STRATEGIC ROADMAP FOR GROWTH AND

COMPETETIVENESS OF POULTRY INDUSTRY IN BANGLADESH

i

STRATEGIC ROADMAP FOR GROWTH AND COMPETETIVENESS

OF POULTRY INDUSTRY IN BANGLADESH

Submitted to:

Sheikh Morshed Jahan

Associate Professor

Submitted by:

Group: 2

Nazmul Khan (ZR-066)

Sajibul Kashem (ZR-070)

Debashish Niloy (ZR-079)

Al-Jamee Jawad Khan (ZR-084)

Makame Mahmud (ZR-089)

Ahamad Moosa Raihan (ZR-088)

Md. Manirul Islam (ZR-091)

Kazi Hirok Al-Arafat (ZR-092)

Nazmus Saadat (ZR-115)

Nakib Arman Serniabat (ZR-116)

BBA 19th Batch (section B)

Institute of Business Administration

University of Dhaka

December 30, 2014

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LETTER OF TRANSMITTAL

December 29, 2014

Sheikh Morshed Jahan

Associate Professor

Institute of Business Administration (IBA)

University of Dhaka

Dear Sir,

Here is the report which you asked us to submit for the requirement of our undergraduate course-

Business Strategy (W 501). Our study of different segments of the poultry sector of Bangladesh has

revealed significant information regarding the business practices in this industry in Bangladesh today. We

have analyzed the poultry sector and have provided an overview as well as a value chain analysis in this

report.

We would like to mention that we carried out this entire report under your supervision and that this report

has not been formerly presented in IBA to the best of our knowledge. We also pledge that either today or

in the future, no part of this report may be reproduced without your permission.

We sincerely hope that you we were able to fulfill the course requirement successfully through the

submission of this report. We have put in our best efforts to contribute towards the successful completion

of this report. We earnestly hope that you will accept our report and it will reach your level of

expectations.

Sincerely,

Nazmul Khan, khannazmul55@yahoo.com (ZR-066)

Sajibul Kashem sajib_gooner@hotmail.com (ZR-070)

Debashish Niloy debashish.niloy@gmail.com (ZR-079)

Al-Jamee Jawad Khan jameejkhan@gmail.com (ZR-084)

Makame Mahmud m.dipta@gmail.com (ZR-089)

Ahamad Moosa Raihan moosa989@gmail.com (ZR-088)

Md. Manirul Islam manirulmanir13@gmail.com (ZR-091)

Kazi Hirok Al-Arafat kazi.hirok@yahoo.com (ZR-092)

Nazmus Saadat saadatnazmus64@yahoo.com (ZR-115)

Nakib Arman Serniabat ruhan_ni@yahoo.com (ZR-116)

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ACKNOWLEDGEMENT

First of all, we thank the Almighty for being able to successfully complete the report. Next, we wish to

convey our gratitude to our Business Strategy (W 501) course instructor, Mr. Sheikh Morshed Jahan. This

report is based upon the knowledge learnt throughout the duration of the course under his guidance.

During writing the report, we came to realize how substantial his teaching throughout the course was. His

continuous instructions on what else should be incorporated in the research report has enabled us to dig

deeper into the scenario of poultry industry of Bangladesh. We further extend our gratitude to the

following persons as well. They are some of the many who lent us helping hands.

1. Md. Mamunur Rhaman, Asst. Manager (Admin. & Public Relation), Aftab Bohumukhi Farms ltd.

+8801714095806

2. Ashik Hasan, Sr. Manager (Marketing Services), Kazi Food Industries Ltd. +8801711367862

3. Amol Kumar Sarkar, Manager (Project), Nova Poultry Ltd. +8801817149041

4. Md. Abdul Khaleque Majumder, Executive, World Poultry Science Association (WPSA-BB),

+8801711371019

5. Jahirul Islam Khan Hiro, Executive, Breeders’ Association of Bangladesh, +8801721871867

6. Taher Ahmed Siddique, President, Bangladesh Egg Producers Association (BEPA),

+8801911382496

7. Md. Habibur Rahman, Executive (Marketing), BioPharma AgroVet Ltd. +8801717479010

iv

EXECUTIVE SUMMARY

For a country that is gradually transitioning from agriculture to more developed sectors, agriculture still

plays a vital role to economic growth, with the livestock industry itself contributing around 2.5% to GDP

of Bangladesh. Chicken production in the country has been increasing at a steady rate over the past

decade, with it standing at 2428.66million in 2011-12. In response to the wide market opportunity in the

1990’s, a commercial poultry sector emerged using intensive production techniques and has since gained

widespread popularity. Besides its significant contribution to economy, this sector has played a key role

in generating employment opportunities for women as well as preventing the migration from rural to

urban regions.

Commercial broiler chicks were not available in Bangladesh until a few decades ago. In 1947, six poultry

farms were established for supplying eggs and chicks to villagers. In 1962-63, the Directorate of Livestock

Services (DLS) also started about 91 small poultry units in 91 upazilas with the objectives of supplying

improved birds to the villagers. During late 1980’s DLS imported "Arbon Aerses" broiler parent stocks to

increase meat production through popularizing commercial poultry in the country.Since then, commercial

poultry started to gain popularity and during the 1990s the poultry production started taking the shape

of an industry with the establishment of a large number of small and large broiler and layer hatcheries.

The value chain members in the poultry industry range from input suppliers thatincludes raw material

suppliers for poultry feed industry, different types of machineries used for producing, grinding and

packaging poultry feed, incubators suppliers for poultry breeding, medicine specially vaccine suppliers for

treatment and healthcare of the poultry, Supplier of different egg and meat processing machines etc, to

Breeders, Contract Growers, Independent Farms, Retailers, Producer Associations, Consumers, Fund

Providers, and Policy Setters.

There was a sudden shift in industry dynamics in 2009 when Thai poultry giant CP invested a further $60

million in the country’s poultry industry, forcing top player Kazi Farms to go on the back-foot and come

up with its own two-year expansion scheme in feed, meat processing and retailing. Their nearest rivals

Aftab, Nourish and Paragon have also expanded in newer segments amid the largest consolidation drive

that experts fear would make it increasingly difficult for the country’s tens of thousands of smaller farms

to survive. The investment drive has been aimed at hedging their businesses against unforeseen dangers

like the deadly bird flu, which in the recent years have wiped out a substantial portion of expected

revenue.

The problems of bird flu and increasing feed prices continued up to 2012 and in 2013 the political unrest

throughout the country harmed the industry profitability a lot. Thousands of small firms were ruined and

Poultry Industry lost 40 Billion Taka Loss in 3 last months of 2013 alone. Amidst these many difficulties,

poultry industry continued to grow and the investment in this sector has surpassed recently 25000 Crore

Taka. And if the industry receives more help from the government the investment will surpass Taka 50,000

Crore mark in 2030.

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One of the major shifts in production has been villagers moving away from scavenging production to small

commercial production. As village population grew, people switched from traditional farming to higher

income generating jobs, which led to a fall in chicken supply. This, however, created a discrepancy in

demand and supply, which made selling chicken profitable commercially and ultimately led villagers to

start poultry production in small scale.

Another notable shift was from small to large-scale production. With increasing migration to urban areas,

the demand for daily protein intake became greater. The relatively steep price of beef, mutton and fish

compared to chicken made the latter a more feasible option, and hence the demand for chicken saw a

sharp rise. But the small-scale producers could not meet the demand, which resulted in farms with the

necessary resources to expand their production capacity.

Currently, there are over a hundred thousand poultry farms, small and large, across the country, eleven

grandparent stock farms, 145 parent stock farms and hatcheries, and 60 to 70 poultry feed mills.Rising

population, moderate growth of per capita income and higher income elasticity of demand for livestock

products have driven the growth of demand for chicken. Moreover, the people of Bangladesh are

becoming increasingly aware about the need to meet minimal nutritional needs, as a result of which intake

of chicken has increased. Also, the need for relatively small capital has lured people from low-income

group to start poultry farming on a small scale. However, the small poultry farmers are suffering severely

from the lack of security of their farms and investment. Every year, thousands of farms are collapsing due

to bird flu outbreak and many for their incapability to buy high priced poultry ingredients and absorb

losses from market price fall.

Currently, the country’s poultry industry is suffering from over-supply compared to the existing demand,

and this has caused the price to fall substantially. This wouldn’t have been such a major issue had the

export from this sector been at the desired level. Biosecurity is impaired by too many parent-stock farms

located in one geographic location due to sub-optimal disease control capabilities diagnostic facilities.

Hatcheries also lack diagnostic and testing facilities and there is mismanagement of waste.There are

shortcomings with regard to technical know-how, which comprises a lack of trained people as well as

technologies and a lack of experiences with regard to crisis management and there is a lack of research in

genetic engineering.

The competitive dynamics within the Bangladeshi poultry industry is different for farms with different

sizes. The key distinction is between the local SMEs and the large farms. Large farms such as Kazi, CP,

Aftab and the likes are engaged in competitive rivalry mainly by using price discounting, innovation, and

strong dealer network. Price war has put the local firms in a vulnerable position as the foreign firms like

CP remain largely unaffected due to support from parent company. These firms have also been engaged

in innovation lately in order to protect themselves against unforeseen dangers.

The intensity of competitive rivalry in this industry depends mainly upon factors such as supply surplus

offsetting benefits of demand growth; relatively easy brand switching for the buyers; similar products

leading to high competitive rivalry; unused production capacity; decreasing number of competitors;

increased diversity; presence of exit barriers.

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The entry of new farms are affected by economies of scales enjoyed by existing farms, and the cost

advantage they enjoy due to favorable location and network; high capital requirements; and absence of

supportive government policies. While the barriers to entry for small-scale farms are more profound, large

farms with huge capital investment may easily enter into the market. While substitutes in theform of beef

and muttonare available, the supply of chicken cannot be matched by them. Also, buyers view chicken as

attractively priced in relation to their quality, performance and other relevant attributes. The switching

cost is also relatively high. In case of large farms, however, there is some competitive pressure from

foreign brands as well as local processing farms.

The poultry industry initially commenced with little commercial purpose, but growing opportunities

changed that scenario. However, the advent of bird flu, compounded by other adverse factors has put the

survival of small farms in serious question. But once the situation goes back to normal, small farms are

expected to face lesser industrial rigidity with large farms having to outsource many of the functions they

have integrated now. The full rotation of a double helix could then be realized as the industry, which first

moved from disintegrated horizontal structure to an integrated vertical structure,would then go back

again to the disintegrated horizontal structure.

But given the current scenario in Bangladesh, the pressure to disintegrate is quite low and in fact large

companies are reaping huge benefits from integration and the organizational rigidities are also quite low.

As for small and medium companies, the integration process is going on, with them going for backward

integration or becoming contractual farmers. There is not much innovation going on in this industry; the

business revenue models are also not rapidly changing. So, we can safely say that, the clock-speed in this

industry is relatively slow.

The destination for which the whole poultry industry is looking forward to is the implementation of

different policies mentioned in vision 2020. In the next 6 years, the production of eggs, chicken and DOCs

are expected to double, along with increase in production of feed materials, other input materials and

medicine. The minimum egg consumption will be 90 to 100 per head per year with the meat consumption

being 5-6 Kg per head per year.

Our proposed intervention is divided into 3 terms immediate (within 1 year), short term (1 to 3 year) and

long term (1-5 years). The interventions are value chain actor specific which is coordinated with

supporting strategies from relevant stakeholders. For feeders, interventions are Tax Exemption on Feed

import (e.g. maize, soyabean, Fixed Pricing; for veterinary medicine producers: Identification of harmful

antibiotics and restriction of their use, Ensuring safe and standard egg production, Developing feed

additives instead of antibiotics; For Hatchery and egg producers: Fixing egg and broiler Price,

corresponding to market, Accounting for inflation in the price, Proper Transportation, Storage,

Processing, distribution and Marketing, Keeping Disintermediation to a minimum level, Market control by

government in more farm favorable way; For Government Developing Poultry Development Fund &

Compulsory Poultry insurance, Ensuring Bio-safety and Quality control of eggs and meat, Providing help

with Subsidy, electricity supply and necessary training, Obtaining OIE clearance & Increasing DLS

Efficiency, Separate Policy for foreign investors Keeping the sector income Tax free upto 2025 and

exempting 5% tax on feed import.

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Part A: Strategic Roadmap

Contents Introduction: ................................................................................................................................................... 3

The different stages of the Poultry industry and the industries supported by poultry ................................ 5

Literature Review: ......................................................................................................................................... 6

Industry Dynamics: ....................................................................................................................................... 8

Brief Industry History: ............................................................................................................................... 8

Recent Developments in the industry: ..................................................................................................... 8

Production System: ................................................................................................................................... 9

Major Shifts in production system and underlying reasons: .................................................................. 11

Industry Drivers of Change: .................................................................................................................... 12

Competitive Dynamics Analysis, Porter’s 5:................................................................................................ 13

Competitive pressure created by rivalry among competing poultry farms:........................................... 13

Competitive pressure associated with the Threat of New Entrants ....................................................... 16

Competitive pressure from the seller of substitute products: ............................................................... 16

Competitive Pressure Stemming from Suppliers Bargaining Power: ..................................................... 17

Competitive Pressure from Buyer Bargaining Power: ............................................................................ 19

SWOT Analysis......................................................................................................................................... 20

Application of Double Helix Model in Poultry Industry: ......................................................................... 21

Double Helix For Large companies: .................................................................................................... 22

Double Helix For small and medium companies: ............................................................................... 22

Triple Triangle Framework .......................................................................................................................... 23

Firm-Level Factors ................................................................................................................................... 23

Industry Level Factors: ............................................................................................................................ 24

Macro-Level ............................................................................................................................................ 25

Current Value Chain: ................................................................................................................................... 26

Future outlook of Poultry Industry ............................................................................................................. 29

Seeing tomorrow’s sunrise standing on today’s Background: ................................................................ 29

Strategic Roadmap for competitiveness and sustainability: ...................................................................... 33

Timeline and Activities of the Roadmap ................................................................................................. 35

Immediate (Within 1 year): ..................................................................................................................... 35

Short Term (1-3 years): ........................................................................................................................... 36

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Long Term (1-5 years): ............................................................................................................................ 37

Industry Benchmark: Comparison with Malaysia ....................................................................................... 37

Malaysian Industry Structure .................................................................................................................. 38

Malaysian Industry Inputs ....................................................................................................................... 39

Malaysian Output Industry ..................................................................................................................... 39

Malaysian Processing and Fast-food Industry ........................................................................................ 39

Malaysian Export Industry ...................................................................................................................... 40

Malaysian Government Policy ................................................................................................................ 40

Comparison between Malaysian and Bangladesh Broiler Flock ............................................................. 40

Comparison between Input Industries ................................................................................................... 41

A Summary of the Differences between the Malaysian Industry and the Bangladeshi Industry ........... 41

Bibliography ................................................................................................................................................ 43

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Introduction: Bangladesh is a densely populated developing country and its economy mostly depends on agriculture.

Agriculture contributes about 19.01 percent in GDP (Bangladesh Economic Review 2012). About 47.33

percent of total human power of Bangladesh is related to agriculture (Labor Force Survey 2010). Poultry

is a part of subsistence agriculture farming system in Bangladesh and broiler is one of the main products

of poultry farming and it is commercially produced. Broiler is most vital due to key contributions to

national economy in the spheres of generating employment opportunity, additional income and

improving the nutritional level. About 2.50 percent of GDP came from livestock farming in 2012

(Ministry of Finance, Bangladesh). In addition, broiler is an excellent source of protein and nutrients

which are essential for health and growth of the human body.

The term "Poultry" applies to a rather wide variety of several species. The term applies to chickens,

turkeys, ducks, geese, swans, guinea fowl, pigeons, pea fowl, ostriches, pheasants, quail and other game

birds (Banerjee, 1998). Our scope of discussion will be limited to broiler and layer chicken only.

Total poultry production in Bangladesh is 2626.28 million in number whereas chicken covers 2213.94

million in 2008 (DLS 2009). Bangladesh produced 7.98 million tones chicken meats during the year

2009.Poultry meat particularly from broiler is superior to other meats available for human consumption

from the point of its palatability, tenderness and digestibility. Poultry meat and egg offers considerable

potential for meeting human needs for dietary animal supply. Poultry farming in the past was not

considered as an important occupation. The villagers have been keeping the chickens mainly for their

domestic consumption only. From the beginning of early 1990's in response to the wide market

opportunity, a commercial poultry sector (broiler and layer) has emerged using intensive production

techniques and is getting more and more popularity local breeds are not commercially reared because it

is mainly due to the low productivity of local breeds of chicken, poor nutrition, high mortality (Haque &

S.A. Chowdhury, 1999 ). At present, broiler production and marketing in the country has been

contributing a lot in terms of both economic and nutritional standpoint. The demand for broiler has

been continually increasing in the country and millions of people have been getting involved in

production and marketing of broiler almost everywhere in the country. Broiler has a great demand as

compared to other meat because of the limitation and religious taboos in the case of pork and beef.

Commercial broiler farming serves as ready source of income among the poor people when need money

and creates the employment opportunity for educated unemployed youth and also for women. It has

been using as an important tools for protecting the migration of rural poor people to the urban. Millions

of rural women are involved in poultry rearing under the poverty alleviation programmed of direct Non

Government Organizations (NGOs) and Department of Livestock Services (DLS) under its packages

program.

An overview of the total chicken production in Bangladesh as well as meat production in Bangladesh is

given on the next page.

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Year Chicken Production (Million) Production of Meat (Million ton)

2002-2003 1624.4 0.83

2003-2004 1726.3 0.91

2004-2005 1834.5 1.06

2005-2006 1948.2 1.13

2006-2007 2068.9 1.04

2007-2008 2124.7 1.04

2008-2009 2213.94 1.08

2009-2010 2280.35 1.26

2010-2011 2346.86 1.99

2011-2012 2428.66 2.33

The whole poultry industry is affected by external calamities like Political problems, natural disasters,

and also diseases like avian influenza. All these calamities, man-made or natural, has had a severe

negative impact on the poultry industry in the past. The other factor that strongly affects the poultry

industry is the policy making decisions related to poultry. These policy decisions may be based on over

or under-production, Government policy regarding the industry, demand in the market, and competitor

actions.

The poultry farming cycle starts with the parent chicks that turn into matured parents and produce eggs.

These are either sold as eggs or sent to hatcheries to produce hatched chicks which are then distributed

to be turned into broiler. Along the way, the poultry industry supports a number of industries. The

outputs from the industry itself are eggs and broiler chicken. But the poultry industry supports the fish

feed industry, the fertilizer industry, the biogas industry, the feathers industry and the bakery industry.

And ultimately, employment is generated in the poultry industry and the supported industries as well.

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The different stages of the Poultry industry and the industries supported by poultry

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Literature Review: (Gopalkrishnan & Mohanlal, 1994) argue that food costs represents 65 to 75 per cent of total cost of

commercial policy production, depending mainly in the relative costs of feed constituents ,labor,

housing., miscellaneous items of costs in a particular situation. Therefore it becomes imperative that

economic as well as nutritionally balanced diets are provided during all phases of productive life-in

eggers, chickens ,growers and layer stages and in broiler ,starter and finishing stages. The economics of

poultry feeding depends to large extent on the local situation of food availability and competition for

the same food staff for use by human beings.

(Hunton, 2001) in a study argue that, there is no doubt that exciting times lie ahead for the Bangladesh

poultry industry. The combination of basic low input-low output, subsistence level growers, and all

combinations up to and including large scale commercial production, presents a daunting and

stimulating prospect to a government preoccupied with poverty and malnutrition. Nevertheless, the

poultry industry represents one way of accomplishing several national goals under a single banner.

Employment, poverty alleviation and improved nutrition are all potential benefits from continued

support and encouragement of poultry development.

(Islam N. , 2003) comments that the poultry sub-sector is crucially important in the context of

agricultural growth and improvement of diets of people in Bangladesh. The sub-sector is particularly

important in that it is a significant source for the supply of protein and nutrition in a household's

nutritional intake. It is an attractive economic activity as well, especially to women and poor population.

(Banerjee, 1998) observes that in comparison to other livestock ,Poultry requires less investment to start

the farming. Persons from low income group may also start the business on a small scale. Poultry

farming offer opportunities for fulfillment or part –time employment particularly for women, children or

elderly person on the farm operation.

(Khan, Miah, Bhuiyan, Begum, Hussain, & Khanum, 2006) observe that Local chickens dominate poultry

production in Bangladesh. In Sylhet mainly poor families, who have arrived from outside and are

landless rear poultry.Most of the households (58.33%) had 0-15 chicken. Most of the families (75%)

reared their chicken in combined house with duck. Materials used for housing were similar to other

parts of the country. Mainly female members were involved in poultry rearing. About fifty percent

farmers got on an average less than 70 eggs per year per bird. A few farmers (5.56%) informed that they

had collected more than 130 eggs from a bird in a year. In most of the cases (47.22%) the length of

clutch was less than 20. Interval between two clutches was found in highest percentage (42.22%).

