs. 100 to 160 for this type of cleanup. Table 5.1: Households with Training in Agriculture/Poultry Category Training in agriculture/poultry (percent) Technically qualified workers (percent) Layer small 20.3 0 Layer large 43.7 0 Broiler small 21.3 0.8 Broiler large 12.5 0 All Units 26.3 0.3 Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.2: Distribution of Units by Years of Education of Decisiomaker (Percent of all units) Category Nil 1-5 years 6-10 years Above 10 years Total Layer small 0 5.4 58.1 36.5 100.0 Layer large 1.1 3.4 31.0 64.4 100.0 Broiler small 6.3 11.0 41.7 40.9 100.0 Broiler large 0 3.1 42.6 34.4 100.0 All Units 2.8 6.9 44.7 45.6 100.0 Notes: i) Small = Less than 10,000 birds ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.3: Distribution of Units by Years of Experience of Decisionmaker in Poultry (Percent of all units) Category 1-2 years 3-5 years 6-10 years Above 10 years Total Layer small 2.7 28.4 40.5 28.4 100.0 Layer large 0 14.9 21.8 63.2 100.0 Broiler small 7.9 27.6 32.3 32.3 100.0 Broiler large 3.1 9.4 53.1 34.4 100.0 All Units 4.1 22.5 33.4 40.0 100.0 Notes: i) Small = Less than 10,000 birds ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002 Table 5.4: Sample Units Accessibility to Urban Areas and Highways (Kms.) Category Nearest town Main Road (National or State Highway) Layer small 5.49 74.18 Layer large 11.90 34.93

Broiler small Broiler large All Units

5.24 8.84 7.47

33.84 20.66 42.15

Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.5: Percentage Distribution of Sample Units by Closeness to Residential Area Category Very close Moderately close Far away Total Layer small 72.97 4.05 22.97 100 (74) 100 (87) 100 (127) 100 (32) 100 (320) Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds iii) Very close <250 mts; moderately close: 250-500 mts; far away > 500 mts. iv) Figures in parentheses represent sample units Source of Data: Indian Poultry Survey, 2002 Table 5.6: Percentage of Sample Units with Infrastructure Facilities (Percent of all Units) Category Municipal water Telephone Electricity Computer Layer small 1.35 54.05 100.00 0.00 Layer large 1.15 95.40 100.00 41.28 Broiler small 3.15 53.54 100.00 0.79 Broiler large 0.0 96.88 100.00 9.38 All Units 1.88 69.38 100.00 12.50 Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002 Table 5.7: Percentage Distribution of Sample Units by Primary Water Source Category Bore well Open well Canal/river Municipal tap Purchasing water Total Layer small 97.30 1.35 0.00 1.35 0.00 100

Layer large

58.62

9.20

32.18

Broiler small

55.12

18.90

25.98

Broiler large

43.75

18.75

37.50

All Units

59.06

12.81

28.13

Layer large

97.70

1.15

0.00

1.15

0.00

(74) 100 (87) 100 (127) 100 (32) 100 (320)

Broiler small

88.19

0.79

0.00

3.15

7.87

Broiler large

100.00

0.00

0.00

0.00

0.00

All Units

94.06

0.94

0.00

1.88

3.13

Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds iii) Figures in parentheses represents sample units Source of Data: Indian Poultry Survey, 2002. Table 5.8: Percentage of Units by Source of Funds for Fixed Capital Category Own funds Institutional credit Private loan Rural Development Programme Layer small 85.1 71.6 23.0 0.0 Layer large 62.1 87.4 12.6 5.7 Broiler small 92.1 42.5 18.9 2.4 Broiler large 87.5 75.0 15.6 3.1 All units 81.9 64.7 17.8 2.8 * Percentage distribution may not add to 100 because units may be drawing from more than one source. Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.9: Percentage of Units by Source of Funds for Working Capital Category Own funds Institutional credit Private loan Rural Development Programme Layer small 24.3 58.1 16.2 1.4 Layer large 28.7 67.8 20.7 0.0 Broiler small 48.0 23.6 16.5 0.0 Broiler large 9.4 65.6 15.6 0.0 All units 33.4 47.8 17.5 0.3 Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.10: Distribution of Sample Units by Age of Unit Age in years Layers Broilers Total

Less than 5 years 5 to 10 years 10 to 15 years Above 15 years All units

20 58 29 54 161

38 58 36 27 159

58 116 65 81 320

Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.11: Distribution of Sample Units by Initial* and Present Size** Present size Layer small Layer large Broiler small Broiler large Total Initial size Layer small Layer large Broiler small Broiler large All units

74 44 118

0 43 43

127 13 140

0 19 19

74 87 127 32 320

*Initial size means size at the first year of production ** Present size means size at the time of survey Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.12: Distribution of Sample Units by Basic Characteristics Technology Management Location Type Category Deep litter Cage Proprietorship Partnership Rural Urban Layer small 38 36 74 0 74 0 Layer large 1 86 78 9 87 0 Broiler small 127 0 126 1 126 1 Broiler large 32 0 31 1 32 0 All units 198 122 309 11 319 1 Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds. Source of Data: Indian Poultry Survey, 2002. Table 5.13: Percentage Distribution of Dead Birds by Stage of Mortality Category Chick* Grower* Layer/Broiler* Overall* Layer small 28.2 23.4 48.5 100.0 Layer large 29.8 22.5 47.8 100.0 All layer 29.5 22.6 47.9 100.0 Broiler small 36.9 35.3 27.8 100.0 Broiler large 42.5 35.6 21.9 100.0

All Broiler

39.6

35.4

25.0

100.0

* For Layers: Chicks 1 to 8 weeks; Grower 9 to 18 weeks; and Layer 19 and above weeks For Broilers: Chicks 1day to 2 weeks, Grower 3 to 4 weeks, and Broiler 5 weeks and above. Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds. Source of Data: Indian Poultry Survey, 2002. Table 5.14: Percentage Distribution of Units by Average Yield of Eggs Per Bird Category Less than 250 250 - 299 300 and above Total Average yield of eggs Layer small 12.16 45.95 41.89 100 281 (74) 100 (87) 100 (161) Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds iii) Figures in Parentheses represents sample units. Source of Data: Indian Poultry Survey, 2002. Table 5.15: Average Number of Hired and Family Workers Per Unit (per annum) Category Hired male Hired female Family workers Total workers Layer small 1.3 0.6 0.9 2.8 Layer large 8.4 4.1 1.3 13.7 Broiler small 1.4 0.3 0.9 2.6 Broiler large 5.5 0.8 0.3 6.6 All Units 3.7 1.5 0.9 6.1 Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.16: Percentage Distribution of Sale of Output to Various Agencies Category Wholesale merchant Retail merchant Final consumer Contractor (middleman) Layer small 95.5 3.3 0.0 1.2 Layer large 94.2 5.8 0.0 0.0 Broiler small 76.1 10.1 2.8 1.5 Broiler large 83.5 3.7 0.0 0.0 All Units 94.3 5.3 0.0 0.3 Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002.

