LEAD Livestock, Environment and Development initiative
Project on Livestock Industrialization,
Trade and Social-Health-Environment Impacts
in Developing Countries












 

Table of Contents


Policy, Technical, and Environmental Determinants and Implications of the Scaling-Up of Livestock Production in Four Fast-Growing Developing Countries: A Synthesis

Final Research Report of Phase II

Christopher L. Delgado, Ph.D.
Senior Research Fellow
International Food Policy Research Institute (IFPRI)
2033 K St., N.W.
Washington, D.C. 20006, USA
e-mail: c.delgado@cgiar.org

Clare A. Narrod, Ph.D.
Livestock Economist (Natural Resources)
Animal Production and Health Division
Food and Agricultural Organization of the United Nations (FAO)
Room C-539
Viale delle Terme di Caracalla 00100 Rome, Italy
e-mail: clare.narrod@fao.org

Marites M. Tiongco, Ph.D.
Research Analyst
International Food Policy Research Institute (IFPRI)
2033 K St., N.W.
Washington, D.C. 20006, USA
e-mail: m.tiongco@cgiar.org

July 24, 2003

This report is submitted to the Food and Agricultural Organization of the United Nations by IFPRI in fulfillment of Letter of Agreement PR20803 from FAO to IFPRI, dated October 25, 2001 as amended by FAO on November 8, 2001. Grateful acknowledgement of project funding support for Phase II is made to the Livestock, Environment, and Development (LEAD) initiative housed at FAO, and supported in this instance by the European Commission, with additional support from DFID (United Kingdom Department for International Development) and the core programs of FAO and IFPRI.


Table of Contents


Acknowledgments

I. Introduction

1.1 The Livestock Industrialization Project
1.2 The Context of the Scaling-up of Production: The Livestock Revolution
1.3 Why Scaling-up of Production Matters for Pro-poor and Sustainable Growth Policies
1.4 Issues and Research Questions Investigated in Phase II
1.5 Hypotheses to be Tested

II. Growth, Concentration and Integration of the Livestock Sector in the Study Countries

2.1 Growth and Concentration in the Philippines
2.2 Growth and Concentration in Thailand
2.3 Growth and Concentration in India
2.4 Growth and Concentration in Brazil
2.5 Vertical Integration of Smallholders Through Contract Farming
Appendix: Maps of Livestock Densities

III. Impact of Scaling-Up of the Livestock Sector on Social, Environmental, Health and Welfare Outcomes

3.1 Introduction
3.2 Impact on Social and Equity Outcomes: Changes in Asset Base at the Low End of Livestock Farm Sizes and Incomes
3.3 Other Social Impacts of the Scaling-Up of Livestock Production
3.4 Impact of Scaling-Up of Livestock Production on the Environment
3.5 Animal Disease Control Issues, Options, and Impacts
3.6 Food Safety Concerns and Effect of Changes in Study Countries
3.7 Animal Welfare and Effect of Changes in Study Countries

IV. Approach

4.1 The Methodological Challenges
4.2 Defining a Farm-Specific Measure of Relative Competitiveness
4.3 A Methodology to Decompose the Determinants of Relative Profitability
4.4 Measuring Farm-Specific Internalization of Environmental Externalities
4.5 Mass Balance Calculations
4.6 Handling Contract Farming

V. Data and Surveys

5.1 Sample Locations and their Characteristics
5.2 Sample Size and Composition
5.3 Rationale for Size Category
5.4 Timing and Extent of Survey
5.5 Problems Encountered
5.6 Characteristics Represented in the Sample
5.7 Data Handling and Construction of Variables
5.8 Descriptive Statistics for Variables Collected

VI. Profile of Survey Sample

6.1 Socio-economic Characteristics of the Sample Farm Households
6.2 Performance of Milk, Poultry, and Swine Production
6.3 Output Prices Received and Input Prices Paid by Survey Households
6.4 Comparative Profit Performance
6.5 Access to Markets and Services

