Karnataka Poultry Farm Business Plan (PDF & Template)

Contract Broiler Farming: Business Plan Considerations

Time to read:

10 minutes

Suitable for:

Any country, but framed in Karnataka, India

Ideal for:

Start-up contract poultry farmers, or beginner poultry farmers who want to learn about the contract poultry business model.

Poultry business plan problem #1:

• India’s broiler farming sector is a relatively giant among agri-sector and only growing – fast.
• India is the 3rd largest global producer of broiler meat (behind only China and the US for volume).
• India’s contract broiler farming sector attracts colossal manpower. It supports over 5 million labourers with employment.

By far among all the poultry farming business models: ‘contract poultry’ farming is the most popular with over 90% of corporate farms adopting this method.

Meet Vikram

Our poultry farming beginner is Vikram Chauhan from Shimoga district of Karnataka, India. Vikram’s a 1st time poultry farm entrepreneur and is at the all important business planning stage. He’s as yet undecided whether to raise poultry independently or to join a contract farming collective.

What he needs

Whilst he’s built some figures to support his understanding of the financial projections of independent poultry farming, he’s attempting to ‘see into’ the budgetary detail of the contract poultry farming model.

How you can help

As a close professional contact of Vikram’s, he’s asked you to help him assess the profitability and nuances of the contract poultry farming model. So, duly, you are expected to give Vikram recommendations and guide him through an analysis that helps him make the most informed and profitable decision.

Topics covered in this exercise

• Capital investment
• Relative variable and fixed costs (farmer vs. company)
• Profits (farmer vs. company)
• Breakdown of returns
• Company revenue breakdown
• KPIs

Economic data

Your independent research led you to the following data tables from the Indian Journal of Poultry Science:

Capital expenses of farmers

(Fig. 1)

Variable costs of the company

(Fig. 2)

Variable costs of the farmers

(Fig. 3)

Profit estimations of company and farmers

(Fig. 4)

Breakdown of farmers’ returns

(Fig. 5)

Breakdown of company returns

(Fig. 6)

Key performance indicators

(Fig. 7)

Approach

The purpose of this sample poultry farm business plan is to assess your ability for researching relevant information and asking the right questions.

No prior experience of contract farming or business planning is required.

An organised approach to analysis will help order a solid argument either for or against. You should suggest a framework approach to formulating a solution – but you should address also limitations.

Making sense of research studies and gathering only information relevant to making a decision can be difficult. So scanning through the data and coming away with the critical take home points is important.

Since Vikram’s understanding of the poultry farming business is relatively up to speed, it isn’t necessary to spoon feed him the basics. But contract farming and it’s peculiarities will require some emphasis – whilst keeping things simple and jargon-free.

Recommendations

You seek the advice of a poultry farming consultant to guide Vikram most carefully. Searching online you find The Big Book Project. Below is our short dialogue.

You: Temi, I specifically want to analyse the breakdown of costs and gains shared between the contract farmers and the company. I want to understand the financial dynamics of the relationship. Can you help me?

Temi: Sure. The compensation for contract broiler farming is a bit like shareholder’s receiving dividend for their capital investment. I’d see it as holding poultry farm shares with operational exposure. Each contract farmer under the umbrella of a company is essentially a strategic business unit. As owner of a farm, you operate as the director of that unit and accountable to the board for performance which contributes to the group picture. The company supports it’s farmers with input acquisition and cost control. The farmers work (and compete amongst each other) for company financial incentives in a tournament based system – and stretch out any other operational efficiencies (like manure sales or gunny bag sales) into revenue bonuses.

You: Great. I get it. However, what I can’t see is how things work differently on a profit loss basis. Vikram has an independent broiler farm model business plan already. I want to be able to point out the difference between the financial statement of a regular farm model vs. a contract farm. I want to help him compare them side-by-side.

Temi: That’s quite simple. So, long as Vikram can confidently read an profit loss statement he’ll simply navigate his way around the difference between an independent poultry farm P&L vs a contract farm one. The key difference is the understanding that the P&L is really the company’s. And the contract farmer directly shares cost items and takes a share in the revenues. Here’s the simplicity of how things are split between company and farmers:

• start-up capital
• fixed costs

…belongs to the farmer.

• costs of sale (direct costs)

…belongs to the company.

The company essentially handles all of the inputs and marketing, The farmer handles the set-up/maintenance and the farming.

The attraction to many farmers is that the most uncertain factors of running a poultry farm are handled by the company. This leaves the familiar rearing duties and farm upkeep to the farmer.

Let’s take figure 1 for example, the capital investment of the farmer. The no.1 omission is land. Assuming the farmer already has that, the remaining items become priority. This amounts to the poultry sheds and everything in them (i.e. equipment etc.) All this is paid for by the farmer. Including the cost of borrowing too taken out as an expense from the P&L ongoing.

Figure 2 contains the company costs:

• chicks
• feed
• vet care
• incentives
• professional advice
• repayment of start-up borrowings

These are briefly summarised by the word, ‘inputs’.

On the contrary, figure 3 contains the costs of the farmer:

• labour
• disposables and materials
• fuel and energy
• repayment of start-up
• equipment replacement and repayment on capital borrowings

These are briefly summarised by the word, ‘overheads’.

Figure 4 shows the profit calculation, written in duplicate to reflect both the farmer’s part and the company’s part.

Figures 5 & 6 show a breakdown of income of the farmer in one table and the company another.

They show that in contract farming, the company’s only revenue interest is the core business. In the case of broiler farming, this is sale of chicken meat by the kilogram.

As for other revenue streams like manure sales, feed bag reselling and by-products – this is handled and received entirely at the discretion of the farmer. The company has no interest in these. Such revenues are consider the bonus of good management and farmers are encouraged to make use of them to compliment company incentives.

You: That’s very informative and a solid round-up of how to compare the income statements of regular broiler farm vs. a contract broiler farm. One last question…as you mentioned tournament system…how do companies evaluate broiler farm performance for incentives?

Temi: Great question. Actually, there are some standard (key performance indicators) KPIs – see figure 7:

• Mortality
• Weight
• Feed conversion ratio

And these contributing factors of success can be wrapped up into Broiler Performance Efficiency Factor and Broiler Farm Economy Index which are simply comparative scores for outcome. As numbers, the higher they are the better the performance. Monies for incentive are divvied up according to relative scores.

Further questions:

• What impact does land cost have on ROI of contract broiler farming?
• What is the balance of risk/reward for both farmer and company?
• What type and volume of by-products would be available for sale in such a model – inc. revenue potential?
• What is the comparison of core business revenue vs. side income for the contract broiler farmer?
• What cost reduction strategies could farmers adopt to widen their margin of profit?

The questions above will deepen your understanding of the contract broiler farm business model and its costs/benefits.

Mini-course:

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