Highest egg production was observed in winter season (52.78%) followed by summer, spring and late

autumn. Maximum (60%) farmer had vaccinated their birds and 55% farmers got service from

Department of Livestock Services.

(Jabbar, 2007) comments that since the early 1990s, contract farming as a market institution in the

poultry industry in Bangladesh has evolved along with the expansion of commercial poultry farming.

Apart from classical contract farming within vertically integrated enterprises, there are also formal and

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informal contract arrangements in input marketing and output marketing A high drop-out rate among

commercial poultry producers is observed. Results of a survey conducted among farmers who dropped

out of the poultry business in recent years are presented, highlighting the causes of dropping out and

the possible role of contract farming in addressing them.

(Akter & Uddin, 2009) argue that as an important sub sector of livestock production, the poultry industry

in Bangladesh plays a vital role in economic growth and simultaneously creates numerous employment

opportunities. The poultry industry, as a fundamental part of animal production, is committed to supply

the nation which a cheap source of good quality nutritious animal protein in terms of meat and eggs.

(Aho, 2010) predicts that poultry meat output may be impacted and fall before that of eggs in the world

production. The factors that influence the production of poultry meat and eggs, he said, are real income

per capita, the distribution of that income, the cost of grain and the size of the human population.

"Poultry will do well despite higher grain costs," said Dr Aho. This is because, at around 2:1, feed

efficiency is better for poultry meat than pork (3:1) or beef (4:1), largely thanks to the tremendous

progress made by broiler genetics companies over the last 50 years or so. Another important factor is

the difference in water requirement: 3,000 litres for chicken compared to 6,000 litres for pork and

16,000 litres for beef.

(Bangladesh Food Security Investment Forum Report , (May 2010)) state that, the vibrant fisheries

sector in Bangladesh accounts for roughly 20 percent of the agricultural GDP while the growing livestock

sector comprises around 12 percent. More than 10 million Bangladeshis directly depend on these

sectors for their livelihoods. A large proportion one of these people are smallholders whose production

on of milk, meat, and eggs increased significantly between 2002 and 2008 primarily because of

improved breed, feed, and fodder; available veterinary health services; and investments led by the

private sector. The growth rate in the fisheries sector has also improved—from 2.33 percent in 2002−03

to 4.11 percent in 2007−08. This growth is largely from intensive technological management practices in

agriculture. Pond aquaculture has also been improving and now produces about 866,049 metric tons

(mt) per year, representing 41.92 percent of total inland fish production on (2,839 kilograms/ hectare).

(Shamsuddoha, 2010) observes that sustainable development of environment friendly commercial

poultry industry in Bangladesh seems to have attracted little attention.

According to Cervantes, (http://www.thepoultrysite.com/articles/943/antibiotic-feed-additives-

politicsand-science), commented that contrary to public perception, the continued use of antibiotic feed

additives is beneficial for both, animal and human health (accessed on 18th November,2014).He said

that there are numerous scientifically documented benefits derived directly from their use, such as the

prevention and control of enteric diseases, enhanced food safety, improved animal welfare,

preservation and less contamination of the environment, improved efficiency of production and lower

cost of production resulting in lower prices for the consumers who can continue to enjoy an abundant

supply of safe and nutritious food products of animal origin at an affordable price.

According to FAO, (http://www.fao.org/ag/againfo/themes/en/infpd/econf_bang.html, accessed on

18th November,2014) small poultry enterprises with adequate institutional support targeting the

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poorest rural women and their families can help them take the first step out of poverty. However, for

the concept to work as a poverty breaking tool (i) the beneficiaries must come from the poorest

segments of the village, (ii) the cost of producing an egg must be lower than in the commercial sector,

(iii) an enabling environment must be established to keep a small flock of hens, inter alia, access in the

village to feed, vaccine, vaccinations services, micro-finance, marketing and other inputs and services,

and (iv) the enabling environment must contain institutional and political space to provide the people

involved the possibilities and opportunities to take the next step out of poverty.

Industry Dynamics:

Brief Industry History: History of poultry enterprise in Bangladesh is very recent. Commercial broiler chicks were not available

in Bangladesh a few decades ago. In 1935 improved variety birds (White Leghorn) were first imported in

India from foreign countries. Rising of improved type of birds was first started in government poultry

farm. Later, people became interested in raising the chickens in their own houses after knowing about

their better production capacity. In 1947, six poultry farms were first established in different places in

Bangladesh for supplying eggs and chicks to the villagers. During the period, several small poultry farms

were also established under village aid program for rural poultry development. In 1962-63, the

Directorate of Livestock Services also started about 91 small poultry units in 91 upazilas with the

objectives of supplying improved birds to the villagers. In 1964, a commercial poultry farm named Eggs

and Hens Ltd. was established at Gazipur near Dhaka city by late Mr. Ekramul Hossain, which was

recognized as a mother commercial poultry farm in private poultry sector. During 1968-69 The

Department of Poultry Science of former East Pakistan Agricultural University, Mymensingh (now

Bangladesh Agricultural University, Mymensingh) brought day-old chicks from Pakistan International

Airlines and started producing broiler experimentally in the University Poultry Farm. Poultry fanning on

commercial and scientific line was started in 1970 in Bangladesh. After the liberation of Bangladesh,

BIMAN Bangladesh Airlines started a commercial poultry fan-as in the name of Biman Poultry Complex

Ltd. at Savar, very close to Dhaka city. Its aim was mainly to serve for flight catering needs of the Biman

Bangladesh Airlines, but it also fulfilled the demand for eggs and day-old chicks of private poultry farms

to some extent. It reared 'Starbo' parent stock of Shaver Poultry Breeding Company of Canada. It is still

in poultry business. During late 1980, the Department of Livestock Services (DLS), Bangladesh imported

"Arbon Aerses" broiler parent stocks to increase meat production through popularizing commercial

poultry in the country. DLS took program of distributing day-old chicks of commercial strains to farmers

through its various regional and central poultry farms. Since then, commercial poultry started to gain

popularity and during the 1990s the poultry production started taking the shape of an industry with the

establishment of a large number of small and large broiler and layer hatcheries.

Recent Developments in the industry: In 2009, the dull world of the country’s poultry sector had suddenly sizzled up with top farms embarking

on an investment spree never seen in the country’s history . Thai poultry giant CP had triggered the

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battle with a war chest of $60 million, forcing top player Kazi Farms to throw the gauntlet with its own

two-year expansion scheme in feed, meat processing and retailing.

Their nearest rivals Aftab, Nourish and Paragon have also spread wing in newer segments amid the

largest consolidation drive that experts fear would snuff the life out of the country’s tens of thousands

of smaller farms. Top players talking to the Financial Express in 2009, said the investment drive is aimed

at hedging their businesses against unforeseen dangers like the deadly bird flu, which in the past two

years(2007-2008) have wiped out some 20 per cent of their revenues. (Poultry sector sizzles up with

large-scale consolidation drive, 2009)

The problems of bird flu and increasing feed prices continued up to 2012 and in 2013 the political unrest

throughout the country harmed the industry profitability a lot. Thousands of small firms were ruined

and Poultry Industry lost 40 Billion Taka Loss in 3 last months of 2013 alone. (Poultry Industry loses 40

Billion Taka, 2014)

Amidst these many difficulties, poultry industry continued to grow and the investment in this sector has

surpassed recently 25000 Crore Taka. And if the industry receives more help from the government the

investment will surpass Taka 50,000 Crore mark in 2030. (Investment in poultry industry exceeds 25,000

crore, 2014)

While the growth of the poultry industry has contributed to economic growth and income of

commercial farmers, indiscriminate and unplanned growth of breeder farms and commercial poultry

farms, particularly in and around cities and towns is creating environmental hazards.

There are at present no guidelines for environmental protection and bio-security when establishing

poultry farms. The use of antibiotics in feeds is thought to be common and a cause of public health

concern.

Production System: As per rigorous discussion in the XX world poultry congress at Savar organized by FAO, the paper

presenter has discussed the poultry production system of Bangladesh in the following ways-

1. Crossbred rural scavenging production: White Leghorn (WL), Rhode Island Red (RIR), Fayoumi are

available in public sector poultry farms. These are mainly being used for improvement of local chickens

through a crossbreeding program through chick, egg and pullet distribution, and cockerel exchange

activities. At present, this program has got less priority in Bangladesh.

2. Smallholder resident scavenge chicken consisting of several birds: Native chickens are extensively

raised in the backyard with night shelter and little supplementary feeding by rural people specially

women and children; the males are normally raised for meat and breeding purposes, while the hens are

raised for egg production and reproduction. An estimate showed that about 75 per cent of the eggs and

86 per cent of the meat is produced by this system. These birds are raised with little or no inputs and

productivity is very low and irregular with an ave rage annual egg production 35–45 eggs weighing 33–

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38 gm (Huque, Emdadul, & Rigor, The Effect of Chicken Separation on the Productivity of the Hens and

Chick. , 1990).

3. Small commercial rural farming with pure line improved breeds: This system of production is one of

the main activities of public sector with collaborative program of Non-Government Organization (NGO)

managed completely by the women. At the beginning, this type of birds was used for the semi-

scavenging model developed with seven components for rural poultry development. Many small

farmers transferred their farming from pure line stock to hybrid stock after having their improved skill.

4. Small commercial farming with imported hybrids chicks: The small farming commercial producers

receive day-old chicks from local hatcheries or imported ones. A large number of youth and women

have become small-scale poultry farmers in the vicinity of big cities. The youths receive training from

Department of Livestock Services, Youth Training Centres and NGOs. This production system is

expanding in the country with the improvement of skills of the small farmers.

5. Large commercial poultry based on hybrids day-old chicks: These commercial layer and broiler

enterprises are expanding in the vicinity of the cities for catering egg and meat to the cities. Numbers of

this type of industrial ventures are very few which produce only 4 per cent eggs and 2 per cent meat of

total production of Bangladesh (Huque & Stem, Current status of poultry production and marketing

system of Bangladesh, 1993).

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Major Shifts in production system and underlying reasons: 1. Shift from rural scavenging production to small commercial production: Villagers used to raise

chickens for their own consumption. The chickens used to scavenge around the villages, live on

different grain materials available in paddy, wheat and maize fields. Villagers did not see any

need to look after the chicken themselves. Medication and hygiene requirements were also

ignored. As time passed, village population began to grow. More and more villagers were

leaving their traditional profession of farming and became engaged in different service jobs both

at villages and cities. The supply of chicken shrunk compared to earlier times as now few

families reared chicken. Selling chicken in the rural hat bazaars and in the urban and suburban

markets became profitable commercially. So, villagers started poultry farming on small

commercial scale with pure line poultry breed.

2. Shift from small scale to large scale commercial production: As a result of urbanization and

industrialization, more and more people were leaving villages and had been settling in Dhaka

and Chittagong. They needed chicken, beef or fish to fulfill their daily requirements of protein.

But, rearing them was not possible in city like Dhaka and very often, the price of Beef, mutton

and fish remained beyond the reach of middle and lower middle class society in Dhaka city. The

only solution was to include chicken in their meal which had been comparatively cheaper. This

led to increased demand for chicken which the small scale commercial poultry producers failed

to meet properly due to their small size of operations. So, they started poultry rearing in large

scale and very often with hybrid breeds with high yielding (in terms of meat and egg) variety.

For quicker supply of chicken to the urban and semi urban areas of Dhaka, some of the poultry

farms began to grow up in the nearby regions of Gazipur and Savar.

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Industry Drivers of Change: The poultry industry has successfully managed to become a leading industry of Bangladesh over the last

couple of decades. This industry has provided a platform for various opportunities to increase GDP

growth rate plus equitable distribution through arranging food security as well as ensuring self-

employment, creating purchasing power and reducing poverty at a large scale. Over this course of time,

the industry has undergone significant changes that have helped certain value chain players to benefit,

while others have seen their importance being shrunk.

Growth of the industry

About 19% of the contribution to GDP of Bangladesh is made by the agricultural sector, around one-

third of which comes from the poultry industry. This statistics itself is a testament of the tremendous

growth that this sector has experienced. Moreover, about 5.5 million people are involved, directly and

indirectly, with the industry and approximately 50% of them are women. A large section of the

marginalized rural people earns their living through this industry. Investment in the sector stands at

about 25 thousand crore taka,with growth rate about 20%. Roughly, there are over a hundred thousand

poultry farms, small and large, across the country, eleven grandparent stock farms, 145 parent stock

farms and hatcheries, and 60 to 70 poultry feed mills. More recently there has been a shift in industry

dynamics with large firms like C.P., Aftab and Kazi choosing to expand to forward channels of processing

and retailing, who were followed by the likes of Nourish and Paragon.

Changing Societal Attitude

Rising population, moderate growth of per capita income and higher income elasticity of demand for

livestock products have driven the growth of demand for chicken. Poor nutrition represents a major

health problem. It is evident that a substantial majority of the population suffer from varying degrees of

malnutrition, including protein-energy malnutrition, micro-nutrient deficiencies, iodine deficiency

disorder, and vitamin deficiencies. The people of Bangladesh are becoming increasingly aware about the

need to meet minimal nutritional needs, as a result of which intake of chicken has increased. Many now

even consider egg and poultry meat not only as a supplementary protein food but also as a substitute of

other meat products and even milk for a healthy purpose.

Entry and Exit of small farms

Poultry requires less investment to start the farming. Persons from low income group may also start the

business on a small scale. Poultry farming offer the opportunities for fulfillment or part-time

employment particularly women, children or elderly person on the farm operation.

Recently, however, declining trend in the poultry industry has been creating a problem for the country.

The small poultry farmers are suffering severely from the lack of security of their farms and investment.

Every year, thousands of farms are collapsing due to bird flu outbreak and many for their incapability to

buy high priced poultry ingredients and absorb losses from market price fall. Solvent farmers are

becoming poor overnight.

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Export Potential:

Despite the abundant supply of poultry, Bangladesh has not been able to capture the international

market through exports as much as it would have desired. Currently, the country’s poultry industry is

suffering from over-supply compared to the existing demand, and this has caused the price to fall

substantially. One way to tackle this issue would have been by ensuring an export market for the

poultry. However, the export remains very less compared to the preferred level, and hence the supply

and demand gap appears more profound than it otherwise could have been.

Biosecurity Measures:

Biosecurity is impaired by too many parent-stockfarms located in one geographic location, as disease

control capabilities are sub-optimal as there are limited diagnostic facilities and the equipment is not

sufficient in quality as well as quantity. Hatcheries lack diagnostic and testing facilities and there is

mismanagement of waste. Also, the eggs are not graded according to the age of the mother hen. There

are shortcomings with regard to technical know-how, which comprises a lack of trained people as well

as technologies and a lack of experiences with regard to crisis management and there is a lack of

research in genetic engineering.

Competitive Dynamics Analysis, Porter’s 5: The competitive dynamics within the Bangladeshi poultry industry is different for farms with different

sizes. The key distinction is between the local SMEs and the large farms. While analyzing the competitive

dynamics, both these types of firms will be considered. We will use the 5 forces model to determine the

nature and strength of competitive pressures in a given industry involves building the picture of

competition in 3 steps:

1. Identify different parties involved for each of the 5 forces along with the specific factors that

bring about the competitive pressures

2. Evaluate how pressures stemming from each of the 5 forces are: (strong, moderate to normal or

weak)

3. Determine whether the strength of 5 competitive forces overall is conducive to earning

attractive profits in the industry.

Competitive pressure created by rivalry among competing poultry farms: Large farms like Kazi, Aftab, Brac, Paragon, Nourish and the foreign farms operating in Bangladesh like

CP and New Hope are engaged in competitive rivalry with following 3 weapons:

1. Price Discounting: CP entered into market in 2011. Before its entry the market was dominated

by Kazi and a little portion by Aftab. The gigantic investment of CP and the subsequent entry of

New Hope ignited a price war among the leading farms. The current daily demand for DOC in

whole Bangladesh is around 95000 but the daily production is around 105000. The supply has

exceeded the demand by atleast 10000 DOCs. The large farms in order to capture market share

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are selling DOCs at BDT 20-BDT 22 per DOC but the production and raising cost of each DOC is

around BDT 30-BDT 32. The price war has affected specially the local ones; the foreign

companies like CP and New Hope have been relatively unaffected due to their profit from other

subsidiaries across other countries.

2. Innovating to improve breed , poultry feed quality & processed meat: Large Farms like Kazi

and Aftab has recently started innovation and improvement in their feeders, breeders and meat

processors. The endeavor mainly got momentum after the entry of CP. Aftab has been

processing meat since 2006. But the latest improvements came in 2012 only after CP entered

the market. Kazi poultry farm has controlled the frozen and processed meat business for the last

4-5 years. But after the entry of CP and Brac, it recently is thinking to join the chilled meat

business also. Both Kazi has Aftab have improved their feed mills and made them MSG and

Nitrate free. As a result the quality of feed has been improved and no harmful and radioactive

materials are now present in their feed. Improved feed quality also encouraged these

companies to go for improved breed rearing in Bangladesh. Earlier, such improved breeds would

not survive for lack of quality feed.

3. Building a better Dealer Network: CP has taken advantage of the weakness of the local large

farms in this area. Although Kazi and Aftab has longstanding relationship with their dealers and

distributors, the easy terms of dealership and often financing have made CP quite a leader in

this area. Brac is still trying to figure out how to use its existing NGO framework and integrate

into poultry business for enhanced profitability.

There are thousands of small poultry farms in Bangladesh. Around 2011-2012 there were 1,48,933

poultry farm in Bangladesh. The invasion of foreign farms in the industry, the import of eggs from India

and the increase in price of feed materials have reduced the number to around 1,00,000 only. (Shah,

2014) Small poultry farms are engaged in competitive rivalry using mainly 3 weapons.

1. Price Discounting: They try to take away small chunk of the market and thereby stay

competitive just enough to survive. There are no value addition activities done by them.

2. Location Coverage: Small poultry farms have increased location coverage compared to large

ones.

3. Contract Farming: Some small farms are trying to attain competitive advantage over other small

farms by going into contractual agreement with large farms for rearing DOCs for them. The large

farms are providing them all infrastructural facilities. All the small poultry farms’ owners need to

do is to rear the DOCs. The large farms are benefitted by not to have incurring extra fixed cost

for having a separate poultry farm and the small farms are benefitted by having the necessary

working capital to run the business.

The intensity of competitive rivalry in this industry depends upon a number of identifiable factors:

Supply surplus offsetting benefits of demand growth: The current demand of DOC is 95,000.

The production is 1,05,000. The increasing population although is contributing to a demand

growth but the benefits are offset by supply surplus. Both large and small poultry farms are

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fighting fiercely for obtaining portion of the market share. In this battle for survival the small

farms are going out of the business. Due to lack of competitive edges in terms of price discounts

and commissions to the mohajon, wholesalers and retailers.

Relatively easy brand switching for the buyers: Generally, there is no observable brand

differentiation in the backward linkage of the poultry sector except for the few large companies

like Kazi, Aftab, CP, Paragon, Nourish, and Brac. In the forward linkage of the poultry sector the

branding is noticeably observed specially through the practices of Golden Harvest, Kazi, Aftab

and CP. Kazi and Aftab are operating for a long time in the backward linkage sector of the

poultry industry. They have developed their own feed mill, breeder and egg producing unit.

Aftab has a competitive edge because of its operation in the veterinary sector through Navana

which produces vaccines and medicines for poultry. Brac has on the other hand the strongest

distribution network. In the forward linkage side, Golden Harvest is performing better than its

competitors in processing, marketing and branding. Aftab recently is stepping up in this arena

but Kazi’s efforts are slowing down. In the mean time, CP is aggressively opening retail outlets

and advancing its marketing and promotion activities. Due to less branding efforts in the overall

industry and it is less costly to switch brands for the buyers. As a result, the competitive

pressure is relatively higher in the poultry sector.

Similar products leading to high competitive rivalry: There is less opportunity for product

differentiation in the poultry sector. All the farms produce DOC which cannot be much different

from each other except for breed quality and variety. In the processing and marketing activities

there are more opportunities for differentiation but in Bangladesh, these do not provide as

much revenue as the DOC provide. The similar nature of the poultry products increases the level

of rivalry between the competing farms.

Unused production capacity: The poultry market is currently oversupplied and many of the

farms have unused production capacity. The fixed cost and the storage cost in this sector are

also high. A visit to Nova poultry farm revealed that they have shut down 9 of their breeding

units in the previous years. This phenomenon is turning the poultry sector in a buyers’ market

that intensifies rivalry and threatens the survival of weaker firms.

Decreasing number of competitors: The exit rate of the farms is greater than the entry rate in

the poultry sector. Moreover, the size and capacity of the competitors are of varying degree.

The huge number of small firms cannot compete on a fairly equal footing with the few large

firms with commanding market shares and greater resources and capabilities. This factor

Increased diversity: CP and Golden Harvest are bringing diversity in the poultry market. CP has

brought global competiveness in the Bangladeshi market to some extent. Golden Harvest has

started carrying out processing and marketing activities unlike any other firms. This added

diversity is contributing towards higher competitive pressure in the sector.

