(PDF) Poultry value chains and HPAI in Indonesia: The case of Bogor

A Collaborative Research

Project Funded by:

Implemented by:

Poultry value chains

and HPAI in Indonesia:

The case of Bogor

Asep Sudarman

Karl M. Rich

Tom Randolph

Fred Unger

Africa/Indonesia Team Working Paper No. 27

April 2010

(blank page)

Africa/Indonesia Team Working Paper

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Table of Contents

Preface ................................................................................................................................................... vi

Acronyms .............................................................................................................................................. vii

Glossary ................................................................................................................................................ viii

Executive summary ................................................................................................................................ ix

1. Introduction ........................................................................................................................................ 1

1.1 Study motivation and objectives .................................................................................................. 1

1.2 Methodology and approach ......................................................................................................... 3

2. The Bogor poultry sector .................................................................................................................. 11

2.1 Overview ..................................................................................................................................... 11

2.2 Research area description .......................................................................................................... 11

2.3 Identification of actors ............................................................................................................... 11

2.4 Identification of product flows ................................................................................................... 19

2.5 Identification of governance and coordination mechanisms between actors ........................... 20

3. Specific poultry value chains ............................................................................................................. 22

3.1 Commercial layers ...................................................................................................................... 22

3.2 Commercial broilers ................................................................................................................... 30

3.3 Kampong chickens ...................................................................................................................... 35

3.4 Ducks ........................................................................................................................................... 40

4. Impact of HPAI: livelihoods, economics and regulations .................................................................. 46

4.1 Overview of HPAI in Bogor, 2003-present .................................................................................. 46

4.2 The importance of Bogor poultry production and trade ............................................................ 47

4.3 Impact on livelihoods.................................................................................................................. 49

4.4 Impact on cost ............................................................................................................................ 50

4.5 Impact on price ........................................................................................................................... 51

4.6 Impact on government regulation .............................................................................................. 51

5. An assessment of risk hotspots in the poultry value chain ............................................................... 54

5.1 Identification of potential risk hotspots in the poultry sector ................................................... 54

5.2 Summarizing by value chain and actor category ........................................................................ 59

6. Policy implications and conclusions .................................................................................................. 64

6.1 Policy implications ...................................................................................................................... 64

6.2 Conclusions ................................................................................................................................. 66

References ............................................................................................................................................ 68

Appendix 1. Examples of livestock value chain maps ........................................................................... 71

Appendix 2. Calculations using the Hayami Method ............................................................................ 72

Appendix 3. HPAI outbreak data for Bogor, 2003-2010 ....................................................................... 79

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List of Tables

Table 1. Key components and computations of the Hayami Method to analyze value added ............. 10

Table 2. Number of respondents by actor category and by location .................................................... 12

Table 3. Gender of respondents, by actor category for each commodity chain ................................... 14

Table 4. Distribution of respondents by age and actor category for each commodity chain ............... 15

Table 5. Distribution of respondents by level of formal education and actor category for each

commodity chain .................................................................................................................... 16

Table 6. Distribution of respondents by years of business experience and actor category for

each commodity chain ........................................................................................................... 17

Table 7. Distribution of respondents by number of labourers employed and actor category for

each commodity chain ........................................................................................................... 18

Table 8. Representative price list of live bird poultry on different dates, Oct-Dec 2008 (IDR) ............. 21

Table 9. Female layer population in Bogor, 2002-2008 ......................................................................... 22

Table 10. Layer population per sampled farm in Bogor ........................................................................ 23

Table 11. Input and output prices of male and female layers ............................................................... 25

Table 12. Average value-added of spent layers and table eggs............................................................. 28

Table 13. Broiler population in Bogor, 2002-2008 ................................................................................. 30

Table 14. Population of broilers per sampled farm in Bogor ................................................................. 31

Table 15. Input and output prices in broiler chain, 2008 (IDR).............................................................. 31

Table 16. Average value-added in the broiler chain, by actor category (IDR/bird) ............................... 34

Table 17. Kampong chicken population in Bogor, 2002-2008 ............................................................... 35

Table 18. Input and output prices in the kampong chicken chain (IDR/unit) ........................................ 37

Table 19. Average value added in the kampong chicken chain, by actor category ............................... 40

Table 20. Duck population in Bogor, 2002-2008 ................................................................................... 41

Table 21. Prices in the duck value chain, 2008 (IDR/unit) ..................................................................... 42

Table 22. Average value added in the duck chain, by actor category ................................................... 43

Table 23. Estimated annual volumes and value added generated by poultry trade in the

principal poultry value chains in Bogor .................................................................................. 48

Table 24. Labour absorbed by poultry trade ......................................................................................... 49

Table 25. Value added per day by sector and selected actor ................................................................ 49

Table 26. Trend in size of flock kept by farmers, 2005-09 ..................................................................... 50

Table 27. Percentage of respondents considered unable to recognize HPAI in live poultry ................. 55

Table 28. Percentage of actors who have reported suspected HPAI cases ........................................... 56

Table 29. Share of respondents using disinfectants .............................................................................. 57

Table 30. Percentage of respondents by method of disposal of dead poultry ..................................... 58

Table 31. Factors influencing HPAI risk, by value chain and actor category .......................................... 60

Appendix Table 3.1. Reported outbreaks of HPAI for Bogor 2006-2010 (source: PDSR database,

FAO 2010) ............................................................................................................................... 79

Appendix Table 3.2. Situation of HPAI in Bogor District and control efforts, 2003-2008 (Source:

DLS Bogor, as reported in Nuryartono and Mango 2010) ...................................................... 80

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List of Figures

Figure 1. Framework for poultry value chain analysis 3

Figure 2. A generic livestock value chain (Source: Taylor et al. 2008) 5

Figure 3. A value chain mapping of the entire chicken industry in Egypt (Source: Kobayashi

2006) 5

Figure 4. A value chain mapping of the layer sector in Egypt indicating volumes and value of

product flows between actors (Source: Kobayashi 2006) 5

Figure 5. A value chain mapping of the layer sector in Egypt indicating volumes and value of

product flows between actors (Source: Kobayashi 2006) 6

Figure 6. An example of mapping governance mechanisms in the formal layer value chain in

Egypt (Source: Kobayashi 2006) 7

Figure 7: Map of Bogor and location of study interviews, by category of respondent 13

Figure 8. Map of value chains in the Bogor poultry sector 19

Figure 9. Layer value chain in Bogor (volumes and value) 26

Figure 10. Broiler value chain in Bogor (volumes and value) 33

Figure 11. Kampong chicken value chain in Bogor (volumes and value) 39

Figure 12. Duck value chain in Bogor (volumes and value) 44

Figure 13. Numbers of villages in Bogor reporting at least one HPAI outbreak, 2003-2010 46

Appendix Figure 1. A detailed generic value chain for beef (Source: SADC-PRINT Public-Private

Partnership Workshop Proceedings, 2-3 November 2006) ................................................... 71

Appendix Figure 2. A value chain mapping of livestock markets in Northeast Kenya (Source:

Wanyoike and Rich in press) ................................................................................................. 71

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Preface

Since its re-emergence, HPAI H5N1 has attracted considerable public and media attention because

the viruses involved have been shown to be capable of producing fatal disease in humans. While

there is fear that the virus may mutate into a strain capable of sustained human-to-human

transmission, the greatest impact to date has been on the highly diverse poultry industries in

affected countries. In response to this, HPAI control measures have so far focused on implementing

prevention and eradication measures in poultry populations, with more than 175 million birds culled

in Southeast Asia alone.

Until now, significantly less emphasis has been placed on assessing the efficacy of risk reduction

measures, including their effects on the livelihoods of smallholder farmers and their families. In

order to improve local and global capacity for evidence-based decision making on the control of HPAI

(and other diseases with epidemic potential), which inevitably has major social and economic

impacts, the UK Department for International Development (DFID) has agreed to fund a

collaborative, multidisciplinary HPAI research project for Southeast Asia and Africa.