Layer large

13.79

43.68

42.53

291

All Units

13.04

44.72

42.24

289

Total 100.00 100.0 100.0 100.0 100.0

Table 5. 17: Percentage Distribution of Units by Mode and Location of Disposal of Dead Birds Category Mode Location Bury Incineration Others Total Own land Public land Others Total Layer small 67.57 5.41 27.03 100 81.08 2.70 16.22 100 (74) 100 (87) 100 (127) 100 (32) 100 (320) Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Figures in parentheses represent number of units. Source of Data: Indian Poultry Survey, 2002. Table 5.18: Indications of Environmental Pollution (percent of all units) Category Receiving Manure not Dead birds disposed Spending on community for complaints using fully on public land inconvenience Layer 16.2 0 4.1 1.4 small Layer 14.9 0 5.8 0 large Broiler 6.3 1.57 2.4 4.7 small Broiler 3 0 0 9.4 large Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002. Table 5.19: Indications of Environmental Cleaning Category Control of flies (Rs. per Removal of dead birds (Rs. per batch) batch) Layer small 368 191 Layer large 930 105 Broiler 114 58 small Broiler 161 91 (74) 100 (87) 100 (127) 100 (32) 100 (320)

Layer large

66.67

14.94

18.39

79.31

5.75

14.94

Broiler small

30.71

3.15

66.14

74.80

1.57

23.62

Broiler large

9.38

9.38

81.25

1.88

0.00

88.13

All units

46.88

7.50

45.63

77.19

2.81

20.00

Shed cleaning (Rs. per batch) 369 700 471 583

large Notes: i) Small = Less than 10,000 birds. ii) Large = More than 10,000 birds Source of Data: Indian Poultry Survey, 2002.
. Introduction Poultry egg and meat are important sources of high quality proteins, minerals and vitamins to balance the human diet. Specially developed breeds of egg type chicken are now available with traits of quick growth and high feed conversion efficiency. Depending on the farm-size, layer (for eggs) farming can be main source of family income or can provide income and gainful employment to farmers throughout the year. Poultry manure has high fertilizer value and can be used for increasing yield of all crops 2. Scope for Layer farming and its National Importance Poultry industry which provides cheap source of animal protein has taken a quantum leap in the last three decades evolving from a near backyard practice to a venture of industrial promotion. Poultry is one of the fastest growing segments of the agricultural sector in India today. While the production of agricultural crops has been rising at a rate of 1.5 to 2 percent per annum that of eggs has been rising at a rate of 8 percent per annum. India is on the world map as one of the top five egg producing countries with 55.6 billion eggs produced during 2008 (FAO). The poultry sector in India has undergone a paradigm shift in structure and operation. This transformation has involved sizable investments in breeding, hatching, rearing and processing. Farmers in India have moved from rearing non-descript birds to rearing hybrids which ensures faster growth, good liveability, excellent feed conversion and high profits to the rearers. High quality chicks, equipment, vaccines and medicines are available. Technically and professionally competent guidance is available to the farmers. The management practices have improved and disease and mortality incidences are reduced to a great extent. The industry has grown largely due to the initiative of private enterprise, minimal government intervention, considerable indigenous poultry genetic capabilities and adequate support from the complementary veterinary health, poultry feed, poultry equipment and poultry processing sectors. The industry has created direct and indirect employment for 3 million people.

. EXECUTIVE SUMMARY The poultry industry was largely a backyard venture before the 1960s which has beentransformed into a vibrant agribusiness with an annual turnover of Rs 45 000 crores. Today,India is the third largest egg producer in the world (after China and the United States of America), and the ninth largest broiler producer. The poultry industry has witnessed several ups and downs in the last 25 years as a result of unplanned growth and a lack of government regulation. Currently, the poultry industry has been growing at an average of 10% in layers and 15-20% in broilers for several years. The poultry industry is very modern, with pure-line breeding, the latest vaccines andmedicines, environmentally controlled poultry houses, up-to-date processing units, the latest management practices, chicken processing, exports of hatching eggs and excellent feedquality. Poultry industry is perishable in nature and chicks are required to be transported within twodays at right place and to right people, failing which a great loss has to be bear by thecompany. The most attractive feature of poultry industry from Indias perspective is that it has the potential to create 25000 more jobs on the consumption of 100 gm more chicken meat per capita.As per the instructions about the project report, we have to study the distribution channel of an organization to have the deeper understanding of the subject.

The study of this industry (hatchery) is interesting because: The business is sensitive to time. The chicks have to be delivered to the destination1000s of kilometers within 48 hours, else chicks will die. The logistic part is very much effective that transportation is easily possible with minimum loss.

Despite of having the short duration, the quality of the product is up to standard. The Indian poultry production is considered the cheapest in the world.

In comparison with the rest of the livestock sector, the poultry industry in India is more scientific, better organized and continuously progressing towards modernization. Breeding and feeding management has improved through education, training, competition, expansion and survival instincts. To understand all these aspects in details, we visited a franchisee of Venkys India Ltd . i.e. Mansarovar Hatcheries in Safido, Sonepat, Haryana. There we get to know all the production and distribution processes and other aspects involved in the industry.Venkys, transportation, franchisee, facilitating, farmer, commission agent, retailer