VII. Capture of Environmental Externalities

7.1 Evidence on the Impact of Increasingly More Concentrated Livestock Production on Excess Mass Balances of Nutrients
7.2 Current Pathways of Nutrient Use From Manure and Dead Animals
7.3 Manure Disposal for Survey Households
7.4 Dead Animal Disposal for Survey Households
7.5 Mass Balance Calculations
7.6 Results for Average of Farm-Specific Measures of Environmental Mitigation Effort by Farm Size

VIII. Econometric Estimation and Results

8.1 Introduction
8.2 Why Do Some Farms Spend More Per Unit of Output On Environmental Mitigation?
8.3 Comparison of Average Profit Efficiency Across Farm Classes
8.4 Explanation of Farm-Specific Profit Inefficiency in Terms of Differential Transaction and Environmental Mitigation Costs

IX. Conclusions

9.1 Objectives and Outline of the Conclusions
9.2 Mechanisms Through Which Concentration of Livestock Production and Scaling-up Impact on Social, Health and Environment Outcomes
9.3 Profitability, Sustainability and Efficiency: Who Does Best Across Size Groups?
9.4 Why Are Some Farms More Efficient at Making Profits Than Others?
9.5 What is the Outlook for Independent Smallholder Livestock Farming?
9.6 Implications for Policy Intervention

References

Annex I: Livestock Industrialization Project: Phase II - Policy, Technical, and Environmental Determinants and Implications of the Scaling-Up of Broiler and Swine Production in the Philippines

I. Introduction

1.1 Objectives of the Study
1.2 Justification
1.3 Main Issues and Research Questions to be Investigated
1.4 Specific Hypotheses to be Tested

II. Growth and Structural Change in the Livestock Markets in the Philippines

2.1 The Livestock Revolution
2.2 Internal and External Factors Influencing the Scaling-up of Production
2.3 Structural Changes in the Broiler and Hog Industries
2.4 Policy Changes in the Livestock Sector
2.5 Environmental Impacts of Scaling Up

III. Approach

3.1 The Methodological Challenges
3.2 Defining a Farm-Specific Measure of Relative Competitiveness
3.3 A Methodology to Decompose the Determinants of Relative Profitability
3.4 Measuring Farm-Specific Internalization of Environmental Externalities
3.5 A More Direct Approach: Mass Balance Calculations
3.6 Handling Contract Farming

IV. Data and Surveys

4.1 Sample Location and Its Characteristics
4.2 Sample Size and Composition
4.3 Rationale for Size Categories
4.4 Timing and Extent of Surveys
4.5 Problems Encountered
4.6 Representation of the Sample
4.7 Data Handling and Variable Construction
4.8 Descriptive Statistics

Appendix Table 4.1 Coding guide for broiler field instrument, IFPRI-UPLB, Philippines, 2002.
Household Characteristics
Farm Characteristics
Production Cycle
Variable Inputs and Costs
Access to Markets and Services
Other Revenues
Appendix Table 4.2 Coding guide for hog field instrument, Hog Production, Philippines, 2002.
Household Characteristics
Farm Chracteristics
Production Characteristics
Variable Inputs and Costs
Access to Credit and Markets
Appendix Table 4.3 Descriptive statistics of selected variables, per kilogram of output (where applicable), Broiler Production, Philippines, 2002
Appendix Table 4.4 Descriptive statistics of selected variables, per kilogram of output (where applicable), Hog Production, Philippines, 2002.
Appendix Table 4.4 Descriptive statistics of selected variables, per kilogram of output (where applicable), Hog Production, Philippines, 2002 (continued).