Presence of exit barriers: Some unprofitable poultry farms cannot leave the industry for

personal reasons. Being specialized only in poultry sector is forcing some firms to remain in the

business even when they are financially troubled. This increases the rivalry in the industry as the

troubled firms may depend heavily on the price discounts which in turn may destabilize the

price levels in the industry.

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Of the seven factors discussed above six of them are contributing to the increased rivalry among the

competing firms. This indicates a high level of competitive pressure in terms of the rivalry among

competing sellers in the poultry sector of Bangladesh.

Competitive pressure associated with the Threat of New Entrants

Sizable economies of scale in production, distribution and other areas of operation: The large

incumbent companies in the poultry industry enjoy cost advantages associated with large-scale

operation. New companies have to incur a huge cost and to avoid the cost disadvantages and

operate profitably. This makes it somewhat difficult for newcomer to break into the market.

Other cost advantages: Some existing firms in the poultry industry have preferential access to

feeds and other inputs due to a variety of factors. Some of them are also located in a favorable

place (like Bogra) for the poultry business. These additional cost advantages enjoyed by some

existing firms make it more risky for the outsiders to attempt entry.

High capital requirements: The initial investment to enter the market successfully in the poultry

sector is much higher. The imported incubators and other machineries required in the farms are

priced as high as seven million in BDT. The cost of maintaining proper biosecurity (procedures

intended to reduce the risk of transmission of infectious diseases in poultry) is also very high.

Moreover, the cost of capital and interest rate of loans is higher (13-16%) whereas in other

agricultural sector loan is provided in much easier terms. This factor serves as a strong barrier to

entry in the poultry sector.

Absence of supportive government policies: Government is not providing adequate support in

the development and growth of the poultry industry. This sector is not subsidized by the

government as the other agricultural sectors. Many poultry farmers complained that the

government is making policy decisions that are harmful for the domestic poultry industry. Lack

of government support is discouraging new firms to enter the market.

Analyzing the above points we can say that, the barriers to entry for both the new large farms and small

farms are high but large farms with huge capital investment may easily enter into the market easily than

the small farms.

Competitive pressure from the seller of substitute products:

Substitutes are readily available: Substitute for poultry produce like chicken meat and egg are

mutton, beef and other powder like protein substitutes. The substitutes of chicken meat like

mutton and beef are available in the market but sometimes their supply are not up to the

demand. The continuous availability of chicken as a source of protein is something that can’t be

replicated by these protein sources. Same is the case with the eggs.

Buyers view chicken as attractively priced in relation to their quality, performance and other

relevant attributes: The price of these substitutes is also high for example it has been seen that,

traders are selling per kg of local variety of beef at Tk 300 while foreign beef (Indian cows) at Tk

290 and buffalo at Tk 280. Per kg of khashi was sold at Tk 480 while bokri at Tk 420 and lamb at

Tk 410 per Kg. But the price of chicken is often within the range of TK 165-180 which is way

17 | P a g e

below these substitutes. As a result buyers view chicken as attractively priced compared to its

substitutes. So, the competitive pressure from the substitute sellers is less.

Higher cost of switching to substitutes: As mentioned above, consumers find it very costly to

switch to substitutes and there are also in some cases religious barriers for switching. For

example: The Hindu community in our country has religious bindings of not having beef. So, for

them switching from chicken to more expensive mutton is very costly.

Switching in forward processed chicken meat: Consumers often have the choice to switch

between processed chicken meat based on the price and quality. Currently CP, Kazi and Aftab

are engaged with such processing activities. Consumers are also interested in foreign brands of

processed chicken. This puts a lot competitive pressure on our local processing farms.

Switching in the backward linkage industries: Buyers of DOC do not easily want to switch

because they want to maintain the purity and quality of breed. However, if the quality of supply

by the suppliers of these DOCs (these suppliers are the Parent Stock Farms which usually breed

the DOCs) decrease and the prices increase then often the buyers can’t but have to switch the

suppliers. Both large and small breeding farms do not want to engage in price wars because they

already are incurring loss. The competitive pressure in the backward linkage industries is low.

Considering all the above points we can say that, for both large and small poultry farms the competitive

pressure from the sellers of substitute products of chicken meat is low. In case of large farms, however

there is some competitive pressure from foreign brands as well as local processing farms. In the

backward linkage industries, there is low competitive pressure for both the small and large farms.

Competitive Pressure Stemming from Suppliers Bargaining Power: Before moving on to discussing the competitive pressure from the suppliers bargaining power, we

should mention about the 3 key suppliers for the poultry industry: they are the feed producers,

breeders and the veterinary medicine manufacturers.

Level of Supply: Feed producers are enjoying the increasing prices of feed materials owing to

the shortage of it. One of the major components of the feed material is maize. Around 60-70%

of the feed component comes from the maize. Export of maize and low domestic production has

led to the price increase of maize and subsequently the poultry feed prices. The current market

price of poultry feed hovers around TK 45- TK 55 per Kg. To reduce the bargaining power of

these feed producers, large farms like Kazi, Aftab, CP, Brac, Paragon have gone for backward

integration that is they are producing the feed themselves. Small farms do not have the

necessary capital to do so and as a result they have started to suffer. Breeders are another

supplier of the industry. They supply the DOCs of both broiler and layer varieties. The cost of

production of DOC is around TK 32- Tk 34 but the DOCs are being sold at Tk 26-Tk 28, sometimes

as low as Tk 22 also incurring a loss of Tk 6- Tk 10 on an average. Breeders have less bargaining

18 | P a g e

power as suppliers because the supply of DOCs is more than the demand at present (supply of

DOCs is now 105,000 daily against a daily demand of 95,000 DOCs. Moreover the price of the

DOCs decrease almost by 50% each day it remains unsold. The buyers of DOCs that is the small

and large poultry farms always want the fresh chicks. Breeders in order to avoid losses are also

growing for forward integration and contractual farming. Veterinary medicine manufacturers

are another supplier for the industry. They have moderate bargaining power but in the recent

periods, due to the low quality, in availability and ineffectiveness of medicines have reduced

their level of bargaining power.

Input Differentiation: Feed producers often are producing similar quality feed materials. Only

the large farms, which have come forward to have backward linkage industries, are producing

high quality feed for their GP and PS chickens. These large farms often do not sell the feed

materials in the market. As a result the input differentiation is not that much. Breeders are not

going for more cross breeding due to low industry demand situation and the pursuit of

improved breed is very costly so the R & D activities have also slowed down for the suppliers.

Medicine producers are trying to differentiate the medicines based on aldehyde and ketones.

But which medicines are more effective are still unknown to the poultry farmers. The buyers

that are both the large and small farms, are using medicines with both bases as a result of which

the suppliers of these medicines have lower bargaining power.

Switching of purchase and substitute availability: Switching of feed materials is often costly as

sometimes the breed variety are not compatible with that type of feed material and the feed

materials are not of that quality required by the poultry farms. Moreover, the substitute feed

materials may not contain the required nutrients. So, the feed producers enjoy sufficient

bargaining power. Breeders often have longstanding relationship with the large volume buyers

and can’t but have to comply with their demands for lower prices because the supply in this

sector is high than the demand and the buyers have always the incentive to switch the supplier

just because of the price. The DOC quality also does not vary much for the large breeder farms

but may vary for the small farms. So, the large breeder farms don’t have sufficient bargaining

power owing to the lower price demands by the volume buyers and the small breeder farms

lack the bargaining power to begin with owing to the low quality. The number of Medicine

producers is low which could have led to their increased bargaining power but they themselves

have destroyed that bargaining advantage by providing low quality medicines. Large farms are

either themselves producing medicines (e.g. Aftab is producing through Navana

Pharmaceuticals) or they are importing from abroad. The small farms are depending on the

Biopharma Agrovet, ACI pharmaceuticals and Renata Pharmaceuticals for the supply.

Dominance of Few numbered Suppliers: According to (Chowdhury, 2014), there are only 60-65

poultry feed producer in Bangladesh, 100-120 PS Farms operating right now and 7-8 poultry

medicine producers. But only the feed producers are benefitting from their small number. The

breeders are suffering owing to their increased supply and the medicine producers are often

suffering due to the low quality medicines and availability of high quality foreign medicines.

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Analyzing the above mentioned points we can say that, the supplier bargaining power is only greater

for the feed producers and it is less for the breeders and medicine producers. For the large farms

who are going for backward and integration the overall effect of supplier bargaining power is less

whereas for the small farms the overall effect of supplier bargaining power is moderate.

Competitive Pressure from Buyer Bargaining Power:

Switching to competitive brands or producers: Large buyers do not want to switch from large

farms because of their ability to produce DOCs at large quantity while maintaining the quality.

Buyers however enjoy sufficient bargaining power form the small poultry farms where they can

easily switch as prices and quality are comparable.

Less product differentiation in backward linkage industry: There is limited product

differentiation in the backward linkage industry as result buyers have more bargaining power in

terms of purchasing DOCs and eggs.

Number of Buyers: The number of buyers of DOCs is thousands of small poultry rearing firms

they buy the DOCs and raise them as broiler and layer chicken. The supply for these DOCs is high

but the demand for them by this large number of Buyers is low. As a result these buyers can

exert pressure to keep the price of the DOCs down.

Increase in Buyer power due to weak buyer demand and scrambling sales by industry

members: Weak buyer demand has turned the market into a buyers’ market for DOCs in which

bargain-hunting buyers are able to press for better deals and special treatment. The PS farms

are often compelled to sell DOCs at a much lower rate.

Tendency for Backward integration: A general tendency among the larger farms to integrate

backwards towards the feed production, breeding and medicine production is somewhat

reducing the sellers power and contributing to the increase in buyers’ bargaining power.

Analyzing the abovementioned points we can say that, large farms have higher bargaining power as

buyers but small farms do not have such degree of power enjoyed by the large farms.

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SWOT Analysis The following strengths, weaknesses, opportunities and threats have been identified for the poultry

sector in Bangladesh:

Table: SWOT Analysis of Poultry Industry in Bangladesh

Strengths Weaknesses

High growth rate of livestock sector

compared to other sub-sector of

agriculture

Growing consumer purchasing power

Unused capacity for expansion

Profitable business; high margin

available to traders and input suppliers

Involvement of government and

NGOs in promotion

Growing number of poultry farms

High participation rate of women

Availability of potential entrepreneurs

Broiler meat faces none of the religious

strictures like pork or beef

Lack of basic infrastructure

Large number of small scale and scattered production units and absence of strong distributors

Lack of finance

Lack of awareness and training in biosecurity

Lack of professional management

Shortcomings regarding technical know-how

Ineffective vaccination and medication due to improper handling and poor storage facilities

Absence of proper management information system regarding demand, pricing, new product, feed, medication,

Lack of adequate laboratory testing facility to quality control of feed, medicine, chicks and disease control

Lack of poultry policy guideline to ensure proper implementation of rules and regulations

Lack of R & D activities in poultry sector

Opportunities Threats

Increasing availability of technical

knowledge

Potential for selling hatching eggs to

small hatchery

Opportunity in dress meat marketing

Opportunity in egg marketing

Potential for selling grand parents

Scope for development of own strain

Possible outbreak of avian influenza

Entrance of multinational companies in

the poultry industry

Importing of poultry products

Unethical practices by input traders

Possibility of reduction in rural poultry

production

Increasing cost of production

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Application of Double Helix Model in Poultry Industry: Charles H. Fine thinks that structures in a value chain are like the DNA’s structure, double helix. Some

industries shifted their structure from horizontal to vertical structure. In contrast, some industries

shifted their structure from vertical to horizontal structure.

The forces of disintegration push toward a horizontal and module configuration:

The relentless entry of niche competitors hoping to pick off discrete industry segments.

The challenge of keeping ahead of the competition across the many dimensions of technology

and markets required by an integral system.

The bureaucratic and organizational rigidities that often settle upon large, established

companies.

On the other hand, the forces push toward more vertical integration and integral product architecture:

Technical advances in one subsystem can make that the scarce commodity in the chain, giving

market power to its owner.

Market power in one subsystem encourages bundling with other subsystems to increase control

and add more value

Market power in one subsystem encourages engineering integration with other subsystems to

develop proprietary integral solution.

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Double Helix For Large companies: In poultry industry of Bangladesh we can relate the double helix model. Initially the industry consisted of

rural farming and production with very little commercial purpose. As time progressed, there have been

technological advances and people began to understand the commercial benefits of poultry farming. So

they started small scale pure breed and hybrid poultry farming. But the supplier market power gradually

became very high as the input prices (that is prices of feed materials and vaccines) had increased.

Moreover, during 2007-2009 the bird flu phenomena have caused thousands of small poultry farms to

stop their production and discontinue the business. The political turmoil in 2013 added just more salt to

the wounds. The combination of all these has made things difficult for small farms to sustain. As a result

the pressure for integration, forward or backward became strong and larger farms began to enter into

the market and dominated it by pushing away the small farms near the point of extinction.

However, once things get back to normal and the prices of input materials come back to affordable

range, there are likely chances of many niche competitors to emerge specially in the rural areas. These

small and medium poultry farms would face comparatively less organizational rigidity and relatively low

complexity. Larger farms would then have no other option than to outsource the functions that they

have integrated now. Maybe they would then just be engaged in the initial and final stage of poultry

production that is the breeding and processing of meat leaving the works of rearing and egg selling to

small contractual poultry farms. As well as they would then collect feed materials from outside the

company rather than keeping a feeder division within the company. Then the full rotation of a double

helix would become complete as industries first moved from disintegrated horizontal structure to an

integrated vertical structure and then back again to the disintegrated horizontal structure.

But given the current scenario in Bangladesh, the pressure to disintegrate is quite low and in fact large

companies are reaping huge benefits from integration and the organizational rigidities are also quite low

in them. Besides, the final stage processing and marketing of egg and meat can be better done by the

large farms due to economies of scale. So, in reality, in Bangladesh only half rotation of the double helix

has taken place that is the industry has just moved away from disintegrated horizontal structure to an

integrated vertical structure.

Double Helix For small and medium companies: The integration process is going on. They either themselves are going for backward integration and

thereby strengthen their competitive position in the market or are becoming contractual farmers for the

large companies due to increasing input prices and low profitability.

There is not much innovation going on in this industry; the business revenue models are also not rapidly

changing. So, we can safely say that, the clock-speed in this industry is relatively slow.

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Triple Triangle Framework The Triple Triangle Framework can be used to describe various aspects of the poultry industry in

Bangladesh on a three-tier basis. The inner triangle comprises of a firm’s internal factors, mainly capital,

capacity and culture. The middle triangle deals with the immediate, industrial-level aspects, largely

including collaborators, competitors, and customers. The outer triangle analyses the macro

environmental factors like technology, state and society, and global factors.

Firm-Level Factors Some vital elements within an organization influence the operation of individual real estate firms. One

such factor is human resource. It is principally a labor-intensive industry, and employs skilled, semi-

skilled, and even unskilled workers in some cases. Number-wise, there seems to be adequate amount of

laborer available, but there is substantial concerns regarding efficiency of many of the workers, and

hence there is a perceptible underutilization of capital capacities. Larger firms tend to attract the more

competent workers as they can offer more wages. As a result, these workers need to be trained to

improve their skill set, and hence the government and associations such as the Bangladesh Poultry

Industries Association and Breeders Association of Bangladesh have wide scopes to play pro-active role

in this regard.

The capital formation varies according to the size of the firms. Larger firms obviously have greater

capital investment. While smaller firms mostly rely on borrowings from financial institutions, larger firms

tend to have the advantage of investing from ploughed back profits. Moreover, every year a large

number of farms are exiting the industry due to bird flu outbreak and many for their incapability to buy

high priced poultry ingredients and absorbing losses from market price fall.

24 | P a g e

Industry Level Factors: Competition

The size of poultry farms ranges from small micro-enterprises to the major large firms. And as such, the

competition is divided on the basis of the size of firms. The number of smaller firms entering the market

has increased rapidly over the years, and this indicates that there are not much competitive barriers

from the established firms. The major players such as the likes of C.P., Kazi Farms, Aftab, etc. are

engaged in a number of value chains themselves and enjoy significant economies of scale. Their large-

scale operations and technological superiority act as barrier for potential entrants to enter the industry

with an aim to operate at a similarly large scale.

Collaborators

Feed, medicine & vaccines, skilled-unskilled-semiskilled labors, management decisions, egg production

values, utilities such as electricity, gas, water, transportation and banks are the major collaborators in

the poultry industry in Bangladesh. The supply chain can be enhanced from ultimate product of meat

and eggs towards different processed food.

Majority of the commercial banks are not interested to finance the relatively smaller enterprises in this

sector as they consider it be a risky industry. The banks interest rate in this sector is very high which is

on an average 12-14% per annum and real effective interest rate is around 18-20% per annum.

Moreover, lot of hidden charges and costs are associated in this sector to avail the loan from the

banking sector.

Technology

There remains a tremendous gap in the application of technology between the larger and smaller firms.

While the large firms have the necessary financial backing to implement technology in different areas of

their operation, small enterprises often fail to carry out even the most basic technological practices.

This, in turn, causes them to incur higher costs than they otherwise would, and compromises their

competitiveness. Government can play a role here by offering financial incentives to firms to be involved

in technological up-gradation. Training of farmers would also aid in embracing technological

developments.

Consumer

Poor nutrition represents a major health problem in Bangladesh. It is evident that a substantial majority

of the population suffer from varying degrees of malnutrition, including protein-energy malnutrition,

micro-nutrient deficiencies. Poultry sector in this regard has been playing a significant role by providing

protein at a considerably low cost, which is considered to be among the lowest globally.

However, the prices of egg and chicken in the Bangladesh's local market have gone up by nearly 40 per

cent over the last the course of the last couple of years, which has mostly affected the low-income

people.

25 | P a g e

Macro-Level Society

Bangladeshi poultry industry is really rich which engages more than 15 million people directly or

indirectly. This business is extending out in the remote areas which help to reduce poverty, diminish

unemployment, and empower women.

This industry can generate huge employment through poultry rearing, can give social recognition as

entrepreneurs or businessmen, meet up social requirement of protein and food values, and can reduce

poverty level which is very effective for a country like Bangladesh.

Smallholder poultry contributes to poverty reduction and tends in itself to target poor women, due to

the social and production characteristics of the poultry sub-sector. While absolute income increases are

fairly marginal, poultry nevertheless facilitates improvements in social status and can – together with

other factors – have a catalyzing effect, assisting farmers to graduate out of poverty.

Government

In order to protect the poultry sector from fierce foreign competition, the government adopted various

measure of intervention. Imposing import levy or quantitative restriction to prevent domestic producers

from the influx of import is often practiced. Sometimes government imposes high level of import duty as

the domestic producers have to pay a higher price for the imported inputs.

In Bangladesh a very high level of product price protection together with low level of protection to the

imported intermediate inputs provides very large effective protection to poultry meat and egg

production.

The government policies see a role for (i) the pro-poor semi-scavenging models developed in

Bangladesh, (ii) community based organizations (CBOs), (iii) producer organizations, as well as (iv)

commercial poultry production. The constraints the policies aim to target include lack of infrastructure

beyond the Upazilla Head Quarters for providing services to poultry farmers; shortage of skilled

manpower; shortage of quality chicks and breeding materials; shortage of poultry feed/feed ingredients

and high prices; poor quality of inputs; lack of quality control facilities for medicine, vaccines and

biological products; lack of organized marketing systems; poor provision of veterinary services; and

insufficient credit and capital especially for the poor.

Globalization

Prices of poultry feeds have already increased in last few months in the international markets. If the

government does not take measures to control export of locally-produced maize, the poultry feed

production cost will rise further, hitting the poultry farmers in chicken and egg production,

Major supplier India has started to control maize export due to its production fall for draughts and

floods, and hence there is possibility of further price hike of the poultry feed.

26 | P a g e

On the other hand, chicken exports have taken a hit in regions such as Nepal and Middle East

due to bird flu.

Current Value Chain: We have identified following value chain actors:

Input Suppliers Includes raw material suppliers for poultry feed industry, different types of machineries

used for producing, grinding and packaging poultry feed, incubators suppliers for poultry breeding,

medicine specially vaccine suppliers for treatment and healthcare of the poultry, Supplier of different

egg and meat processing machines etc.

- Feed Companies Includes companies engaged in feed production. Generally such companies

produce feed for different types of livestock. The same company is often seen to produce feed

for both poultry and fisheries. Specialization is not present as much it is expected.

- Breeders They are breeders of both broiler and layer chicks. Usually day old chicks (DOCs) are

sold by them. Most of the times now a days they breed DOCs artificially only in some special

cases they raise healthy parent stock and derive DOCs from them.

- Contract Growers These are poultry firms abiding by the contractual agreement grow and

supply chickens to the big lead firms like Brac, Aftab or CP. They can be considered as a part of

backward integration of these lead firms. The lead firms help these contractual firms through

providing necessary funds and technologies.