Over the years, the seasonal variation in prices has dropped and consumers do not have the option of shifting to cheaper produce to keep daily costs down, says a recent Reserve Bank of India study. "Seasonal variation for wholesale price index for 'all commodities' remained low and declined in recent years," it notes. Sunil Sinha, senior economist, Crisil, says: "People are feeling the pinch of inflation more because of the declining seasonality in prices." The study shows that the seasonal variation in prices of proteinbased foods has been on the decline in the past 15 years, confirming the rise in demand because of higher incomes. Seasonal variations largely result from climatic conditions in the case of food articles, though festivals can also at times cause prices to spike but these variations tend to moderate quickly. The RBI study uses an elaborate methodology (X-12 ARIMA) to measure seasonality, but a simple difference between peak and trough prices shows the trend well. NR Bhanumurthy of the National Institute of Public Finance and Policy says prices have been moving up consistently during the last few years rather than going through seasonal variations, a trend that people have come to expect. This is borne out by the postmonsoon experience last year, when despite bountiful rains prices continue to rise. A repeat seems to be playing out this year as well. Vegetable prices have already risen by 64% since March end. Inflation in vegetable prices is running at 13.01% while the food inflation is 9.32% as of October 1. The analysis of seasonal changes over times allows policymakers to pick up early trends that are long-term in nature. Economists contend that the increase in prices consistently is due to the structural shift in demand where people have started demanding certain food items more through the year while supply hasn't been able to keep pace. "Inflation has become structural in nature," said Indranil Pan, chief economist, Kotak Bank. The high input costs and rising wages could also be keeping prices up through the year. DK Joshi, chief economist of Crisil, does not see anything wrong with the decline in seasonality, but calls for addressing the structural pressure that is causing prices to rise steadily. In the long run, only higher public investment in agriculture and attracting private investments can help improve agriculture efficiency and increasing production. "There is a need to improve the production and marketing efficiency of these commodities. Role of technologies to reduce cost and increase production, and effectively linking production centers with the consumers, would control the prices of these commodities," said PK Joshi, agricultural economist at IFPRI.

Broilers Broilers are the main meat producing bird for the poultry industry. Broiler eggs are picked up from the breeder houses twice a week, and delivered to the hatcheries. The incubation period typically runs 21 days. The resulting broiler chicks are placed in grow-out facilities, where they are fed, watered, and medicated under strict company guidelines intended to maximize their weight to feed ratio. The grow-out houses for broilers and pullets are very similar. Like breeder houses they are typically 400 feet by 40 feet steel truss, open span buildings. Some buildings have wire mesh

windows that run the entire length on each side and are covered by heavy-duty curtains that can be raised or lowered for temperature control. Fans, foggers, and gas stoves are placed throughout the houses to help keep the temperature at productive levels. There are three basic types of flocks for broiler purposes. Mixed flocks are the typical broiler flock containing males and females. These flocks are normally grown to approximately 3.8 lbs. through 4.4 lbs. An all-female flock is raised when smaller weight is desirable since the females tend to out perform the males in the earlier stages. Typically, an all female flock is raised to be sold as Cornish hens with weights up to 2.2 lbs. Flocks containing all males are used when larger birds, normally over 4.8 lbs., are needed due to their ability to outperform the females in obtaining the larger weights. Layers These are very specialized birds that have been bred to be finely honed egg producing animals and are very different from the breeder lines. They produce the table eggs sold in stores. Current layers weigh approximately 3 pounds and would fit in the palm of your hand. The lack of extra weight keeps feed from being diverted to muscle upkeep and away from egg laying. This efficiency results in approximately 280 eggs per bird each year. Unlike breeders, it has been profitable for companies to hold the layer flocks through at least one molt period and a second laying cycle. Like their breeder counterparts, chicks (pullets) are placed in pullet houses until they are approximately 21 weeks of age at which time they are moved to layer houses. These houses are vastly different from, and much more expensive than, breeder houses. The hens are housed in stacked cages with 2 to 10 hens per cage. The houses are fully automated to provide a constant supply of feed and water to each cage and to maintain environmental control. Eggs are collected by conveyor belts that run from the cages to the egg room where they are sorted and packaged. Once the birds are no longer valuable as layers they have little value for any other purpose. They are too small to contain much usable meat and are normally sold for much less per pound than breeder hens.

INTRODUCTION TO THE POULTRY INDUSTRY

The purpose of this guide is to highlight issues that are specific to or have a large impact on the poultry industry. Most of the issues in this guide relate directly to the major companies rather than the individual farmers. However, one chapter has been devoted to the issues normally found in conjunction with a poultry grower audit. For more general issues concerning individual farmers, please refer to the MSSP Grain Farmers (3149-122), TPDS #83960J.

The poultry industry has come a long way from the individual farmer hand raising a small number of birds. It is dominated by multi-million dollar vertically integrated corporations that contract with individual farmers to grow company owned birds under strict company guidelines. The United States is a large player in this industry but it is by no means the top producer. There are several specialized segments of the poultry industry which require different techniques and knowledge of the examining officer. The following is a brief outline of these segments as they exist in the chicken and turkey industries and to a lesser degree in the duck and geese industry.

CHICKENS
The poultry industry is dominated by the chicken companies, some of which are also major players in the turkey markets. Most of these companies are fully or partially integrated; encompassing the breeding, growing, processing, and marketing of chicken and turkey products. However, some companies specialize. For example, there are companies that deal only with primary breeders, companies that deal in table eggs and layers, and companies whose primary business is selling live broilers.

Primary Breeders
The first step in poultry production is normally the primary breeder company that invests heavily in research and genetic engineering. They spend considerable time and effort in upgrading their selective gene pools in order to provide the major broiler companies with faster growing, more efficient birds. Efficiency is based on the bird's ability to convert feed to weight; its feed conversion ratio. As part of the primary breeder company's research, flocks are produced which are not for sale as fully developed breeders and thus must be slaughtered. Since many of these companies do not have slaughter facilities they contract this service through processing companies with strict controls designed to keep specific gene pool information a secret.
2-6 3123-013

Primary breeders are the grandparent stock which produce the breeder eggs. These eggs are taken to hatcheries, which are normally company owned, and hatched into the basic breeder chicks for sale to the producer companies. Many primary breeder companies will only sell hatched chicks rather than eggs for security and quality control reasons. Some of these companies are fully or partially owned by a larger chicken producer.

