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VIII. Conclusions

At the beginning of this report, five key questions were posed concerning the poultry industry in India. The analysis throughout this report reveals the following:

Profitability defined as profits (excluding family labour wages) per unit of output does not differ significantly between small-size and large-size farms, whether layer or broiler. In other words, profitability per unit is not significantly affected by scale of operations.

The main factors that determine profitability are the price of chicks (DOCs), price of labour (wage rate), price of feed, price of eggs/broilers, and Feed Conversion Ratio (FCR). Profitability is inversely related to the price of chicks, wage rate, price of feed, and FCR, and is positively related to the price of eggs/broilers. (The FCR and wage rate are significant only for broilers).

Though profitability per unit does not differ significantly between small farms and large farms, the efficiency of these two types of farms does differ significantly. Small farms are relatively inefficient, and the principal reasons for their inefficiency are high transaction costs and pollution abatement costs associated with policy induced distortion. This is specially true for layer farms. To be more precise, small producers enjoy fewer advantages compared with large producers in terms of obtaining information, marketing, and transportation and storage facilities (transaction costs). At the same time, small producers are observed to spend more effort per unit of poultry output than large producers on collecting, drying and transporting poultry manure (pollution abatement costs). Speculatively, this could be due to the lower opportunity cost of their own labor, or perhaps to the greater incentive to keep the surrounding household and neighborhood environment clean in a close-settled smallholder setting.

In addition to transaction costs and pollution abatement costs, differences in the amount of implicit policy subsidies received by farms across regions/states are also found to affect the relative profit efficiency of small and large producers. Large farms in Andhra Pradesh, for example, are more profit inefficient than their smaller counterparts in the state of Haryana, because Andhra Pradesh levies a four percent processing tax on poultry products in addition to the usual sales tax on poultry feed, while Haryana levies no such taxes.

A significant difference exists in the profitability of contract farms vis-à-vis independent farms. The profitability of contract farms in this study, whether large or small, is generally lower than that of independent farms.

These study results do provide valuable inputs to policymaking. Approximately 15 million people in India are currently making a livelihood from poultry farming, and many of them are small producers. These small farmers are severely constrained by the cost of inputs/outputs, a lack of adequate infrastructure, poor transport facilities, an inefficient marketing system, and no proper means of disseminating information. In order to strengthen these 15 million farmers and make them more competitive, the following policies may be recommended.

First, it must be noted that the poultry industry is highly dependent on the feed industry feed alone constitutes 65 percent of the cost of broiler and egg production. Therefore, any price movement in the feed sector will have a direct positive effect on the prices of eggs and broilers. The main feed ingredients used are maize, soya, rice bran, and other cereals. Of these, maize is the most critical one in India. Domestic production of maize has remained almost static at around 10 million tonnes per annum for the last decade or so. The poultry industry alone requires about five million tonnes per annum.

Other users of maize in India include the starch industry, the cattle feed industry, the seed sector, and the general population. Severe shortages of maize have frequently existed, causing the price to shoot up and leading to crisis and turmoil in the poultry industry. Imports of maize were at one time restricted, but, since April 2000, imports have been approved under Open General License (OGL). There is, however, a 15 percent duty levied on imports of up to 450,000 tonnes, and it has been proposed that that duty increase by 50 percent (Tariff Rate Quota or TRQ) on quantities greater than 450,000 tonnes.

According to estimates prepared by the Poultry Federation of India, the proposed hike in the import duty on maize could increase poultry feed costs by as much as one rupee per kg. It seems likely that such a hike will hurt independent farmers more than contactors and small farmers more than large ones, other things equal. Larger and more vertically-integrated enterprises have greater flexibility and more resources than small independents to adjust to price rises in a single key input. Providing all producers, but especially smaller ones, with feed at a competitive price might require that (a) the present TRQ be raised or abolished, and (b) domestic production of maize be increased by increasing the yield per hectare, which is currently the lowest in the world at 1.4 tonnes (as compared with a world average of 4.2 tonnes). In order to increase domestic production of maize, though, India may have to diversify its agricultural production through contract farming and/or cultivation of GMO seed varieties.

Second, serious efforts are warranted from the government of India to improve basic infrastructure facilities (stoppage and transportation, including cold chain), access to credit, dissemination of information, and the marketing system, all of which have severely constrained small farmers and much more so than large farmers. For example, in the case of the marketing system, poultry products currently pass through various intermediaries before they reach the final consumer. The presence of so many intermediaries between the producers and the consumer harms the interests of both the producer does not get a remunerative price for his product and the consumer pays a high price because of the cascading profit margins from so many intermediaries. In order to address this, the marketing system should also grow along professional lines that may include the use of the traditional channels of traders to some extent in the intervening period before the marketing system is substantially improved.

Third, the government should endeavour to create a favourable economic environment for increasing capital formation and investment in poultry by rationalising the tax structure and removing distortions in incentives. Several Indian states levy taxes on poultry processing and feed manufacturing, which tends to increase production costs and retard industry growth.

Finally, the Indian poultry sector, classified neither as an agricultural sector nor an industrial sector, receives far less support than its potential contribution might indicate. While the poultry growers continue to pay the same rate of income tax as any other industry, they receive neither subsidised power nor water, unlike the agricultural sector. Poultry producers also do not receive other fiscal and regulatory benefits and concessions available to the industrial sector. This ambiguity in the status of poultry producers is currently hindering the potential of this important sector. Improved governmental policy would treat all small poultry producers as agriculturists, extending the same benefits and concessions to them as to other agriculturists.

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