V. Socio-Economic Profile of the Sample Broiler Households

5.1 Household Characteristics
5.2 Farm Characteristics
5.3 Production Characteristics
5.4 Access to Markets and Services
5.5 Summary

VI. Socio-Economic Profile of the Sample Hog Farm Households

6.1 Household Characteristics
6.2 Farm Characteristics
6.3 Production Characteristics
6.4 Access to Markets and Services
6.5 Summary of Involvement in Production Activities

VII. Capture of Environmental Externalities

7.1 Capture of Environmental Externalities, Broiler Farms
7.2 Capture of Environmental Externalities, Hog Farms
7.3 Mass Balance Calculations for Broiler and Swine Farms
7.4 Organic Fertilizer Markets
7.5 Chemical Fertilizer Markets
7.6 Summary of Findings

VIII. Analytical Results and Discussion

8.1 Broiler Farms
8.2 Hog Farms

IX. Conclusions and Policy Directions

9.1 Differences in the Viability of Smallholder Broiler and Hog Farming Across Sample Commodities
9.2 Expenditures on Environmental Abatement
9.3 Enforcement of Environmental Regulations and Farm Competitiveness
9.4 Impact on Smallholders of Operating in Certified Disease-Free Zones
9.5 Impact on Competitiveness of Costing Family Labor
9.6 Importance of Direct Subsidies to Different Size Categories of Producers
9.7 Smallholders and Transaction Costs
9.8 Relative Competitiveness of Smallholders Under Current Structure
9.9 Scope for Policy to Reduce Subsidies Favoring Large-Scale Operations
9.10 Scope of Reducing Smallholder Transaction Costs through Institutional Innovation
9.11 Full Social Costs and Benefits of Institutional Innovations
9.12 Policies Supportive of the Above Innovations
9.13 Outlook for Smallholders Under Different Structural and Policy Scenarios

References

Annex II: Livestock Industrialization Project: Phase II - Policy, Technical, and Environmental Determinants and Implications of the Scaling-Up of Broiler and Egg Production in India

I. Poultry Industry in India

1.1 Transformation from a Backyard Activity to a Major Commercial Activity
1.2 Regional Variation in Poultry Development
1.3 Growing Production of Eggs and Broilers
1.4 Increasing Scale of Operation
1.5 Structure of the Poultry Industry
1.6 Concentration of Poultry Units Around Cities and Urban Centers
1.7 Low Per Capita Consumption
1.8 Slow Changes in Consumption Habits
1.9 Exports
1.10 Employment
1.11 Issues Relating to Animal Welfare and Environmental Pollution
1.12 Constraints on the Growth of the Poultry Industry
1.13 Policy Measures

II. Major Objectives

2.1 Detailed Objectives of the Study
2.2 Specific Research Questions
2.3 Specific Hypotheses to be Tested

III. Approach

3.1 Methodological Challenges in Determining Scaling-Up of Livestock Production
3.2 Defining a Farm-Specific Measure of Relative Competitiveness
3.3 A Methodology to Decompose the Determinants of Relative Profitability
3.4 Measuring Farm-Specific Internalization of Environmental Externalities
3.5 A More Direct Approach: Mass Balance Calculations

IV. Data and Survey

4.1 Location of Sample and Its Characteristics
4.2 Sample Size and Composition
4.3 Timing and Extent of Surveys
4.4 Problems Encountered
4.5 Why the Sample is Representative
4.6 How Data was Handled
4.7 Variables and Methodology for Estimation of Revenue, Cost, and Profit

V. Profile of Survey Sample

5.1 Accessibility to Information
5.2 Accessibility to Infrastructure
5.3 Accessibility to Assets
5.4 Technology/Production Practices
5.5 Access to Marketing
5.6 Environmental Factors

VI. Efforts of the Poultry Households Surveyed to Capture Environmental Externalities

6.1 Current Pathways of Nutrient Use (from manure and dead animals) in the Households Surveyed
6.2 Manure Use in the Households surveyed
6.3 Dead Bird Disposal in the Households Surveyed
6.4 Environmental Cost Borne by Broiler and Layer Farms
6.5 Mass Balance Calculations for Broiler and Layer Farms