Breeders
Most of the major chicken producers purchase regular breeder chicks or eggs from the primary breeder companies. Which company they purchase from depends on the size of bird they need as well as any special qualities they are looking for in the finished product. It is not unusual for producers to purchase one strain of hens to be bred with a different strain of rooster in order to produce a particular type of broiler chick. Some producers also maintain a few primary breeder flocks as well as purchasing outside breeder chicks. Breeder chicks are placed in pullet houses and raised until approximately 20 weeks of age. At that time they are placed in wooden cages which are stacked on semi-trailers, and moved to

breeder houses where they will remain during the 40 week laying cycle. Within 4 weeks of being placed in the breeder houses, the hens will begin producing enough eggs to make it profitable for the company to haul the eggs to their hatcheries. This is typically 50 percent production or one egg every other day. From age 0 to 24 weeks, birds are considered pullets. From 24 weeks on they are full-fledged breeder hens. The typical breeder house is 400 feet by 40 feet and houses 6,800 or more hens and 700 or more roosters. Raised slats line each side of the house with a floor-level walkway running through the middle. The birds are fed once each day early in the morning. Eggs are normally gathered three times a day and stored in a cooled egg room to prevent incubation. Due to the hen's sensitive nature it is not feasible to move a flock once laying has started without causing a substantial, but temporary, drop in egg production. A move may cause the birds to go into "molt" which will knock them out of the egg laying business for several weeks. Thus, breeder flocks are seldom sold once they have been moved to the breeder houses. Any such flock sales during a laying cycle are conducted as a sale of the contract in order to avoid moving the flock. It is possible to keep a breeder flock after a regular laying cycle, allow it to go through a molt, and carry it through a second laying cycle. This is not a normal practice due to the decreased egg production versus the costs of a second cycle. However, it is a much more typical practice with primary breeders. At the end of each laying cycle the breeder house is cleaned out, sprayed, and new sawdust is spread in preparation for the next flock. The old litter can be used or sold by the grower as fertilizer.

Broilers
Broilers are the main meat producing bird for the poultry industry. Broiler eggs are picked up from the breeder houses twice a week, and delivered to the hatcheries. The incubation period typically runs 21 days. The resulting broiler chicks are placed in grow-out facilities, where they are fed, watered, and medicated under strict company guidelines intended to maximize their weight to feed ratio. The grow-out houses for broilers and pullets are very similar. Like breeder houses they are typically 400 feet by 40 feet steel truss, open span buildings. Some buildings have wire mesh windows that run the entire length on each side and are covered by heavy-duty curtains that can be raised or lowered for temperature control. Fans, foggers, and gas stoves are placed throughout the houses to help keep the temperature at productive levels.

There are three basic types of flocks for broiler purposes. Mixed flocks are the typical broiler flock containing males and females. These flocks are normally grown to approximately 3.8 lbs. through 4.4 lbs. An all-female flock is raised when smaller weight is desirable since the females tend to out perform the males in the earlier stages. Typically, an all female flock is raised to be sold as Cornish hens with weights up to 2.2 lbs. Flocks containing all males are used when larger birds, normally over 4.8 lbs., are needed due to their ability to outperform the females in obtaining the larger weights.

Layers
These are very specialized birds that have been bred to be finely honed egg producing animals and are very different from the breeder lines. They produce the table eggs sold in stores. Current layers weigh approximately 3 pounds and would fit in the palm of your hand. The lack of extra weight keeps feed from being diverted to muscle upkeep and away from egg laying. This efficiency results in approximately 280 eggs per bird each year. Unlike breeders, it has been profitable for companies to hold the layer flocks through at least one molt period and a second laying cycle. Like their breeder counterparts, chicks (pullets) are placed in pullet houses until they are approximately 21 weeks of age at which time they are moved to layer houses. These houses are vastly different from, and much more expensive than, breeder houses. The hens are housed in stacked cages with 2 to 10 hens per cage. The houses are fully automated to provide a constant supply of feed and water to each cage and to maintain environmental control. Eggs are collected by conveyor belts that run from the cages to the egg room where they are sorted and packaged. Once the birds are no longer valuable as layers they have little value for any other purpose. They are too small to contain much usable meat and are normally sold for much less per pound than breeder hens.

Primary Breeders These are the most valuable birds in the industry whose genetics are well guarded. The only known open market for mature primary breeders is the spent hen market since they are not normally for sale. Since these birds can be worth from $5 to $10 each and the spent hen market is normally under $2 per bird; use of the spent hen market is a sizable benefit to the taxpayer. Many of the primary breeder companies are affiliated with or owned by one of the large, integrated poultry companies. This association is very beneficial

to the primary breeder companies since only 1 in 10 roosters and 1 in 100 hens qualify as breeding stock. The remaining birds are young enough to be processed by the poultry companies as broilers.

Breeders There are three basic stages for breeders, starting with breeder chicks. The primary breeder companies are in the business of selling their breeder chicks. The prices vary depending on the breed (Arbor Acres, Ross, Peterson) and its current reputation in the industry. Market price can be determined by the price paid by the company for its supply of breeder chicks or through the primary breeder companies' records. It is important to obtain the prices from the actual primary breeder company from whom the poultry company purchases its breeder chicks. The second stage is started pullets, which encompasses the birds from a few days old until they are placed in the breeder house. During this time, they can be sold as started pullets for which there is an active market. Up to a certain size and age they can also be sold on the meat processing market as a broiler. Considering that pullets are much more expensive than broilers, it would indicate desperate times if a company actually did process its pullets. Under the final stage of breeder, the birds (hens and roosters) can only be sold as spent hens, which is essentially a salvage sale. A review of the company spent hen sales close to the yearend will provide the market prices and any related disposition costs.
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Broiler Eggs Eggs are collected three to four times a day from the breeder houses and kept in a cooled egg room which is part of the breeder house. The eggs are picked up and taken to hatcheries or for sale outside the consolidated group at least once a week with twice a week being the norm. There is a very active market for broiler eggs (a.k.a. fertilized eggs). Market prices for these eggs run as much as 400 percent higher than those for commercial eggs. All flocks produce some cull eggs. These are eggs with hairline cracks, over or under sized, excessively dirty, etc. Experience has shown that these eggs will not hatch so they are "culled."

Some companies sell these to egg breaker plants or in their company stores for employees. Most market guides will include quotes for culls.

Broilers Broilers are the main meat producing bird and enjoy the most active markets. The birds can be sold live on the farm or delivered to the buyer.