The specific purpose of the project is to aid decision makers in developing evidence-based, pro-poor

HPAI control measures at national and international levels. These control measures should not only

be cost-effective and efficient in reducing disease risk, but also protect and enhance livelihoods,

particularly those of smallholder producers in developing countries, who are and will remain the

majority of livestock producers in these countries for some time to come.

Authors

Asep Sudarman, Animal Scientist, Centre for Tropical Animal Studies, Bogor Agricultural University

Karl M. Rich, Senior Research Fellow, Norwegian Institute of International Affairs and Agricultural

Economist, International Livestock Research Institute

Tom Randolph, Agricultural Economist, International Livestock Research Institute

Fred Unger, Veterinary Epidemiologist, International Livestock Research Institute

Disclaimer

The views expressed in this report are those of the authors and are not necessarily endorsed by or

representative of IFPRI, ILRI, or of the cosponsoring or supporting organizations. This report is

intended for discussion. It has not yet undergone editing.

More information

For more information about the project, please refer to http://www.hpai-research.net.

Africa/Indonesia Team Working Paper

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Acronyms

ASOHI : Assosiasi Obat Hewan Indonesia (Indonesian Animal Drug Association)

CMU : Campaign Management Unit

Ditjennak (DGLS) : Direktorat Jenderal Peternakan (Directorate General for Livestock Services)

DKI : Daerah Khusus Ibukota (Special Capital District)

DLS : District Livestock Services (often referred to as Dinas)

DOC : Day-old chick

DOD : Day-old duckling

GPMT : Gabungan Perusahaan Pakan Ternak (Feed Mill Association)

GPPUI : Gabungan Pengusaha Perbibitan Indonesia (Association of Indonesia Poultry

Breeder)

GPS : Global Positioning System

HPAI : Highly pathogenic avian influenza

IB : Infectious bronchitis

IBD : Infectious bursal disease

IDR : Indonesian Rupiah (roughly valued at 10,000 IDR=USD 1 at the time of the study)

IPWA : Ikatan Warga Pemotong Ayam (Association of Slaughter Point)

ND : Newcastle disease

PINSAR : Assosiasi Peternak Unggas Se-Indonesia (Indonesian Poultry Farmer Association

and Information Centre)

PIR : Plasma Inti Rakyat (Nucleus-Plasma Farming System)

PPUI : Perhimpunan Peternak Unggas Indonesia (Indonesian Association of Poultry

Farmers)

PDSR : Participatory Disease Surveillance and Response

PS : Poultry shop

PSH : Poultry slaughterhouse

PSP : Poultry slaughter point

RW : Rukun Warga (neighbourhood administrative unit)

UPTD : Unit Pelaksana Teknis Daerah (Regional technical implementing unit)

VCA : Value chain analysis

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Glossary

Pullet : 6-month-old female layer ready to lay eggs

Farm Categories (FAO 2004)

Sector 1 farm : Industrial integrated system with high level of biosecurity and birds/products

marketed commercially (e.g. farms that are part of an integrated broiler production

enterprise with clearly defined and implemented standard operating procedures

for biosecurity)

Sector 2 farm : Commercial poultry production system with moderate to high biosecurity and

birds/products usually marketed commercially (e.g. farms with birds kept indoors

continuously; strictly preventing contact with other poultry or wildlife)

Sector 3 farm : Commercial poultry production system with low to minimal biosecurity and

birds/products entering live bird markets (e.g. a caged layer farm with birds in open

sheds; a farm with poultry spending time outside the shed; a farm producing

chickens and waterfowl)

Sector 4 farm : Village or backyard production with minimal biosecurity and birds/products

consumed locally

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Executive summary

Poultry is an important source of income and protein for poor households in Indonesia. In a normal

year, the production of poultry meat in Indonesia is approximately 1.285 million tons per annum,

representing around 62% of total domestic meat production. In addition, egg production amounts to

1.2 billion tons, with domestic production fulfilling domestic consumer demand for eggs. However,

the entry of highly pathogenic avian influenza (HPAI) in Indonesia beginning in 2003 has had large

negative impacts on rural livelihoods, both in terms of the production losses caused by the disease

and the fears of its potential spread in humans. At present, HPAI is endemic throughout Indonesia

and has affected all parts of the poultry business. Its spread in Jakarta, where a number of people

died from HPAI, prompted the local government of Jakarta to adopt strict movement controls in

controlling and monitoring poultry rearing and marketing in the metro Jakarta region.

These regulations will have important effects on the poultry sector in Indonesia. Given the

importance of Jakarta as a destination for poultry products, the ban on live poultry markets will

result in the reorganization of market chains that service Jakarta, providing specific opportunities for

surrounding regions. One of the regions that could benefit from these new regulations is Bogor, a

district located directly to the south of Jakarta. As with other parts of Indonesia, poultry industries in

Bogor have been directly affected by HPAI. At the same time, the new poultry regulations imposed

by the local DKI Government provide opportunities for the region provided that HPAI can be

effectively controlled. However, the ability of Bogor to benefit from these new regulations requires

an enhanced knowledge of the structure of the poultry industry in Bogor, its relationships and

linkages with regional markets, and the extent to which specific links in the marketing chain

potentially impinge on the ability of Bogor to supply poultry that meets the standards of the Jakarta

market, including its ability to effectively control disease.

This study adopted a value chain approach to assess the impact of HPAI on the Bogor region,

highlighting the direct commercial and livelihood impacts within Bogor itself and potential socio-

economic risk factors emanating from these chains. Primary data were collected from four

subdistricts in Bogor and in Bogor City itself. Research locations were defined purposively based on

their spatial geography, with four subdistricts in Bogor chosen as research locations: Ciawi, Cibinong,

Leuwiliang and Parung. Ciawi and Leuwiliang are dominantly occupied by the Sundanese ethnic

group and are characteristic of the local culture in the region. By contrast, the inhabitants of

Cibinong and Parung, located close to Jakarta, represent a multitude of different local cultures, and

provide a more diverse perspective on local production and consumption habits. The inclusion of

Bogor City provides insights on the dynamics of large wet markets (Pasar Anyar and Pasar Bogor)

that absorb poultry products from Bogor and surrounding areas, and is home to a number of formal

sector retailers and supermarkets.

Value chains for poultry in Bogor are quite diverse. Poultry production in Bogor is dominated by

broilers, which represented over 73% of the poultry population in 2008. Indigenous kampong

chicken populations have been falling over the past few years and in 2008 comprised around 7% of

total poultry population in Bogor. Value-added generated from the poultry sector is estimated to be

at least IDR 359 billion, or approximately USD 35.9 million. As this figure excludes many important

linkages for which data were not available, it is not unreasonable to posit that the poultry sector and

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its ancillary services contribute close to 1% of regional GDP in Bogor. Not surprisingly, the broiler

sector comprises almost 80% of sector value added. Besides generating income, the poultry trade

employs an estimated 6300 workers out of 1 million total labourers in Bogor District.

Governance relationships in the broiler sector involve a mix of contract farms and independent

farms. Contract farming relationships formally link farms with a company that provides day-old

chicks (DOCs), feed and other inputs to farmers in return for guaranteed purchases of contracted

birds. Coordination and biosecurity in such chains is reasonably tight, with company standards

strictly governing transactions and prices. Independent farms involve much looser coordination,

although some coordination exists with feed suppliers. In the layer chain, spent female layers are

sold almost entirely through independent farmers, while male layers are integrated in a contract

farm relationship akin to broilers. Nonetheless, the layer business is supported by feed industry,

pharmaceutical and vaccine industry, and other actors related to poultry distribution (collectors,

slaughter points, restaurants etc.). In both chains, a large proportion of products are sold outside of

Bogor, including to nearby markets in Jakarta.

The traditional kampong sector is largely uncoordinated. In general, the production of kampong

chicken is not commercially oriented, with farmers selling their chickens only when they need to pay

their bills, such as tuition fees for their children. Generally they sell 2-5 birds per 6 months. Kampong

chickens also contribute to food security in the rural community and are used in social and cultural

events, such as wedding parties.

