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6.2 Broiler Sample Profile

6.2.1 Type of Operation/Ownership

In the past decade, commercial broiler production in Thailand has been transformed almost completely from independent farms to integrated businesses. The broiler industry is now dominated by about a dozen of integrators, all of which own hatchery and broiler farms, feed companies, and exporting companies.[100] Besides their own farms, which are of very large sizes, all integrators rely heavily on contract farming which has become the most common mode of operation in the broiler business in the past two decades. The contracted farms are dominant in numbers, and in some periods, in number of broiler raised as well. The domination of the contracted farms is indicated by our samples in all the five studied provinces, which are among the top six of poultry provinces. Out of 170 samples, 168 farms were subcontractors, one was small independent farm, and one was a local integrator[101] that owned a large farm and contracted out about 100 subcontractors (Table 6.31).

Among the five provinces listed on Table 6.31, the first two provinces are in the eastern region-which is historically more established broiler area in Thailand. In this two provinces, all contracts are forward contracts where output price and major input prices (feeds, medicines, day-old-chick, etc.) were stipulated in advance. For other provinces (Lopburi and Saraburi in the central plain and Nakorn Ratchasima in the northeastern region), there is also another type of contract where the contractors also provide all major inputs to the subcontractors, but the output and inputs are not priced. Rather the subcontractors get payment per-bird or per-kilogram that is similar to wage or piece-rate contract. In most cases, the latter type of contract-which is usually set out by smaller or local integrators, is not as sophisticated as the former one, which often ties the return (and output price) to several performance indicators.

6.2.2 Size of Operation

While the distribution of our samples is consistent with the domination of contract farming in the broiler business, the samples did not include integrators' farms--which are small in number but are significant in size, due to scattered nature of these farms as well as access problem. Size classification in Table 6.32 below is indicative for most farms, even though the distribution is not entirely representative. The lack of integrator's farms in our samples may prevent generalization of our analysis to include those gigantic farm operations. However, since our study that focuses on the social-health-environmental effects of industrialization, the inclusion of the farms that are the vast majority types of operation should be sufficient to provide the answers to our questions.

Based on our samples, about three-fourths of the contracted farms have less than 10,000 birds (based on stock figure during our survey). Ten-thousand (birds) is usually a minimum size for a farm to use evaporative cooling system, although some farms of this size would still use conventional housing system. As for integrator farms, most, if not all, use evaporative cooling houses.

6.2.3 Contract Duration

The lengths of contracts vary somewhat among our samples in different provinces. There were also variations within regions. In one province, one batch contract was dominant. But for most provinces, annual contract was as important as one-batch contract (Table 6.33). In some provinces the modal length is between one batch and one year.[102]

However, when farm size is taken into account, it become clear that larger farms tend to get annual contract more than smaller farms. Almost one half of farms of size 10,000-20,000 and more than two-thirds of farms with more than 20,000 birds got annual contract (Table 6.34).

6.2.4 Broiler Housing

Broiler housing varies somewhat in the studied area (Table 6.35). However, when farm size is taken into account, it is clearly seen that larger farms tended to use housings with evaporative cooling system. Most of evaporative housings are adaptive ones that make use of some domestic materials for cooling pads. Although the adaptive cooling pads are less efficient, it help decrease the cost substantially. There are two larger farms (20,000 up) that invested in full evaporative housing. (Table 6.36).

6.2.5 Feed Uses and Feed Conversion Ratio (FCR)

Unlike swine, all broiler farmers in our sample used processed (ready-mixed) feed for their broilers. In most cases, the feed was provided by the contractor as stipulated in the contract. The two other farms either bought feed from larger farm or local supplier.

The feed conversion ratio (FCR) reported by the farmers is shown in Table 6.37 and Table 6.38 While the ratio varies from one province to another, it is clear that the very large farms (with more than 20,000 birds) had better FCR than smaller farms. In terms of housing, the farms with full evaporative cooling system appear to have the best FCR compared with other groups. On the contrary, farms with adaptive (modified) evaporative cooling system did not have better FCR compared with traditional housings. They only better compared with farms that built the broiler houses over the fish pond, whose performance was poorer than all other types of farms, FCR-wise. However, this latter group might have made some trade off on FCR to maximize profit in the joint chicken-fish activity.