VII. Empirical Results

7.1 Profitability of Small vs. Large Farms
7.2 Pollution Abatement Costs: Small vs. Large Producers
7.3 Efficiency of Small vs. Large Producers
7.4 Profitability of Independent vs. Contract Farms of Indian broilers

VIII. Conclusions
References
Annexes

Annex 1: Survey Questionnaires
Annex 2: Definition of Important Variables Constructed from Indian Poultry (Broiler and Layer) Survey

Annex III: Livestock Industrialization Project: Phase II - Policy, Technical, and Environmental Determinants and Implications of the Scaling-Up of Milk Production in India

Acknowledgements
Executive Summary
I. Introduction

1.1 Overall Objectives
1.2 Specific Research Questions
1.3 Testable Hypotheses
1.4 Structure of the Report

II. The Changing Environment and the Indian Dairy Industry

2.1 The White Revolution
2.2 Structural Changes in the Dairy Sector and Equity Issues
2.3 Food Safety, Animal Welfare, and Environmental Issues

III. Approach

3.1 Defining a Farm-Specific Measure of Relative Competitiveness
3.2 A Methodology to Decompose the Determinants of Relative Profitability
3.3 Measuring Farm-Specific Internalization of Environmental Externalities
3.4 A More Direct Approach: Mass Balance Calculations

IV. Survey Design and Field Data Collection

4.1 Sampling Methodology
4.2 Sample Size and Composition
4.3 Survey Timing and Problems Encountered
4.4 Variable Construction

V. Socioeconomic Profile of Sample Households

5.1 Demographic Characteristics
5.2 Asset Ownership and Distribution
5.3 Milk Production, Consumption, and Disposal Patterns
5.4 Animal Health, Breeding, and Extension Services

VI. Efforts of the Dairy Households Surveyed to Capture Environmental Externalities

6.1 Capture of Environmental Externalities in Dairy Farms

VII. Profitability and Efficiency of Indian Dairy Farms

7.1 Profitability of Dairy Farms
7.2 Technical Efficiencies of Dairy Farmers

VIII. Conclusions and Policy Implications

8.1 Main Findings
8.2 Issues for Further Research

References

Annex IV: Livestock Industrialization Project: Phase II - Policy, Technical, and Environmental Determinants and Implications of the Scaling-Up of Swine, Broiler, Layer and Milk Production in Thailand

I. Introduction

1.1 Background
1.2 Overall Objectives
1.3 Scope of Issues to be Investigated
1.4 Specific Research Questions:
1.5 Specific Hypotheses to be Tested
1.6 Organization of the Report

II. Trends in Livestock Production and Marketing in Thailand

2.1 When and Where Did the Livestock Revolution Begin?
2.2 Regional Concentration of Growth in the Livestock Industry
2.3 The Changing Structure of the Livestock Sector
2.4 Types of Contracts in the Livestock Industry
2.5 Supply Chain and Trade
2.6 Equity Implications of the Livestock Revolution

III. Environmental, Health, and Welfare Issues on Thai Livestock Sector

3.1 Environmental Problems and Scaling-up
3.2 Animal Health - Impact of Animal Health Concern on Scaling-Up
3.3 Food Safety Concerns and Effect of Changes on Small-Scale Producers
3.4 Animal Welfare and Effect of Scaling-Up in Thailand

IV. Approach

4.1 Defining a Farm-Specific Measure of Relative Competitiveness
4.2 A Methodology to Decompose the Determinants of Relative Profitability
4.3 Measuring Farm-Specific Internalization of Environmental Externalities
4.4 Estimation of Crop Up-Take

V. Data and Survey

5.1 Field Research Design and Site Selection
5.2 Sampling Methods
5.3 Designing the Questionnaires and the Pretest
5.4 Selection and Orientation of the Interviewers
5.5 Quality of Data and Problems with the Survey

VI. Profile of Sample Survey

6.1 Profile of Pig Farms from the Livestock Farms Survey
6.2 Broiler Sample Profile
6.3 Profile of Layer Survey Sample
6.4 Profile of Dairy Cow Survey

