REZAMIE E. TAPIC
_______
RESEARCH
PAPER
2
“Industrial
Analysis
of
Broiler
Industry”
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TABLE OF CONTENTS
In the broiler industry, contact producers’ exposure to price risk is minimize, but
growers are expose to production (poor poultry performance and decreased placements)
and revenue risk. Since poultry is produce primarily in contract growing arrangements,
poultry is sold at the farm level, like is done with cattle or hog production in few spot (cash)
markets. The minimal number of spot markets limits the pricing information available to
producers and those interested in the broiler industry, and information related to the
volume of poultry production is somewhat limited when compared to other major livestock
industries.
Chicken broiler and egg production are the most progressive animal enterprises in
the Philippines today. The poultry industry as backyard enterprise but has shifted to the
formation of every large integrated contract farming operations. The growth of poultry
industry in the Philippines has been impressive but its problems include inefficient
management and the prevalence of many destructive poultry diseases and parasites
cannot be ignored. (Source: Department of Agriculture Bureau of Agriculture Research,
Date accessed 27 March 2014).
Poultry is the most progressive animal enterprise today. It is one of the world’s
major and fastest producers of meat while in the Philippines; it has been a significant
contributor to the country’s agriculture sector.
In 2010, the chicken popular in the Philippines was estimated 159 million, slightly
higher (0.2 percent) than last year’s level. Layer and native chicken inventory grew by 13
and 2 percent, respectively. Almost 50 percent of the total chicken population was
accounted for native or village chicken raised in backyard farms while the remaining 32.8
% (broilers) were taken up by commercial broilers.
Despite the level of sophistication, it has achieved, the local industry is still faced
with problems that deter it further development. The Philippines broiler industry is now
faced with the challenge of beefing up production through important of chicken meat and
chicken mean cuts. Although some broiler integrators are exporting increasing volumes
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of broiler meat, a significant quantity of cut-up broiler meat is also being imported into the
country. The continuing importation of leg quarters at dumped prices poses a major
problem to local broiler production. The unreasonably low-priced imported leg quarters
are causing significant price distortion of broiler meat in the country that is seriously
hurting local procedures. There is also a wide disparity between farm gate and retail
prices of broiler that causes problems particularly to local individual broiler producers. In
addition, among the recent problems encountered by poultry producers worldwide is the
apparent reduction of chicken meat consumption that is brought about by the major
outbreak of Highly Pathogenic Avian Influenza (HPAI) and Ebola Reston virus. These
events caused the exceedingly high prices of broiler meat and a build-up in inventory.
The poultry industry in the Philippines, as in most Asian countries, is more diverse
and less developed on several fronts, compared with its Western counterparts. First, the
supply of chicken meat comes from both exotic hybrids of foreign origin (the so-called
broilers) and native chickens (referring to domesticated jungle fowl and the p, rogenies of
their crosses with exotic breeds, which are mostly raised under free-range or scavenge-
based systems). Specifically, native chicken s accounted for around 54% of total chicken
inventory in 2005 (BAS 2006), contributing (Abuel-Ang, 2005).
Total chicken production (439,956 metric tons) during the first quarter of 2018
increased by 4.93 percent compared to previous year’s level of 419,303 metric tons of
the total chicken production 79.89 percent was contributed by the broiler chicken type.
Production
The total chicken inventory as of April1, 2019 grows by 2.96 percent or an estimate
of 184.34 million birds compared with previous year’s total inventory.
Chicken Inventory
Philippines as of April 1, 2016-2018
Growth Rate Percent
2017 2018 Share to
Region 2016 2017 2018
- -
2016 2107 2018
1 2 3 4 5 6 7
Survey
Philippines 172,497.362 179,045.739 154,344.617 3.60 2.96
Prices
The structure of the world broiler market is affected basically by three factors:
resource endowment ( as manifested by, among others, agro-climatic conditions, and the
availability and cost of major inputs such as land, capital, labor, feed and technology),
consumer preferences, and government policy. In term of resources endowment, given
that broiler are sensitive to changes in temperature and humanity, the matter of ensuring
maximum productivity would require that these conditions be inherently favourable to
lower the cost of controlling disease and the environment. Moreover, since feed costs
make up about 70% of the total cost of intensive poultry production systems, the
availability of cheap feeds is one of the most important factors for development. For
example, the world’s two most efficient broiler producers, the United State and Brazil, are
also major grain producers. In addition, access to advance technology, which is also
necessary to achieve a high level of efficiency, is another factor that strongly influences
industry performance. As expected, broiler industries in major exporting countries are
characterized by modern technologies and a high level of vertical integration (World
Poultry 2004).