- Independent Farms These are independent poultry farms. Such farms specially who are small

and medium of size are gradually going out of business owing to difficult business conditions

and the competitive pressure from large farms.

- Retail These are forward linkage VC actors— can be small shops, retail outlets, supermarkets

present in the villages and cities.

- Producer Associations These are associations governing the rules and regulations of the

industry and are also responsible for setting the course of industry. At Present there are 6

Poultry Associations in Bangladesh.

- Consumers They consume the final product be it an egg or meat. Their demand dynamics have

an impact over the value chain.

- Fund Providers They are the investors in the business. The flow of capital in this sector has been

slowed down in recent years.

- Policy Setters These people are industry experts. They come from different parts of the value

chain. They along with the government officials as well as the Ministry of Livestock and Fisheries

set the policies regarding Poultry industry. Bangladesh Poultry Industry Coordination Committee

(BPICC) is also included in this group.

27 | P a g e

Diagram: Simplified Poultry Value Chain

28 | P a g e

Soya

Bean

Maize

Feed Feed Mill

Veterinary

Medicine

Producer

Medicine

Vaccine

Vitamins &

Nutrients

Poultry

Breeding &

Rearing

Instruments

Incubators

Egg Setters

Fumigators

Egg Sorter

Feed Crusher

GGP &

GP

Farms

Hatching

PS

PS Farms/

Breeders

Hatchery

Broiler

DOC

Layer

DOC

Rearing in

Self- owned

Farms

Contractual

Farming

Chicken Meat

& Further

Processing

Eggs

For Sale

For PS

Hatchery

Unhatched

Eggs

Bakery

Dump/Destroy

Parent

Company gets

the eggs and

reared mature

chickens

The Mohajons or

Middleman buys the

produced eggs and

Chicken with early credit

provided

Landing

Stations

(e.g

Captan

Bazar,

Tejgaon

Railway

station)

Egg and Chicken

Purchase by

Wholesalers &

Retailers

Slaughter &

Processing

Supply to

hotels,

restaurant and

fastfood shops

Further

Processing

for selling as

chilled and

frozen meat

Diagram: Detailed Levels of Poultry Value Chain in Bangladesh

29 | P a g e

Future outlook of Poultry Industry

Seeing tomorrow’s sunrise standing on today’s Background: We are standing right near the end of year 2014. The destination for which the whole poultry industry is

looking forward to is the implementation of different policies mentioned in vision 2020.

What will happen by then? Will it move at the current rate? Or the rate of growth will be slowed

further? Beside these two big questions the single most important question is where do we want to see

this industry? To which level can we make this industry reach in the next 6 years?

According to Bangladesh Poultry Industry Co-ordination Committee the future outlook of the poultry

industry will be as follows:

In the next 6 years it will be possible to almost double the production of eggs, chicken and DOCs.

If this goal can be achieved the entire scenario of the industry will be changed holistically.

Not only egg, chicken and DOCs’ production will increase but also the production of feed

materials, other input materials and the medicine production will increase.

Demand for necessary breeding equipments , accessories and improved technologies will

increase.

Substantial amount of investments will also increase.

The minimum egg consumption will be 90 to 100 per head per year and

The meat consumption will be 5-6 Kg per head per year.

Per capita annual consumption 2014 2015

Egg 45-50 90-100

Chicken meat Around 3.63 Kg 5-6 Kg

Demand projection for chicken meat demand in 2020:

Description 2014 2015 2020

Population 15,75,20949 15,83,00,000 16,73,00,000

Growth Rate of Population

1.22% 1.20% 1.12%

Demand (Per capita per year per Kg)

3.63 3.99 7.10

Total demand (Kg/Yr)

57,18,01,045 63,20,91,900 118,71,48974

Demand (MT/Yr) 5,71,801 6,32,092 11,87,149

Demand (MT/Month) 47,650 52,674 98,929

Demand (MT/Week) 11,913 13,169 24,732

Demand (MT/daily) 1702 1881 3553

30 | P a g e

Demand projection for Egg in 2020

DOC (broiler) demand projection for 2020:

Description 2014 2015 2020

DOC (Broiler) growth 10.00% 10.00% 13.50%

Weekly 9,000,000 9,900,000 20,83,85,792

Monthly 36,000,000 39,600,000 83,35,43,166

Yearly 432,000,000 475,200,000 10,002,517,997

DOC (layer) demand projection for 2020:

31 | P a g e

Demand projection for feed:

Demand projection for input raw materials:

32 | P a g e

Current Total Investment in poultry industry: 25000 crore BDT

Expected Future Investment in Poultry Industry: 55000 – 60000 crore BDT.

33 | P a g e

Strategic Roadmap for competitiveness and sustainability:

Flowchart of Recommendation for Strategic Roadmap

Ensuring Competitiveness & Sustainability of Value Chain

Ensuring Efficiency and Responsiveness of Value Chain Actors

Value Chain

Actors

Input Actors Processing Actors Output Actors

Feeders Veterinary

Medicine

Producers

Instrument

Producer

Hatchery

Farms

Eggs &

Broilers

Slaughterers and

Further Processors

Tax Exemption on

Feed import (e.g.

maize, soyabean)

Fixed Pricing

Identification of

harmful antibiotics

and restriction of their

use

Ensuring safe and

standard egg

production

Developing feed

additives instead of

antibiotics

Fixing egg and broiler Price corresponding to

market

Accounting for inflation in the price

Proper Transportation, Storage, Processing,

distribution and Marketing

Keeping Disintermediation to a minimum level

Market control by government in more farm

favorable way

Slaughtering in proper way

by maintaining hygienic

condition

Developing improved

processing and storing

techniques through R & D

Supporting

Strategies for

Relevant

Stakeholders

Poultry Association & Agricultural

Universities

Developing a linkage between

education, research and the

industry

Reducing dependency on foreign

poultry inputs

Developing skilled manpower,

researchers and consultants

Funding & Undertaking more R & D

projects

Government

Developing Poultry Development Fund &

Compulsory Poultry insurance

Ensuring Bio-safety and Quality control of

eggs and meat

Providing help with Subsidy, electricity

supply and necessary training

Obtaining OIE clearance & Increasing DLS

Efficiency

Separate Policy for foreign investors

Keeping the sector income Tax free upto

2025 and exempting 5% tax on feed import

Banks, Investors and

Other fund providers:

Loan at less interest

rate 5-7%

Developing poultry as

export oriented

industry through

maintaining standards

Ensuring healthy

competition avoiding

price wars

Ensuring Marketing &

sale of feed materials,

broiler and layer

DOCs with marginal

profit

34 | P a g e

AAA Model for Efficient Feed supply

Availability Affordability Awareness

Educating Maize farmers about

improved cultivation methods

Generating awareness of bad

effects on chicken and ultimately

on human body for using harmful

chemicals (chromium) and

pesticides in feed production and

feed preservation

Generating awareness about

balanced food items

Setting aside a minimum floor of

maize production for poultry

Establishing a Granary at each Upzilla.

Facilitating Imports in terms of

tax exemption

Lowering loan interest rate to 5-

7%

Subsidizing feed materials

35 | P a g e

Timeline and Activities of the Roadmap

Immediate (Within 1 year):

Feeders:

Tax Exemption on Feed import (e.g. maize, soyabean): Currently the tax rate on feed import is 5%. This

is not conducive to the industry where there is scarcity of feed materials and the price of feed materials

is high. The exemption of tax from feed import will bring down the price.

Fixed Pricing through price floor and price ceiling: The price of the feed materials get increased when

the prices of input raw materials like maize and soya-bean increase in the market but the price do not

get decreased when the input raw materials for feed get cheaper. So a centralized price floor and ceiling

should be fixed for the feed materials.

Veterinary Medicine Producers

Identification of harmful antibiotics and restriction of their use: All antibiotics are not safe. Some of

them have side effects on both chicken and human body (when consumed). It is necessary to identify

which antibiotics are harmful and to prohibit them from further use.

Hatchery Farms and Eggs & Broiler Producers:

Fixing egg and broiler Price corresponding to market: The egg and supplier price corresponding to the

market are needed to be fixed. These prices fluctuate very much depending on the demand conditions.

A price floor and ceiling can be set.

Accounting for inflation in the price: Accounting for inflation in the price need to be undertaken in

order to have proper reflection of input material costs.

Slaughterers and Further Processors

Slaughtering in proper way by maintaining hygienic condition: Most of the germ and diseases get

spread due to improper hygienic condition. Slaughtering in proper way would help reducing the

probability of spreading.

Government:

Providing help with Subsidy, electricity supply and necessary training: Much of the value chain

sustainability and competitiveness can be attained through subsidy, electricity and necessary training.

Obtaining OIE (offis International Des Epizooties) clearance & Increasing DLS Efficiency: The country

has been bird flu free for 2014. Now is the right time to get OIE clearance for poultry processed meat

export.

36 | P a g e

Keeping the sector income Tax free upto 2025 and exempting 5% tax on feed import: This would

encourage more investment in the sector

Banks, Investors and Other fund providers: Loan at less interest rate i.e 5-7%: More and more investors will be willing to enter and stay into the

business given this sector is given loan at 5-7% interest rate. This is crucial for small poultry farms

survival.

Ensuring healthy competition avoiding price wars: The farms can jointly come to a decision to ensure

healthy competition avoiding price wars.

Ensuring Marketing & sale of feed materials, broiler and layer DOCs with marginal profit: Marginal

profit will ensure increased number of customers. Use of proper marketing channels will increase

profitability.

Short Term (1-3 years):

Veterinary Medicine Producers

Ensuring safe and standard egg production: The chemicals in feed materials often remain entrapped in

chicken’s body and transmits through laid eggs. Ensuring safety standards will help solving this problem.

Developing feed additives instead of antibiotics: Instead of antibiotics, if feed additives are used then

the chances of side effects will be reduced.

Hatchery Farms and Eggs & Broiler Producers:

Proper Transportation, Storage, Processing, distribution and Marketing: Proper transportation,

distribution and storage will ensure availability and proper processing and marketing will ensure

profitability.

Slaughterers and Further Processors

Developing improved processing and storing techniques through R & D: This will reduce the wastage of

chicken meat and create more value.

Poultry Association & Agricultural Universities

Developing a linkage between education, research and the industry: A linkage between industry and

university needs to be established for the development of the industry.

Funding & Undertaking more R & D projects: More R & D projects will ensure product (egg and meat)

development ensure more value creation.

37 | P a g e

Government

Developing Poultry Development Fund & Compulsory Poultry insurance: A separate poultry

development fund will be developed by government for the difficult periods of disease outbreak and

low feed grain production. Compulsory Poultry insurance will ensure small poultry farms survival.

Separate Policy for foreign investors: Foreign investors are entering easily and competition with the

local farms with huge capital. A separate policy for them will level the playing field.

Banks, Investors and Other fund providers:

Developing poultry as export oriented industry through maintaining standards: By pursuing global

standards our individual investors can develop the industry as export oriented and can become a part of

the global value chain.

Long Term (1-5 years):

Hatchery Farms and Eggs & Broiler Producers:

Keeping Disintermediation to a minimum level: Disintermediation can never be removed completely.

However it can be kept to a minimum level to ensure increased profitability for the farmers and the

companies.

Poultry Association & Agricultural Universities

Developing skilled manpower, researchers and consultants: Lack of skilled manpower, researchers and

consultants are some of the main reasons of decreased profitability in this sector. Developing them over

time is crucial.

Reducing dependency on foreign poultry inputs: This would bring down the feed material prices.

Government:

Ensuring Bio-safety and Quality control of eggs and meat: This would increase the quality of eggs and

meat and will reduce the DOC mortality.

Industry Benchmark: Comparison with Malaysia The Malaysian broiler industry was selected for comparison with the Bangladeshi industry as there are

some ethnic, cultural and climatic similarities between the two countries. However, Malaysia is way

ahead of Bangladesh in terms of per capita GDP, per capita poultry consumption and industry dynamics.

Malaysia has been used as a benchmark for its development of an integrated industry and the

Bangladeshi industry should head towards it.

38 | P a g e

Malaysian Industry Structure Within a relatively short period of time the Malaysian poultry industry has been able to transform itself

from backyard subsistence levels to highly modern, commercial and efficient production systems. In

1980, poultry production was approximately 115 million tons and per capita consumption was 10.22 kg.

In 2013, a production of 695.92 million day-old chicks was reported by the industry and the production

of broilers was 657.10 million birds. (Livestock Commodity Development Division, Malaysia, 2013) This

development has been facilitated through the development of a safe and stable infrastructure that has

allowed entrepreneurs to enter the poultry industry and develop a vibrant, strong and sustainable

industry.

Malaysia enjoys one of the highest per capita consumption rates in the world. Per capita consumption of

chicken/duck meat is about 38kg (2013). It is also in a prime location allowing for live exports to be

made to neighboring Singapore. The Malaysian Government has formulated the National Agricultural

Policy for year 1998 to 2010 ensuring that the agricultural sectors continue to play a strategic role in

national development is sustained and enhanced.

The Malaysian Broiler Industry is 63% self sufficient with the remaining PS birds being imported. There

are five fully integrated businesses in the country (CP, Leong Hup, Sinmah, KFC and Dingdings) and 23

non –integrated PS breeder companies (79 farms) that sell DOC to the market. The predominant

breeders are Arbor Acres and Cobb that account for 60% of all genetics used in the industry and other

breeds include Avian, Ross and Hubbard.

In Bangladesh the dominance of two larger genetic companies was not so evident. There are a number

of breeds used including Cobb, Hubbard, Hybro and Lohman and this may be attributed to the growth

and expansion of the GP flocks within the country. Although not privy to the reasons but one could

assume that there may have been commercial considerations such as exclusivity agreements and supply

constraints that led to this situation. This is not necessarily a negative point as it should encourage

competition.

The Malaysian industry is mature and has not seen any dramatic increases in supply of DOC’s in recent

times and production is aligned to local consumption requirements and Singapore export demands.

There are periods of oversupply when the Singapore market is closed due to outbreaks of bird flu in

Malaysia.

The Malaysian Industry produces 2.35 M tonnes of broiler feed per year. The 10 largest DOC producers

produce 60% of the total market requirements and the integrators produce 1.45M ton per year of

broiler feed; the remaining broiler feed is produced commercially and sold in the market as commercial

feed representing 0.67 M tones per year produced through four companies. (IDE and Katalyst, 2008)

Feed in Malaysia is sold direct to the farm as are the DOC’s. There have been developments where

larger farmers have formed farmer groups with growers close by where the larger player coordinates

feed and DOC supply. This farmer is effectively acting as a dealer for this user group.

The implications for Bangladesh are to ensure that they have the best quality genetics held in the areas

with the highest biosecurity. Cost savings with respect to freight should allow for a more efficient

39 | P a g e

production system and calls for support from hatcheries should be negotiated into supply contracts thus

ensuring technical transfer and training go hand in hand with orders.

In Malaysia, the livestock industry is dominated by the poultry industry which supplies more than 80

percent of the total meat requirements of the country. This industry is regarded as the most successful

segment of the livestock sector and perhaps has the highest output value per worker in the agriculture

sector. Malaysia has one of the highest per capita consumption of chicken in the world. Chicken meat is

the most popular and cheapest source of meat protein among Malaysians, largely because there are no

dietary prohibitions or religious restrictions against chicken consumption. Over the years, quick service

restaurants (QSR) such as Kentucky Fried Chicken (KFC), McDonald’s, A & W, Kenny Rogers, Nando’s

Chickenland (a South-African based chain) have propelled the growth of chicken consumption in

Malaysia. (Livestock Commodity Development Division, Malaysia, 2013)

Malaysian Industry Inputs The Malaysian feed industry like the Bangladesh industry involves a number of feed companies across

the country. The fourteen largest companies in the industry produce 60% of the total feed; the next

largest 13 feed manufacturers produce the next 15% of the industry’s output.

Of the total broiler production 65% is produced through an integrated system involving 10 companies.

Outside of these 10 companies there are four commercial feed mills providing commercial feed to

commercial broiler growers.

Malaysia imports their grain from sources outside of the country depending on prices. Currently grains

are sourced from the United States of America and South America for approximately $224 per ton and

China and India at approximately the same prices. This compares favorably to the most recently quoted

prices in Bangladesh of $242 and this may reflect freight cost.

Malaysia suffers from the same reported quality issues faced by Bangladesh importers. Due to distances

and the reliance of third party traders the purchasers in Malaysia are often supplied with poor quality

grains. Efforts by some importers are being made to develop long term supply contracts and

relationships with farmer groups in North America to reduce the negative quality issues.

Malaysian Output Industry The Malaysian industry, in a similar fashion to the Bangladesh industry sells the mature broiler to a bird

catcher (Malaysian wholesaler) that co-ordinates the catching, transport and sale of the birds to the

market. However, in Malaysia the bird catcher is the trader of the birds to the retailer not just the

catcher that he is in Bangladesh. This is probably due to the Malaysian industry being self funded and

not having to rely on the credit from the feed dealer. Like Bangladesh, the Malaysian retailers also enjoy

a good margin (around 17%). But the margin for the wholesalers in Bangladesh is quite low compared to

the Malaysian wholesalers.

Malaysian Processing and Fast-food Industry Despite the very high levels of 38kg per capita consumption the majority of chickens, seventy five

percent are sold through the live market. The reasons for such practices are unclear, there may be

40 | P a g e

cultural issues such as those where the traditional buying and consuming patterns are prevalent in

societies where food is more than a staple and involves some ritualistic buying behavior and issues of

trust that exist in Bangladesh.

Malaysia has 15 government certified slaughtering facilities and in 2005 these plants slaughtered

18.03% of the total broiler production. (IDE and Katalyst, 2008)

Malaysia does enjoy a strong fast food industry and the largest player, KFC has integrated backwards

and produces their own birds. Not only is KFC prominent but the country enjoys a vibrant fast food

industry with many international and domestic outlets. Produced especially in small stores, Malaysia’s

consumption of fried chicken is reported as being the highest in Asia and one of the highest in the world,

the fried chicken is convenient, safe and competitively priced.

Malaysian Export Industry

The further processed industry for home cooked chicken is strong as is the export market for these

products. Both processed and live birds are exported to lucrative Singapore market. Processed birds are

also certified Halal and exported to the Middle East and EU.

A total of 49.03 million live broilers and 9,710 metric tons of raw and marinated chicken meat were

exported by Malaysia in 2013. Lastly, although Malaysian consumption figures are some of the highest in

the world recently the image of poultry has been harmed through Avian Influenza and contamination of

poultry with banned substances. As the Bangladesh industry aims to grow consumption an opportunity

exists to educate the industry of the harmful long terms implications of poor short term cost orientated

management practices.

Malaysian Government Policy

Government policy in Malaysia is focused on regulation and providing information for the industry.

Policy issues that affect producers in Malaysia were summarized as:

Upper price of RM 4 per kg on live bird prices

Control of inputs into feed and banning of all beta agonists, nitrofurens and

chloranphenicol

Licensing of farm premises

Auditing and regulation of registered slaughter premises

Sharing of information and technology

Veterinary diagnostics

Comparison between Malaysian and Bangladesh Broiler Flock A significant difference between Malaysian and Bangladeshi poultry industry is the level of integration

within the industries and corresponding infrastructure between the two industries. The development of

the Malaysian industry has resulted in a coordinated production approach led by professional

businesses that have accelerated modernization of the industry through investment. Although not an

41 | P a g e

integrated business there is a degree of stability within the industry and generally broiler supply equates

to demand and PS and DOC production meets commercial grower’s requirements. There is a large

percentage of integration but retail sales are through the wet market.

As reported by Henry and Rothwell 2000, there are three reasons to integrate: (a) market ownership

and margin control, (b) biosecurity and quality and (c) economies of scale and optimization of capital

resources.

The broiler industry in Bangladesh has yet to see the need or value to integrate. If Malaysia is taken as a

model, integration can work without processing birds. This model could be the model chosen to

introduce closer vertical integration in Bangladesh. This would ensure market ownership through

guaranteed DOC and feed sales, margin control and optimization of capital through optimization of feed

mill output and economies of scale through market expansion.

Comparison between Input Industries Another significant difference between the two industries can be termed as “direct access to technology

and advice”. Firstly, in an integrated production system all members of the integration are informed.

Payments are made based on performance; inefficient operators depart quickly as there are penalties

for poor performance. Members of the integration are also supplied with qualified performance

orientated advice as it in the interest of both parties to produce as efficiently as possible.

Secondly, distance between the technology owner and technology application is one step removed in

Bangladesh, in Malaysia this gap does not exist. For example, feed and DOC’s in Malaysia are supplied

directly. In Bangladesh they are supplied through a third party, the dealer. Other inputs such as feed

additives and medication/vaccinations are generally supplied directly rather than through a third party.

The “watering” down effect of advice and the quality of advice plays a significant role in the education of

the industry. Additionally, the quality of graduates from Malaysian Universities is high, with graduates

and Malaysian industry professionals found across Asia in senior positions in companies.

A Summary of the Differences between the Malaysian Industry and the

Bangladeshi Industry To allow for a tabulated comparison the following table has been developed to summaries the

differences between the two industries.