Tables (6.1-6.15)
Tables (6.16-6.22)
Tables (6.23-6.30)
Tables (6.31-6.45)
Table 6.46
Table 6.47
Table 6.48
Table 6.49
Table 6.50
Tables (6.51-6.53)
Tables (6.54-6.61)
Tables (6.62-6.67)

VII. Capture of Environmental Externalities

7.1 Current Pathways of Nutrient Use (from manure and dead animals)
7.2 Manure and Dead Animals Disposal for Households Surveyed

VIII. Stochastic Profit Frontier Estimation for Swine

8.1 Estimation Problems
8.2 Instrumental Variables for Pollution Abatement Cost
8.3 The Estimation of Stochastic Frontier Function
8.4 The Profit Frontier of Two Different Types of Farms

IX. Stochastic Profit Frontier Estimation for Broiler

9.1 Estimation of Environmental Equation
9.2 Explanatory Variables
9.3 Estimation of Stochastic Profit Frontier Function
9.4 Conclusion

X. Stochastic Profit Frontier Estimation for Layer

10.1 Estimation on Environmental Equation
10.2 Descriptive Analysis
10.3 Estimation of Stochastic Profit Frontier Function
10.4 Conclusion

XI. Stochastic Profit Frontier Estimation for Dairy Cow

11.1 Estimation of Environmental Equation
11.2 Explanatory Variables
11.3 Estimation of Stochastic Profit Frontier Function
11.4 Conclusion

XII. Conclusion and Policy Implications

12.1 Economic Factors Affecting the Scaling-Up Process
12.2 Distortions and Market Power
12.3 Environmental Impact and Abatement Cost
12.4 Food Safety
12.5 Equity
12.6 Policy Recommendations

References

Annex V: Livestock Industrialization Project: Phase II - Policy, Technical, and Environmental Determinants and Implications of the Scaling-Up of Swine, Broiler, Layer and Milk Production in Brazil

I. Introduction

1.1 Parameters of the Livestock Sector in Brazil
1.2 Scope of the issues to be investigated
1.3 Specific issues and hypotheses

II. Livestock Evolution

2.1 Driving Forces of the Livestock Revolution in Brazil
2.2 Regional Concentration of Growth in Livestock Industry
2.3 Structural Change in the Livestock Industry

III. Emerging Social, Environmental, Health and Welfare Issues on the Brazilian Livestock Sector

3.1 Social equity and health - effect of changes on small-scale producers
3.2 Environment - impact of environmental concerns on scaling up
3.3 Animal health - impact of animal health concern on scaling up
3.4 Food safety concerns and effect of changes on small-scale producers
3.5 Animal welfare and effect of changes in study countries

IV. Approach

4.1 Defining a farm-specific measure of relative competitiveness
4.2 A methodology to decompose the determinants of relative profitability
4.3 Measuring farm-specific internalization of environmental externalities
4.4 A more direct approach: Mass balance calculations
4.5 Handling contract farming

V. Data and Surveys

5.1 Sample Location and its Characteristics
5.2 How Data was handled and Variables Constructed.

VI. Profile of Survey Sample

6.1 Profile of Dairy Survey Sample
6.2 Profile of Swine Survey Sample
6.3 Profile of Poultry Survey Sample

VII. Capture of Environmental Externalities

7.1 Capture of Environmental Externalities in Livestock Farms
7.2 Current Pathways of Nutrient Use from Manure and Dead Animals
7.3 Mass Balance Calculations
7.4 Farm-Specific Measures of Environmental Mitigation Effort by Farm Size

VIII. Econometric Results

8.1 Mean Hypotheses Testing
8.2 Results of stochastic profit frontier

IX. Summary of Results

9.1 Overview of the Livestock Sector
9.2 Syntheses of the Empirical Results
9.3. Concluding Comments

References