Layers These birds are a totally different genetic line from the breeders. They are bred for their egg laying abilities without any need for meat producing qualities. The baby chicks are purchased from companies similar to the primary breeder companies. Most of the integrated companies do not deal in layers or commercial table eggs. This market includes a large number of independents similar to Garth's Poultry and Egg, Inc. where chicks are purchased, table eggs are sold, and the layers are sold off as spent hens. Since meat producing is not a desired quality, the spent hens are not very desirable even as spent hens. Depending on the current market, layers may bring less than 1 cent per pound at the end of their cycle and in some cases, the companies are hard pressed to dispose of the birds. The current state of the spent layer market brings some interesting questions to the forefront. If no market exists for spent layers how can the taxpayer apply the farm-price method to these birds? Can it be said that the taxpayer participates in the spent layer market over the layer market when the first market no longer exits? At this time, these questions have simply not been addressed. Similar to breeders there is a started pullet market for those companies who do not have the facilities to raise the chicks. The price for started pullets can vary from one geographical area to another. If your taxpayer is engaged in purchasing or selling started pullets, the best source for market prices is their actual transactions.

Commercial Eggs

Probably one of the most active markets pertains to commercial eggs. These are the eggs sold in grocery stores to retail consumers. The market quotes cover all grades and sizes, including culls. The companies include some independents up to and including a few of the large integrated firms.

Primary breeders and breeders weigh from 7 to 9 lbs. at maturity. Their meat is not as tender as the broilers and it is typically used in soups or similar products.
LIFE CYCLE OF THE EGG:

Laying Hens
The modern laying hen is a biological marvel. She begins laying eggs at approximately 18 weeks of age and by the end of her first year, she may have produced upwards of 200 eggs - nearly 25 pounds. The hen reaches peak egg production (95 + %) within 4 to 6 weeks after she begins to lay eggs. In order to produce such a hen, it is critical that the hen be carefully managed during her first 17 weeks of life. At the beginning of a pullet's life in the hatchery, she is vaccinated to prevent future diseases. On the farm, pullets will be grown in cages until they are moved into the laying house at 16 to 17 weeks of age. Pullet chicks will typically be beak trimmed during their first three weeks of life in the pullet house to minimize cannibalism. Lighting programs are very similar to what was described for breeding flocks. GROSSARY Peak Egg Production -The point in a hen's laying cycle where she will lay the highest percentage of eggs Pullet - A laying hen before it lays its first egg.

Laying hen farms are composed of two different types, in-line and off-line. In-line production - Hen houses are placed side-by-side and linked by a conveyor belt. The conveyor belt leads to a centralized processing building, where the eggs from all houses are sorted, graded, either packed or broken and further processed, and refrigerated prior to shipping. Off-line production - This is similar to the in-line production, but the eggs that are collected on a conveyor belt and sent to a main building are packed and refrigerated prior to shipping to another facility to be processed. Molting is the process of the bird shedding and re-growing feathers. Molting occurs naturally in the wild, as seasonal daylight shortens and females stop laying eggs. Laying hens are generally molted once or twice during their productive lives. Molting usually does not affect egg size, but allows for an improved egg laying rate, improved shell quality, and increased albumin height. It also allows a producer to keep the birds longer than they might otherwise be kept. To induce molt, a producer may use a period of fasting and a reduced amount of daylight, giving the birds water and allowing them to lose a proportion of their body weight. Daylight length will then be increased, and the hens begin laying eggs again.

INDIA POULTRY INDUSTRY DATA The Government of India launched a National Meat and Poultry Processing Board, an autonomous body on 19 February 2009. The Board will be funded by the Government of India for its first two years and is managed by the industry itself. This apex body is launched to work as a national hub for addressing all key issues related to meat and poultry processing sector for the systematic and proper development of this sector. The Board would serve as a 'single window service provider' for producers/manufacturers and exporters of meat and meat products, in order to promote and regulate the meat industry, as a whole. It will lead to a large number of employment opportunities. It is also aimed to help rural farmers to increase their

income. The Board will also help industry to utilise slaughterhouse waste materials, set up quality control laboratories for meat and meat products, promote meat manufacturers to adopt Good Manufacturing Practices (GMP), Hazard Analysis and Critical Control Points (HACCP) systems, ISO-9001: 2000 standards, help industry to create and disseminate data, train workers and technicians and work as a central and National hub to address meat-related issues. Despite the potential of its large livestock population, India's meat industry has not taken its due share. Although India has acquired number one status in the world contributing around 15 per cent of global milk production in 2007-08, meat production is comparatively low at just two per cent of the world's total. The processing status is one of the major key issues of concern in the meat sector of India. Quality and hygiene levels are very low along with tremendous waste of meat, contamination/deterioration of meat and there are concerns over animal welfare. It is believed that the Indian poultry industry is 5,000 years old but it is only in the last four decades that it has begun to witness remarkable growth from backyard to poultry industry. The organised sector of poultry industry contributes nearly 70 per cent of total output, while the remaining 30 per cent comes from the unorganised sector. The broiler industry is well dominated in southern states in our country with nearly 60 to 70 per cent of total output coming from these states. The layer industry once again is represented more in southern states especially, Andhra Pradesh, Tamil Nadu and Maharashtra, which produce nearly 70 per cent of the country's total egg output. Three-quarter of India's egg production is consumed by just 25 per cent of the population living in urban and semi-urban areas. Presently, about 800 hatcheries are operating in the country. India has emerged as the only country in the developing world with a self-reliant, technology-driven industry with the capability to produce every essential input for successful poultry farming, including indigenous genetic resource and breeding, world class poultry vaccines and medicines, specific-pathogenfree eggs (SPF), farms and hatchery automation systems, pelleted feed, egg processing, poultry processing, nationwide network of disease diagnostic laboratories and facilities for entrepreneurial development and training in both private and public sectors. Rural poultry production constitutes important component of agricultural economy in India, with small poultry producers capable of a greater contribution to the alleviation of malnutrition, poverty and unemployment. India produces 3.6 per cent of global egg production, i.e., 61 million tonnes. The annual growth rate of egg is between five and eight per cent. India has the lowest cost of egg production in the world at 2.55 US cents per egg. Poultry production and consumption in the domestic market are predicted to grow significantly in the coming years. Indian poultry industry has been a major contributor to the foodprocessing sector in the country. From backyard activity to major commercial operation, the poultry sector has undergone a paradigm shift. Presently, 100 per cent of Foreign Direct Investment (FDI) is permitted in the food processing sector. FDI in food retailing covering dairy, poultry, marine, vegetables and fruits might help the entire food processing industry to grow. Poultry farming in India has transformed from a mere tool of supplementary income and nutritious food for the family to a major commercial activity generating the required revenue. The growth of the industry with steady production of 1.800 million tonnes of poultry meat, 40 billion egg per year and employment generation of about three million people indicates the future prospects for the industry. Changing food habits, rising income of the middle class Indian, the presence of private players, rising market demand for Indian poultry produce in the export market are among the factors contributing to the growth of the industry. Although India has abundant raw materials, a vast network of manufacturing facilities all over the country, and a large and skilled labour force, further development is hampered by poor infrastructural facilities, inadequately developed links between R&D labs and industry and a lack of awareness about hygienic practices. As a result, the Indian mat and poultry market stands in a low position in respect to the global markets.