The impacts of HPAI in Bogor varied notably by the type of value chain affected. Commercial

producers of layers and poultry were greatly impacted by the outbreaks since 2003, with layer

numbers falling by two-thirds, while broiler growth stalled. However, with the change in regulations

in Jakarta banning live poultry in 2007, demand from nearby regions soared, and commercial

populations of both broilers and layers in 2008 exceeded pre-HPAI numbers in 2003 in response to

these new opportunities. Mortality rates rose for both contract and independent farmers, but were

higher for independent farmers. Feeding costs also rose, as feed conversion rates increased. This

impacted independent farmers more than contract farmers. Interestingly, while consumer prices fell

by around 20% due to a drop in consumer demand during one major consumer scare, prices quickly

recovered within one month. Poultry demand remains strong despite the HPAI outbreak as poultry is

one of the cheapest sources of animal protein available in Indonesia.

In the kampong chicken sector, impacts were felt disproportionately among sector 3 farms.

Interestingly, the kampong chicken sector was not that impacted by HPAI (relative to the commercial

sector) in 2006, although the numbers of birds in the sector fell by over 30% over 2006-2008 as

government depopulation and culling programs were implemented. Approximately 5% of kampong

farms (mainly commercialized, sector 3 farms) went out of business as a result of HPAI. Those

commercial kampong farmers that were impacted by HPAI were able to find other livelihoods in

activities such as petty trading, but incomes fell by 40% relative to their previous income raising

poultry. While compensation was paid to such farmers, government compensation rates for culled

chickens were typically well below current market prices. By contrast, sector 4 backyard farms were

not as impacted, although mortality rates of poultry rose. Moreover, new regulations banning

backyard poultry production among households without land could potentially impact some sector 4

farmers, although it is not clear how well such regulations can or will be enforced.

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A variety of risk hotspots potentially compromise the control of HPAI within the different Bogor-

based value chains. Survey results regarding biosecurity knowledge and practices revealed that while

most actors across different sectors (e.g. sector 1 through sector 4) could identify suspected HPAI

cases, awareness was lower in the kampong chicken and duck sector. Disinfectants are rarely applied

in traditional value chains, given perceptions that disinfectants are expensive. Live bird retailers are a

particular risk point for the spread of HPAI given over 50% of live bird retailers reported that they

simply throw away the dead birds, without any treatment. Slaughter points and traditional farmers

(Sector 4 duck and kampong chicken farmers) are also potential risk points given the handling of

dead poultry; the carcasses are either thrown away or fed to catfish.

There are two competing narratives with respect to HPAI control that emerge from the analysis: the

commercial narrative with actors that have the incentive, capacity and institutionalized coordination

mechanisms to adopt improved biosecurity on their own; and the informal narrative involving

smaller-scale commercial or informal actors with little incentive, if any, to invest in mitigating HPAI

risk. These narratives are relatively mutually exclusive, although the small-scale layer chain has a

combination of coordination upstream between breeders and farmers and more amorphous

transactions downstream by traders and retailers. At the same time, market-based interactions

between each narrative potentially compromise the biosecurity of the sector as a whole, with

interventions needed that understand these dynamics.

For this latter set of actors, public intervention and incentives justified by the public health

dimension are likely to be required to stimulate the desired changes. With limited coordinating

mechanisms, either through trade associations or other forms of social capital, a heavy reliance on

informal, market-based transactions, and limited financial return from improved biosecurity,

designing such interventions will be extremely challenging. Particular bottlenecks include traders,

who may operate as mobile individuals rather than fixed businesses, and informal market retailers,

whose knowledge and awareness of better biosecurity practices is often limited. Imposing

biosecurity through regulation is one option, but not likely to be effective: enforcement would be

nearly impossible with existing public resources. With the lack of coordination and leverage within

these value chains, actors might be encouraged to ‘go underground’ and shift into the informal

sector, potentially modulating disease risk even further.

Another option considered for HPAI control has been restructuring the value chains to concentrate

more of the production and trade within the more coordinated actors; the restructuring of live bird

markets in Jakarta is an example of this. Here, the government faces the critical trade-off of

reversing its long-time and extremely successful promotion of small-scale poultry enterprises as a

mechanism for broad-based development and income generation, and replacing it with higher

industrial concentration, exacerbating income disparities and reducing resilience among lower-

income groups.

A third option would entail ‘smart’ interventions carefully designed to create or align with actor

incentives to enhance compliance, either through subsidies or through schemes that increase

coordination and leverage among the actors in the value chain, such as creating professional

associations with certification schemes. This option will require empowering chain-level ‘champions’

engaged in activities that can better coordinate the value chain to meet specified market needs. An

often overlooked partner in such an option is the consumer, finding ways to tap into latent concerns

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about food safety and public health, for instance. Organizing chains in a bottom-up, organic manner

that provides opportunities to value-add production, improve biosecurity and target key consumer

attributes is likely to be more sustainable over time than top-down mandates, particularly in chains

as amorphous and constantly evolving as those found in the informal poultry sector.

Africa/Indonesia Team Working Paper

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1. Introduction

1.1 Study motivation and objectives

Poultry is an important source of income and protein for poor households in developing countries.

Unlike other types of livestock, poultry has a short gestation period, with investment returns

available much more quickly. Second, the land needed to raise poultry does not need to be as

extensive as that for raising ruminants. Finally, the amount of investment required to engage in

poultry production is relatively small. As a consequence, poultry production can serve as an

important source of livelihoods in rural areas, both in terms of income and employment generation.

In a normal year, the production of poultry meat in Indonesia is approximately 1.285 million tons per

annum, representing around 62% of total domestic meat production. In addition, egg production

amounts to 1.2 billion tons, with domestic production fulfilling domestic consumer demand for eggs

(Ditjennak 2007). However, the entry of the virulent H5N1 strain of highly pathogenic avian influenza

(HPAI) into Indonesia in 2003 has had large negative impacts on rural livelihoods, both in terms of

the production losses caused by the disease and the fear of its potential spread in humans. At

present, HPAI is endemic throughout Indonesia and has affected all parts of the poultry sector. Its

spread in Jakarta, where a number of people have died as a result of HPAI, has forced the local

government of Jakarta to adopt strict movement controls for managing and monitoring poultry

rearing and distribution in the Daerah Khusus Ibukota (DKI) Jakarta region. These culminated in the

adoption of two poultry regulations: Peraturan Gubernur (Governor Regulation) No. 15/2007

(Pemprov DKI Jakarta 2007a) and Peraturan Daerah (Regional Regulation) No. 4/2007 (Pemprov DKI

Jakarta 2007b), which mandated that Jakarta communities ban the rearing of poultry in residential

areas while slaughtering of local poultry is to take place in specialized areas in the city. These

regulations have particular effects on the poultry trade in Indonesia. Given the importance of Jakarta

as a destination for poultry products, the ban on live poultry markets will result in the reorganization

of market chains that service Jakarta, creating specific opportunities for surrounding regions.

One of the regions that could benefit from these new regulations is Bogor, a district located directly

to the south of Jakarta. As with other parts of Indonesia, poultry industries in Bogor have been

directly affected by HPAI. At the same time, the new poultry regulations imposed by the local DKI

Jakarta government offer opportunities for the region provided that HPAI can be effectively

controlled. However, the ability of Bogor to benefit from these new regulations requires an

enhanced knowledge of the structure of the poultry industry in Bogor, its relationships and linkages

with regional markets, and the extent to which critical control points in the marketing chain

potentially impinge on the ability of Bogor to supply poultry that meet the standards of the Jakarta

market, including its ability to effectively control disease.