Russsia, Japan, China, Saudi Arabia, EU 15, Mexico, Hongkong, United Arab Emerates,
South Korea Canada and Romania. The major consumers were the united states, China,
Brazil, EU 15, Mexico, Japan, India, Russia, Saudi Arabia, and Canada. Note that,
although in general, production is positively correlated with consumption and exports,
there are expectation.
The major player in broiler production, imports, and consumption in 2003 are
summarized. Note that among the top 10 producers, the United States, Brazil, EU 15,
and Thailand are net exporters, whereas Russia, Japan, China, and Mexico are net
importers. India, on the other hand, China and EU 15 are both major importers and
exporters in the world broiler market. The presence of intra-industry trade implies
considerable product differentiation in the world boiler market (Han and Hertel 20020).
Consumer Power
It is apparent that meeting the changing and ever more stringent consumer
requirements is a major challenge that the broiler industry faces. Take the UK, for
example, in the 1970s, price was the main consideration for making purchasing decisions;
in the 1980s, price, quality, and product range all became important considerations. By
the 1990s, a much wider range of consumer concerns has become evident, which
includes food safety, bird welfare, the environment, worker welfare, and ethical trade.
The broiler chicken supply chain is highly coordinated, the scheduled production
cycles to meet retail marketing campaigns. As little as eight weeks can elapse from the
time an egg is hatched until the day the chicken is harvested and served to the ultimate
consumer. Once a hen enters the hatchery supply flock at approximate 24 to 25 weeks
of age, the hen will lay approximately five fertilized eggs weekly until approximately 70
weeks of age. Broiler chickens are collected from contract growers’ farms, harvested,
processed and sent to retail distribution channels. USDA makes effort to collect
information from all known hatcheries, but the information collected may not reflect the
entire broiler industry. This report contains information on the number of eggs laid during
the month, average number of layers on hand for the egg and broiler industries during the
month and estimated cumulative potential replacements for the future months. The report
primarily includes information on U.S placement of young females into the U.S broiler
breeding flock, but there are some categories that reflect production occurring in the
United States but intended for placement in other countries.
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Moreover, since feed costs make up about 70% of the total cost of intensive poultry
production system, the availability of cheap feeds is one of the most important factors for
industry development.
For example, the world’s two most efficient broiler producers, the United States
and Brazil, are also major grain producers. In addition, access to advanced technology,
which is also necessary to achieve a high level of efficiency, is another factor that strongly
influences industry performances.
GOVERNMENT POLICIES
These barriers play a major role in determining the performance of the poultry
industries of some Western and Asian countries. In some cases, domestic industries have
remained viable only because they have been protected through government
interventions. Disparities in resource endowment and government policy have helped in
differentiating nations as self-sufficient, net exporters, or net importers of broiler meat.
Result in demonstration the most-profitable process for selling broiler that are
processed into whole carcass or selling cut-up parts. Where feeding formulations most
profitable for the production of broilers that are processed and sold as a whole carcass
or cut-up parts markets under the prices of inputs and outputs observed for the time period
chosen. Although processing broilers into cut-up parts generates the most profitable
marketing option, results can and will differ for different price circumstances.
Refers to the potentials of buyers bargaining down the process charged by the firm
in the industry or to increase the firm’s costs in the industry by demanding the better
quality and services of products. Strong buyer can extract profits out of and industry by
lowering the prices and increasing the cost.
The top-price analysis for target weights in next applied to cut-up processed parts:
skinless boneless breast, tenderloin, leg quarters, and wings. According to sample data
collected from a food retailer, their target weight are 1.00, 0.20,1.93, and 0.41 lbs.,
respectively. The sampled average weight from the food retailer is again higher than the
baseline optimal solution, with exception of the weight of wings, which is lower than the
baseline solution. In other words, the optimal solution obtained in the model interaction at
current prices indicates that the weight of skinless boneless breast, tenderloin, and leg
quarters are lower (and for wings, higher) than the average weights reported by the food
retailer.
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Refer to the potentials of the increase the prices or the inputs (labour, raw
materials, services) or the cost of industry in the other ways strong suppliers can extract
profits out of an industry by increasing cost of firm in the industry supplier’s products have
a few substitution, strong suppliers are unique.
