A Comparative Profitability Analysis Of Broiler Production Systems In Urban Areas

Project and Seminar Material for Agricultural Economics and Extension

A Comparative Profitability Analysis Of Broiler Production Systems In Urban Areas


Abstract


Broiler production is carried out under different production systems and different production systems imply variations in cost of inputs and returns. This study looked at the cost implications of raising broilers under different production systems as well as constraints faced by the farmers. The study was conducted in Edo State of Nigeria. The data used in the study were obtained from a cross-sectional survey of broiler farmers in the State from October–December, 2013. A multi-stage sampling process was used to select the 211 respondents for this study. The data collected were analyzed using descriptive statistics, profitability ratios and multiple regression models. A five point Likert scale was used to judge level of severity of the constraints faced by the farmers.

The study showed that the mean age of farmers that adopted the battery cage systemwas 48 years and 46 years for the farmers that used deep litter system. The Gross Margin analysis gave a value of N2,422.24 and a Net Farm Income (NFI) of N2,412.40 per bird for battery cage system while the deep litter system had a gross margin of N1,601.77 and NFI of N1,593.80 per bird.

The profitability ratios showed Rate of Return on Investment RRI (91.69%), Return on Labour RL (N18.03), Return on Feed RF (N144.22) and Return Per Naira invested RNI (N0.91) for the battery cage system as against Rate of Return on Investment RRI (70.74%), Return on Labour RL (N30.28), Return on Feed RF (N117.95), and Return Per Naira Invested RNI (N0.71) for the deep litter system. This shows that both systems were profitable in the study area.

The Return per Naira Invested (RNI) showed that for every N1 invested a return of 91 kobo and 71 kobo accrued to the farmer for battery cage and deep litter systems respectively. Only three variables in the regression model were found to be statistically significant (P<0.05), these were feed cost, electricity, and purchase cost of day old chick for both the battery cage and deep litter systems. Feed cost was the major determinants of revenue accruing to the farmers.


Chapter One


1.0 Introduction

1.1 Background Information

Agriculture plays an important role in the economic development of Nigeria. It provides food for the growing population, employment for over 65% of the population, raw materials for industries and foreign exchange earnings for the government (Ajibefun, Battese and Daramola, 1996).

The livestock industry is an important sub-sector of the agricultural sector of Nigeria’s economy. According to Sani, Tahir and Kushwaha (2000), the role of this sector cannot be over-emphasized, considering the importance of animal protein in the diet of the people and the contribution from this sector to the Gross Domestic Product (GDP). In Nigeria, the production of food has not increased at the rate that can meet the demand from an increasing population. While food production increases at the rate of 2.5%, food demand increases at a rate of more than 3.5% due to high rate of population growth of 2.83% (CBN, 2004). The apparent disparity between the rate of food production and demand for food in Nigeria has led to increasing resort to food importation and high rate of increase in food prices.

The demand and supply gap for animal protein intake is quite high and the Food Agriculture Organization (FAO, 2003) recommends that the minimum intake of protein by an average person should be 65gm per day; of this, 36gm (i.e. 55.3%) should come from animal sources. Nigeria is presently unable to meet this requirement. The animal protein consumption in Nigeria is less than 8 gm per person per day, which is a far cry from the FAO minimum recommendation (Niang and Jubin, 2001). As a result of the above, widespread hunger and malnutrition are evident in the country. Poultry products offer considerable potential for bridging the nutritional gap in view of the fact that high yielding exotic poultry are easily adaptable to our environment and the technology of production is relatively simple with returns on investment appreciably high.

Poultry farms are farms that raise chickens, ducks, turkeys, geese, guinea fowls and other related birds for meat or egg production. Poultry is the most commonly kept livestock and over 70% of those keeping poultry are reported to be keeping chickens (Arma and Maxwell, 2000). In Nigeria, the poultry population is estimated to be 140 million, (Ocholi, Oyetunde, Komibish, Odigbo and Tarma, 2006). Ogundipe (2008), reported that chicken accounts for 72.4 million of this figure, and slightly 10 million of the poultry population is from the exotic chickens. In the past, poultry farming involved raising chickens in the backyard for egg production and family consumption. Effiong and Onyeweaku (2006), however reported that poultry business has changed from subsistence to commercial poultry farming. This agrees with the findings of Harmra (2010), that poultry farming is now a huge business that is split into several operations including hatcheries, broiler farms for meat production and pullet farms for egg production. The poultry industry has emerged as the most dynamic and fastest expanding segment in animal husbandry sector. Poultry eggs and meat contribution of the livestock share of the GDP increased from 26% in 1995 to 27% in 1999 (CBN, 1999).