The main objective of this study is to understand the nature of the poultry sector in Bogor and its

market linkages in the context of HPAI control in Indonesia. A major gap in our knowledge of HPAI is

the means by which interactions within the marketing chain serve to exacerbate the risk of disease

introduction and spread within a region. Related to this is a limited understanding of how HPAI

impacts different value chain actors and how these impacts would influence various incentives for

disease control. Our unit of analysis in this study is the value chain, defined by Kaplinsky (2000: 121)

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as “the full range of activities which are required to bring a product or service from conception,

through the intermediary phases of production, delivery to final consumers and final disposal after

use.” The emphasis on the value chain is critical in the context of an animal health outbreak because

of the systems context in which diseases take place. Indeed, the impact of an animal disease is felt

not only at production level, but also through the marketing chain (traders, processors, retailers

etc.), necessitating a more holistic understanding of its economic effects. Moreover, because disease

impacts can affect different groups in different ways, understanding the incentives behind disease

control is critical to conceiving successful, system-oriented interventions that can better contain

HPAI.

Given the interactions of Bogor with the greater Jakarta market and the potential that successful

disease control could have on the poultry sector in Bogor, this case study provides insights into the

effects and risks of HPAI at a regional level. It is hoped that this case can provide broader insights

into disease control implications in other settings in Indonesia and beyond.

Research Questions

Specific research questions addressed in this study include the following:

1. What are the characteristics of participants in the poultry business in Bogor?

2. What types of market chains exist for major types of poultry products generated in Bogor, and

how do such chains differ by level of commercialization? What is the flow of volume and value

by chain?

3. Who benefits from value chain participation in terms of the shares of value added received by

different actors in the chain?

4. What are the governance structures of the value chain for poultry products? To what extent can

these be mobilized to effectively enhance disease control? To what extent do governance

structures impede compliance with control mechanisms?

5. What types of negative impacts, in terms of economic impacts and effects on employment, have

been caused by HPAI?

6. What are the critical points for disease risk in the value chain and what types of mechanisms

could be adopted to enhance incentives for disease control?

For the purposes of this study, we focus on veterinary risk of HPAI introduction and spread among

poultry and birds rather than the associated public health risk.

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1.2 Methodology and approach

Overview of value chain analysis

The methodological approach taken in this analysis follows the value chain framework spelled out in

Kaplinsky and Morris (2001). This analysis characterizes value chains through a four-step process:

chain mapping, governance relationships, upgrading in the chain and distribution effects. An

important advantage of this approach is that it is a systematic, peer-reviewed way of highlighting the

linkages and interactions between key actors in the value chain, highlighting not only the nature of

economic transactions but also social, political and cultural factors that influence how such

transactions take place. This approach has been applied in the context of livestock systems

(Humphrey and Napier 2005; SADC 2009) and in the analysis of livestock diseases (Kobayashi 2006;

Taylor et al. 2008; McLeod et al. 2009). An advantage of utilizing the value chain framework in the

context of animal health is in its ability to identify risk hotspots (sometimes loosely referred to as

“critical control points,” despite their more specific meaning in the Hazard Analysis Critical Control

Point [HACCP] literature) that might impede disease control in their socio-economic and value chain

level context (Taylor et al. 2008).

Figure 1 illustrates that the poultry industry in Bogor provides many advantages to local

communities through its contributions of household income and employment. HPAI outbreaks have

had direct (i.e. by reducing the volume of birds reared and traded) and indirect (i.e. via regulations

limiting backyard poultry) impacts on both income and employment. Our value chain analysis helps

to illuminate those linkages and impacts more systematically to better assess those parts of the

chain that were more or less influenced by the occurrence of HPAI.

Figure 1. Framework for poultry value chain analysis

Regulation: live

poultry ban in

DKI Jakarta

Labour absorption

Household income

Poultry business

activities

HPAI outbreak

Poultry industry in

Bogor

Impact of

HPAI

- Characteristics of

poultry business

actors

- Value chain

analysis

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The first step in a value chain analysis (VCA) is to systematically map the actors participating in the

production, distribution, marketing and sale of a particular product (or products). This mapping

assesses the characteristics of actors, profit and cost structures, flow of goods throughout the chain,

employment characteristics and the destination and volumes of domestic and foreign sales

(Kaplinsky and Morris 2001). As illustrated in a generic example in Figure 2, livestock value chains are

replete with a multitude of different chain actors. At a basic level, livestock value chains consist of

producers; intermediaries including traders, processors and wholesalers; and various types of

retailers (butchers, supermarkets, restaurants and hotels). Different types of ancillary service

providers, such as feed manufacturers and animal health service providers, further support livestock

value chains. Moreover, as illustrated in Figure 2, there is a range of products derived from the

primary production of animals, including meat, hides, eggs, manure and other by-products, each

with its own value chain. Other examples of livestock value chain mapping are provided in Annex 1.

Value chain analysis is suitably flexible enough to examine the broader commodity chain or specific

characteristics of particular subsectors, though a broader analysis will come at the expense of

specific sector detail. Mapping of the overall value chain can highlight the general structure and links

between key points in the chain, as shown in Figure 3 in an illustrative example from the Egyptian

poultry sector. Mapping of a specific subsector, such as the chain for layers within the poultry sector,

describes its detailed linkages (including the volume and value of flows between actors) from

production to final consumption. An example from Egypt is displayed in Figure 4. The approach

taken in this study is to first identify the larger poultry value chain and to then elucidate details of

the most important subchains.

A second component of VCA is the role of governance in the value chain. Governance in a value

chain refers to the structure of relationships and coordination mechanisms that exist between actors

in the value chain. Many of the issues in the governance of the value chain are related to who

decides what is produced, how the rules of trade are determined and the nature of relationships

between the participants. The extent of chain power may be related to the relative size of a

particular firm in the chain in terms of the share of chain sales, share of chain value added, share of

chain profits, share of chain buying power and control over a key technology. Some authors have

looked at governance from the standpoint of power relationships, with the emphasis on which

actors in the value chain are responsible for coordinating activity (Dolan and Humphrey 2000).

Gereffi et al. (2005) have recently proposed a typology of five governance structures of increasing

integration based on the complexity of transactions, the ability to codify transactions and the

capabilities in the supply base. The analysis of chain governance is important from a policy

perspective since it allows for the identification of institutional arrangements that may need to be

targeted to improve capabilities in the value chain, remedy distributional distortions and increase

value-added in the sector.

Such governance structures can be graphically mapped based on the level of coordination in a

particular chain; Figure 5 presents such an example for the layer chain in Egypt. In this study, we try

to identify the nature of transactions in terms of whether there is no coordination (i.e. reliance on

anonymous market transactions), partial coordination (i.e. informal relationships that govern

transactions) or formal coordination (i.e. contracts between value chain actors).

Africa/Indonesia Team Working Paper

5

Figure 2. A generic livestock value chain (Source: Taylor et al. 2008)

Figure 3. A value chain mapping of the entire chicken industry in Egypt

(Source: Kobayashi 2006)

Pro-Poor HPAI Risk Reduction

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Figure 5. A value chain mapping of the layer sector in Egypt indicating volumes

and value of product flows between actors (Source: Kobayashi 2006)

Africa/Indonesia Team Working Paper

7

Third, VCA can be used to examine the impact of upgrading within the chain. This differentiates it

from the filière approach, which tends to take a static view of relationships within the chain

(Kaplinsky and Morris 2001). Upgrading can involve improvements in quality and product design that

enable producers to gain higher value or diversify the product lines served. In the context of animal

health, upgrading has been applied to better understand how the chain adapts to and copes with

shocks (past and present), in terms of products, markets, relationships and the cost of compliance

with new regulations (Rich et al. 2009).

An analysis of the upgrading process includes an assessment of the profitability of actors within the

chain as well as information on constraints that are currently present. As noted in UNCTAD (2000),

governance issues play a key role in defining how such upgrading occurs. In addition, the structure of

global regulations, entry barriers, trade restrictions and standards can further shape and influence

the environment in which upgrading can take place. Upgrading further addresses the capabilities of

actors to innovate and ensure continuous improvement in product and process development.

