contract farming of poultry in brazil

8/6/2019 Contract Farming of Poultry in Brazil

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A successful case of contractfarming in Brazil

Carlos Arthur B. da Silva, Ph.D.FAOAgricultural Management, Marketing and Finance ServiceRural Infrastructure and Agro-Industries Division

FAO / AGSF - Agricultural Management, Marketing and Finance Service

Contents

Evolution of the Brazilian poultry industryThe central role of contract farmingThe case of Pif Paf Alimentos Minas

Gerais StateCritical success factorsConclusions


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Poultry: a success story

-In 1980, it took 7 weeksto grow a 1.8kg bird, witha feed conversion rate of 2.05 kg/kg

-In 2006: 43 days, 2.34 kg and 1.83 kg/kg

- Between 1990 and 2006,

production increased at arate of about 9% per year


Poultry consumption is rising at 6.2% a year

0

5

10

15

20

25

30

35

40

91 92 93 94 95 96 97 98 99 '00 '01 '02 ' 03 ' 04 ' 05 ' 06

36.9kg in 2006

14.2 kg in 1990


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Exports also keep rising: 15% per year

0

500

1000

1500

2000

2500

3000

91 92 93 94 95 96 97 98 99 '00 ' 01 ' 02 ' 03 '04 ' 05 ' 06

2,713,000 tons

299,000 t


Growing exports of poultry cuts: 1637thousand tons in 2006; US$1.9 billion

0.0%

0.3%

2.2%

3.0%

7.4%

7.9%

13.1%

66.2%

1.4%

0.1%

2.4%

42.6%

11.5%

0.3%

34.4%

7.2%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

North Am.

Oceania

Central Am.

Asia

Africa

South Am.

Europe

Middle East

CutsWhole


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Chain organization

Most production under closely coordinatedintegration contracts (75% x 25%)

small and medium sized producers predominate

Highly concentrated processing sector: 4largest firms control 38% of production; 8largest: > 50%

Geographical concentration in the southeast,with tendency for expansion in the central-western states


The Case of Pif-Paf Alimentos

Mid-sized company locatedat Southeastern MinasGerais State, BrazilProduces broilers undercontracts with some 600farmers

Slaughters 170,000birds/day

Has developed an effectivecontract design linkingpayment to productionperformance

farmers have incentives tocontinuously improvetechnical performance


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How the contract works

Pif-Paf provides one-daychicks, feed, veterinaryinputs and technicalassistanceFarmer invests in thefacilities and is responsiblefor production costs in itemssuch as labor and energy

Pif-Paf guarantees thepurchase, under a pre-agreed price determinationsystem


How the contract worksPrice is established througha punctuation system,taking into account thefollowing variables;

Death rate (%)Feed conversionDaily weight gain

Loading time during broilerdeliveryQuality of managementInjuries (%)

Final Price/kg = Total pointsobtained x base pricenegotiated previously to thegrowing cycle

1618...3840Points

3.43.2...1.21Deathrate(%)

5560...110115Points

2.142.12...1.921.9FeedRate(kg/kg)


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Main benefits for farmers

Pre-financed inputsTechnical assistanceGuaranteed marketOn-farm use of manureIncreased creditworthiness


Why it worksFirm negotiates prices and discusses punctuation tables withproducers associationFirm is rigid with regard to non-performance: non-performingfarmers are replaced: 5% are eliminated every yearFirm provides incentives for improved technical efficiency, via thepunctuation system;Firm creates a depreciation fund, depositing a percentage ofthe revenues in a farmers account, which can be used for facilitymaintenance and upkeepFarmers have the added incentive to utilize a by-product inadditional agricultural enterprisesDisputes are mediated by the producers associationTrust has been built


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Critical success factorsBasic tenet

contractual relationships will only be sustainable ifpartners perceive that they are better off byengaging in itCorollary: contract farming will fail if parties do notdevelop mutual trust and reciprocal dependency(SYNERGY is the key word)

The importance of the enabling environment

No successful contracting scheme can exist orremain sustainable where the institutional andpolitical setting is not conducive to it


Critical success factorsMinimization of contractual hold-ups

farmer: enhancement of bargaining power viacollective actionfirm: group negotiation; improved communication;quality and scope of services provided; stricttreatment of defaulters; extended contractduration

Need to countervail uneven balance of powerpromote farmers associationmediation, instead of legal action


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Conclusions

Contract farming can be a very effective wayto promote value chain financing

FAO is developing a web based ContractFarming Resource Center

for more information, check

www.fao.org/ag/ags/index_en.html

Thank you!

[email protected]

contract farming of poultry in brazil

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