The Ministry is exploring opportunities like setting of mega food parks, modern abattoirs, improvised processing units, providing added incentive to develop existing projects while taking care of the changing consumption patterns. The integration of development in contemporary technologies such as electronics, material science, biotechnology etc. offer vast scope for the rapid improvement and progress and opening of the global markets for Indian companies. The Humane Society International and the Animal Welfare Board of India organisations sent letters to Minister Sharma in response to a new Government of India policy encouraging 100 per cent foreign direct investment for the rearing of animals under intensive farming systems. Internationally, the animal agribusiness sector is known for intensive systems that confine egg laying hens, breeding sows and other farm animals in cages and crates that prevent them from walking, fully stretching their limbs and performing many other important natural behaviour. Indian poultry market size is estimated at more than 470 billion rupees (INR), with broiler meat and table eggs contributing more than 95 per cent of the market. The publication cites a new report from ICRA, which says that, globally, India ranks fourth in broiler meat production with annual production of about 2.9 million metric tonnes, and ranks third in table egg production, after the US and China, with annual production of 57 billion eggs. The poultry sector has transformed from a backyard activity into a major commercial activity in last two decades, with the presence of large integrated players who successfully implemented contract poultry farming on a large scale. Production has remained largely limited to southern India and western Maharashtra, though states like Haryana, Punjab, and parts of West Bengal have seen increased adoption of poultry farming as alternative source of income for largely agrarian economy. ICRA reports that the Indian poultry sector has been growing annually at around eight to 10 per cent over the last decade and at over 15 per cent in the last three years. It projects the domestic broiler meat demand to grow around 15 to 18 per cent, and table egg demand to grow at five to seven per cent in the medium to long term.

VINIT NIGAM 01204515831 The Pune-based firm will open 100 outlets, including in London, in the next three years with an investment of Rs 250 crore. These joints will offer chicken and vegetarian items on their menu, according to The Hindu Business Line. The company will raise money from internal resources and banks. It expected a break-

even for the new initiative in 15 months. It opened its second Venky's Xprs outlet in Hyderabad on Monday. B. Venkatesh Rao, Joint Managing Director of Venkateshwara Hatcheries, said the company had a technical agreement with Campden BRI of the United Kingdom to get food technologies. Mr Rao, along with Hindi film actor Sanjay Dutt, was here to mark the inauguration of the second outlet. "We are going to procure birds directly from farmers that would be directly sent to the processing unit set up for the initiative. This will give better price for farmers irrespective of ups and downs in the market," Mr Rao, who is also Managing director of Uttara Foods and Feeds Private Ltd that is promoting the chain, said. Talking on the poultry industry, he said the industry shrugged off the sluggish phase in the first six months. "The last three months were better than the first quarter. We expect that this positive trend will continue through the remaining months of this financial year," he said.

Item

2004 Tonnes %

2005

2006 Tonnes 13.03% 8.93% 5.31% 0.41% 5.73% 4.59% 4.57% 2.25% 60.90% 100% 1367580 913993 582300 44460 626760 476000 473795 236400 6571000 10665528 % 12.82% 8.57% 5.46% 0.42% 5.88% 4.46% 4.44% 2.22% 61.61% 100%

2007 Tonnes 1387550 903128 617400 46150 663550 476700 476210 237540 6869000 11013678 12.60% 8.20% 5.61% 0.42% 6.02% 4.33% 4.32% 2.16% 62.37% 100% %

2008

2009 Tonnes 12.44% 7.92% 5.73% 0.41% 6.14% 4.22% 4.23% 2.10% 62.96% 100% 1427470 885800 680400 46150 726550 478800 481110 239760 7616000 11855490 % 12.04% 7.47% 5.74% 0.39% 6.13% 4.04% 4.06% 2.02% 64.24% 100%

Buffalo meat Cattle meat Chicken meat Duck meat Poultry meat Goat meat Pork meat Sheep meat Fish

1329770 935928 520200 41210 561410 473500 471345 231600 6399000 10402553

12.78% 9.00% 5.00% 0.40% 5.40% 4.55% 4.53% 2.23% 61.51% 100%

1348810 924858 549900 42770 592670 475000 472850 233028 6304000 10351216

1407460 896100 648900 46150 695050 477750 478660 237120 7126000 11318140

Foreign exchange fluctuation as it is amongst the largest exporters of poultry products from India Outbreak of diseases like bird flu can adversely affect the sales

high vulnerability to disease outbreaks and highly volatile realizations affecting cash flows. The realisation pressures stem from the low entry barriers, which leads to oversupply situation. Further the marginal penetration of processed chicken (less than 5%) in overall poultry market limits the value-add potential and adds to the volatility of cash flows for the key players in the industry.

We have, for instance, contracted with 700- 800 farms for supply of chicks, but in less than 20-25 farms the wards of the farmers are engaged in the same activity This makes us think that the contract farming model would cease to exist in say a decade or so, a poultry firm owner in Coimbatore area observed. Look at the controls and cost mechanism the inventory is lying somewhere and there is the issue of managing people, sending someone to the farm everyday to collect the chicks , manage transportation costs, and so on.

After the Bird Flu incidence, our exports nosedived from over Rs 200 crore to around Rs 70 crore at present. Exports have not picked up since. We are looking at newer geographies, targeting island countries where production is practically nil, he said. This is not an one-off case. Several poultry firms, which had studiously developed niche export markets suffered from bouts of bird flu attacks and knee-jerk reactions from importing countries. Those countries have instead started relying on more reliable markets, leaving us aside, an exporter of poultry products pointed out. It would take some time before we could recoup the lost contacts and export again, he felt. But companies like VKS Farms still pins hopes on international markets, while catering to the domestic market by developing brands of their own.

Poor infrastructure of cold storage.

