contract farming of poultry in malaysia 1

8/11/2019 Contract Farming of Poultry in Malaysia 1

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Push for Productivity, Go for Quality

SUSTAINABLE CONTRACTFARMING FOR INCREASED

COMPETITIVENESS:CASE STUDY ON POULTRY

SECTOR IN SARAWAK,MALAYSIA

BYSugumar Saminathan

National Productivity Corporation


The agriculture sector contributed 8.3%amounting to RM20.7 billion share of the GrossDomestic Product (GDP) in 2004 (2003: RM18.9

billion: 8.2%).

In terms of employment, the sector employed

13.3% of the total labour force (2003: 17.7%).The productivity growth of the agriculture in2004 was 2.5% as compared to 1.9% in 2003.

In terms of export earning, the agriculture sectorrecorded an export earnings of RM27.4 billion in2004 (2003: RM21.6 billion).


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Contract Farming in Malaysia

The contract farming was developed to providealternative markets for small farmers and guaranteeconsistent supply to the markets.

In Malaysia initiated by a public farming began in1980s. The scheme started with commercial broilerfarm total of company based on poultry.

Started with five companies in 1985 total of companiesinvolved increased to 29 in 2004.

The broiler chicken industry continues to expand. In2004 the production of broiler was 414.3 million birds.


The Local Poultry Industry

Chicken is a staple with most households inMalaysia including it in their diet at least onceper week either at home or in local restaurants.

It is also a major component of the growing fastfood industry i.e. KFC, Burger King andMcDonalds together have a growing number ofoutlets in the Federation.


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It is not surprising therefore thatMalaysias Third National AgriculturalPolicy (1998-2010) included as one of itsgoals, ensuring an adequate domesticsupply of eggs and poultry. In order to dothis, effort to vertically integrate theindustry and to stimulate efficiency gainsamong the small farm sector were singled-out as strategies.


Public Contract Farming

Sarawak, Malaysias largest state at123,449 square kilometers is only slightlysmaller than England (130, 439k2) but with

one twenty fifth of the population. Withonly 2.2 million inhabitants it carries one ofthe lowest population densities in all ofSoutheast Asia.


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The central player in the creation of thepublic poultry contracting environment isthe Sarawak Economic DevelopmentCorporation (SEDC) which was set upover thirty years ago in 1972 as a state-owned statutory body with the aim ofpromoting the commercial, industrial andsocio-economic development of Sarawak.


The Corporation acts as a catalyst forinvestments in Sarawak by providing one-stop advice on business opportunities and,

where necessary, serves as a joint venturepartner in a broad spectrum of industries.


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The SEDC currently runs three contract farmingprojects, including cattle fattening, organicfarming and poultry production.

Under the poultry scheme farmers adopted intothe training scheme raise broilers specifically for,and under contract to SEDC who then on sellthem to a subsidiary, who in turn sells them

directly to outlets controlled by the State (police,schools and hospitals.


Interested farmers who wish to raise broilersunder contract with SEDC must first apply for atrial.

The proposed site is inspected for suitability by

SEDC staff and the applicants themselves areassessed. If both are suitable then the farmers are

accepted for a trial period during which theyengage in what is referred to as communityfarming which only limited stocks and facilitiesare used.


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The key steps and features of the scheme are depicted in Figure 3.

Farmer applies for project

Inspection of proposed site by SEDC staff

Application approved

Contract between SEDC and farmer

Farmer prepares farm(shed and equipment)

Delivery of feed and DOC

Raising of chickens (45-48 days)

Marketing of chickens(< 70 days after birth)

Assessment of profits and losses

Application rejected

Payment of net profits to farmers(after deductions for operational

Costs, loan, and previousLosses (if any)

Next Cycle


Unlike the private poultry contract the Statecontract is designed to both raise farm incomesand to confer training and education with alsoabsorbing much of the risk which in the private

market would be borne by the farmer. SEDC extends credit to adopted farmers to meet

the costs of building the chicken sheds tospecified standards, hire labour and purchasefarm equipment.


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In addition SEDC provides technical support andveterinary services. The contracts specify thatthese services are supplied solely by SEDC andits allied and subsidiary companies.

Output is then purchased by a subsidiary of theSEDC where it is processed and sold back tothe SEDC who then distributes the stock to

schools, police and army bases around theState.