Table 1: A Summary of the Differences between the Malaysian Industry and the Bangladeshi Industry

Parameter Malaysia Bangladesh Broiler Flock-structure

Grand parent farms 2 >8

Integration >65% of industry 5 large players

<5% Only a few firms have gone towards integration

PS supply 65% self sufficient 100% self sufficient

42 | P a g e

Parameter Malaysia Bangladesh DOC sales Direct In-direct – Dealer/Agent

Stability Mature – stable Significant investments Larger and fewer commercial growers

Growing – immature >130,000 small growers

Input Industry

Grain Imported Imported

Feed sales Direct In direct – Dealer/Agent

Medication/feed additives Direct (>80%) In direct – Dealer/Agent (>80%)

Industry Consultants Prevalent Very few

Genetics 65% self sufficient 100% self sufficient

Output Industry

Market bird sales Wholesalers Wholesaler

Retail channel 75% wet market 99 % wet market

Export sales 44M birds (10%) 0

Price $/kg $0.77-1.09 $1.14

GDP/capita ($) 6,007 480

Broiler Flock - Performance

FCR 1.65-1.80 2.0-2.2

Mortality (%) 2-6 7-7.2

Market weight (kg) 2.2 1.08- 1.43

Market age (days) 36-40 30-33

Government Policies Monitoring, auditing and advice

Do not act as regulators, more involved in production and commercial enterprise No involvement in monitoring

Industry Associations Two Active, information providing, regular meetings, unified

Seven Networking and lobbying In effective due to divergence of interests

Graduates Practical, high quality and often employed in other Asian countries.

Not as good and practical as expected

Bangladesh provides an opportunity for Halal markets that require Halal certification to source from

alternative suppliers other than those based in Malaysia. If Bangladesh was to enter this market the

production and processing costs would need to be in line with Malaysia. Prior to any significant

investment in this area it would be advisable for those manufacturers looking to access the export

market to undertake a thorough market evaluation and benchmarking study to understand the

opportunities and the current international cost structures.

43 | P a g e

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consolidation-drive/

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worlds-poultry-industry

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(Dhaka),Vol.4,No.2,July-December , 97-112.

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Chowdhury, D. S. (2014, November 29). Professor, Poultry Science Division, Bangladesh Agricultural

University, Mymensingh. (N. Saadat, Interviewer)

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Gopalkrishnan, C., & Mohanlal, G. M. (1994). Livestock and Poultry Enterprises for Rural development.

New Delhi, India: , Vikas Publishing house Pvt. Ltd.

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Implication for Future Research. Savar, Dhaka: Bangladesh Livestock Research for Rural Development.

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Dhaka, Bangladesh: Bangladesh Agricultural Research Council/USAID/Checci & Company Consulting Int.

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Islam, N. (2003). Demand projections for poultry products and poultry feeds in Bangladesh. No 54, MSSD

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Poultry Production in Sylhet Region. International Journal of Poultry Science. Vol. 5 No.11 , 1092-1095.

Livestock Commodity Development Division, Malaysia. (2013). The Broiler Chicken Industry in Peninsular

Malaysia.

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3-months/

Shah, T. (2014, November 22). President, Egg Producers Association Bangladesh. (S. H. Saadat,

Interviewer)

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Shamsuddoha.pdf

45 | P a g e

Part B: Cases

Table of Contents

1. Keari Poultry Hatchery: A Time for Change? ………………………………………….. 46

2. Nova Poultry: Cost Savings or Biosafety? ……………………………………………….. 56

3. SME Hurdles: The Struggle of an Egger in Dire Straights………………………….. 64

4. Expansion of Kazi Farm’s Frozen Food Business ……………………………………. 74

5. BRAC Poultry: Development through Women Empowerment …………………. 82

Page | 46

Keari Poultry Hatchery: A Time for Change?

Contents Company Overview ..................................................................................................................................... 48

Industry Overview ....................................................................................................................................... 48

Competitive Analysis ................................................................................................................................... 50

Kazi Farm ................................................................................................................................................. 50

C.P. .......................................................................................................................................................... 50

Aftab ........................................................................................................................................................ 50

Nourish .................................................................................................................................................... 51

Paragon Poultry Ltd. ............................................................................................................................... 51

Current Projects of Keari ............................................................................................................................. 52

First Project: ............................................................................................................................................ 52

Expansion Unit-1: .................................................................................................................................... 52

Expansion Unit-2: .................................................................................................................................... 52

Poultry Slaughtering and Further Processing Plant: ............................................................................... 52

Poultry Rearing House: ........................................................................................................................... 52

Feed Mill: ................................................................................................................................................ 53

Major Challenges Facing Keari .................................................................................................................... 53

Keari’s Expansion Dilemma ......................................................................................................................... 54

Page | 47

Keari Poultry Hatchery: A Time for Change?

When Keari expanded its corporate structure to include poultry farm, the prospects were immensely

bright. The population of the country was on the rise at an overwhelming pace, and as a result, so was the

demand for protein, which all in all presented an ideal opportunity to enter the poultry industry. The

industry eventually started to show promise in the 90’s, but the market had not seen adequate investment

till then. Keari spotted an opportunity to capitalize on this gap, and went in with significant capital

investment.

It’s been over 13 years since Keari has now been a part of the poultry industry. Although it hasn’t grown

on to become one of the biggest players in the sector, it has been able to maintain its status as a steady

and key player. Keari started off as a breeding farm, and soon went on to add feed mill to its poultry wing.

Over the years, the company has expanded its operation scale in both breed and feed sections, which has

helped the company to sustain its competitiveness to a certain extent.

Given the rapid growth of the poultry industry since the early 2000’s, there were no apparent reasons to

operate in a restrained manner. And this optimistic scenario provided an impetus for the farms to increase

its production capacity. However, the industry started facing some real challenges at the end of the

decade, and their impact has ever since persisted and has somewhat slowed down the growth rate. The

advent of avian influenza, more popularly known as bird flu, in 2007 posed a major threat to the

sustainability of the industry as a whole. Although the industry has done well to mitigate the risk entirely,

there still remains some skepticism within consumers. Supplemented by the impact of bird flu was the

eventual gap between demand and supply. The current demand for broiler is around 90 lacs per week,

whereas the weekly supply is at a range of around 1.05 crore, though the industry has been able to lower

it down from the previous level of 1.2 crore. Also compounding on the struggles of the farms is the

significantly high bank interest rates that they have to bear, which together with the lack of support from

government has resulted in many of the smaller farms being driven out.

Despite being in the market for a long time, Keari has not quite been able to find a long-term solution to

fight off the threats posed by the larger competitors of the likes of C.P., Kazi farms, ACI-Godrej, among

others. Its operation has for long remained restricted to breeder and feed mills, but it has started to realize

that for long-term sustainability, perhaps it’s time for the company to follow a more ambitious path and

look to expand by diversifying into other areas of the poultry industry. However, given the persisting

Page | 48

problems facing the sector, Keari’s plan is being held back by the skepticism regarding the future of the

industry, and if it could compete against the bigger players who are already dominating the market.

Company Overview

Keari’s business philosophy has been embedded around the core beliefs of providing safe and hygienic,

nutrient rich, quality products, and the company strives to treat farmers as extension of their business

and aims for their betterment. Keari Limited was established in 1996 as a portfolio of projects of both

residential and commercial compliments in the city state of Bangladesh. In 1999, the organization saw

huge potential in the poultry sector of the country, and ultimately decided to diversify into this sector.

This led them to take the first major step in that year by purchasing a 15-acre land for its first poultry

project in the Harirampur Union of Trishal Upazila in Mymensingh. And after extensive planning for almost

2 years, Keari Poultry Hatchery Ltd. started operation in 2001. The company started initially by bringing in

a parent stock shed with a capacity of 5,000, and has since expanded its scale over time.

Industry Overview

Bangladesh still remains a country which is substantially dependent on agriculture for its economic

growth, which is demonstrated by the fact that over 19% of GDP is contributed by this sector, one-third

of it being contributed being contributed by the poultry industry. Poultry is a part of subsistence

agriculture farming system in Bangladesh and broiler is one of the main products of poultry farming and

it is commercially produced. Broiler is most vital due to key contributions to national economy in the

spheres of generating employment opportunity, additional income and improving the nutritional level.

About 2.50 percent of GDP came from livestock farming in 2012. In addition, broiler is an excellent source

of protein and nutrients which are essential for health and growth of the human body. About 5.5 million

people are involved, directly and indirectly, with the industry and approximately 50% of them are women.

A large section of the marginalized rural people earns their living through this industry.

It was in 1995 that the poultry industry started in an organized manner in Bangladesh. In just 20 years the

industry has seen exponential growth. Investment in the sector stands at about 25 thousand crore taka.

Its growth rate is about 20%. Roughly, there are over a hundred thousand poultry farms, small and large,

Page | 49

across the country, eleven grandparent stock farms, 145 parent stock farms and hatcheries, and 60 to 70

poultry feed mills.

Poultry farming in the past was not considered as an important occupation. The villagers have been

keeping the chickens mainly for their domestic consumption only. From the beginning of early 1990's in

response to the wide market opportunity, a commercial poultry sector (broiler and layer) has emerged

using intensive production techniques and is getting more and more popularity local breeds are not

commercially reared because it is mainly due to the low productivity of local breeds of chicken, poor

nutrition, high mortality. The demand for broiler has been continually increasing in the country and

millions of people have been getting involved in production and marketing of broiler almost everywhere

in the country. Broiler has a great demand as compared to other meat because of the limitation and

religious taboos in the case of pork and beef.

The whole poultry industry is affected by external calamities like Political problems, natural disasters, and

also diseases like avian influenza. All these calamities, man-made or natural, has had a severe negative

impact on the poultry industry in the past. The other factor that strongly affects the poultry industry is

the policy making decisions related to poultry. These policy decisions may be based on over or under-

production, Government policy regarding the industry, demand in the market, and competitor actions.

There was a sudden shift in industry dynamics in 2009 when Thai poultry giant CP invested a further $60

million in the country’s poultry industry, forcing top player Kazi Farms to go on the back-foot and come

uo with its own two-year expansion scheme in feed, meat processing and retailing. Their nearest rivals

Aftab, Nourish and Paragon have also expanded in newer segments amid the largest consolidation drive

that experts fear would make it increasingly difficult for the country’s tens of thousands of smaller farms

to survive. The investment drive has been aimed at hedging their businesses against unforeseen dangers

like the deadly bird flu, which in the recent years have wiped out a substantial portion of expected

revenue.

The problems of bird flu and increasing feed prices continued up to 2012 and in 2013 the political unrest

throughout the country harmed the industry profitability a lot. Thousands of small firms were went out

of the industry and the industry suffered a loss of around 40 Billion Taka in 3 last months of 2013 alone.

Amidst these many difficulties, poultry industry continued to grow and the investment in this sector has

surpassed recently 25000 Crore Taka. And if the industry receives more help from the government the

investment is projected to surpass Taka 50,000 Crore mark in 2030.

Page | 50

Competitive Analysis

Around 150 hatchery farms exist in Bangladesh, and Keari claims to be within the top 20 farms. However,

the company faces significant threat from the major players in the industry who have taken steps in recent

years to diversify and expand into other areas of the poultry sector to mitigate risks.

Kazi Farm

Kazi Farms Limited was established in 1996 as a hatchery of imported eggs. The following year it started

its own parent farms, and in 2004 production started in its grand-parent (GP) farms. In addition to

producing breeder feed to meet it own requirements, in 2006 it established the largest and most advanced

feed mill in the country with technical assistance from Cargill USA and Buhler Switzerland. Kazi Farms

Group has over 50 broiler parent farms, layer parent farms, broiler grand-parent (GP) farms, hatcheries,

feed mills and sales offices in different locations throughout Bangladesh. Kazi Farms has the largest D.O.C

production capacity in Bangladesh by producing around 30 lac chicks per week.

C.P.

C.P. Bangladesh Co. Ltd. is a sister concern of Charoen Pokphand Group Thailand. C.P. Bangladesh Co. Ltd.

has been operating in the poultry industry of Bangladesh since 1999. C.P. managed to establish ts own

feed mills, breeder farm, hatcheries, G.P. farm, fish feed mill all over the country, largely backed by its

parent company in Thailand. C.P. Bangladesh’s strategy is focused around continuous improvement of its

quality and productivity, and is adequately supported by top-class facilities, technology transfers, and

trained up efficient management.

C.P. follows premium pricing policy for its feeds, and it has successfully established itself as the benchmark

in terms of quality if feed. C P follows the traditional system of distribution of the poultry industry in

Bangladesh and has distributors all over the country. It has tried to establish dealer points starting with

the major poultry zones of the Bangladesh like Savar, Gazipur, Narayangonj and other key districts.

Aftab

Aftab Bahumukhi Farms Limited was established with the main objective being to provide available good

and hygienic sources of poultry protein, dairy product, fish, vegetables, cereals etc. and ensure constant

availability. Aftab Poultry maintains parent (Breeding) stock in own farm & through contract growers,

Producing over 2 million day old chicks per month in a modern hatchery. ABFP’s poultry feed mill was first

Page | 51

established primarily to provide balanced feed for the ABFL’s own poultry. It was later expanded to meet

the demand of poultry feed for the larger section of the growing market. At present ABFL has 3 feed mills

with capacity of 10,000 MT/Month and distributing balanced feed to the farmer throughout the country

by its own distribution system. ABFL started its forward integration in chicken processing in 2006, mainly

inspired by the increasing demand of fast food in Bangladesh. KFC, Pizza Hut, and BFC are the top 3 buyers

of Aftab, as they buy out almost 1/4th of the total meat production of Aftab. The rest are supplied to

different restaurants, supermarkets and groceries.

Nourish

Having started operation in 1999, Nourish has gone on to become a major player by providing high quality

DOC. High demand for the quality poultry feed encouraged Nourish to step further into the poultry feed

operations in 2001. Its high and consistent FCR has influenced a wide segment of rural people to take part

in the poultry businesses. Nourish started operation with the objectives of alleviating the malnutrition

problem of the country through enhanced productivity and accessibility of assured quality animal protein

source, and ensuring sustainable poultry rearing systems with minimal environmental hazards and highest

safety standards. To implement these objectives, Nourish has utilized resources to provide quality chicks,

feeds, and technical services at the grass-root level, and adopted technologies less harmful to the

environment and strives to improve the attitude of its farmers towards a better execution of bio- security.

Nourish Grand Parents Limited started its production in June 2011 as a distributor of Cobb- 500 PS in

Bangladesh. Since its commencement, Nourish GP has focused on ensuring the reputation of Cobb-500

broilers as the world's most efficient bird with the lowest feed conversion ratio.

Paragon Poultry Ltd.

PPL is one of the largest integrated poultry farms engaged in the production of day old commercial chicks,

table eggs, and poultry feed, which started its journey in 1993 with its commercial layer operation at

Gazipur. Over the past decade, it has expanded its operation into production of day old chicks and poultry

feed. PPL has been the pioneer in introducing state of the art technology and advanced know how in

poultry farming and hatching industry in Bangladesh. PPL has also been one of the leading poultry feed

manufacturers in Bangladesh. It has been successful in establishing its brand name in the market by

maintaining a rapid market growth and gaining buyer confidence.

Page | 52

Current Projects of Keari

First Project:

Project Area: 15 acre

Type of project: Environment Control Breeding Farm & Hatchery

Capital Investment: TK 10 Crores

Production Capacity: 70,000/week, 36, 40,000/annum

Distribution Network: Distributed by company’s transport/under own arrangements through enlisted

agents.

Yearly Turnover: TK 8 Crores

Market expansion: Has earned the trust of farm (Broiler) owners.

Expansion Unit-1:

Project Area: 5 Acre (In a nearby area of first project)

Type of project: Environment Control Breeding Farm & Hatchery.

Expanded Capacity: 45,000/week, 23, 40,000/annum

Implementation state: Already implemented

Expansion Unit-2:

Another unit in a separate area on a land of about 40 bigha with a production capacity of 115,000 DOC

per week has already been approved by the Keari management. Implementation process is in progress.

Poultry Slaughtering and Further Processing Plant:

After the success in poultry Hatchery Project, to meet the growing demand of ready and advanced poultry

products, the company is considering the establishment of a modern slaughtering and further processing

plant. Implementation will start as soon as the details are worked out and finalized.

Poultry Rearing House:

To support the requirements of inputs for the planned slaughtering house, own source of live birds is a

necessity. To meet such requirements, establishment of a rearing house with own DOCs (Day Old Chicks)

Page | 53

is also under considerations, which otherwise will ensure the use of own surplus DOCs whenever require

and can be marketed (live chicks) in the local market also.

Feed Mill:

To ensure the KPH produced best quality chicks, KPH have purchased a land of about 12 bigha with

production capacity 10MT/H which has already been approved by the management.

Major Challenges Facing Keari

The poultry industry that was once braced to become one of the promising industries in Bangladesh, have

suffered some serious problems in the recent years, which has made sustainability a major challenge for

firms of even of stature of Keari.

High bank interest rate:

The banks interest rate in this sector is very high which is on an average 12-14% per annum and real

effective interest rate is around 18-20% per annum. Moreover, lot of hidden charges and costs are

associated in this sector to avail the loan from the banking sector.

Avian Influenza outbreak

Ever since the knowledge about the existence of bird flu came to knowledge in March 2007, it has left a

rather permanent mark in the poultry industry. Although farms claim to have successfully eliminated it,

its effects remain largely visible in the farms. Keari has had to face significant costs to eliminate bird flu

entirely from its farms, but the expenses have not stopped there. It is an ongoing process to ensure that

such an occurrence does not happen again.

Lower price of broilers

The supply of broilers at present is substantially greater than the demand, by around 15 lacs per week,

which has naturally caused the prices of broilers to be driven down. The cost of production for Keari is

BDT 32 on average, whereas the selling price is only BDT 21.50, thus resulting in a loss of over BDT 10

per broiler for Keari.

Negative publicity

Page | 54

There also seems to be a lack of rapport between the poultry farmers and the media, as a result of

which the amount of negative publicity has soared in recent times, causing consumer confidence to

decline. The major rumors circling at present are mostly regarding bird flu and the alleged poor quality

vaccines and medicines used by the farms.

Competition from India

India poses a major threat for the poultry industry of Bangladesh because of its strong competitiveness

in terms of both broiler and feed production. If farms such as Keari decide to increase prices of broilers

to mitigate the losses they suffer from high costs, India has the cost advantage to penetrate Bangladeshi

market by offering lower-priced broiler. Similarly, India produces large amount of soya and maize, which

are the major ingredients for poultry feed, and hence this is another area where there competitiveness

is notable.

Keari’s Expansion Dilemma

The last couple of years have brought have mixed results for Keari. The price of broilers have remained

low causing the company to incur losses on them, but that has been somewhat mitigated by the healthy

price of feed in the market. The prices of maize and soya, the two major ingredients for poultry feed, have

fallen, which has reduced the cost of production of feed lesser. Moreover, the price of feed in the market

has not fallen, which has helped feeders to earn a minimum margin of BDT 5 per kg of feed. But still, Keari

is suffering substantial losses due to its broiler, which causes the gain from feed to be offset.

Keari has long felt the need to expand in order to increase its long-term sustainability and add more

revenue-generating units. It also understands that in order to compete with the big players and reach the

position it aimed when it started, it needs to engage in more ambitious projects. The projects that it has

undertaken so far have mainly been surrounded around its core business of broiler and feed mills, but

Keari feels that being restricted to these two areas is not helping Keari being considered as one of the key

players in the industry, nor is it helping the company to make profits of any substance.

In order to break this cycle, Keari is considering significant changes in its operational scale, and it has

brought to table a plan to expand to chicken processing unit, which will be supported be contractual

farming. The plan will be supported by contractual growers who will be provided with birds, feed and

technical support by Keari, while the growers will bring in labor, housing and utilities. The grower is

Page | 55

protected from the risk of changing market prices for chicken and feed ingredients, while Keari will receive

chickens tailored for its processing unit.

Many of the major players have already expanded to processing units in order to increase their

competitiveness. Keari recognizes that delaying to catch up with these farms could mean it eventually

losing its ground in the market, and hence it feels the need to go ahead with a purposeful project of such

scale to rejuvenate its standing in the industry. This will also help Keari get closer to the end market by

serving the end customers more closely.

However, the problems facing Keari are manifold, and the major players pose a threat to firms of Keari’s

size with the large amount of investment they have brought in. The market for processed chicken is also

a niche at present, with farms like Kazi, C.P., and Bengal Meat well serving the market and they have also

managed to create a sense of brand loyalty with their aggressive marketing.

Keari is at crossroads in struggling to decide whether it should bide its time for now, and concentrate on

its existing operations, or whether it is the correct time to go forward with an ambitious project of

expanding to processing unit, supplemented by contract growers, with the aim of competing with the

major players. Keari does not possess as much financial and human resources as the top firms, but playing

safe have been a strategy for Keari that seems to have no served them well enough so far. Keari feels

perhaps it’s the right time to take a bolder route.