6.2.6 Broiler Mortality Rate

Broiler mortality usually is affected by several factors. High mortality rates, at 10 percent or more, usually involve disease outbreak. The outbreak, however, is often related-at least partially, to farm mismanagement. For lower mortality rates, animal welfare issue is also in consideration. In countries where labor cost is expensive or where broiler workers are scarce, some farms would maximize their profit by employing small numbers of workers per animal, which would result in relatively high mortality rates.

Table 6.39 and Table 6.40 show the mortality rates across areas and farm sizes. From Table 6.39, mortality rate varied slightly from one area to another, which might also reflect outbreaks in different regions. As for farm sizes, the result was not monotonic. It should be noted, however, that, the smallest farm had the worst performance while the very large farm (>20,000 birds) has the best performance in terms of the mortality rates. For the latter, almost three-fourths of the farms had the mortality rate below five percent and none of them had the rate over 10 percent. Therefore, it is more likely the case that the scaling up process that make farms larger would come with better management that probably improve animal welfare and decrease mortality rates as well. This should not come to a surprise, since most large farms raise broilers for export. They, therefore, are subject to rules and regulation, not only from the Thai DLD, but also under scrutiny from buyers in the foreign countries as well.

6.2.7 Environmental Cost Born by the Farm

One aspect of this study is to deal with environmental impact of livestock industrialization. Since it is not feasible to measure the environmental impact of each farm, we turn to measure the costs that each farm spends to deal with the environmental problem it creates. We have found during the pretest that it is extremely difficult for the farm owners/operators to provide accurate information on resources and time spent for various pollution abatement activities, many of which done by their full-time employees whose main tasks are raising the broiler. We therefore settled with asking the extra costs that each farm spent specifically for pollution abatement activities. These costs include machine or equipment bought/used for this purpose (e.g., for incineration) and extra labor cost that the farm have to pay to hire additional workers specifically for these tasks. In a sense, these costs are underestimated since only pecuniary marginal costs were included. However, it is arguably appropriate when one wants to measure effects of policy changes or perturbations on environmental code on the farms' costs.

Based on this measurement, one-fourth of farmers incur no extra environmental cost (include many of whom sold all manure out or use it to feed their fish. In most cases, the cost is rather small (less than 0.01 baht per bird or 0.25 percent of chicken price for the great majority of the farms) (Table 6.41). This result is consistent among all farm sizes (Table 6.42). The relatively small magnitude of costs incurred by most farms might be attributed to the fact that, in most situations, chicken manure is considered a "good"-a joint product sold at a price comparable to chemical fertilizer. When the manure is sold, usually the buyers would come and spend some labor in gathering it form the chicken house. Also, when manure is used to feed fish, there is almost no labor cost involved, since the manure would be dropped directly into the fishpond.

It should also be noted that, the very large farms tend to incur higher environmental cost per animal. Part of this could be resulting from the manner by which the costs are recorded. It is, however, also possible that the higher animal concentration in large farms would require more effort to deal with the pollution abatement, as the area might have limited absorptive capacity. The other possibility is that the large farms tend to be more environmental friendly as it is usually under more scrutiny by the neighbors and the local authorities.

6.2.8 Profit

The study period (the second half of 2002) was a low period for the Thai broiler industry. In mid 2002, some batches of Thai chicken exported to the EU were found with traceable amount of banned antibiotics like Nitrofurans. As a result, the EU imposed a universal inspection scheme for every batch of chicken imported from Thailand. Some Thai exporters also withdrew some of the shipments that were in transit. Domestically, the broiler price dropped substantially, at least in two or three batch interval. This is consistent with what many farmers reported about price drop in the study period (late 2002). Chareon Pokaphand Food (CPF), which is one of the leading broiler exporter, has recently announced a drop of profit in the first quarter of 2003, citing a 30 drop of export price of broiler. At the same time, farmers reported feed and drug prices had increased significantly in the second half of 2002.