The industry is a huge success in augmenting the animal protein shortage occasioned by the fast declining cattle production that used to supply the required animal protein in human nutrition (Idachaba, 2004). In the livestock sector, poultry is the most efficient converter of plant products into high quality animal proteins. This is in line with the findings of Harunaand Hamidu (2004), that when compared to beef industry, poultry enjoys a relative advantage of ease of management, higher turnover, quick returns to capital invested and wider acceptance of its products for human consumption.

Watch (2006), reported that the structure of poultry industry in Nigeria is represented by approximately 40% of commercial operations and 60% of backyard subsistence, Abeke (1990) and Umoh (1990) identified the extensive, intensive and semi-intensive as the three broad categories of production systems generally employed by farmers in Cross River State. According to Abeke (1990), the choice of a system is influenced by the purpose for keeping the stock, management practices adopted and the availability of capital.

Although lots of research findings are available on livestock particularly on nutrition, breed evaluation, cross-breeding, resource use efficiency, Oyedipe, Rekwot and Dawda (1996), observed that the use of such findings for the improvement of livestock production in Nigeria is limited. According to them reasons for this are numerous. They however, asserted that lack of detailed understanding of the production systems appears to be one of the major reasons for not implementing such findings. Therefore a detailed understanding of the different production systems employed by livestock farmers is a pre-requisite in planning livestock improvement programmes (Oyedipeet al., 1996). This view is also supported by Durojaiye (2000), who argued that luck alone does not explain the differences in the profitability levels of farms or ranches with the same resource endowment. Management is therefore a key factor determining the success or failure of a business enterprise; be it a firm or a farm.


1.2 Statement of the Problem

The average Nigerian diet is deficient in the quantity of animal protein required to maintain normal life. Food and Agriculture Organisation (2003) estimated the mean daily animal protein intake by Nigerians at about 10g/day, which is only 28.57% of the recommended minimum of 35g/day. Poultry production has long been recognized as one of the quickest ways for a rapid increase in protein supply in the short run. Afolabi (2007) opined that at present, the performance of the poultry subsector in terms of provision of the much needed meat and eggs to the average Nigerian has not been encouraging. For example, egg supply is very low being 10.56g as compared with the usual recommendation that an egg should be consumed by an adult per day; this recommendation would imply a crate of 30 eggs per month.

Landanor (2008) noted that overall productivity and output of poultry production in Nigeria is very low therefore the demand for meat, daily and other production outstrips the supply. The need to meet animal protein requirement from domestic sources demands intensification of production of meat and eggs derived from prolific animals like birds (Yusuf and Malomo, 2007). Durojaiye (2000), also argued that luck alone does not explain the differences in the profitability levels of farms of ranches with the same resource endowment. Management is therefore a key factor determining the success or failure of a business enterprise, be it a firm or a farm.

Viewed against the background of the nature and problems of poultry production in Nigeria and by Extension in Edo State and the shortfall in the supply of animal protein, the question that arose now is what type of production system is being practiced in the state and which one is more profitable?

To this extent, the study seeks to carry out a comparative cost analysis of broilers production systems in urban regions of Edo State and try to provide answers to the following research questions.

  1. What are the types of production systems (management) practiced by broiler farmers in the urban areas of Edo State?
  2. What are the factors affecting the production system practised by the broiler farmers?
  3. What is the cost implication of the various production systems to the farmers?
  4. Which production system is more profitable?
  5. What are the constraints of broiler farmers in the urban areas of Edo State?

1.3 Objectives of the Study

The broad objective of the study is to carry out a comparative cost analysis of broiler production systems in the urban areas of Edo State.

The specific objectives are to;

  1. Examine the socio-economic profiles of the broiler farmers in the study area.
  2. Identify the different systems and cost components of each system.
  3. Examine and compare the profitability of different systems of broiler production.
  4. Examine the relationship between cost of input used by respondents and income realized under the different production systems;
  5. Identify constraints to broiler production in the study area.