Page | 56

Nova Poultry: Cost Savings or Biosafety?

Table of Contents

Nova Poultry: Cost Savings or Biosafety?............................................................................... 57

Industry Overview ................................................................................................................... 57

Company Overview ................................................................................................................. 59

A Major Problem: Avian Influenza ......................................................................................... 59

The 2007 Avian influenza outbreak and its effects on Nova Poultry ...................................... 60

Major Challenges for Nova ...................................................................................................... 60

High Finance Costs .............................................................................................................. 60

Avian Influenza outbreak ..................................................................................................... 60

Decreased price of DOC ...................................................................................................... 60

Negative publicity ................................................................................................................ 60

Competition from Large Players .......................................................................................... 61

What needs to be done to ensure bio-safety? ........................................................................... 61

Poultry Housing ................................................................................................................... 61

Feeding and Medicine .......................................................................................................... 61

Watering ............................................................................................................................... 62

Investment Needed for Ensuring Biosafety at Nova Poultry ................................................... 62

The Decision Situation for Nova ............................................................................................. 63

Page | 57

Nova Poultry: Cost Savings or Biosafety?

It is middle of 2009 and Bangladesh’s poultry industry has been hit very hard due to bird flu over the

past 2 years. Nova Poultry Limited is a medium sized poultry farm located in Mawna, Sreepur. The

farm produces DOC for other poultry farms. But it does not have any contract for supplying to the

giants like BRAC, CP, or Aftab. The facility started its operation in 2004 when its owner Mr. Zaman

bought a small poultry operation. Since then the facility has seen expansion in its capacity.

Given the rapid growth of the poultry industry since the early 2000’s, there were no apparent

downturn visible on the horizon for the industry. And this is the very reason the owner of the company

went in the business in the first place. However, the industry started facing some real challenges at

the latter half of the decade, and their impact has ever since persisted and has somewhat slowed

down the industry growth rate. The biggest shock for the company and the industry as a whole came

in the form of the avian influenza outbreak of 2007 that posed a major threat and could possibly doom

the industry beyond salvation. Although the industry has done what it could to mitigate the risk, there

still remains threats of future outbreaks. Also, the skepticism within consumers hurts the industry as

well. The farms like Nova poultry also face harsh competition from very large producers like Aftab,

and BRAC. These large companies have very large operations and backwards and forward integration

that helps them reach a level of economies of scale unattainable by farms like nova or smaller farms.

The farm has not been in the business for long, and already id had to endure a major shock due to the

avian influenza outbreak. The company has not been able to recoup the losses incurred in 2007 and

to prevent any future outbreaks that could put the company needs to invest a huge amount of money

in building bio-safety measures in the farm. The company is in a difficult situation because of the losses

made in 2007, increased finance cost for taking new loans, and the ultimate risk of going out of

business.

Industry Overview

Bangladesh still remains a country which is substantially dependent on agriculture for its economic

growth, which is demonstrated by the fact that over 19% of GDP comes from agriculture, while one-

third of it is being contributed by the poultry industry. Poultry is a part of subsistence agriculture

farming system in Bangladesh and broiler is one of the main products of poultry farming and it is

commercially produced. Broiler is most vital due to key contributions to the national economy in the

spheres of generating employment opportunity, additional income and improving the nutritional

level. Broiler is an excellent source of protein and nutrients which are essential for health and growth

of the human body. About 5.5 million people are involved, directly and indirectly, with the industry

Page | 58

and approximately 50% of them are women. A large section of the marginalized rural people earns

their living through this industry.

It was in 1995 that the poultry industry started in an organized manner in Bangladesh. In just 20 years

the industry has seen exponential growth. Investment in the sector stands at about 25 thousand crore

taka. Its growth rate is about 20%. Roughly, there are over a hundred thousand poultry farms, small

and large, across the country, eleven grandparent stock farms, 145 parent stock farms and hatcheries,

and 60 to 70 poultry feed mills.

Poultry farming in the past was not considered as an important occupation. The villagers have been

keeping the chickens mainly for their domestic consumption only. From the beginning of early 1990's

in response to the wide market opportunity, a commercial poultry sector (broiler and layer) has

emerged using intensive production techniques and is getting more and more popularity local breeds

are not commercially reared because it is mainly due to the low productivity of local breeds of chicken,

poor nutrition, high mortality. The demand for broiler has been continually increasing in the country

and millions of people have been getting involved in production and marketing of broiler almost

everywhere in the country. Broiler has a great demand as compared to other meat because of the

limitation and religious taboos in the case of pork and beef.

The whole poultry industry is affected by external calamities like Political problems, natural disasters,

and also diseases like avian influenza. All these calamities, man-made or natural, has had a severe

negative impact on the poultry industry in the past. The other factor that strongly affects the poultry

industry is the policy making decisions related to poultry. These policy decisions may be based on over

or under-production, Government policy regarding the industry, demand in the market, and

competitor actions.

There was a sudden shift in industry dynamics in 2009 when Thai poultry giant CP invested a further

$60 million in the country’s poultry industry, forcing top player Kazi Farms to go on the back-foot and

come uo with its own two-year expansion scheme in feed, meat processing and retailing. Their nearest

rivals Aftab, Nourish and Paragon have also expanded in newer segments amid the largest

consolidation drive that experts fear would make it increasingly difficult for the country’s tens of

thousands of smaller farms to survive. The investment drive has been aimed at hedging their

businesses against unforeseen dangers like the deadly bird flu, which in the recent years have wiped

out a substantial portion of expected revenue.

The problem of Avian Influenza started wreaking havoc in the industry in 2007. The severe avian

influenza outbreak of 2007 lead to big farms going out of business and harmed the industry a lot.

Page | 59

Amidst these many difficulties, poultry industry continued to grow and the investment in this sector

has surpassed recently 25000 Crore Taka. And if the industry receives more help from the government

the investment is projected to surpass Taka 50,000 Crore mark in 2030.

Company Overview

Nova Poultry is a breeding farm that produces and sells DOC to poultry farmers. The farm has its own

grandparent stock and produces its own parent stock. Each flock of birds is raised for 25 to 27 weeks

till they start producing eggs.

The company started its operation in 2004 through the acquisition of an existing small poultry

operation. At that time, the farm had a capacity of 1 shed, and approximately 5000 chicken. Since then

the farms capacity has been expanded to four sheds with a maximum capacity of 50,000 chicken that

can be raised in four sheds.

A Major Problem: Avian Influenza

Avian influenza, known informally as avian flu or bird flu, refers to influenza caused by viruses adapted

to birds. The version with the greatest concern is highly pathogenic avian influenza (HPAI).

"Bird flu" is a phrase similar to "swine flu," "dog flu," "horse flu," or "human flu" in that it refers to an

illness caused by any of many different strains of influenza viruses that have adapted to a specific host.

All known viruses that cause influenza in birds belong to the species “influenza A” virus. All subtypes

of “influenza A” virus are adapted to birds, which is why for many purposes avian flu virus is the

“influenza A” virus.

Being adapted toward a particular species does not preclude adaptations, or partial adaptations,

toward infecting different species. For example, viruses responsible for influenza pandemics are

adapted to both humans and birds. Recent influenza research into the genes of the Spanish flu virus

shows it to have genes adapted to both birds and humans, with more of its genes from birds than less

deadly later pandemic strains. This is why the avian influenza is a matter of concern for consumers

and produces alike and can pose substantial threat to human health.

While its most highly pathogenic strain (H5N1) had been spreading throughout Asia since 2003, avian

influenza reached the Middle East, as well as Africa in 2006 and reached Bangladesh in 2007. The First

large scale outbreak was in the Biman poultry facility in Savar which lead to thousands of chickens

being culled.

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The 2007 Avian influenza outbreak and its effects on Nova Poultry

The farm took a crippling blow during the height of the avian influenza outbreak of 2007. In March

2007, the farm was hit by avian influenza at a time when it had around 40,000 chickens in the farm.

The authorities culled all the chickens on the farm. The manager of the farm, Mr. Amol estimated the

losses to be around 5 Crore BDT! But the farm receives government compensation of a measly BDT 21

lacs.

Major Challenges for Nova

The poultry industry that was once braced to become one of the promising industries in Bangladesh,

have suffered some serious problems in the recent years, which has made sustainability a major

challenge for firms like Nova Poultry.

High Finance Costs

The banks interest rate in this sector is very high which is on an average 12-14% per annum and real

effective interest rate is around 18-20% per annum. In addition, a lot of hidden charges and costs are

associated to availing loans from the banks for the poultry industry. The farm will need substantial

capital investments in infrastructure building to ensure bio-safety. But the high finance costs may

prevent the farm from doing so.

Avian Influenza outbreak

The company has already seen a major avian influenza outbreak in 2007. 2008 was not free of avian

influenza outbreak as well. If the company does not act swiftly, the farm might see another outbreak

in 2009 as well.

Decreased price of DOC

Due to lack of confidence in suppliers and the recent avian influenza outbreaks, the market price of

DOCs has dropped significantly to the levels that the company sometimes needs to sell these at a loss.

The market price is also unstable which hampers proper forecasting of expected cash flows from the

business.

Negative publicity

As the avian influenza outbreaks and the widespread culling of chickens has been highly publicized by

the media, consumer confidence on poultry has dropped significantly over the last 2 years. This has

resulted in a significant drop in demand for poultry products as many consumers have resorted to

other meat sources and fish for their protein needs. This results in lower price of broiler and eggs

which in terms reduces DOC prices for the company.

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Competition from Large Players

The large players in the industry like Aftab, BRAC, and CP pose a major threat to Nova poultry. Because

of the bigger players’ forward and backwards integration and their bery large operations, they can

reach a very high level of economies of scale and can charge less for their products. This helps the

battle the decreasing prices effectively. But that level of economies of scale cannot be attained by

Nova poultry and because of that, it cannot fully combat the falling prices problem.

What needs to be done to ensure bio-safety?

To derive highest economic benefits from poultry farming and to ensure bio-safety, certain technical

and scientific practices should be followed by the entrepreneurs are as follows

Poultry Housing

Always select high land for construction of poultry sheds. Areas that are periodically waterlogged

should be avoided to prevent waterborne diseases from spreading.

Proper training of personnel to ensure Bio-Safety

Provide required floor space to the birds and not overcrowding them

Raising of plinth of the shed should be at least 1 ft. above the outside ground level.

Provision of strong roof and hard flooring

The distance maintained between the sheds of same sector should be at least 50 ft. and 150 ft.

between brooding and laying section

Provision of adequate light, ventilation and comfortable housing condition during all the seasons

Keeping the shed clean and free from flies and insects etc.

The litter material should be always kept loose and dry and turn the litter material twice a week.

Wet litter material should be removed immediately

Feeding and Medicine

Always using good quality balanced feed for optimum production.

Store the feed ingredients in dry and well ventilated store. A wet feed may bring fungus

infection.

Disinfecting the feed before usage

Provide medicine and antibiotics at the specified levels to prevent diseases as well as

overdose

Keeping the record of feed and medicine usage

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Watering

Always providing fresh and clean drinking water and ensuring water should be always

available to the birds

Providing adequate watering space. Using properly designed watering equipment

Provide cool water in summer

Provision of using the watering system to provide medicine to the birds

Using automated machines where possible

Investment Needed for Ensuring Biosafety at Nova Poultry

For ensuring Bio-Safety, the farm needs a complete infrastructural overhaul which will require

investment in several areas. There needs to be provisions for 2 types of Bio-Safety for Nova Poultry.

a. Structural Bio-Safety

b. Operational Bio-Safety

The investment required for improvement in these 2 areas are described below.

A. Construction of new sheds

Safety rules dictate that the brooding and laying areas of the firm must be at least 150 feet apart from

each other. It is to prevent diseases from spreading from one shed to another. The current structure

of the farm does not maintain this safety rule. If this is to be adhered to, the farm will need to demolish

and reconstruct 2 of its four sheds. Total investment needed is estimated to be BDT 40 lacs.

B. Construction of Disinfection Stations

The firm will need to build disinfection stations for workers, feed, and any vehicles entering the facility.

The needed Disinfection stations are

1. Disinfection station for vehicles entering the facility. This station will ensure that no

pathogens enter with a vehicle. To ensure the complete disinfection of vehicles,

disinfectant spraying mechanism and a disinfectant infused water pool needs to be

installed at the entrance of the facility. Estimated investment BDT 15 lacs.

2. To ensure the disinfection of anyone entering the facility, station for washing and

disinfecting people’s hands and feet need to be built at the entrance of the facility.

Estimated investment BDT 4 lacs.

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3. To ensure operational safety, areas of the farm where the chicken are raised need to be

isolated by walls so that non-essential personnel do not enter the core facility. Estimated

investment BDT 10 lacs.

4. To ensure that the workers do not bring pathogens into the core farming area, a

disinfection station needs to be built where workers will change their outside clothing

when going is and will take a complete shower to remove any trace of pathogens. This

station will need to be automated so that workers cannot lie about taking a bath.

Estimated Investment BDT 10 lacs.

5. Washing stations at the entrance of each shed needs to be built to ensure a second level

of safety measure. Estimated investment BDT 50,000.

6. Disinfectant spray and medicine needed for the different disinfection stations and

showering stations will require a monthly expenditure of roughly BDT 50,000.

7. Construction of disinfection station for incoming feed and equipment. Estimated

investment BDT 3 lacs.

C. Installation of Automated Machinery

Automated egg collection and chain feeding machine, and water pumps need to be installed

to remove the need for human intervention in the laying process. Estimated investment BDT

20 lacs for each shed.

D. Construction of Living Quarters

Living quarters for workers who live on the facility within the isolation zone so that they do

not have to go through the entrance disinfection every day. Estimated construction cost BDT

20 lacs.

The Decision Situation for Nova

The decision situation Nova Poultry face is this; should it invest the huge amount of investment

needed for ensuring the bio-safety of the farms, or should it continue with the traditional method of

washing feet before entering the farm like most of the farms in the country? If the farms goes for

investment, it face the challenge of high finance costs, and risk of failure due to decreasing DOC prices.

On the other hand, if the farm continues in its current stae, it will not need to bear the risk of huge

investments, but it will run the risk of another major outbreak which might put the company out of

business.

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SME Hurdles: The Struggle of an Egger in Dire Straights

Table of Contents Background .......................................................................................................................................................... 65

The Choice of Mr. Khokon ............................................................................................................................... 65

The Market............................................................................................................................................................ 66

Process ................................................................................................................................................................... 66

Supply Chain Model ........................................................................................................................................... 68

A Time of Troubles ............................................................................................................................................ 68

Avian Influenza ............................................................................................................................................... 68

Trade Policy Changes ................................................................................................................................... 69

Input Price Inflation ...................................................................................................................................... 69

Weaknesses .......................................................................................................................................................... 69

Lack of Protection from Buyer Power ................................................................................................... 69

Oversupply ....................................................................................................................................................... 70

Lack of Governmental Supports ............................................................................................................... 70

Decision Alternatives ........................................................................................................................................ 70

Option 1: Going Out of Business .............................................................................................................. 70

Option 2: Staying Put in Business! .......................................................................................................... 71

Option 3: Contracting with the Bigshots .............................................................................................. 72

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Background The background of the story stretches back a decade ago, when the remote township of Sripur, Gazipur

started to assert its prominence in one of the most promising agro-based industries in Bangladesh:

Poultry. Situated near the Dhaka-Mymensingh Highway & Railway link, with a dense spread of Shal

Forest of the Bhaowal Gorh surrounding the small concentration of villages and a Railway Station, Sripur

is still an idyllic location.

Its relatively cheap land and easy access to the available communication infrastructure allowed it to

quickly grab the attention of local as well as outside investors as potential champion of the poultry

industry success in Bangladesh. The nearby district headquarter, Joydevpur as well as the industrial area

of Tongi provided an excellent base for ancillary support: feed & medicine. Both were well connected

with Sripur via road & rail links.

The story itself began when a local youth from Maona, Sripur named Khokon Mridha decided to enter

the poultry business. Apart from those factors, his decision was also based on a lot of other factors. His

ancestral land was well suited for the prospective farm, having access to necessary infrastructure. Since

he was thinking about starting out small, he did not require too much investment as well.

Also, education on how to raise a farm like that was also widely available, thanks to publications by

NGOs and public bodies like the Ministry of Fisheries & Livestock etc. Demand was already there and

growing. A lot of promise of growth & prosperity was on the horizon. These things combined to attract a

large mass of young entrepreneurs to enter the business in the early 2000s into the poultry industry.

The Choice of Mr. Khokon There were various dimensions of this industry, based on which product the entrepreneur wants to

produce or sell. Business in Breeder, Layer, Broiler, Egg, and Inputs i.e. feed, medications, and

equipments brought about revolutionary changes in the lives and livelihood of hundreds of thousands.

Mr. Khokon was one of them, who chose to become an Egg Farmer on a small scale.

The reasons for his decision were numerous, some of which has been alluded to earlier. One of the most

important ones was the motivation to do something on his own, instead of waiting for a job after

passing HSC and face the prospect of remaining an unemployed youth for a long period of time, a

complete waste for an energetic youth like Mr. Khokon.

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He already had land within his family home boundaries; if necessary he also had leasing capacity to rent

lands of the neighbors to expand. His holding size is approximately 15 katha or 0.75 bigha land. Back in

those days, land price was minimal due to a lack of development, despite huge potential. Currently, with

land price soaring beyond reach, it is worth at least 60 lacs BDT if sold immediately.

The other two important factors were the nature of the product as well as that of the market. Egg is our

country is a part of our regular diet. From simple omelets to high end confectionary products, we use

egg for a variety of purposes and in a variety of ways.

The Market There is always a consistent demand level maintained by this aspect of the use of eggs. Also, increasing

purchasing power as well as population size increments were contributing to continued growth and

development of the egg sub-sector of the broader poultry industry. An estimated 7.3 billion eggs were

being produced annually in 2011, with an annualized growth rate of 10% per annum that has persisted

or quite some time.

The market structure in those early days was also responsible for the stability in prices through the

workings of the demand-supply balance. Such balances are generally results of learning processes by

businesses: the homogeneity of the product, along with the presence of a huge number of suppliers

ensured that the markets price structure will converge to the marginal cost of production (including a

modest “Normal Profit” margin).

Since the technological innovation and other factors had in general less of a disruptive effect in this

sector during that time, we can see no persistent price, supply, or demand depressing scenario during

the period of 2003-2004 when the trend of poultry business was setting in the region. Khokon’s business

thrived in those early days. He could produce around 2200 eggs per day, from a population of 3500 of

layer hens.

Process Each egg used to carry a profit of approximately 20-30 paisa in those days. Occasionally, this margin

could rise to as much as 50 paisa. This trend had been present from the inception of the farm till 2007.

Within this period, Khokon could radically alter the standard of living of his family. Important sources of

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support in his success were governmental program to popularize poultry farming, as well as educational

campaigns carried out by agencies like the Ministry of Livestock etc.

The process of raising layers and harvesting their productive capacity is a time consuming yet simple

process. The process starts when breeders produce eggs meant for hatching in their farms using parent

stocks imported from abroad. This egg is then hatched in controlled environment to derive what is

known as Day Old Chick or DOC.

Female chicks are kept at the hatchery for up to 2 days where they are vaccinated against diseases that

can affect the species. Male chicks of egg-laying breeds are of little economic value as they will not

produce eggs, and, due to genetics, grow much slower than breeds of chickens raised for meat.

As a result, they are all killed after hatching. Female chicks are either transported directly to the

farm or, more commonly, to a pullet grower who rears the chickens until they reach approximately

19 weeks of age, at which time the pullets are transported to the farm from the hatchery. The average

hen will begin laying eggs at between 18-20 weeks of age (depending on the season and the

breed of hen that is raised).

Around 6 eggs per week can be produced by an average hen during their fertile period. Over a period of

one year, a hen will lay approximately 300 eggs. This level of egg production represents a significant

increase over what the ancestors of these modern strains of hens produced, and is the result of artificial

genetic selection through breeding.

The value of the layer is a combination of the DOC price, the cost of feed, vaccination and other facilities

provided during the 19 week period. This initial investment is the main working capital for any egger.

The second most important source of requirement of capital is in feeding & caring for the layers to the

end of the productive portion of their life cycle. After this period, it is uneconomical to keep these hens

which are by now overweight.

The flock is liquidated through the sale of the entire batch to wholesalers at a discounted price due to

the perceived deteriorated quality of the overweight hens, the average weight of which is approximately

4.25 KGs each. Generally, due to the environment where they are raised, the meat of these chickens

become quite hard, making it harder to boil & consume. This is the reason why these hens are sold at a

price below their actual value.

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Supply Chain Model A simplified supply chain model for this entire subsector is presented below:

A Time of Troubles

Avian Influenza This scenario before 2007 was a rosy one; everything was going on as if nothing can possibly shake the

harmony & balance of the market and the industry. But this was not meant to last. In the summer of

2007, the country saw its first widespread outbreak of Avian Influenza, commonly known as Bird Flu.