While the contract is similar to that whichdominates the private part of this sectorthe major difference is the availability of

credit and subsidised input costs. Underthe private contract schemes credit is onlyextended over collateral.


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The land requirements for the SEDC poultryfarming scheme are modest; only two acres,owned either formally with legal title or throughnative customary rights.

The large majority of the farmers in the schemeare located relatively close to SEDC HeadQuarters in Kuching which reduces the costs of

regular contact with trainees and reducestransport costs to the major market.


Where the composition of the household allows,individuals shared tasks further enabling income to besupplemented by outside work.

Partly for this reason the majority of farmers who farmcommercially within the scheme are married and rely ontheir wives and other family members to feed their flockof broilers, clean feeding equipment and keep an eye onthe flock while the husband/father is away performingother duties.


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One of the primary incentives of the SEDCcontract farming scheme is to raise theperceived and actual standards of living ofbumiputra entrepreneurs operating in ruralareas.

The majority of farmers were earning anaverage monthly income of RM426 (froman average of 2000 broilers).


Furthermore, when profits are low or evennegative farmers under the SEDC schemeare not required to pay back the credit

advanced extended by SEDC, instead thecredit payment is carried forward to thenext season.


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Nevertheless as farmers gained more experience boththey and SEDC gained greater confidence in their raisingthe number of birds under their care.

It is generally believed that mortality rate fall with farmsize and hence profit rates rise. There is also a scaleeconomy associated with the fact that an individualworking full time can generally look after about 5000chickens, so the distribution of optimal broiler productionsizes is likely to be step-like with the addition of eachadditional full-time person.


Relatively new to poultry farming, in general,these smallholders with relatively little formaleducation, even with some training, are far fromready to face a poultry market controlled almostexclusively by the major contractors. Thesecontractors have already developed tradingrelationships with almost exclusively ethnic-Chinese farmers with legal title who havedemonstrated an ability to manage much largerpoultry stocks.


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Both the farmers and the agencies involvedhave a vested interest in demonstrating success.This joint commitment has an importantbackward linkage to the selection process itselfso that farmers not achieving targets. At thesame time, there are bureaucratic and politicalincentives to expand such schemes in order to

broaden their coverage and foster theircontinuance.


The purpose of the community or trial phase isboth vetting and training. The trial consists of atest period of three or four cycles each involvingabout 300-400 chickens per cycle.

Suitability is judged primarily on the ability of thefarmer to carry out the steps necessary to bringthe day old chicks (DOC) to maturity within the45 day period at an acceptable mortality rate(seven percent mortality is the maximumacceptable.


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Training is both on-site and by course: broilerhealth management, chicken- slaughtering andprocessing, motivation, book-keeping andmanagement, chicken slaughtering, diseaseprevention.

While most deal directly with the specifics ofpoultry farming some are clearly generic such as

those on motivation and book-keeping whichcan be carried over to other settings.


Firstly, most poultry contractors within the protected publicsector were able to report net additions to their income.

Secondly, most who were accepted into the scheme are stilltrading.

Thirdly, their performance has improved each year. Fourthly, few are actually entirely dependent on income fromthe scheme, with most using it to supplement income from avariety of other sources, most notably off-farm employment.

Fifthly, the poultry contracting scheme has put considerablemoney back into the bumiputera rural sector, money which nothave been there without the scheme.

Taken broadly each of these results is quite consistent withSEDCs responsibilities, namely to function as a trust agencyto uplift the economic status of the Bumiputra community inSarawak.

Benefits


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In terms of the international literature on contract farmingthe SEDC initiative is instructive. It shows that thecontracting of smallholders to supply commercial cropscan help provide a support framework for farmers whomight otherwise have few networks from which to learn,to borrow and to otherwise support their initiatives. Thevalue of the contracting arrangements in the publicsphere is that the network it creates has been used toraise production levels of farmers who would otherwise

hover around the official poverty line, albeit within aprotected commercial environment.


The scheme is also worthy of on-going attention ina state of the Federation in which reductions inincome disparities both within the rural sector andbetween ethnic groups have been slowest.

Notwithstanding the real politics of agriculturalproduction, the public farming contract clearly hasconsiderable potential as an instrument foraddressing both uneven resource access anduneven opportunity faced by minorities in the ruralsector.


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contract farming of poultry in malaysia 1

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