India's Suguna Poultry FarmLtd.: Can it Go Pan- India with its Current Business Model?
Details
Themes: Strategy
Pub Date : 2009
Countries : India
Industry : Retailing
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Case Code : BSM0051
Case Length : 16 Pages
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Over the years, the poultry industry underwent tremendous changes in its structure and operations. In just four decades (beginning from 1960's), the industry has grown from a subsistence activity into an organised, scientificallyoriented and technologically-driven industry. The structure of the poultry industry, however, is not uniform and differs region wise within the country. Broadly, the poultry industry in India consists of two groups – organised and unorganised sectors. The contribution made by the organised sector accounts to 70%and the remaining 30%is contributed by the unorganised sector.2 The organised sector uses intensive farming, modern technology and sophisticated breeding systems to generate greater productivity. The unorganised sector, on the other hand, has little or no promotion for brands. Indeed, most of them do not sell under any brand. The poultry sector has evolved through three definite phases namely traditional, semi-commercial and commercial system. Phases in the Evolution of Poultry Sector |
The traditional system of farming was regarded as a 'backyard business', where small-scale farmers raised the fowl (poultry birds) for self-consumption and occasionally sold the surplus at neighbourhood/local markets. Farmers were disenchanted with agriculture due to irregular (uncertain) income, erratic climatic conditions, inadequate irrigation facilities, limited credit sources and increased debt burden. Farmers, it was argued, were gambling with monsoons.As a result, the farmers took active interest in non-crop sector (poultry and dairy). Although unorganised poultry farming did not follow any organised form of production, it played an important role in the rural environment, as it was a source of income as well as employment. The traditional system, however, faced several limitations like unawareness of veterinary services, limited/inadequate infrastructure, high incidence of disease, poor quality of inputs, etc., which did not enable farmers/cultivators to achieve optimum level of productivity.
The commercial system of farming adopted more specialised and sophisticated techniques focusing on bulk production and required low levels of labour. By adopting modern technology, farmers were able to produce poultry for specific uses - layers for eggs, broiler for meat etc. To further encourage them, the government offered several incentive schemes. For instance, incentives were given to players who adopted modern technologies and achieved higher productivity. In addition, many research institutions were set up and other facilities like training, veterinary care, technical support and insurance schemes were provided, which helped the growth of commercial farmers/integrators.
The fast growing market prompted integrators to look for ways and means to increase market share, maintain low transportation costs, achieve economies of scale and high productivity. However, small farmers could not fully participate in the rapidly growing poultry market, due to the challenges like diseconomies of scale, poor infrastructure, lack of proper transportation channels, etc., they found it hard to survive independently. To fill this gap between the integrators and small farmers, the 'contract farming model' emerged. The model involves an agreement between company and farmer, wherein the company agrees to supply all the necessary inputs to the farmers at a predetermined price for the production of a specific product. The integrator supplies inputs (Day-Old-Chicks (DOC), medicines and feed) to the contract farmers for the production of broiler and/or eggs.After the conversion process, which takes an average period of 6 weeks (42-45 days) poultry farms take back the end products from the farmers by paying a price (growing charges). Contract farming in the poultry industry follows the centralised model, which involves vertical integration with strict quality control and high level of processing.
2]Ravikumar K., "Poultry farming in India and its future prospects", http://www.fnbnews.com/article/detnews.asp?articleid=19331§ionid=32, November 18th 2006