Millions of poultry were culled to prevent the outbreak from endangering human beings. Khokon, like all

other farmers in the area, lost his flock too.

The people from the government were deployed to liquidate the flocks of all the infected areas. But the

losses of the flocks were not compensated with sufficient refunds. Only a fraction of the loss could be

recovered from the government granted compensation package. Based on weight and other criteria, a

lump sum amount per culled chicken was provided, which at maximum reached only 40 BDT per KG.

This effectively ruined many small & medium farms completely.

Breeder

Feed Miller

Medicine &

Other Input

Sellers

Importer

Egger Wholesaler Retailer

Intermediate

Buyers i.e.

Restaurants &

Confectionaries

Consumer

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Trade Policy Changes It took Mr. Khokon 2 years to bounce back from the dismal catastrophe. By 2010, he was back on track,

albeit shaken. All of a sudden there appeared the second biggest shock of his career as a farmer. Thanks

to the unscrupulous wholesalers, with their tendency to take unfair advantage of dictating demand &

price to the suppliers, they started importing Indian eggs at just below the production cost of domestic

producers, after convincing the government to lift a ban on the import of eggs.

They hoarded this as a leveraging instrument against the farmers to depress the prices below to such an

extent that making profit for the small time suppliers became impossible. This artificial depression was

condemned by all the concerned parties, including eggers, whose livelihood were being endangered by

this irresponsible policy on the part of the government. Due to the sheer size & scope of the protest, the

government backed down. Thus the impending doom was avoided narrowly by farmers like Khokon.

Input Price Inflation The second most troubling phenomenon in the recent times, along with trade policy, is the extreme hike

in input prices, especially the price of feed. Due to uncertainty of raw material prices (mainly maize), as

well as due to the hoarding behavior of both the millers & the raw material suppliers, the price of the

feed increased to implausible heights, in some cases reaching to more than 100% of the previous levels.

This seemingly has the potential to turn out to be the final blow to many farmers, which even Mr.

Khokon could not avoid this time. He is currently contemplating on the options available to him.

Weaknesses

Lack of Protection from Buyer Power There are two principal phenomena constraining the competitive scenario of the egg business: firstly,

because the wholesalers are organized and powerful due to their capacity to dictate price, they set the

terms for rural and small time suppliers. These are the people most affected by any disasters in the

poultry sector. As this business thrives under high economies of scale, the small farmers are the worst

hit as prices paid to them are generally not enough to cover for the marginal costs of production

incurred by small operations.

Secondly, as the neighboring countries egg exporters are always eager to take advantage of our market,

with a favorable Bangladeshi administration, there was a price slump in the market during 2013. This

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drew significant protests from all the stakeholders in Bangladesh involved with the poultry industry,

leading to eventual moratorium on egg import.

All of such adversities affect small farmers in a much more severe way than bigger outfits. The value of a

customer increases with the size of the business prospect they can offer. Ensuring sufficient biosecurity

measures, managing backward linkage, bargaining with wholesalers or institutional buyers are difficult

for a farmer who provides relatively insignificant business to the partners above and below the chain.

Oversupply Recently, symptoms of oversupply in the market have been observed, with further distress for local

producers. Since the price is dictated by the wholesalers which itself is based on the estimation of

expected demand by the forward participants, it creates distorted incentives to overproduce & supply to

attain economies of scale. This has created extreme up-down movements in egg prices at retail level.

The middlemen always get their way by either charging the consumers more or by paying the farmers

less. But the brunt of the volatility is to be borne by the consumers & farmers.

Lack of Governmental Supports Even though the government used to play a very helpful role in the early days by running promotional &

educational campaigns to encourage poultry farming, this enthusiasm from the higher up of

policymaking authority seems to have subsided. No policy or intervention mechanism is active currently

to protect farmers from the nefarious grasp of wholesalers & importers who are on the verge of taking

the entire egg industry hostage to their whims.

Decision Alternatives

Option 1: Going Out of Business Under the extreme circumstances facing Mr. Khokon, he is contemplating whether to shut the operation

down, and even to go farther by selling the plot of land where the farm now stand. He can expect to sell

the equipments, movable parts of the current infrastructure, as well as the egg laying hens, but these

will only yield enough to recover the working capital. He would yet have to live with the earlier liquidity

losses from failing operations, as well as to pay back the debt accumulated in the bank. The net gain

would be zero.

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But the most damaging consequence will stem from the loss of the most important source of income.

But there are other ways of tackling that: start something new like vegetable farming on the plot, or to

sale of the plot of land. The first option is worth trying, but it will require a new infusion of working

capital which is hard to avail, especially after a winding up of operations and negotiations with the bank

for outstanding debts from poultry.

The latter alternative will be the easiest one to follow, as there is no lack of interested parties willing to

carve up some land in this part of the country. Due to rapid encroachment by industrial & educational

giants, demand as well as price is on the rise for quite a while, with a bigha currently worth

approximately 80 lacs BDT. It will either provide a onetime deal as a lump sum payment to Mr. Khokon,

or in installments.

In this case, he can use the money to invest in some safer sources of income like Fixed Deposit, or in a

more stable line of business. But having a liquid asset has problems like reduction in value due to

inflation (which can be avoided by a land asset holding). Such example demonstrates that there is no

such thing as unmixed blessing.

Option 2: Staying Put in Business! Even though the option of going out of poultry industry to capitalize on land value appreciation might

sound a good idea at first, there is a potentially huge downside to it. Since the current undivided holding

is the only significant source of income and financial-economic security, cutting down the most

productive portion for a one time only lump sum amount might turn out to be a very bad decision with

regrettable consequences.

Letting external landlord to assume position right next to one’s family home might create the scope for

new neighbor to scheme on grabbing the whole plot for eventual expansion, a scenario not uncommon,

especially in rural areas where there are good prospect for economic development drives up land value

and incentivizes the taking over of large plots before price becomes excessively high to reach a

maximum: the equilibrium value.

Since the property rights of rural small landowners are particular vulnerable from encroachment by

large landholders, there are possibilities of underhanded behavior by new owner of the farm plot.

Specific concern must be noted for the bogged down judiciary, riddled with corruption and muscle

power, allowing the “Sale” of justice to the Powerful.

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The upside from keeping up with the tribulation can be huge also. What if the business bounces back?

What if the price compression by middlemen stops due to government intervention, or by other causes?

However unlikely these possibilities might seem now, they are still quite real & probable. If such

scenarios become realty, it might change the business radically with a fresh flow of cash to help the

recovery from continuing losses.

Option 3: Contracting with the Bigshots One alternative of the current crisis generating supply chain mechanism could be a new chain with

different forward linkage. As we can see in areas across Dhaka, various Supershops and departmental

stores are selling everyday household items, including poultry items like egg and processed chicken.

Also, bakeries, confectionaries, and restaurants are consumers of egg at a mass scale in these urban

settings.

Contracting with any such outlets for the supply of the produce at agreed upon price could be sought as

a potential remedy for the current stagnant situation. In this way, a stable and safe source of continuous

demand will be ensured, and the ability of the outlets to charge relatively higher rates in name of

traceability and quality can potentially be helpful for Mr. Khokon in receiving a better share of the

profits.

But this alternative has its demerits as well! Under the above system, all the terms and conditions

including price, quantity, and trade credit will be predetermined at the beginning of the contractual

relationship. But as we know, any number of contingencies might shake the balance at any time,

especially in a country like Bangladesh.

What if the economic conditions become unfavorable for the farmer? What if the production cost

increases with the buyer refusing to adjust prices? These are serious questions which require answers

before any decision can be made. Negotiations with such heavyweights will not be easy; the balance of

power will obviously lean towards them.

Question:

1. What decision alternative will be optimal, given all the tradeoffs?

2. If he chooses to go for contractual farming, what will be the key terms & conditions that he

must focus on during negotiations with industrial buyers?

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3. Imagine that you are a policymaker overseeing the situation, what will you do to help distressed

farmers like Mr. Khokon?

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Expansion of Kazi Farm’s Frozen Food Business

Table of Contents

Expansion of Kazi Farm’s Frozen Food Business ......................................................................................... 75

Scenario: ..................................................................................................................................................... 75

Bangladesh-Market Background ................................................................................................................. 76

Company Background ................................................................................................................................. 76

Kazi Farms Limited .................................................................................................................................. 76

Kazi Food Industries Limited ................................................................................................................... 77

Kazi Farms Kitchen: ................................................................................................................................. 78

Industry Overview ....................................................................................................................................... 79

Distribution Options .................................................................................................................................... 80

Super Stores ............................................................................................................................................ 80

Franchise Outlets .................................................................................................................................... 80

Retail Stores ............................................................................................................................................ 80

Analysis of Key Competitors: ...................................................................................................................... 80

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Expansion of Kazi Farm’s Frozen Food Business

Scenario: In mid-2013, Kazi Farms, one of the leading poultry manufacturers of the country decided to enter the

processed chicken products market. They had and still continues to have a strong presence in production

of day old chicks (DoCs), chicken feed and grown chicken. The reason behind choosing to enter the new

product category was to find additional sources of demand for their chickensthrough the growing market

for frozen and ready-to-cook food markets of the country.

So, a new brand named Kazi Farms Kitchen created under Kazi Food Industries (which is a venture of the

Kazi Farms group) and a range of processed chicken products was launched in November 2013. The

product range includes chicken nuggets, chicken drumsticks, burger patties, chicken sausages, chicken

meatballs and chicken strips.The company started with the tagline “Eating better guaranteed”. To ensure

better quality foods, Kazi Farms produces their chickens with no residual antibiotics and feeds them with

high-quality vegetarian feeds.

The products were sold initially through the supermarket chains in Dhaka City. Over the course of 2014,

four franchise outlets have been added across Dhaka city to display and sell Kazi Farms products.

After a year of operation, Kazi Farm Kitchen has seen little growth. But this was intentional as the company

management wanted to take a cautious approach. Now, they are confident that they understand the

market dynamics properly. Kazi Food Industries have been successful in launching two new ice-cream

brands within last two years. And so, a decision has been taken to expand the operation of the Kazi Farms

Kitchen brand. The Kazi Farm group is financially well-off and will make funding available for a well-crafted

expansion plan.

However, there are several challenges that need to be overcome and some key decisions have to be taken

first. Distribution poses the first and foremost challenge. The supermarket chains alone cannot provide

access to a large market. Retail shops, on the other hand, can provide access but refrigeration facilities

pose a problem.But since all the processed chicken products are frozen, a cold chain has to be maintained

from production till purchase. Most of the retailers of the country do not have large enough freezers and

in some cases, there are agreements between different companies and the shopkeepers to provide

financing for refrigeration facilities.In exchange of this, those shops sell the frozen goods from that

particular brand only.

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Kazi Farms Kitchen has not carried out any intensive market activity. They have done some digital

marketing through facebook and some posters and leaflets are used in the areas near their four retail

outlets. As a result, there is very low awareness of the Kazi Farms products among the potential

consumers.

The brand manager for Kazi Farms Kitchen has been given the responsibility to draw up a detailed

expansion plan. The question now is how he would translate Kazi Farm’s strong backward linkage and

superior quality product into a successful consumer brand.

Bangladesh-Market Background 2009 2010 2011 2012 2013

Consumer Price Index 128.41 139.95 154.84 170.27 184.33

Inflation (based on

annual CPI change)

6.51% 8.99% 9.04% 11.59% 7.38%

GDP (bn US$) 89.3 100.3 111.9 116.0 129.8

GDP growth (annual %) 5.74 6.07 6.71 6.23 6.03

GDP per capita (US$) 597.69 664.08 732.07 750.08 829.25

Population (millions) 149.5 151.1 152.8 154.7 156.6

Table 1: Some Key Economic Information about Bangladesh

Bangladesh is a South Asian nation with a population of more than 150 million. Despite such a large

population, the land area of the country is very small, only around 150,000 square miles. This creates one

of the most densely populated nations in the world. As manifested by the consistently high GDP growth

displayed above, the country is enjoying a period of economic growth. As a result, people’s purchasing

power is increasing and the middle class is growing in size. Increasing income coupled with high population

density makes Bangladesh a very attractive business prospect.

Company Background

Kazi Farms Limited Kazi Farms Limited is the parent company of Kazi Food Industries Limited who owns the Kazi Farm Kitchen

brand. The company was established in 1996 as a hatchery of imported eggs. The following year it started

its own parent farms, and in 2004 production started in its grand-parent (GP) farms. In addition to

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producing breeder feed to meet its own requirements, in 2006 it established the largest and most

advanced feed mill in the country with technical assistance from Cargill USA and Buhler Switzerland. Kazi

Farms Group has over 50 broiler parent farms, layer parent farms, broiler grand-parent (GP) farms,

hatcheries, feed mills and sales offices in different locations throughout Bangladesh. Kazi Farms has the

largest D.O.C production capacity in Bangladesh by producing around 30 lac chicks per week. Kazi farms

is mainly operating in a B2B system. Their main businesses include:

Broiler parent chicks and broiler chicks: Kazi Farms Group is the Bangladesh franchisee of Cobb-Vantress

USA for the Cobb 500 broiler, acknowledged to be the best broiler in the world. The Cobb 500 parent and

broiler chicks of Kazi Farms Group are considered to be the best performing chicks in the domestic market,

and are sold at a premium over other broiler breeds.

Layer chicks and table eggs: Kazi Farms Group is also the distributor for Hy-line brown and white layers in

Bangladesh.Hy-line International is the oldest poultry breeding company of the world, and is the leading

breeders of layers. Kazi Farms' own commercial layer farms make it the largest producer of commercial

table eggs in Bangladesh.

Feed: Kazi Farms Group expanded its operation into poultry feed manufacture in 2006. Within a very short

period it has become recognized as a market leader in both quality and volume. In order to ensure feed

quality, Kazi Farms Group received technical assistance from Cargill USA and Buhler Switzerland to set up

its commercial feed mill operation. The Gajaria feed mill uses state-of-the-art sanitizing pellet mills from

Buhler of Switzerland, manufacturer of the world's best feed equipment. By eliminating any possible

bacterial contamination from the feed, the Buhler sanitizing pellet mills ensure that poultry farmers

experience fewer disease outbreaks and see better results.

Kazi Food Industries Limited Kazi Food Industries Limited is a recent venture of the Kazi Farms Group. Under this company, Kazi Farm

sells all their consumer goods. The company now controls three major brands: Bellissimo, Za’ NZee and

Kazi Farms Kitchen. The company was launched in early 2013 with the premium ice cream brand

Bellissimo.

Bellissimo: Bellissimo is the first and only icecream brand in Bangladesh to produce international standard

ice-cream using all natural flavours and strictly maintained 14% milk-fat content. Although it has been

operating for only two years, they have created a strong presence in the country’s premium ice-cream

market.The key factor behind the success have been superior product quality. Bellissimo also provides

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catering facilities in weddings, birthdays and other events which accounts for a significant portion of its

revenue. They mainly compete with the imported foreign brands. They sell their products through both

supermarkets and retail shops. A dedicated Bellissimo café has been opened in Dhaka to highlight and

feature their various products.

Za’ N Zee: Za’ N Zee is an ice-cream brand targeted at the mass market. This is also produced with quality

ingredients but strict fat content standards are not maintained. While Bellissimo targeted and operated

within a niche market, Za’ N Zee is competing with the established local ice cream manufacturers.

Kazi Farms Kitchen: Kazi Farms Kitchen was launched on November 08, 2013 through the

Gulshan branch of Meena Bazar, one of the major superstores in Bangladesh. Their initial product

offerings comprised of spicy chicken nuggets, kid’s chicken nuggets, regular chicken nuggets, chicken

strips, chicken meatballs, chicken teasers, chicken burger patties, chicken sausage and chicken cutlets.

Chicken drumsticks, chicken teasers and chicken spring rolls have been introduced since then.

Kazi Farms Kitchen also has four franchise outlets across Dhaka city. In addition to the frozen foods, fried

chickens are also sold through these outlets. These outlets are currently functioning as a flagship stores

entirely owned by Kazi Farms.

The company started with the tagline “Eating better guaranteed”. To ensure that the best quality of

chickens are being used, Kazi Farms follow some strict quality guidelines. They are:

1. Chickens on farms are sometimes given antibiotics to treat bacterial infections. Many people are

concerned that when they eat farmed chickens, they will unknowingly consume “residual”

antibiotics, which may still have been in the chicken's body at the time of slaughter. Kazi Farms

Kitchen guarantees that the chickens used to make Kazi Farms chicken products were not given

antibiotics for at least 7 days before slaughter, so there is no antibiotic residue in the chicken

meat.

2. Most chicken and fish feed made in Bangladesh contains Meat & Bone Meal (MBM). MBM is the

cheapest protein, made by cooking, drying and & grinding slaughterhouse waste (intestines,

bones, feet, etc). MBM can contain harmful bacteria. That is why chickens we grow for our

branded meat products are raised on feed that does not contain any MBM.

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Since high-quality ingredients are used, the products are priced a bit higher than the market average. So

far, the Kazi Farms Kitchen has been operating in low scale. So, no major marketing activity has been

carried out. The location of the operation has been majorly Dhaka-centric up to this point.

Industry Overview Bangladesh still remains a country which is substantially dependent on agriculture for its economic

growth, which is demonstrated by the fact that over 19% of GDP is contributed by this sector, one-third

of it being contributed being contributed by the poultry industry. The supply of broilers at present is

substantially greater than the demand, by around 15 lacs per week, which has naturally caused the prices

of broilers to be driven down. Hence, leading poultry manufacturers have been venturing into frozen and

processed goods.

The frozen and processed chicken products industry used to be dominated by foreign products. Golden

harvest was the first Bangladeshi company to venture into frozen chicken products. There was a sudden

shift in industry dynamics in 2009 when Thai poultry giant CP invested a further $60 million in the

country’s poultry industry, forcing top player Kazi Farms to go on the back-foot and come up with its own

two-year expansion scheme in feed, meat processing and retailing. Their nearest rivals Aftab, Nourish and

Paragon have also expanded in newer segments amid the largest consolidation drive seen in the country’s

poultry industry.

Chicken has a great demand in Bangladesh as compared to other meat because of the limitation and

religious taboos in the case of pork and beef. Traditionally, frozen chicken products were not very popular

in Bangladesh. But, consumers are increasingly seeking variety and convenience in their foods.

The frozen goods used to be available only in select supermarkets, but they are now fast becoming

everyday commodity for the middle class population of the country. Intense competition has driven prices

down and the products are now commonly available in even local retail shops. The impact of CP and

golden harvest are most important here. CP has created a huge network of retail franchises. They mostly

sell their frozen chicken products to the franchise owners who then sell the product to retailers. Golden

harvest first took the frozen chicken products to the common retail shops. Now, BRAC chicken, Rich, Kazi

all sell their products through the retail stores.

One of the major problems for the frozen chicken products is avian influenza. This is a recurring

occurrence in Bangladesh. Although recently, tahe frequency of outbreaks have decreased greatly, this

remains a key problem for all the players. When a bird flu outbreak happens, the consumer trust on all

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chicken related products go down drastically. Even though most frozen good manufacturers take all

necessary pre-caution, their sales take a big hit during this time because of consumer perception.

Distribution Options

Super Stores Superstores once were the only distribution medium for frozen chicken products. Although other

mediums have been introduced since then, the importance of super stores still remain. In Bangladesh

onecan observe the trend of superstores and it is increasing rapidly. Agora,Meena Bazar, Nandan, PQS,

Prince Bazar, Shawpno, etc are some renowned superstores whichhave made life more convenient for

consumers. Frozen foods have convenience at core and that’s the main reason why superstores are such

a natural fit for chicken products.

Agora now runs five outlets, Meena Bazar ten includingeight in Dhaka, PQS five, Prince Bazar two, Nandan

five and Swapno seventy including thirtyoutside the capital. Super stores have been considered a location

for premium consumers. But recently, this trend is changing as more and more middle class folk start to

frequent these shops.

Franchise Outlets This has been made popular by CP. They do not sell their frozen goods to the consumers. They sell to the

franchise owners who have agreed to sell only CP products at their shops. These franchise shops also act

as retail sales points. Franchise outlets increase the scope of frozen chicken products. As demonstrated

by CP, a successful fried chicken restaurant can be run through these outlets.

Retail Stores Retail stores can give access to the highest number of consumers. But convincing them can prove difficult.

These frozen goods are not very fast moving. They are still not very popular with the common folk.

Furthermore, they require refrigeration capacities. So, special arrangements have to be made with the

store-owners so that they carry the products.

Analysis of Key Competitors: To create a strong identity in frozen chicken business, a company would have to contend with mainly

four major players. They are BRAC Chicken ,Golden Harvest, Rich and CP.