Finally, VCA can play a key role in identifying the distribution of benefits of actors in the chain. That

is, through the analysis of margins and profits within the chain, one can determine who benefits

from participation in the chain and which actors could benefit from increased support or

organization. This is particularly important in the context of developing countries (and agriculture in

particular), given concerns that the poor are vulnerable to the process of globalization (Kaplinsky

and Morris 2001). One can supplement this analysis by determining the nature of participation

within the chain to understand the characteristics of its participants. In the context of animal

diseases, these distributional effects can be studied to assess the impact of HPAI – and measures to

Figure 6. An example of mapping governance mechanisms in the formal layer value

chain in Egypt (Source: Kobayashi 2006)

Pro-Poor HPAI Risk Reduction

8

control it – on different actors in the chain to better assess incentives and capacity for control. This

provides further insights on the nature of potential risk points along the value chain.

Research schedule and location

This research was divided into four phases. First, secondary data on the sector were collected from

online sources, libraries and reports from relevant institutions. This activity was conducted during

January 2009. Second, an enumerator workshop in the methodology of participatory rapid appraisal

and VCA was conducted during the same period (19-21 January) to train study participants in VCA

tools and to finalize data collection instruments. Third, based on the survey instruments developed

in the training workshop, primary data were collected in various sites in Bogor from February to

March 2009. Finally, preliminary data analysis and report writing were carried out during March

2009.

Primary data collection

Primary data were collected from four sub-districts in Bogor and in Bogor city itself. Research

locations were defined purposively based on spatial geography (see Chapter 2 for a map of site

locations). Four sub-districts in Bogor were chosen as research locations, namely Ciawi, Cibinong,

Leuwiliang and Parung. These four sub-districts represent a geographical distribution covering the

southeast, northeast, southwest and northwest of Bogor District, respectively. Ciawi and Leuwiliang

are dominantly occupied by the Sundanese ethnic group, which represents the indigenous culture.

The inhabitants of Cibinong and Parung, which are located closer to Jakarta, represent a multitude of

different local cultures. Other reasons for choosing these sub-districts were: (1) their access to main

roads; (2) presence of a sub-district wet market; and (3) presence of a unit pelaksana teknis daerah

(regional technical implementing unit) of livestock.

Bogor City is the central business district of Bogor. There are two big wet markets in the city, Pasar

Anyar and Pasar Bogor, where a large number of poultry product retailers operate. These markets

absorb poultry products from farmers in Bogor and its surrounding areas. There is also a central

slaughter point, Kebon Pedes. Hence, Pasar Anyar and Pasar Bogor were selected for sampling

retailers and Kebon Pedes for workers at the abattoir. In addition, two modern retail markets, Yogya

and Super Indo, were also sampled to represent large and small modern markets.

Primary data were collected from the various poultry chain actors. Categories of actors were

identified during the training exercise and included breeders, poultry shops, farmers, collectors,

slaughterhouses and retailers. The training exercise further identified four main poultry commodities

to be covered in the study: broilers, layers, kampong chickens and ducks. All primary data, with the

exception of information from kampong and duck farmers, were collected through semi-structured

interviews guided by checklists that identified specific information required from each type of value

chain actor. Five different questionnaires were used to guide the interviews according to the

category of actor: retailer, collector, slaughter house/point, commercial farmer (sector 2 and 3

broiler and layer) and sector 4 farmer (kampong chicken and duck). In the case of duck and kampong

chicken farmers, we relied on focus group discussions that were facilitated by checklists for farm-

level information. For all actor categories, checklists solicited information on enterprise

Africa/Indonesia Team Working Paper

9

characteristics, linkages with other actors, flows and values of products traded, governance

mechanisms in the chain, experiences with HPAI and associated coping mechanisms, and the effects

of new regulations and compliance programs. Two kinds of primary data were collected: recent and

recall. Recent data were needed for the VCA analysis, while recall data were needed to undertake a

descriptive analysis of the pattern of poultry farm input and output prices and to gauge the impact

of previous HPAI outbreaks.

Data analysis

The value chain mapping as described in the preceding sections was used as the principal analytical

framework for synthesizing information collected during the data collection. A key challenge was

using a combination of secondary data and respondent answers – usually in the form of estimated

market shares—to derive estimates of the volumes and value of commodities moving between

actors. Where possible, quantitative data were aggregated and analyzed to provide perspectives on

commodity flows, trade and prices in each of the surveyed chains. Based on simple price (and, where

available, cost) data collected, aggregated and averaged at different parts of the chain, we

calculated value-added generated along the chain using the Hayami method (Hayami et al. 1987).

Table 1 describes the basic elements and computations used in the Hayami method to estimate

value added (item #10) and related indicators. There were two particular challenges faced in our

analysis. First, at certain parts of the chain, we found actors involved in discrete activities (e.g.

collecting birds) alongside those engaged in collection, slaughter and retail, each with different cost

structures and supply bases (and consequently, different prices of procurement and sales). Since

upstream and downstream actors will feed into one or both of these chains at any given period of

time, analysis of the distribution of value added throughout the chain was extremely problematic.

Second, the regional nature of the analyzed chains often confounds simple averaging of prices at

different chain nodes.

Analysis of value provides both information about distributional issues and an indicator of program

achievement. Steps in the Hayami analysis are:

1. Constructing the commodity chain including specifying the form of a commodity (e.g. as live

birds or carcasses) and any transformation it undergoes along the chain.

2. Identifying financial transactions and their characteristics occurring along the chain.

3. Defining basic computations.

The computation of value added takes into consideration the cost of basic raw materials, labour and

other additional inputs. Some variables related to the analysis of added value are:

The conversion factor, which expresses physical output per unit of input

The direct labour coefficient which describes labour use for processing per unit of

input

Output value per unit of input

Pro-Poor HPAI Risk Reduction

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Table 1. Key components and computations of the Hayami Method to analyze value added

No.

Output, Input, Price

Unit

Notation/Formula

1.

Output

Bird

A

2.

Input of main raw material

Bird

B

3.

Input of Labour

Man day

C

4.

Conversion factor

D = A/B

5.

Labour factor

E = C/D

6.

Price of output

IDR*/bird

F

7.

Average wage labour

IDR/Man day

G

Income, Profit

8.

Cost of main raw material

IDR/bird

H

9.

Cost of other inputs

IDR/bird

I

10.

Value of output

IDR/bird

J = D * F

11.

a. Added value

IDR/bird

K = J – H – I

b. Ratio of added value to total value

%

L = K/J * 100

12.

a. Labour opportunity cost

IDR/bird

M = E X G

b. Labour as share of added value

%

N = M/K * 100

13.

a. Profit

IDR/bird

O = K – M

b. Profit as share of output value

%

P = O/J * 100

Opportunity Cost of Input Factor

14.

a. Margin

IDR/bird

Q = J – H

b. Labour income

%

R = M/Q * 100

c. Share of other input

%

S = I/Q * 100

d. Institution profit

%

T = O/Q x 100

Note: IDR = Indonesian Rupiah

Africa/Indonesia Team Working Paper

11

2. The Bogor poultry sector

2.1 Overview

Bogor is divided into two administrative areas, Bogor City and Bogor District, with Bogor City located

in the middle surrounded by Bogor District.

The north side of Bogor District borders on the capital city of Jakarta, Depok City and Tangerang

District; to the south side are Sukabumi and Cianjur Districts; to the east, Karawang and Bekasi

Districts; and to the west, Banten Province. The climate is tropical with average temperatures

varying from 25oC in the north to 21oC in the south and humidity at 70%. Precipitation averages

2500-5000 mm per year over most of Bogor.

Its 299,000 ha of land area lie mainly between 15 and 1000 m above sea level, and is divided

between protected areas (38%) of forest and estates, and utilized urban and rural areas (62%).