Under these circumstances, the broiler farms were not doing as well as they used to. While all contracted farms reported having positive net revenue, our further calculations-which accounted for hired wages, electricity, depreciation, etc., yields negative profit for several farms. On average (see Table 6.43) small farms-especially farms under forwarded contracts, were losing money on these batches. Medium and large farm were doing better. Their average profit are relatively low, however, considers that the costing did not include family labor. The very large farms (20,000+) were the only group that still make considerable amount of profit during the study period.

Table 6.43 also indicates another interesting point-i.e., types of contract appear to affect farms' profit. The price guaranteed contracts-which is the typical one employed by large integrators, appears to favor larger farms over smaller farms. This could be because this type of contract often links output price with certain performance indicators (such as FCR and mortality rates) that larger farms tend to have an edge. It is, however, also possible that the real advantages that the larger farms have in this contractual arrangement is simply higher bargaining power. Some contracted farmers complained that the contractors are the only party that would determine the harvesting date and, at times, leave them to raise the broilers too long that not only decreased the output price (with link with related performance indicators), but also increased their feed cost (as the FCR would increase because of the delay).

6.2.9 Transaction Costs

While part of the profit differences among farms with different sizes might be attributed to technological factors, it is also plausible that having different transaction costs could be one of the reasons. Since transaction costs are difficult to measure, this section examines some price variables that should be related to transaction costs and negotiation power. From Table 6.44, forward contract farms with larger sizes received gradually higher prices. The differences were more pronounced for contracted farms with per bird return. Feed price also decreased in size. Only price of day-old-chick-which varied greatly in our samples-was not clearly correlated with farm size. In light of these figures, it is plausible to conclude that larger farms had some advantage when it comes to output and input prices. As a result, average gross return per bird (revenue minus feed, medicines, and other inputs provided by contractors) clearly increases with farm size. However, these price differences (and thence differences in the gross return per bird) may simply reflect economies of scale in transactions that translated into better price for farms that dealt in larger volumes.

Table 6.45 lists other variables that could affect farms' transaction costs (and, in some cases, production costs). Average ages of farm operators are similar across farm sizes, although operators of farms with more than 10,000 birds tended to be older than those of smaller farms. Farm operator's year of education increases with size. However, most of them did not have college education. The operator's experience in broiler increases with size. This is consistent with what enumerators found from the field that most broiler farms (large company farms excluded) began as a small farm and expanded their farms on their success[103]. As for farm location, most of them are not very far from the nearest community. This is not very surprising, since most of the larger farms (over 20,000 birds) use closed-system housing, which are probably even less polluting than most of smaller farms. Larger farms tended to be farther from the public waterway, which is not surprising since most larger farms use underground water and use road as the mode of transportation.

In terms of investment, the very small farm (5,000 birds or less) had the highest average annualized fixed cost per kilogram of chicken produced. Farms of other sizes had similar (also lower) fixed cost per kilogram. This is because even though larger farms tended to invest more, the evaporative cooling system that many adapted allows them to house more chicken per house than a smaller farm (see also Table 6.45). However, when compared fixed cost per kilogram between evaporative cooling and non-evaporative cooling houses, the former still tend to cost more. On pollution abatement expenditure, the largest farms tend to spend more per bird than farms of smaller sizes. However, the amount spent by all farms are relatively low compared with other costs.

[100] Most companies raise their own breeding stock bred from the imported grandparent stock. One large company also has some share in a grandparent-stock firm oversea.
[101] A relatively small one compared with the dozen of big players in the broiler business in Thailand. This farm has its own slaughterhouse but does not have a feed mill.
[102] On average, the number of batch per year is around five.
[103] It is possible that some other small farms went out of the business along the way. However, our survey was not designed to cover these cases.

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