BRAC Chicken, a social enterprise of BRAC, unveiled its latest range of frozen foods recently at Spectra

Convention Centre in Dhaka. The products include masala nuggets, kid's nuggets, regular nuggets,

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drumsticks, wings, burger patties, sausage, kebab, cutlet and chicken tandoori. Today's customers

deserve high quality, delicious and healthy food. At BRAC they believe in serving the right thing. So BRAC

is introducing international standard halal and hygienic processed foods.BRAC Enterprises was

established in 2004 as a broiler chicken processing plant. It has the largest automated plant of its kind in

Bangladesh and currently processes approximately 6,000 birds a day. Similarly, CP Bangladesh adds

value to its basic processed meat with additional process of boiling, steaming, frying, baking or grilling

depending on customer ‘s requirements. Products are then packed, frozen and distributed to retailers

and wholesalers, fast food operators and modern trade, e.g., convenience stores, supermarkets and

supercenters. Products are also exported through importers in respective market. Major export markets

are the European Union, Japan and other Asian countries.More representative offices have been set up

and agents appointed to provide better customer service. We now have presence in the US, Japan, Hong

Kong, China, Russia, England, Belgium, Germany, Spain, France, Denmark, Italy and United Arab

Emirates, etc. Some of their cooked products are available domestically and internationally including

frozen chicken karaage, seaweed-wrapped chicken, teriyaki chicken, roast duck, frozen steamed chicken

breast, green curry chicken with rice, soya pork with noodles, egg tofu, meatball and sausage. CPB

produces and brands its products under CP, V Pork, Kitchen Joy, ThaiThai, Five Stars, BK, and BKP as well

as private labels. Pricing for private label is agreed at time when contract is made.

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BRAC Poultry: Development through Women Empowerment

Contents

BRAC Poultry: Development through Women Empowerment ............................................................ 82

Abstract ......................................................................................................................................... 83

BRAC Poultry: Development through Women Empowerment ............................................................ 83

BRAC: The Organization ........................................................................................................................ 83

BRAC’s Initiatives: ............................................................................................................................. 84

Rural Poverty in Bangladesh ................................................................................................................. 85

The State of the Poultry Sector in Bangladesh ..................................................................................... 86

The Scope of Poultry Development ...................................................................................................... 87

Comparative Advantage for BRAC and the State .................................................................................. 88

Changing Technology Worldwide in Poultry Industry .......................................................................... 90

Dilemma: Women or Machines? .......................................................................................................... 91

References ............................................................................................................................................ 92

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Abstract

This case takes a look at BRAC; one of the most reputed NGO’s in the world, and its initial emergence

into the poultry sector of Bangladesh. The data and statistical information all date back to the mid

1990’s and the article looks to retrace and re-evaluate the steps BRAC took to implement its poultry

business model.

BRAC Poultry: Development through Women Empowerment

BRAC is one of the biggest NGO’s that is renowned all over the world for its contribution to people at

the bottom of the pyramid. In the early 70’s BRAC identified that the rural population, particularly

women, have absolutely no access to institutional credit. The quality of life of these people remained

stagnant and they found themselves alarmingly below the poverty line. The rural households in

general and the landless in particular have very little access to institutional credit. In the late 1980s

less than seven percent of the landless and 14 percent of all rural households had access to

institutional credit including NGO programmes (Rahman, 1989).Given this, it is not surprising that the

women in rural areas virtually had no access to institutional credit until the 1980s. BRAC saw an

opportunity to capitalize on the emergence of poultry industry in the country and involve these people

in a development model that had unique characteristics.

The model was exclusively targeted at landless women and builds on GO-NGO collaboration. It

involved women in a chain of activities as vaccinators, hatchery operators, chicken rearers, feed

sellers, producers of hatching eggs and as producers of eggs for the market. Credit as well as marketing

were integrated into the model. A survey had reported considerable positive impact both in terms of

income and producer household egg and meat consumption. It was concluded that poor rural women

can contribute to economic development as buyers and sellers of goods and services, by contributing

to improved household income, and - as important - in the process their own self-esteem is

heightened.

BRAC has come a long way since 1972. And as it approaches almost 35 years of existence, the

organization wants to look back and evaluate some of the key decisions (such as involving women in

its poultry value chain) it had made in the past.

BRAC: The Organization

In 1972, following Bangladesh's War of Independence, BRAC worked on the resettlement of refuges

in the Sulla area of Sylhet district the administrative units in Bangladesh in descending order are

country, division, district, sub-district or Thana and Union Porishad) in the north-eastern part of the

country. It organized relief and rehabilitation for war victims whose homes, cattle, fishing boats and

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other means of livelihood had been destroyed. What made BRAC set out on its remarkable journey

was the realization that relief-oriented activities could only serve as a stop-gap measure. From then

on the new pledge was to provide sustainable measures to improve the conditions of the rural poor

by developing their ability to mobilize, manage and control local and external resources by

themselves. BRAC's programmes have never been determined by a rigid set of strategies. The

organization's success is attributable largely to its flexibility in responding to the needs of the people

Another factor that has contributed to BRAC's transformation is its capacity to learn through trials and

errors. In 1973, BRAC adapted in its work the basic rural development community strategy, focusing

on entire village communities. It was at this point that BRAC realized that in fact, there was a

community within the larger village community comprising the poor. By 1976, it therefore became

apparent that the community approach would not work, as the poor who outnumbered the others in

the community benefited very little from the interventions. This was because those who owned land

and other productive assets were able to secure for themselves the larger share of the benefits. From

here on began BRAC's involvement with the poorest of the poor - the landless, small farmers, artisans,

and vulnerable women. The time had also come to fix the organization's goals which were identified

as Poverty Alleviation and Empowerment of the poor.

BRAC’s Initiatives:

BRAC's definition of the poor refers to those people who own less than half an acre of land (including

the homestead) and to those who earn their living by selling manual labour. Efforts to empower this

group have been evaluated and adjusted many times over the years in the light of BRAC's growing

capacity and the needs of the programme participants. Today, working as a development organization

in the private sector, BRAC strives to attain its two goals by implementing such programmes as:

1. Rural Development which involves development of village organizations of the poor, credit

operation, and facilitation of savings' habits. The village organizations are designed to mobilize the

collective strength of the poor with a view to empowering them to be self-reliant.

BRAC has a Human Rights and Legal Education Programme to further the initiatives aimed at

empowering the Village Organization members. BRAC's Rural Development Programme implements

these initiatives along with several income and employment generating programmes, designed

particularly for the women village organization members. These women are provided with credit and

training to carry out their activities.

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There are also some special programmes that have been introduced under the Income Generation for

Vulnerable Group Development and Small Holder Livestock Development Programme initiatives.

These too are implemented through Rural Development Programme.

2. Education initiatives in the form of the Non Formal Primary Education Programme for the children

of the disadvantaged rural people.

3. Health Programmes addressing the health and nutritional status of women and children. These

initiatives seek to develop and strengthen the capacity of communities to sustain health related

activities.

4. Administrative and Technical Support Services that facilitate BRAC's program activities, e.g.,

training, research, monitoring. Marketing outlet, publications, public affairs & communication,

accounts & audit, logistics, computer service, and construction service.

5. Furthermore, in order to attain budgetary self-reliance the organization has set up its own revenue

generating enterprises i.e., the BRAC Printing Press, BRAC Cold Storage and the BRAC Garments

Factories. Of the 86,038 villages of the country, BRAC's Rural Development Programme covers 35,961

with the Education Programme coverage in 16,946 and the Health and Population Programme in

12,056 villages. In certain areas these three programmes overlap. The management system within

BRAC is participatory and decentralized, and programme planning draws upon the experience and

expertise of workers at all levels. Women comprise 23% of the staff.

Founded by Mr. Fazle Hasan Abed in 1972, BRAC has now grown into an organization in which capacity

building of the individual worker and the programme participants is given the topmost priority. BRAC

also attaches the utmost importance to the institutionalization of the organization so that it may

withstand and overcome the challenges of the future.

Rural Poverty in Bangladesh

That poverty is acute in Bangladesh does not need to be told: However, a few words on poverty will

be useful to set the scene in which Bangladesh Rural Advancement Committee (BRAC) operates.

Bangladesh has the unfortunate label of a case of endless poverty and deprivation. The proportion of

the rural population living below the poverty line in the early 1990s has been estimated to be between

38 percent (Sen, 1995a), 48 percent (Statistics, 1990) (Rahman, Structure and distribution of

household income , 1995)and 55 percent (Shahil, 1995). These single index measures hide a wide

range of variation among the poor: the household food intake is gender biased with the females'

consumption levels being between 71 and 90 percent of the males' (Chowdhury, 1995) The per capita

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food intake (1980 k.cal. in 1990-91) remains below the requirement (2273 k.cal.). The literacy rate is

still low at 35 percent (for females it is 29% and for males 45%) (Hamid, 1995). Another indication of

poverty is the real wage rate, i.e. kg. of course rice a day's money wage will purchase in rural areas,

which has declined from 3.84 in 1987 to 3.24 in 1990 (Rahman, Poverty and its implications, 1989)

Land, which is the single most important resource in the rural areas, is distributed very uneven with

50 percent of the households owning none or less than 0.50 acre. At the same time, for around 60

percent of the rural households agriculture (cultivation and source of employment) is the primary

source of income

Access to credit has been identified as a major mechanism with which a household can improve its

economic condition. The rural households in general and the landless in particular have very little

access to institutional credit. In the late 1980s less than seven percent of the landless and 14 percent

of all rural households had access to institutional credit including NGO programmes (Rahman,

Structure and distribution of household income , 1995). Given this, it is not surprising that the women

in rural areas virtually had no access to institutional credit until the 1980s.

Since the beginning of 1980s some specialised programmes were launched to provide financial

support on credit basis to women, who in their turn have proved themselves to be "bankable"). Along

with the expansion of credit availability in rural areas and for women in particular through expansion

of commercial banks and non-governmental programmes, other positive changes are worth noting.

One of these is the expansion of safe drinking water to 87 percent of all households .An important

change is the improvement in the nutritional status of children under five years of age: the figures for

stunting and wasting have declined from 74 % and 22 %, respectively in 1975 to 43% and 13 % in 1991

(Chowdhury, 1995)

The State of the Poultry Sector in Bangladesh

The poultry and livestock sectors are integral parts of the farming systems in Bangladesh. There are

about 90 million chicken and 12 million ducks in the country. About 89 percent of rural livestock

household rear poultry and the average number per household is 6.8. It is an important source of cash

income for the poor rural families, particularly for women. Most birds are kept in a scavenging system

and are fed on household waste and crop residues. The predominant poultry breed in Bangladesh is

the local. The productivity of the hen is about 40-60 eggs per year. Some other exotic breeds such as

Rhode Island Red, White Leghorn, Barred Plymouth Rock, Australorp and Fyaumi are now available in

the government poultry farms. There are six government hatcheries in Bangladesh which produce day

old chicks, but there is no distribution system in rural areas. These exotic hatching eggs and day old

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chicks are now distributed to BRAC project areas to develop the local breed. There are some

commercial farms in Bangladesh, where the production cost of eggs and meat is comparatively higher

than of eggs and meat produced in scavenging system.

The annual growth rate in the chicken population was 6.5% between1990-94 (Alam, 1994). The annual

per capita egg consumption was only 23 although it should be 100 from a nutritional point of view.

For optimal productivity, the high yielding varieties (HYV) of poultry requires improved feeding, but

presently the feed which is prepared in the government farms is far less than the need and

consequently balanced feed is not available in rural areas.

The prevailing poultry diseases in Bangladesh are Newcastle, Fowl Pox, Fowl Cholera, Fowl Typhoid,

Coccidiosis, deficiency diseases and worm infestation, etc. Without interventions, the mortality rate

of the poultry in the scavenging systems is high (35% to 80%) due to diseases and predators. In spite

of 4 types of important vaccines are produced in Bangladesh, remote rural areas are not served due

to lack of service delivery mechanisms. There are only four field staff and one livestock officer at sub-

district level and they are responsible for about 200,000 poultry, 50,000 cattle and 20,000 sheep and

goats.

Government institutions that are responsible for the delivery of support services in the rural areas are

not geared to assist BRAC's target group. There is thus a need to assist particularly the landless in their

efforts to earn an income and to the extent possible, improve their long term potential for deriving

income from sustainable agricultural practices. In remote areas where government services are not

operative or inadequate, BRAC collaborate with the government machinery to extend the service

delivery system by developing and using local manpower.

The Scope of Poultry Development

The possibilities for women's participation in poultry development at the time were as follows:

1. About 70% of the rural, landless women were directly or indirectly involved in poultry rearing

activities. Traditionally these women had some experience in poultry rearing, which therefore

represented skills known to them.

2. BRAC had proved that homestead poultry rearing is economically viable. If the landless women were

properly trained, supported with credit and other necessary inputs and made to operate under

supervision of extension workers of both Government and BRAC and the Government machinery were

activated to provide for the delivery of services, the poultry sector could be one of the most productive

sectors.

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3. Poultry rearing was suitable for widespread implementation as it is of low cost, requires little skills,

is highly productive and could be incorporated into the household work.

4. There were few or no job opportunities for the landless, disadvantaged women. Poultry is the only

activity in which a large number of landless women could participate.

5. In the small scale poultry units which support the landless, production per bird would be low, but

distribution of benefits would be more equal and have great human development impact.

6. Poultry rearing was culturally acceptable, technically and economically viable. Moreover, the

ownership of poultry is entirely in the hands of women. This is an asset over which the poor women

actually have control. This activity could therefore play an important role in poverty alleviation which

is the main goal of BRAC.

Comparative Advantage for BRAC and the State

The Government structures which extend to the sub-district level and that are relevant for BRAC's

poultry programme are the Ministries of Fisheries and Livestock and of Relief and Rehabilitation. The

two are briefly described below with a view to identify the weaknesses in them.

The Directorate of Livestock Services, Ministry of Fisheries and Livestock, is the sectoral Government

structure whose line functions extend to the Union level. The Directorate of Livestock Services is the

Government agency responsible for promoting livestock and poultry development in the country.

The Directorate of Livestock Services has several constraints of its own, particularly inadequate

manpower, to cope with the magnitude of the tasks involved. The activity spectrum involves providing

of development inputs, training of beneficiaries, prevention and cure of diseases of the animals and

birds.

The workload of the present Thana Livestock Development Complex staff appears to be quite heavy

as it includes delivering services to around Livestock Feed Resources within Integrated Farming

Systems 365 40,000 households owning over 40,000 cattle, 20,000 goats and 150,000 poultry. This is

excessive by any standard of user: provider ratio. As a result, the extent of coverage has obviously

been limited and confined virtually to prophylactic treatment i.e., vaccination (Samdani, 1991).

The Directorate of Relief And Rehabilitation under the ministry of the same name, is responsible for

providing emergency relief at times of natural disasters, for implementing the "Food for Work"

programme during the slack employment season, and for the Vulnerable Group Development

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(formerly Vulnerable Group Feeding) Programme throughout the year. In terms of the number of

beneficiaries the Vulnerable Group Development Programme administered by the

Directorate of Relief and Rehabilitation is perhaps the largest. Some 450,000 families in rural

Bangladesh are recipients of a monthly income transfer ration of 31.25 kg of wheat for a period of two

years. However, the programme has virtually turned into a relief and welfare programme as the target

women received wheat only because of lack of adequate personnel for extension services, technical

ability and other resources.

The Union Porishads are one of the mechanisms for the distribution of food relief. With one chairman

and nine members, directly elected by the rural population, they are close to the recipients of food

aid. Village level developmental activities, such as infrastructure construction, are organised through

the Union Porishads. The representatives are also involved in health and family planning activities. For

all of their developmental activities and resources they are entirely dependent on the respective

governmental structures at the sub-district level. Dysfunctioning Government Structures. Questions

of dysfunctioning arise when structures exist, but do not deliver their services to a large segment of

the population. In particular, the rural poor men and women are not reached by the services provided

by government structures.

In the context of agricultural technology development, a recent six-country study of NGO-State

collaboration has found that NGO366 Landless Women and Poultry: The BRAC model in Bangladesh

approaches emphasise those areas in which "Government services have either disregarded the needs

of the poor or have responded to them inadequately". These areas include:

Technologies and management practices adapted to difficult areas

Technologies to meet the needs of the rural landless

Technologies to meet the specific needs of women

Approaches that "de-mystify" complex technologies and make them suitable for neglected

groups

Approaches helping to form local groups which then carry forward the technology in a

sustainable fashion , linking in with input supplies and markets

These general comparative advantages of NGOs in Asia, are also applicable to the concrete situation

in Bangladesh and BRAC in particular. The government has traditionally concentrated on the physically

favourable areas, large scale lumpy technologies, literate male farmers, emphasising the individual,

and so on. Such an orientation reaches only a few and thus diverts resources away from a large

number of people. On the other hand the BRAC approach considers people as active participants in

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development, emphasises the poorer section, particularly women and adapts existing technology to

the specific condition of the poor.

Constraints and Major Issues in Poultry Sector

Even though the sector was emerging fast during the early 90’s, the poultry arena contained some

major issues and limitations to address for BRAC

High mortality of the scavenging bird.

Low productivity of the local hen.

Unavailability of cheap sources of HYV birds at village level.

Supply of vaccines in remote rural areas.

Health and veterinary care is inaccessible for the village women.

Poor poultry rearing and management system.

Unavailability of some feed ingredients. Livestock Feed Resources within Integrated Farming

Systems 355

Lack of organized marketing mechanism.

The government livestock service delivery system is inadequate and inefficient.

The vast majority of women are left out of the formal credit system.

Changing Technology Worldwide in Poultry Industry In developing countries changes in the livestock sector meat production technology and marketing

and changes in feed ingredients are key structural changes necessary for the livestock sector to grow

In poultry there is a strong relationship between the rate of adoption of new technology and the

growth in production in Asia between the early 1970s and the early 1980s. In their comparison of

poultry production for a group of Asian countries they argued that the highest growth rates during

that period occurred in Hong Kong, Thailand, Taiwan, South Korea, and Singapore where the shift from

traditional to new technology was rapid while the lowest growth rates were in Japan, Malaysia, and

the Philippines. Similar technological changes occurred for the swine industry in the same countries

but in the late 1980s and early 1990s.

Breeding

One of the most significant technological advances that has taken place in the livestock industry was

the use of hybridization and artificial insemination for breeding. These technologies can significantly

speed up the process of genetic improvement, reduce the risk of disease transmission, and greatly

expand the number of animals that can be bred from a superior parent. These processes were

appealing to the livestock industry which was looking for a way to produce uniform animal with

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uniform characteristics. Further basic studies on animal genome mapping, molecular biology,

physiology, biological efficiency, and applied farm record-keeping systems all added in livestock breed

improvement. These technological advances often were not realized to the same extent in developing

countries for all commodities. For instance the breeding improvements seen in poultry was highly

successful in industrial operations in many developing countries who were also raising birds in

enclosed environments, however the gains were less for swine and dairy and small and medium scale

poultry producers.

Feed

As improved breeds used today have been bred for maximum efficiency over a shorter production

period with lower feed conversions, the correct amount of micro-nutrients present in their diet is

crucial. The use of linear programming for determining the least-cost formulation of feed based on

current market prices and small changes in relative prices can cause significant changes in demand for

available feed ingredients was a major technological change for the feed industry. The application of

the programming techniques for feed formulation paralleled the introduction of intensive systems of

animal production in many countries.

Animal Health

Animal health products are the third most important class of inputs into livestock production. This is

a reflection of the problems associated with the intensification of the industry; because when animals

are kept under confined conditions there is much higher incidence of infection (Schmit, 1987). In these

unnaturally dense concentrations, livestock come into closer contact with each other and their feces,

and are more vulnerable to infection. To reduce disease problems in confined systems growers started

to segregate and raise animals of different ages apart in ‘all-in, all-out’ systems. Low levels of

antibiotics were also used as a preventive mechanism for some of the more common diseases in

poultry and swine. However the more recent feed bans in regions such as the EU of all antibiotic

growth promoters with the exception of avila mycin and bambermycin has resulted in the

replacement of many long standing products such as Virginia mycin and zinc bacitracin for those

countries involved in exports to the EU.

Dilemma: Women or Machines?

Although no Bangladeshi farm had ventured to invest in modern technologies available at the time,

BRAC as a new player had the opportunity to choose to invest in a less human intensive approach.

Although set up cost would be high, BRAC would be looking at a more profitable business in the long

run which would ensure greater sustainability as well as greater comparative advantage over all other

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players in the market. A more capital intensive approach would make for a more robust business

venture, but also increase set up cost in the process. However, in the long term, profits could be used

to heavily subsidize other concerns of BRAC that deals with the bottom of the pyramid. BRAC had an

important decision to make. Was the country ready for such advancements, that early in the poultry

industry? Would machines actually be the better option to ensure long term financing for other social

causes? Or would BRAC’s current plan of women empowerment be the better way to step into the

market and derive immediate benefit for these people?

References

Alam. (1994). Statistical analysis of Poultry Sector.

Chowdhury, K. a. (1995). Nutritional Dimension of Poevety.

Rahman. (1989). Poverty and its implications.

Rahman. (1995). Structure and distribution of household income .

Shahil, H. (1995). Socioeconomic Status of the poor.

Statistics, B. B. (1990). Summary Report of Household Expenditure Survey. Dhaka: BBS.