The District of Bogor consists of 40 sub-districts and 427 villages, with a population of 4,237,962 as

of 2007, representing 10% of the West Java Province total. Among those of working age, 6% are

farmers, 30% are entrepreneurs, and 27% are manual labourers, with the remainder in skilled labour

or other professional employment. Bogor City consists has 6 sub-districts, 68 villages and a

population of 750,250 as of 2006 (Renstra Kota Bogor 2007).

There are seven main roads connecting Bogor with other cities, including two roads to Jakarta and

five others to Sukabumi, Cianjur, Banten Province, Tangerang and Bekasi. Given this infrastructure

and geographical position, there is considerable movement of goods and people in and out of Bogor.

2.2 Research area description

The locations of interviews held in the study sites were recorded using GPS and are shown in Figure

6 by category of respondent.

2.3 Identification of actors

For the broiler and layer chains, the major actors found in Bogor area were breeders, feed millers,

sector 2 and 3 farmers (commercial farm), collectors of live birds, collectors of eggs, slaughter

points/houses and retailers in either traditional markets or modern markets (supermarkets).

However in the duck and kampong chicken chains, the main actors were sector 3 and 4 farmers,

collectors of live birds, collectors of eggs, slaughter points/houses and retailers in traditional and

modern markets (specifically for kampong and duck eggs). Table 2 shows the number of respondents

interviewed in each study location. Our target research group in each location consisted of breeders,

feed mills, livestock farmers, poultry shops, collectors, slaughterhouses, slaughter points, retailers

and supermarkets. Based on information provided by Livestock and Fisheries Services of Bogor

District (Disnakan 2009), we identified nine breeders (PT. Kerta Mulya Sejahtera, PT. Central Avian

Pro-Poor HPAI Risk Reduction

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Pertiwi, PT. Cibadak Indah Sari Farm, PT Dasa Asta Utama, PT. Isa Indonesia, PT. Multi Breeders

Adirama Indonesia, PT. Anwar Sierad, PT. Super Unggas Jaya and PT. Satwa Borneo Jaya Breeding

Farm) and four feed millers (PT. Wellgro Feedmill Indonesia, PT Sinta Prima Feedmill Indonesia, PT.

Cargill Indonesia and PT Allied Feeds Indonesia) with operations in Bogor District; no breeders and

feed millers were found in Bogor City. The number of sector 4 farmer respondents was the highest

with 125 respondents (53% of the total) reflecting the use of focus group discussions for collecting

information within this group.

Table 2. Number of respondents by actor category and by location

Actor Category

Number of Respondents

Bogor District

Bogor

City

Ciawi

Cibinong

Leuwiliang

Parung

Total

Breeder

0

1

0

1

0

Feed mill

0

2

1

0

3

0

Farmer Sector 2 &3

7

9

7

6

29

0

Farmer Sector 4

30

35

30

125

0

Poultry shop

1

2

1

5

0

Collector

4

6

7

3

20

5

Slaughterhouse

1

0

2

0

Slaughter point

2

8

3

16

8

Retailer

5

13

14

4

36

22

Supermarket

0

2

Total

50

70

47

237

37

The following subsections provide some summary of the characteristics of respondents surveyed in

this study, including gender, age and level of formal education, business period and the number of

people employed.

Africa/Indonesia Team Working Paper

13

Figure 7: Map of Bogor and location of study interviews, by category of respondent

Pro-Poor HPAI Risk Reduction

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Gender

The gender category of respondents as shown in Table 3 revealed that most respondents (91%) were

male. Women in poultry business were only involved in kampong chicken farms and as carcass

retailers in traditional markets. Neither activity requires intense levels of energy, hence are suitable

for women. Other poultry farming (duck, layer and broiler farms) and trading activities were mostly

carried out by men. Those activities require high capital for transactions or high mobilization for

transporting the product.

Table 3. Gender of respondents, by actor category for each commodity chain

Commodity

Actor Category

N

Gender

Percentage (%)

Male

Female

Male

Female

Broiler Carcass

Retailer

7

5

2

71

29

Broiler

Retailer

3

0

100

0

Collector

7

0

100

0

Slaughter point

14

0

100

0

Slaughter house

2

0

100

0

Farmer sector 2/3

15

0

100

0

Layer

Retailer

3

2

1

67

33

Collector

1

0

1

0

100

Slaughter point

2

1

50

Farmer sector 2/3

10

8

2

80

20

Male Layer

Retailer

6

5

1

83

17

Farmer sector 2/3

2

1

50

Duck

Retailer

7

0

100

0

Collector

6

0

100

0

Slaughter point

5

0

100

0

Farmer sector 4

44

0

100

0

Farmer sector 2/3

1

0

100

0

Kampong

chicken

Retailer

9

0

100

0

Collector

6

0

100

0

Slaughter point

3

0

100

0

Farmer sector 4

81

66

15

81

19

Farmer sector 2/3

1

0

100

0

Breeder

1

0

100

0

Layer eggs

Retailer

7

0

100

0

Collector

5

0

100

0

Duck eggs

Retailer

8

0

100

0

Kampong eggs

Retailer

8

0

100

0

Feed mill

3

2

1

67

33

Poultry shop

5

0

100

0

Supermarket

2

0

100

0

TOTAL

274

249

25

91

9

Africa/Indonesia Team Working Paper

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Age

Table 4 reveals that most of the respondents were between 40 and 55 years old, while only 9% of

respondents were less than 25 years of age. This means that most actors in poultry business were in

the mature productive age bracket.

Table 4. Distribution of respondents by age and actor category for each commodity chain

Commodity

Actor Category

N

Age (years)

Percentage (%)

< 25

25-39

40-55

>55

< 25

25-39

40-55

>55

Broiler Carcass

Retailer

7

2

3

2

0

29

43

29

0

Broiler

Retailer

3

0

2

1

0

67

33

0

Collector

7

0

1

6

0

14

86

0

Slaughter point

14

0

5

9

0

36

64

0

Slaughter house

2

0

2

0

100

0

Farmer sector 2/3

15

0

1

13

1

0

7

87

7

Layer

Retailer

3

0

1

2

0

33

67

0

Collector

1

0

1

0

100

0

Slaughter point

2

0

2

0

100

0

Farmer sector 2/3

10

0

2

4

0

20

40

Male Layer

Retailer

6

1

3

1

17

50

17

Farmer sector 2/3

2

0

1

0

50

Duck

Retailer

7

0

4

3

0

57

43

Collector

6

0

5

1

0

83

17

Slaughter point

5

0

3

2

0

60

40

Farmer sector 4

44

6

10

15

13

14

23

34

30

Farmer sector 2/3

1

0

100

0

Kampong

chicken

Retailer

9

0

2

4

3

0

22

44

33

Collector

6

1

0

3

2

17

0

50

33

Slaughter point

3

0

2

1

0

67

33

Farmer sector 4

81

11

33

28

9

14

41

35

11

Farmer sector 2/3

1

0

1

0

100

0

Breeder

1

0

1

0

100

0

Layer eggs

Retailer

7

0

1

4

2

0

14

57

29

Collector

5

0

2

3

0

40

60

0

Duck eggs

Retailer

8

1

2

4

1

13

25

50

13

Kampong eggs

Retailer

8

1

2

4

1

13

25

50

13

Feed mill

3

0

1

0

33

Poultry shop

5

0

1

3

1

0

20

60

20

Supermarket

2

0

2

0

100

TOTAL

274

24

70

131

49

8.8

26

48

18

Pro-Poor HPAI Risk Reduction

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Level of formal education

The level of formal education of respondents is presented in Table 5. Most of the respondents had

reached elementary school level. The highest level of formal education of the respondents was

university level. Respondents with university level education were found in sector 2/3 farms, feed

mill factories and slaughterhouses.

The low formal education level of a large portion of the respondents may be due to the status of

much of poultry business as an informal activity. Ramli (1992) reported that the informal business

sector in urban areas has an important role as a potential source of income for such actors and their

families.

