Small marginal poultry farmers are incurring losses due to increasing production costs, which they often find to be higher than the market price. Marginal farmers have to acquire all inputs from large farms because the latter have a monopoly over the production and import of these inputs.
That's why it is easy for large farms to hike the prices of these products with the help of middlemen. A syndicate of large poultry farms, greedy middlemen, and poor government monitoring are responsible for the market's instability.
Large poultry farms compelled the small farmers to come under contract farming. Contract farming means few large poultry farms will supply chicks, feed, medicine, and technical support to the small farmers on credit at agreed price and small farmers will sell their eggs and chicken at agreed price to the large farms. Contract farming can be defined as an agreement between farmers and processing and/or marketing firms for the production and supply of agricultural products under forward agreements, frequently at predetermined prices.
According to a study conducted by FAO, small farmers may suffer from contract farming due to the dominant position of larger farms in the supply of inputs. However, staying in a better-off position doesn't harm anyone, unless an individual is exploiting such power. Therefore, having a dominant position cannot automatically be considered bad per se.
In the case of poultry, the dominant market power controlling prices of raw materials has driven nearly two-thirds of marginal farmers out of business. There were nearly 1.6 lakh marginal poultry farmers in the country. Only 60-65 thousand of them are now in business. This is a report in the daily newspaper in the month of May 2023.
It said that consumers are also suffering as they must buy poultry meat at a higher price due to such manipulation. It also demanded a rational fixing of prices of poultry feed and chicks.
According to one leaked copy of a contract between a company and a poultry producer, the farmer must build the shed and ensure electricity, water, a place to keep feed, and enough space to move to and from the shed. The company is to supply chicks, feed, medicines and sanitizers.
The part for sharing profit mentions the costs the companies bear, but not the electricity, husk and labour that the farmers provide. The contract has some agreed rates for chicks, consumption and even operational costs of the company. The farmer will get Tk12 per kilogram of chicken as the growing charge if the production cost remains at Tk88. If there is an extra cost, the company and the farmer will bear it equally. Company representatives receive land ownership documents or signed blank cheques for contract security.
“A farmer never gets 12-14% [of the production cost as a growing charge] following the contract. They fall in trouble by giving away blank cheques and land documents,” said a farmer based in Jhenaidah.
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. It indicates that large farms are using their dominant position over their weaker partners in such agreements.
According to Bangladesh Poultry Association (BPA), the big poultry farms collectively control prices and they often lower the market price to increase profit and force marginal farmers to fall in line with their business strategies and come into contract farming to sell their chickens at agreed price.
If the broiler price is high, the company will make a profit, but the farmer's growing fee will not increase. The main benefit of contract farming is that a farmer does not have to invest his own money in chicks and feed under the contract growing system.
The management of a large farm claimed that they train farmers to improve their productivity. They also train them to improve farm bio-security and how to prevent diseases from entering the farm, with methods like fencing around the farm, protecting it from rats and wild birds, by bathing and washing their hands, and wearing gum boots before entering the farm.
Few large farms control the rates in their best interests because they are the producers of broiler chicks and chicken feed. A chick that was sold at Tk9 on January 5 was sold at Tk57 on February 6. The large farms raised the prices in the season when the marginal farmers collected broiler chicks for their farms.
Also, the farms sell poultry feed to contract and marginal farmers at different prices, which raises the independent marginal farmer's production expenses. 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. Large farms were able to offer eggs and broiler chickens for less since their production costs were reduced. As a result, marginal farmers are compelled to sell their goods for a loss.
The chairperson of the Competition Commission said they were aware of the situation in the poultry industry. “We're trying to hold discussions before taking steps.” Fisheries and Livestock Secretary said that they sat with the stakeholders to discuss the problems in the poultry sector. “The solutions will come through discussions.”
Competition law and policy, around the world, seeks to be a means to achieve the ends of efficient allocation of resources, technical progress, consumer welfare, and regulation of concentration of economic power. An area of concern for most of the legislations regarding competition law in various countries is the abuse of dominant positions by enterprises.
Bangladesh Competition Commission Act 2012 under section 16 -- “Abuse of dominant position” states that no enterprise shall abuse its dominant position. As per section 16(2) for the purposes of sub-section (1), it shall be deemed to be an abuse of dominant position, if an enterprise (a) imposes directly or indirectly unfair or discriminatory condition in the purchase or sale of goods or services, or discriminatory price or predatory price in the purchase or sale of goods or services; The sub-section 15 (c) states that such abuse of power includes, “indulges in practice or continue to do practices which prevents others to access in the market.”
In this situation the authority should take steps to start inquiry into the use of dominant position in contract farming agreements between the large poultry farm and small farmers, for supply of raw materials and purchase of chicken and eggs at predatory prices as mentioned and defined by the law.
MS Siddiqui is Non-Government Adviser, Bangladesh Competition Commission.