Key Risks:

Factors affecting growth of the Meat and Poultry Sector

Foreign exchange fluctuation as it is amongst the largest exporters of poultry products from India Outbreak of diseases like bird flu can adversely affect the sales Competition from unorganized market players The lack of export driven chicken processing plants. Viral outbreak threats. The high cost of logistics/transport. Poor infrastructure of cold storage. Increases in cost of feed ingredients:

After the Bird Flu incidence, our exports nosedived from over Rs 200 crore to around Rs 70 crore

Feed Cost Details main energy source the predominant feedgrain used in poultry feeds worldwide is maize. this is mainly because its energy source is starch, which is highly digestible for poultry. in addition, it is highly palatable, is a high-density source of readily available energy, and is free of anti-nutritional factors. the metabolizable energy value of maize is generally considered the standard with which other energy sources are compared. in north america and Brazil, the feed industry has benefited from surplus maize, resulting from increased mechanization and the application of genetic and agronomic techniques to raise productivity. in the asian and african regions, however, maize yield per hectare is low, and in most countries, production has never been sufficient to meet the needs of the growing human population. the net result is a continuing shortage of maize for feed use in these regions. the other energy source that meets most of the same criteria as maize is low-tannin sorghum. sorghum can be grown in low-rainfall areas and is a popular crop in hot, drought-prone regions. the high tannin content of many older sorghum varieties limits their use in poultry diets, but low-tannin varieties are now available and can be used in poultry diets without any limitation. the energy value of low-tannin sorghum is 90 to 95 percent that of maize.

Robust supply chain, efficient production system blended with strong In-house R&D: Competitive Advantage

Economies of an individual poultry farm are driven by feed conversion ratio (FCR) and mortality rates; size of operations, geographic diversity of revenues and extent of integration. Owning to Venkys presence in full value chain, from grandparents, parent breeders, hatcheries and commercial broiler farms, feed mills, chicken processing and retail chain outlets, it makes perfect sense for Venkys to leverage its strength.

Economics of Scale:

The poultry sector in India has undergone major shift in structure and operation during last two decades transforming from a mere backyard activity into a major commercial activity with presence of large integrated players with successful implementation of contract poultry farming on a large scale. This transformation involved sizeable investments in breeding, hatching, rearing and processing activities. The industry has been supported by indigenous advancements in genetic capabilities, veterinary health, poultry feed, poultry equipment, and poultry processing sectors with Venkys taking leadership role in same. Venkys is among the 6 global players in producing Specific Pathogen Free (SPF) eggs and only player in Asia to do so.

Venkys deal with both small consumers (a large number of farmers to whom it supplies chicks), and large accounts (users of processed chicken). Both the set of customers are known to aggressively seek lower costs, and yet Venkys has been able to increase its profits ten-fold. This was achieved on account of operational efficiency, economics of scale etc. It is the only listed entity having having very good network of feed farms, hatcheries, sales office and poultry feed plants situated near to market. Moreover, it is having PAN India presence through VH group companies. It can be managed professionally with state-of-the-art technology at every stage. Venkys enjoy 100% of Market share in SPF eggs, ~85% in Layer Breed and ~ 65% in Broiler breed Market share in India.

Presence:

Kannan ; Sir, We have show that you have very good presence thru VH group companies in India, also you have good infrastructure and R&D. Would u please give us idea about how this help u to have good integration among all these parameters. ????

Also need map of Venky and VH group map as on website.

India Map showing the presence of VH Group companies:

The domestic broiler meat demand is expected to grow at around 14-18%, while table egg demand is expected to grow at 9-10% in medium to long term. The poultry industry is providing direct and indirect employment to over 4 million persons in India. About 20 million maize farmers and 5 million soya bean farmers are also directly dependant for their livelihood on poultry industry.

Poultry production practices and Regions in India:

The structure of Indias poultry industry varies from region to region , based on differences in climate and on the presence of poultry integrators, who impose a standard level of technology and operational efficiency on poultry enterprises. While independent and relatively small-scale producers account from the bulk of production, integrated large-scale producers now account for a growing share of output in the west and southern region. These integrators have all aspects of production, including rearing of grandparents and parent flocks, rearing day-old broilers, contracting production, compounding feeds, and providing veterinary services. Venky's is one of the largest poultry company in Northern and Western Region of India with fully integrated operations. 46% of Indian population leave in region where Venkys is having its operation.

But we seldom pay attention to the mechanics behind producing that chicken (broiler chicken as it is popularly called). The broiler production flow starts from the receipt of imported Grand Parent (GP) chicks at Grand Parent Farms. The life cycle of Grand Parent Chick is: 0 4 Weeks Brooding Stage 5 23 Weeks Growing Stage 24 64 Weeks Egg Laying Stage Note: The laying may continue after 64 Weeks till culling The feed for the Grand Parents is dispatched by Feed Mills based on the indent from Grand Parent Units. The Premix and Health Care items are received from Premix & Health Care Units. The other medicines and vaccines are purchased either locally or through centralized purchase and are issued to the farms on need basis. The eggs collected from Grand Parent Breeder Farms are sent to Grand Parent Breeder Cool Rooms. After grading of eggs in the Grand Parent Breeder Cool Room the eggs are sent to Grand Parent Hatchery Cool Room. The graded eggs are sent from Hatchery Cool Room to Setter for egg setting. After 18 days the eggs are moved from Setter to Hatcher. The Parent Stock (PS) chicks come out on 21st day and are sent to PS Farms. After laying period the GP Cull Birds are sold in the outside Market. The PS chicks received from GP Hatchery are placed in PS Farms. PS Chick life cycle is similar to that of a GP chick: 0 4 Weeks Brooding Stage 5 23 Weeks Growing Stage 24 64 Weeks Egg Laying Stage Note: The laying may continue after 64 Weeks till culling. The feed for PS Chick is dispatched by Feed Mills based on the indent from PS Units. The Premix and Health Care items are received from Premix & Health Care Units. The other medicines and vaccines are purchased either locally or through centralized purchase and are issued to the farms on need basis. The eggs collected from PS Breeder Farms are sent to PS Breeder Cool Rooms. After grading of eggs in the Breeder Cool Room the eggs are sent to Ps Hatchery Cool Room. The graded eggs are sent from Hatchery Cool Room to Setter for egg setting. After 18 days the eggs are moved from Setter to Hatcher. The Broiler chicks come out on 21st day and are either transferred to Broiler Farms or sold to external Traders. After the laying period the PS Cull Birds are sold to the external Traders. The Day Old Broiler Chicks (BR DOC) received from PS Hatchery are placed in Broiler Farms. Based on feed indent from broiler branches the feed is dispatched from the Feed Unit either to the respective Broiler Farms or to the common delivery point directed by the broiler branch. The Premix and Health Care items are received from the respective units based on the indent. The other medicines

and vaccines are purchased either locally or through centralized purchase and are issued to the farms on need basis. One Broiler Branch may have 60-75 farms and these farms are grouped under Lines and one Line Supervisor is responsible for the line. The Line Supervisor visits the farms daily and records the mortality, feed in-take, feed stock, etc and gives necessary instruction to the farmer. The 6 weeks old broiler birds are either sold to the external traders or transferred to the consumer products division. And these integrated world class companies actually have ERP systems in place to manage the complexities. So next time while having chicken burger at KFC, give a thought to the origin of the chicken.