Entry into the broiler industry requires some investment depending on the
segment. It is hard to obtain financing. The risk of entry by potential competitors is more
concern at the product level in the form of inputs. New entrants may be better financed,
organized differently such as being vertically integrated, or have new markets related to
foreign ownership or becoming a full line supplier providing them with a competitive edge
over existing competition.
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Alternative products available for available for broiler meat are beef and pork.
Broiler has a lower cycle of productive and lower price. The poultry industry over the years
has been more innovative in product development, branding and industry focus. While
there is not a direct substitute for milk, variety of products including soft drinks, energy
drinks and soy milk are substitutes in consumers’ shopping carts. The risk of substitute
products as a force depends on there it is measured, but in general it is a force impacting
producers.
Supplier bargaining power is relatively law in animal agriculture. Feed cost is the
single largest expenses for livestock, dairy and poultry production, often representing
60% or more of total production costs. Raw materials like soybeans and corn is limited.
The existing supply has inconsistent quality. Moreover, the import prices have increased.
There is new competition for corn for ethanol production but, because grain is a
commodity, bargaining power is low. Other significant inputs, such as most
pharmaceutical technologies and genetics have many close substitutes, which limits
market power.
Bargaining power of the buyer is a broiler market place has been studied
extensively by economist over a long period of time (Ward, 2010). Buyers based their
decision mainly on price. Product is not unique and can be purchased from other
suppliers. Demand is increasing for broiler meat.
The broiler industry provides a glimpse of inter-firm rivalry for the red meat and
milk sector in the future. A few vertically integrated companies dominate the broiler
industry in the Philippines. They are Swift Foods, San Miguel Pure Foods, Vitarich
Corporation, Tysons Agro-Ventures. General Milling Corporation and Universal Robina
Corporation (DA-AMAS 2001; Abuel-Ang 2009). Firms invested heavily in branded
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product are reluctant to reduce production when margina are narrow for fear of losing
market share to another firm. This type of behaviour is more common at the processing
level where firms have branded products and developed retailer relationships or contracts
that will be lost to competitors if there are supply disruptions. As the hog, beef, and dairy
production sectors consolidate into fewer and larger firms issues will arise.
For example, supply agreements between production firms and processors have
become commonplace and the need to keep the product pipeline full will make the
decision-making process regarding production cutbacks more strategic and less reliant
on simple marginal cost economics.
SWOT ANALYSIS
Strength Weakness
Present a strong Maintaining chick
distributors quickly
Big capacity feed Maintaining feed
mil quality
Parent stock Less numbers of
Big hatchery distributors
Sufficient number Luck of consistency
of employee in the marketing
Better access to Absences of
capital challenging
Opportunity
Strength
To sell more chicks
Sell hatching eggs Bird flu
to small hatchery Entrance of
Go for dressed multinational
meat marketing companies in the
Go for egg poultry industry
marketing Strong competition
Feeds for large from local
animals companies
Fish feed
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RECOMMENDATION
The government should threats farming equality with agriculture and may extend
all the benefits to poultry farmers as provided to agriculturist. Government, though
institution likes the veterinary colleges and universities, should provide knowledge and
training for development and maintenance of poultry farms along with educating them
about the new methods and modern technology. They should also verify if these poultry
farmers are receiving various grants, subsidies and financial benefits.
The poultry farmers should also be a part of poultry farmers association and local
groups so that they can contact and connect with other poultry farmers. This will help to
receive information and knowledge about the industry. The cost of raw materials inputs
used as feed ingredients like soybean and corn in continually increasing and is limited
which result as increase in expenditure for the farmer. Government should provide the
feed ingredients and should also keep a control over the demand, supply or import of
these materials.
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References
Muchael E. (2008). The Five Competitive Forces That Shape Strategy. Harvard
Business Review: (January 2008)
Marshall,2010INDUSTRY STATUS-CHICKEN
Http://www.pcaarrd.dost.gov.ph/home/momentum/poutry/innex
https;//psa.gov.ph/site/default/files/attachment/ird/specialrelease/CHICKEN%20final.pdf
Hui-Shung Chang (2007), Overview of the World Broiler Industry: implication for the
Philippines://ageconsearch.umnedu/bitstream/165854/2/AJAD_2007_4_1_4CHANG.pdf
Christine Chang, (2007) Analysis of the Philippines Chicken Industry: Commercial versus
Backyard
SectorAnalysis_of_the_Philippines_Chicken_Industry_versus_Backyard_Sector