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Profitability and Sustainability of the Emerging Poultry Business in Developing Countries: A Case of a Poultry Grower of Nepal

Bhatta, Kiran Prasad and Ishida, Akira and Taniguchi, Kenji and Sharma, Raksha (2008): Profitability and Sustainability of the Emerging Poultry Business in Developing Countries: A Case of a Poultry Grower of Nepal. Published in: Japanese Journal of Food, Agricultural and Resource Economics , Vol. 59, No. 1 (1. August 2008): pp. 89-100.

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Abstract

Poultry is an important part of rural life in several developing countries. Commercialization of this business appears more beneficial but has not obtained the expected momentum, mainly due to lack of information and perception of high cash requirements and thus risky nature. Although the technical knowhow may also be one of the barriers, it is not assumed to be restricting, as found from previous researches as well as pre-survey data of this research. Hence, we study the most frequently admitted problematic side of the business, that is, financial aspect. Discussion with the farmers of Chitwan district in Nepal formed the basis of this research, followed by a detailed business analysis of a commercial poultry grower. Analysis revealed the business to be profitable, sustainable, and less sensitive to adverse conditions.

The positive and high value of net worth shows that the business is in a strong position. Again, the financial ratio, liquidity ratio, and solvency ratio showed that the business is on a strong foundation, is capable of repaying its loans anytime if demanded, has sufficient liquid balance, and is financially viable. Net cash earnings are also positive, along with considerable profits as shown by the profit margins. Simple rate of return on investments is also high, hence the business could be said to be earning high profits. A business analysis over a period of ten years showed that the net present value of the business is greater than zero. The internal rate of return is also higher than the market interest rates as well as the required rate of return for both total investment and the debt portion of investment. The benefit-cost ratio is higher than unity, an indicator of significant profits, hence showing that the business is acceptable. Sensitivity analysis of the business to adverse conditions like inflation or changes in the cost of input as well as price of output showed that the business is also viable under these unfavorable conditions. These analytical results, taken together, give sufficient evidence in favor of the profitability and sustainability of the commercial poultry business.

Our analysis also showed that large-scale production is highly cash demanding, although the short business cycle of two months reduces the risks as well as possibly overcoming the difficulties of frequent cash requirements. Also, the high cash requirements may be substituted by integration with the local feed industries that are usually willing to provide poultry feed on credit. It is important since poultry feed shares around 70% of the cash requirements. Moreover, by use of contracts and for a small share of the profits, these industries may help the farmer find markets. These provisions may also help the establishment of new farmers, since assured marketing reduces risk during the initial phase of establishment. This unique relationship seen in the poultry market may explain the popularity of flourishing poultry enterprises in the selected area as well as showing scope for further growth. Hence, we also recommend farmers to integrate with these local industries to reap the benefits of their contacts, at least in the initial stages of business establishment. Also, for newcomers, appropriate policies for facilitating credit may again be required to break the entry barrier due to the considerable initial investment required for poultry houses and other outlays needed for commercial farming.

From the analysis of the selected grower, there appears to be some slackness in management practice on the part of Nepalese growers and hence it is recommended to increase the volume of the business and reduce liquidity in hand. This means that with the same level of investment, profits can be increased by increasing the scale of the business. It is also recommended, since local feed industries are willing to provide their products on credit and growers may not need much cash. In other words, to maintain the same level of business, less capital investment might have sufficed and again this shows that capital may not be a barrier to entry. Since the business seems quite profitable, further research is recommended to identify the optimum levels of production and other factors for maximization of profits. Although this study is vital since there is a lack of information but it is only a preliminary one and assumed to be the first step that highlights a success story. However, we would like to recommend further research to verify our findings as this research is based on a single business as well as on a single year.

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