Venkys deals with both small consumers (a large number of farmers to whom it supplies chicks), and large accounts (users of processed chicken). Both the set of customers are known to aggressively seek lower costs, and yet Venkys has been able to increase its profits ten -fold. This is achieved on account of excellent Infrastructure, operational efficiency, economics of scale blended with strong R&D facility by Group Company. Venkys enjoy 100% of Market share in SPF eggs, ~85% in Layer Breed and ~ 65% in Broiler breed Market share in India.

On November 23, 2010, Punes Venkateshwara Hatcheries (Venkys) completed the takeover of Blackburn Rovers for approximately 23 million. By doing so, it has now become the first Indian corporate to own a professional sports team in a global league, in this case, the English Premier League (EPL). The Blackburn acquisition is a sound investment for a variety of reasons. The pedigree and proud history of the club, coupled with a successful track record, make this a value for money purchase. The acquisition will also help in brand building, recognition, and establish an international footprint for Venkys core competencies. The Indian ownership of the team is also likely to promote city and team loyalty, and is a huge opportunity to target and win over the global Indian fan-base. The Rovers have a dedicated and growing fan base (19,000 season ticket holders) with potential to expand exponentially. Unlike the Indian Premier League (IPL), clubs in the EPL usually own their stadiums and training facilities. Blackburn is no exception, with recently refurbished and revamped training facilities and an outstanding stadium (Ewood). Blackburn is a club that is low on expectation but high on return and potential. Venkys has taken a calculated risk and the rewards are likely to be significant. Even among the bargain basement opportunities in the sports domain, Blackburn has been in the market as an undervalued yet high potential investment. It is a trading club, and not a buying club, so the wages remain manageable. Also, it now has the opportunity to meet its various obligations while optimising sponsorship and other revenue oriented verticals or synergies. Venkys has a 1billion turnover and made a profit of 118 million according to its 2009-10 annual report, and has a long history of involvement in Indian and international sports. More likely than not, this is an investment looking to tap both the glocal and domestic domains. Pune is a robust and dynamic sports-oriented city, and soccer is likely to be the sport of choice for the young demographic. Pune also being a university town of sorts only strengthens the long-term sustainability and viability of establishing a football imprint on the city and its suburbs. For the most part, the EPL is the most-watched and lucrative sports league in India. It has solid revenue streams through viewership and licensed merchandise & premiums. While its uncertain how the shareholders will react to this acquisition, the fact remains that kneejerk reactions and also ambiguity or wariness are part and parcel of cases of first impression and greenfield domains. However, once the dust settles, and the revenue models are disclosed and dissected, the shareholders will more likely than not settle back into cruise control mode. Besides, there is little risk of the Venkys brain-trust going on an unsolicited and untenable spending spree. It is a conservative outfit, looking to make an international footprint for its core businesses in Europe: pharmaceuticals and poultry products. Most acquisitions in professional sports leagues, with the exception of the National Football League (US) have conglomerate ownerships, albeit fronted by a high profile individual (like Steinbrenner, Cuban, Glazer, Abramovich). Corporate and professional ownership and management of a professional team is always better in the long runfor the club, for the league, for the players, for the shareholders, and of course, for the fans.

Besides, there are certain guarantees in the EPL: a lucrative broadcasting deal on a league-wide basis, merchandising and licensed core and collateral products and apparel (with 19,000 plus dedicated and committed season ticket holders). There is also the opportunity to target and expand the fan base made up of diverse socioeconomic and ethnic communities. The TRPs in South Asia and among South Asians in Europe will rise exponentially once there is an Indian-owned and operated EPL club, along with the obvious expectationIndian or South Asian players. This would be much easier to accomplish with a middling to bottom rung EPL club than with a Liverpool or Man U. The clubs trustees have also mentioned the affinity with a takeover funded with equity and not debt. Venkys has clearly stated that it will not have an extravagant transfer/player wage budget unlike the 100 million transfer budget promised by Ahsan Ali Syed. Besides, Blackburn has made a conscious effort over the last few years to lower its wage budget (i.e. player acquisitions and trades), and instead to target a sustainable wage expense to revenue equation. Put simply, its a trading team, not a buying team. UEFA, European soccers governing body, will implement its financial fair play scheme by the 2012-13 season. It will ban teams that spend more than they earn from continental competitions. Clubs like Chelsea and Manchester City would be in danger of missing out on the tournament (the Champions League) that they spend so heavily to gain access to. Blackburn, however, should be able to hold its own in such a circumstance. One should also realise the global positive pecuniary externalities: free advertising, building on collaterals, larger fan base, reduced wage costs. Factor in the popularity of soccer, the fact that this is likely to have huge synergies in the Indian soccer/business of sports domain, and one can even be forgiven for overlooking the obvious. This is a golden opportunity to avail of free advertising, publicity, and brand building. If the only thing Venky has achieved from its investment was a certain amount of intangible brand awareness and media coverage, one can safely say that a 40 million investment would in and of itself be worth it. A below the line marketing expense, if you will. A world-class stadium and training facility, guaranteed broadcast revenues, an opportunity to treble its gate revenues, a chance to target the Indian youth with merchandise and collateral activities/products, along with a fan following of potentially a billion plus individuals. And the opportunity to rope in SME sponsors from India, and also to host EPL friendlies in India as away/home games for the Rovers. Also, in the next five years, to develop the most lucrative and popular sport globally on a for-profit basis in India. This is why more Indian corporates should look to follow the Venkys example. There are tangible revenue streams and collaterals, with the additional intangible benefits that come with a high-profile acquisition such as this. It is an outstanding value, when one looks at the price tag of and associated debt components for other clubs in both the EPL and other such professional sports leagues. The beautiful game, with an Indian glaze.