India's Suguna Poultry FarmLtd.: Can it Go Pan- India with its Current Business Model?

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Themes: Strategy
Pub Date : 2009
Countries : India
Industry : Retailing

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Case Code : BSM0051
Case Length : 16 Pages
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Contract farming benefits both the farmers and integrators. Farmers are able to improve their efficiency with the transfer of technology and skills, and they are provided with all the managerial (managing skills and procedures) services and inputs required for production. They also get an assured (guaranteed) price for their product and are unaffected bymarket volatility. On the other hand, integrators are able to ensure consistent quality, overcome problems like land constraints, reliable sources of supply, and reduce the risk involved. Integrators control all the aspects of the supply chain. Independent farmers are provided with DOCs, which in turn come from parent breeder farms. After receiving the products from the contract farmers, the company can either directly sell to trader or it can further process the meat (slaughtering, chilling and packaging) and send it to retailers

Majority of the integrators are highly concentrated in southern (Coimbatore) and western (Pune) regions. The major players in the industry are Venkateshwara Hatcheries, Pioneer Poultry Group, Suguna Poultry Farm Ltd, Godrej Agrovet Ltd, which are mainly centered in the southern region of the country. The expansion of the poultry sector has simultaneously increased the demand for poultry farms. There were around 60,000 poultry farms under the organised system of farming in 2002.³

Consumption Patterns

Consumption levels in India have been rising. The per capita consumption of poultry has beenmoving at aCompound Annual Growth Rate (CAGR) of 10% in the last 15 years (1991-2006).⁴ Parallel to the increase in the per capita consumption of poultry meat, its production has also increased tremendously. The escalating production has created employment to 1million people directly and 4million people indirectly.⁵ Increase in per capita consumption of one egg or 50 grams of poultry meat can create 26,000 additional employment opportunities.⁶ The consumption levels are projected to increase further in the future. The total consumption of egg is estimated to increase from 34 million in 2000 to 106million by 2020, 200%increase. The total consumption of domesticmeat is estimated to increase at a slower rate compared to egg, from 0.7 million tonnes in 2000 to 1.67 million tonnes in 2020.⁷

Consumption of poultry products in India is highly influenced by price. Over the years, the prices of poultry products decreased with the entry of new participants, implementation of latest technology and increasing number of vertically integrated companies. Increasing population and a gradual shift of vegetarianism to non-vegetarianism has also contributed to the growth of the poultry industry.According to The Hindu CNN-IBN State of the Nation Survey, in 2006, around 60% of the Indian population was non-vegetarian. Consumer behaviour in choosing chicken can result in variations of supply and demand for poultry meat. Product appearance, freshness, fat content, convenience etc., are the drivers determining the choice of the chicken. Other factors which have enabled more people to include poultry and other meats in their diet are - increasing purchasing power due to increase in incomes and international exposure with the entry of MNCs. In addition to this, overseas travel, health consciousness and boom in the retail sector have had an impact on the industry.

Observing the growth trend in the Indian poultry industry, many global players have started building trade relations with India. The industry, which achieved self-sufficiency, started extending its scale of operations globally. India has a good market for its poultry products in Japan, Malaysia, Indonesia and Singapore. The exports include table eggs, meat, live birds and value-added products such as egg powder, frozen yolk and albumin powder.

However, with the outbreak of Avian Influenza (Bird flu) in 2004 and 2006, the Indian poultry industry's image was badly affected. It created a huge gap between supply and demand. The poultry industry was in huge financial losses as most of the poultry firms closed their units. Although India was one of the first countries to be declared free from Avian Influenza, the exports were negligible. Exports of poultry products amounted to INR 3,169 million in 2005-2006 and constituted less than 1% in the world poultry trade in 2005. There is huge room for expansion in the poultry industry, as global importers prefer to have different sourcing bases. To increase its share in world poultry trade, the Indian poultry industry has to overcome a few challenges. Firstly, the poultry industry, to be globally competitive, has to work on improving its image in the world. Certification issued by Indian laboratories is not accepted by EU, US and othermajor developed countries, as they are not accredited in accordance with the developed countries' laboratories.

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3]Singh Raj Vir, et al., "Technology Options for Sustainable Livestock Production in India", http://www.icrisat.org/Text/pubs/digital_pubs/J144_2002.pdf, January 18th-19th 2001
4]Kumar Pawan, "Indian poultry industry: Challenges and opportunities", http://www.rabobank.com/content/ images/Rabobank_Indian_poultry_industry_intro_tcm43-55735.pdf, February 2008
5]"Indian Poultry Industry at a glance", http://www.vethelplineindia.com/art_poultryind.htm
6]Desai J. Anuradha, "Current scenarios and growth prospects for poultry and raising India's share in global markets", http://www.e-krishi.org/Produce/Files/136.pdf
7]Mohanty Samarendu and Rajendran K., "2020 Vision for Indian Poultry Industry", http://www.pjbs.org/ijps/fin74.pdf, 2003