Table 5. Distribution of respondents by level of formal education and actor category for each

commodity chain

Commodities

Actor Category

N

Level of Formal Education

Percentage (%)

ES

JHS

SHS

HE

ES

JHS

SHS

HE

Broiler Carcass

Retailer

7

3

2

0

43

29

0

Broiler

Retailer

3

1

0

33

0

Collector

7

1

3

1

2

14

43

14

29

Slaughter point

14

7

3

2

50

21

14

Slaughter house

2

0

2

0

100

Farmer sector 2/3

15

1

4

9

7

27

60

Layer

Retailer

3

1

2

0

33

67

0

Collector

1

0

100

0

Slaughter point

2

0

100

0

Farmer sector 2/3

10

2

0

5

3

20

0

50

30

Male Layer

Retailer

6

4

1

0

67

17

0

Farmer sector 2/3

2

0

2

0

100

0

Duck

Retailer

7

5

2

0

71

29

0

Collector

6

4

2

0

67

33

0

Slaughter point

5

0

100

0

Farmer sector 4

44

21

8

14

1

48

18

32

2

Farmer sector 2/3

1

0

1

0

100

0

Kampong

chicken

Retailer

9

5

4

0

56

44

0

Collector

6

4

2

0

67

33

0

Slaughter point

3

0

100

0

Farmer sector 4

81

27

19

34

1

33

23

42

1

Farmer sector 2/3

1

0

1

0

100

Breeder

1

0

1

0

100

Layer eggs

Retailer

7

4

1

2

0

57

14

29

0

Collector

5

2

1

2

0

40

20

40

0

Duck eggs

Retailer

8

3

1

4

0

38

13

50

0

Kampong eggs

Retailer

8

3

1

3

1

38

13

38

13

Feed mill

3

0

3

0

100

Poultry shop

5

0

2

3

0

40

60

Supermarket

2

0

2

0

100

TOTAL

274

109

54

80

31

40

20

29

11

ES=elementary school, JHS=junior high school, SHS=secondary high school, HE=higher education

Africa/Indonesia Team Working Paper

17

Business experience

Business experience of the respondents is presented in Table 6. Only a few respondents (7%) had

extensive business experience of more than 25 years, which in some cases was because the

respondents had continued a family business. Business experience of more than 25 years was found

among respondents of slaughter points, sector 2/3 farms, collectors and feed mills.

The largest share of respondents had taken up poultry activities only recently, reflecting the large

numbers of new farmers among the Sector 4 farmers. Otherwise, the intermediate range between 6

and 15 years was generally most frequent among many of the trade-related categories.

Table 6. Distribution of respondents by years of business experience and actor category for

each commodity chain

Commodities

Actor Category

N

Years of Experience

Percentage (%)

<6

6-15

16-25

>25

<6

6-15

16-25

>25

Broiler Carcass

Retailer

7

2

3

2

0

29

43

29

0

Broiler

Retailer

3

0

100

0

Collector

7

2

1

2

29

14

29

Slaughter point

14

3

6

3

2

21

43

21

14

Slaughter house

2

0

1

0

50

0

Farmer sector 2/3

15

6

3

2

4

40

20

13

27

Layer

Retailer

3

0

3

0

100

0

Collector

1

0

1

0

100

0

Slaughter point

2

0

1

0

50

0

Farmer sector 2/3

10

2

6

1

20

60

10

Male Layer

Retailer

6

0

2

4

0

33

67

0

Farmer sector 2/3

2

1

0

50

0

Duck

Retailer

7

0

3

4

0

43

57

0

Collector

6

2

0

33

0

Slaughter point

5

1

2

0

20

40

0

Farmer sector 4

44

24

14

3

55

32

7

Farmer sector 2/3

1

0

1

0

100

0

Kampong

chicken

Retailer

9

1

3

5

0

11

33

56

0

Collector

6

0

3

0

50

0

Slaughter point

3

0

2

1

0

67

33

0

Farmer sector 4

81

49

20

6

60

25

7

Farmer sector 2/3

1

0

1

0

100

0

Breeder

1

0

1

0

100

0

Layer eggs

Retailer

7

3

2

0

43

29

0

Collector

5

2

3

0

40

60

0

Duck eggs

Retailer

8

4

3

1

0

50

38

13

0

Kampong eggs

Retailer

8

4

3

1

0

50

38

13

0

Feed mill

3

0

1

0

33

Poultry shop

5

1

3

1

0

20

60

20

0

Supermarket

2

0

2

0

100

0

TOTAL

274

110

94

51

19

40

34

19

7

Pro-Poor HPAI Risk Reduction

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Number of labourers employed

Labour employed in poultry business is categorized as either family or hired labour. Table 7 indicates

that most of the respondents have one to five labourers employed. Broiler commodity absorbs the

most labourers, especially the slaughter points and slaughterhouses. The survey results showed that

the type of labourers employed were mostly family labourers, especially among the retailers,

collectors and slaughter points. This practice minimizes the cash burden of employing labour,

thereby increasing their financial profit.

Table 7. Distribution of respondents by number of labourers employed and actor category for

each commodity chain

Commodities

Respondents

N

Number of Employees

Percentage (%)

1-5

6-10

>10

1-5

6-10

>10

Broiler Carcass

Retailer

7

6

1

0

86

14

0

Broiler

Retailer

3

0

100

0

Collector

7

6

1

0

86

14

0

Slaughter point

14

10

1

3

71

7

21

Slaughter house

2

0

2

0

100

Farmer sector 2/3

15

8

4

3

53

27

20

Layer

Retailer

3

0

100

0

Collector

1

0

100

0

Slaughter point

2

0

100

0

Farmer sector 2/3

10

5

0

5

50

0

50

Male Layer

Retailer

6

5

1

0

83

17

0

Farmer sector 2/3

2

0

1

0

50

Duck

Retailer

7

0

100

0

Collector

6

0

100

0

Slaughter point

5

0

100

0

Farmer sector 4

44

0

100

0

Farmer sector 2/3

1

0

100

0

Kampong

chicken

Retailer

9

0

100

0

Collector

6

0

100

0

Slaughter point

3

0

100

0

Farmer sector 4

81

0

100

0

Farmer sector 2/3

1

0

1

0

100

Breeder

1

0

1

0

100

Layer eggs

Retailer

7

0

100

0

Collector

5

0

100

0

Duck eggs

Retailer

8

0

100

0

Kampong eggs

Retailer

8

0

100

0

Feed mill

3

0

1

2

0

33

67

Poultry shop

5

0

100

0

Supermarket

2

0

2

0

100

TOTAL

274

244

10

20

89

4

7

Africa/Indonesia Team Working Paper

19

2.4 Identification of product flows

Product flows start from the farmer who has backward and forward linkages with different input and

output value chain actors. Backward linkages are especially important for commercial farms and

relate to the inputs required for production such as day-old chicks (DOC) or day-old ducklings (DOD),

pullets, feed and other production requirements. Forward linkages relate to selling the product.

Figure 7 presents product flows for the overall poultry sector in Bogor.

Figure 8. Map of value chains in the Bogor poultry sector

The poultry sector in Bogor has all of the main poultry value chains represented. Poultry meat is

derived from production of exotic and indigenous kampong chickens and, on a smaller scale, ducks,

either as broilers or as by-products from egg producers in the form of male or spent layers. Live birds

are traded along the supply chains with slaughter occurring anywhere from the point of production

to the point of consumption. Eggs are produced commercially mainly from exotic chicken breeds,

but also to a minor extent from kampong chickens and ducks.

Whereas some products are sold directly by producers to the final consumers – restaurants and

individuals – most pass through specialized live bird and egg collectors to supply poultry

slaughterhouses and wet markets, or may be delivered to supermarkets (‘modern markets’). Each

specific production system tends to be associated with a particular set of supply routes.