1.4 Justification of the Study

The current food situation especially with regards to animal protein production coupled with the inability of the economy to support and sustain importation of livestock and livestock products emphasize the need for the improvement of livestock production in the country. In a developing nation like Nigeria where the utmost priority is to achieve self sufficiency in food production with special emphasis on crop and animal products, it is imperative to encourage farmers to venture into poultry production. Considering the trends of population growth, urbanization, road access and increasing awareness on nutrition, it can be assumed that this sector will grow continually in the foreseeable future. As noted by Etim and Udoh (2006), poultry production is significant to the rural as well as the national economy. Urban dwellers are also known to be involved in poultry production as a means of generating additional income to cope with the rising cost of living (Bourque, 2000). This is because the birds can be profitably produced under semi-intensive system of management with readily available resources at the farmer’s disposal (Sonaiya, 2000). Most research works available are centred on technical efficiency (Kalarijan, 1981; Rawlings, 1985;Ajibefun,2002 Ojo, 2003). Only a few have dealt with the critical issue of the management systems of poultry production and their cost effectiveness and profitability. However, a few like Eduvi (2002), in a study on the costs and returns in alternative poultry production system concluded that the intensive management system is more profitable than the semi-intensive systems, Ayinde, Ibrahim and Arowolo (2011) also looked at poultry egg production on the different management systems in Ogun State.

Emokaro and Eigbirhemholen (2012) also looked at profitability analysis of poultry egg production in Edo State. There is a limited work on broiler production system. It is based on the recognition of this fact that this study is conducted. Empirical findings from this study will be useful to our policy makers and all those involved in poultry improvement programmes as well as the poultry farmers particularly in the study area.


1.5 Hypotheses

H0: There is no significant relationship between the profitability levels of broilers raised under battery cage and deep litter production systems.

H0: There is no significant difference between the revenues of broilers raised under battery cage and deep litter production systems.


Chapter Five


5.0 Summary, Conclusion And Recommendations

The study was a comparative profitability analysis of broiler production systems in urban areas of Edo State, Nigeria.


5.1 Summary

The two main production systems in the study area are the battery cage and the deep litter system, with the deep litter system of production being the most prevalent with 71.56%.The socio-economic characteristics of respondents reveals an average age of 48 years for those practicing the battery cage system with a mean family size of 6 and 7 years of poultry farming experience; while the deep litter production system farmers had an average age of 46 years and a family size of 4 and 7 years of poultry farming experience. Over 60% of farmers who practice both the battery cage and deep litter production system had tertiary education. The Gross Margin analysis gave a value of N2, 422.24 and a Net Farm Income (NFI) of N2,412.40 per bird for battery cage system while the deep litter system had a gross margin of N1,601.77 and NFI of N1,593.80 per bird. The profitability ratios showed Rate of Return on Investment RRI (91.69%), Return on Labour RL (N18.03), Return on Feed RF (N144.22) and Return Per Naira invested RNI (N0.91) for the battery cage system as against Rate of Return on Investment RRI (70.74%), Return on Labour RL (N30.28), Return on Feed RF (N117.95), and Return Per Naira Invested RNI (N0.71) for the deep litter system. This shows that both systems were profitable in the study area. The Return per Naira Invested (RNI) showed that for every N1 invested a return of 91 kobo and 71 kobo accrued to the farmer for battery cage and deep litter systems respectively. Only three variables in the regression model were found to be statistically significant (P<0.05), these were feed cost, electricity, and purchase cost of day old chick for both the battery cage and deep litter systems. Feed cost was the major determinants of revenue accruing to the farmers.


5.2 Conclusion

From the analysis, broiler farming is profitable for both the battery cage and deep litter system of production. However, the battery cage system of production require high degree of skill and knowledge in management as well as high capital investment in both fixed and variable inputs which most of the farmers are lacking.

The battery cage system offer relatively higher return to investment though it is most expensive to set up. We can say that the increase in the level of poultry meat supply in the study area, as well as the income position of the farmers and their standard of living lies in the improvement of the production system adopted.


5.3 Recommendations

Based on the findings of the study and the problems enumerated by the farmers, the following recommendations are considered appropriate for the possible improvement of poultry production in this study area:

  1. Farmers in the study area should practice the battery cage system, since it has higher Net farm income.
  2. The farmers should constitute themselves into self help group to attract loan from corporate financial institutions.
  3. Farmers are advised to compound their own feed as this will help to reduce the cost feeds which account for over 70% of the total cost of raising broilers from day old chick to point of sale.
  4. Lastly the electricity service provider should charged customer according to their consumption instead of the estimated billing system which is currently in place in the study area.

All these recommendations if adequately implemented will help to boost poultry production in the study area as well as increase income position of the poultry farmers. Subsidiary industries such as those producing poultry houses, equipment etc. will be viable when poultry are kept intensively.


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