Poultry companies around the world outsource broiler chicken production to small farmers; this is called “contract broiler farming.”
A recent ill-informed Op-Ed (Protect marginal poultry farmers by M S Siddiqui) in these pages argued that contract broiler farming hurts small farmers. My company, Kazi Farms, is the largest contract broiler farming organization in Bangladesh. I would like to make it clear that Mr Siddiqui's allegations are misinformed. Our contract farming organization creates enormous benefits for contract farmers.
Traditionally, poultry companies have produced chicks and feed which were sold to farmers through dealers (middlemen). The dealers make a commission on every sack of feed and a profit on every chick. Under contract farming arrangements, poultry companies deliver chicks and feed directly to small farmers. This eliminates the middlemen and reduces production cost, which obviously benefits both farmers and consumers.
Different companies organize contract farming under different rules. In the Kazi Farms contract farming system, we deliver chicks and feed to farmers, but these inputs remain our property. As the chicks and feed are never sold to the farmers, the broilers grown by them belong to us. We sell the broilers and pay the farmers a growing fee per kg.
If a farmer's productivity is high, he gets a higher growing fee; if his productivity is low, he gets a lower growing fee. The average growing fee is about Tk 15 per kg, and the minimum growing fee is Tk 6 per kg. The most productive farmers get Tk 30 per kg.
Our contract farming arrangement is beneficial for farmers in three ways.
Firstly, if there is a disease outbreak, and chickens die, the farmer does not lose his capital. The broilers belong to Kazi Farms; if broilers die, Kazi Farms makes a loss. The farmer will be paid a minimum growing fee per kg (according to the weight of the surviving chickens) even if Kazi Farms loses money. So the farmer is protected from losses caused by disease outbreaks. Independent farmers lose money in case of disease outbreaks, but our contract farmers do not.
Secondly, the contract farmer won't make a loss even if the cost of feed is high. Kazi Farms does not sell any feed to contract farmers. When the market price of maize or soybean meal is high, Kazi Farms produces feed at a high cost, grows broilers on contract farms at a high cost, and might sell the broilers at a loss. However, this will not affect the contract farmer, who will still be paid his growing fee. Independent farmers lose money when the cost of feed is high, but our contract farmers do not.
Thirdly, the contract farmer won't make a loss even if the selling price of broiler chicken is low. When the chicken price is low, Kazi Farms might lose money selling broilers grown on contract farms, but that won't affect the contract farmer. Even if Kazi Farms sells broilers at a loss, the contract farmer will still be paid his growing fee. Independent farmers lose money when the selling price of chicken is low, but our contract farmers do not.
It should be obvious from the above that our contract farming arrangement protects farmers from financial losses. That's why more and more farmers want to become our contract farmers. Most broiler farmers in developed poultry markets like India and the US have already entered similar contract farming arrangements.
In his Op-Ed, Mr Siddiqui wrote: “Marginal farmers have to acquire all inputs from large farms because the latter have a monopoly over the production and import of these inputs.”
This is not true. Dozens of poultry companies produce chicks or feed or both, and compete with each other to sell these to farmers. There is no monopoly in the poultry market.
Mr Siddiqui also wrote: “A chick that was sold at Tk 9 on January 5 was sold at Tk 57 on February 6. The large farms raised the prices in the season when the marginal farmers collected broiler chicks for their farms.”
Mr Siddiqui is obviously unaware that the market for chicks is very competitive. In any competitive market, prices fluctuate because of changes in supply and demand. By contrast, in a market which is not competitive, producers can always sell at a profitable price. All hatcheries in Bangladesh sold chicks at a loss during December 2022 and January 2023, when the supply of chicks was higher than demand. This only proves that the poultry market is competitive.
Hatcheries can't control the price of chicks, because it depends on the purchase decisions of thousands of broiler farmers. When the broiler chicken price is low, farmers don't want to buy broiler chicks, and the price of chicks falls. If the market were not competitive, hatcheries would never have been forced to sell chicks at Tk 5 (which is far below their production cost).
Mr Siddiqui also wrote: “A 50kg sack of feed is sold by the farms, including Kazi Farms Limited, Paragon, and CP, for Tk2,700 to contract farmers and Tk3,500 to marginal farmers.”
This is incorrect; Kazi Farms does not sell any feed to any of our contract farmers. So the question of selling feed to contract farmers at a price which is unfair to independent farmers does not arise.
Mr Siddiqui also wrote: “The contract farming agreement is guaranteed by blank checks signed by small farmers and in case of a breach in the contract terms, large farms use the dishonoured cheques to bring them under control.”
This is not true. Kazi Farms never takes blank cheques from contract farmers. As security we take a signed cheque whose amount is approximately equal to the cost of the feed, chicks, and medicines which we will deliver to the farmer. This security cheque will only be encashed if the inputs we have delivered disappear, or if the broilers disappear (in other words, if the farmer cheats us).
Mr Siddiqui mostly repeats allegations made earlier by the Bangladesh Poultry Association. The Bangladesh Poultry Association is not a trade association approved by the Ministry of Commerce; it appears to be one individual, Shumon Howladar.
What is his agenda? As Shumon Howladar continuously rants against contract farming, it appears that he is aligned with the dealers (middlemen) who sell chicks and feed to farmers. The middlemen oppose contract farming because they don't want poultry companies to bypass them and deal directly with farmers.
The Kazi Farms contract farming system helps farmers avoid losses. Farmers are our customers; we have set up contract farming to help them survive.
It is unfortunate that misinformed writers like Mr Siddiqui appear to be siding with a few middlemen against the poultry industry and the thousands of farmers whom we support.
Kazi Zahin Hasan is a director of Kazi Farms Limited.