Larger-scale commercial production relies almost entirely on exotic breeds of broilers and layers in

timed all-in, all-out production cycles, though there are some smaller scale commercial operations

(generally <5000 birds) specializing in kampong chickens or ducks. Otherwise, the majority of

Pro-Poor HPAI Risk Reduction

20

kampong chickens and ducks are kept in small flocks in backyard systems by sector 4 farmers who

sell their poultry products in small numbers in a much less systemized fashion, or use for their own

home consumption.

A light blue line in Figure 7 distinguishes those components of the various value chains that are

located in rural versus urban areas within Bogor. While much of the production is based in rural

zones, there are some commercial farms in peri-urban zones, and sector 4 kampong chickens and

ducks can be found nearly everywhere. As expected, much of the trade gravitates from the rural

zones towards the highly populated urban areas, so live and slaughtered birds (carcasses) and eggs

are transported and traded across both zones with final markets and end consumers found in both.

The Bogor poultry sector is very open in the sense that a large share of inputs, including DOC and

pullets, are imported into the district, and similarly a large share of the products produced are

exported to neighbouring districts, especially DKI Jakarta.

2.5 Identification of governance and coordination mechanisms between

actors

Governance and coordination between actors in poultry business in Bogor area can be classified

under two main mechanisms, as indicated in the legend in Figure 7. The first is arm’s-length

coordination (dotted lines in Figure 7) which usually occurs in semi-commercial or traditional one-

time transactions, such as often occurs when consumers buy directly from retailers. The second is

what we term “semi-coordination” (solid lines in Figure 7) which occurs in commercial sector

transactions, e.g. from producers to retailer supermarkets or to restaurants.

Semi-coordination in the commercial sector consists of a spectrum of arrangements. In some cases,

farmers are relatively independent, but have a type of “informal contract” based on mutual trust

with a collector, and similarly between collectors and slaughter points/houses, and between

slaughter points/houses and retailers. In these cases, prices of the products traded depend on the

cost of production especially with respect to prices of inputs (mainly feed and DOC) offered by feed

millers and breeder companies, but are primarily established based on the current balance between

supply and demand in the market. In this system, when business conditions are not conducive, the

actor in the chain bearing the most risk and absorbing the most financial loss is the farmer.

Membership in a poultry farmer association usually provides improved access to market information

to help the farmer manage the price risk dimension better. Market information in the form of spot

prices (Table 8) is also available at the PINSAR (Asosiasi Peternak Unggas Se-Indonesia = Indonesian

Poultry Farmer Association and Information Centre) website (www.pinsar.com) maintained by the

poultry business association, but few farmers have access to the Internet. As indicated in Table 8,

there is a well established size classification for pricing of broilers by weight.

Africa/Indonesia Team Working Paper

21

Table 8. Representative price list of live bird poultry on different dates, Oct-Dec 2008 (IDR)

Item

Date

20/10/08

19/11/08

19/12/08

Broilers: < 1 kg

15,300

15,700

14,000

Broilers: 1 – 1.2 kg

14,700

14,200

12,500

Broilers: 1.2 – 1.4 kg

14,500

13,500

11,800

Broilers: 1.4 – 1.6 kg

14,300

13,300

11,400

Broilers: 1.6 – 1.8 kg

14,100

13,300

11,000

Broilers: 1.8 – 2.0 kg

14,100

13,300

10,600

Broilers: > 2.0 kg

14,400

13,300

10,200

DOC Broilers (head)

2,750

3,250

1,500

DOC Layers (head)

7,000

8,000

Egg (kg)

14,400

11,900

Male

24,500

16,000

19,000

Spent Layers

15,000

14,500

13,000

Spent Parents

18,500

15,000

8,500

Source: CJ Feed Indonesia (2008)

Also commonly practised is coordination in the form of business partnership systems in which

contractual relationships are more formalized, with a company providing its farmers with production

input and technical service and helping them in marketing their product. The partnership contract is

signed by both parties, usually lasts for one production cycle, and can be repeatedly renewed. Some

companies cover rearing costs for the farmer, while the farmer provides the poultry house and

labour for keeping the birds from DOC until maturity. Specific partnership terms are decided by the

contracting company, such as the prerequisites for becoming a contracted farmer, input and output

product price decisions, production practices and any reward and punishment system. When broiler

prices at harvest time are higher than the one stated in the contract at signing time, the farmers

usually receive bonuses from the company. This type of business partnership started in 1987 and

began becoming popular in the early 1990s.

For kampong chickens and ducks, collectors seem to have a significant role in defining product prices

either when buying from farmers or selling to retailers. The price defined by the collector depends

on the cost of transport and supply and demand conditions.

Pro-Poor HPAI Risk Reduction

22

3. Specific poultry value chains

Based on mapping the overall poultry sector in Bogor (Figure 7), we identified four primary value

chains within the poultry sector as the focus of this study: commercial layers, commercial broilers,

kampong chickens and ducks. In this chapter, we describe each of these subsector chains in more

detail, including flows and linkages and governance relationships.

3.1 Commercial layers

Layer population

The layer population in Bogor represents around 3% of Indonesia’s total layer population. Table eggs

produced by layer farmers in Bogor serve not only Bogor consumers but also those outside Bogor,

particularly Jakarta. Since the beginning of the outbreak of HPAI in 2003, layer populations in Bogor

declined somewhat, with a particularly dramatic drop in 2006 when the layer population fell from

3.0 million to 1.1 million birds (Table 9), though the population quickly rebounded the following year

to 3.8 million birds.

The more recent increase in female layer population was due to expansion of scale on existing farms

rather than new entrants; the number of female-layer farmers in Bogor only increased by one, from

128 in 2006 to 129 in 2007 (Disnakan). The data thus reveal that the impact of HPAI was short term

and the poultry sector was able to recover quickly. As of 2008, Bogor had 125 larger-scale

commercial layer farms (more than 15,000 birds per farm) with a total population of 3.7 million birds

and had become the main supplier for Jakarta’s table eggs.

Table 9. Female layer population in Bogor, 2002-2008

Area

Layer population (1,000 birds)

2002

2003

2004

2005

2006

2007

2008

Bogor City1

0

Bogor District2

3,581

3,439

3,055

3,045

1,102

3,792

3,679

Total Bogor

3,581

3,439

3,055

3,045

1,102

3,792

3,679

Total Indonesia3

78,039

79,206

93,416

84,790

100,202

111,489

116,474

% Bogor on Indonesia

4.59

4.34

3.27

3.59

1.10

3.40

3.16

Source : 1 Dinas Agribisnis 2009

2Disnakan, 2009

3Ditjennak, 2009

Characteristics of actors in the layer chain

The layer business is generally run by commercial farms classified as sector 2 and 3 as their main

household income. There are two types of layer businesses in Bogor, female layer systems that

produce eggs and male-layer systems that produce meat. Male layers are a by-product of layer

parent stock, and are discussed briefly. The focus of discussion, however, is the female layer system.

Female-layer farms were found in all four study areas in Bogor, while male-layer production was only

found in Parung. Male-layer DOC are a by-product of layer DOC breeders, and are produced in

Africa/Indonesia Team Working Paper

23

limited numbers. Only a few farmers (those in Parung) have access to purchasing male-layer DOC.

The number of female layers raised on a farm ranges between 1,600-40,000 birds; male layers, on

the other hand, are raised on a larger scale of between 50,000-60,000 birds per farm.

Table 10. Layer population per sampled farm in Bogor

Population

(birds/farm)

Number of Respondents

Ciawi

Cibinong

Leuwiliang

Parung

Total

Female

Male

1,600

0

1

0

1

3,000

0

1

0

1

3,750

1

0

1

5,000

1

0

1

7,500

1

0

1

10,000

0

1

0

2

0

3

25,000

0

1

0

1

30,000

0

1

0

1

40,000

0

1

0

1

50,000

0

1

0

60,000

0

1

0

Total

3

4

1

3

2

13

Source: survey data

Farmers raise male layer DOC for six to eight weeks similar to broilers; feeding male layers beyond

this period is not profitable. The live weight of a male layer ready for slaughter is around 0.8 to 1.0

kg, and fetches a price of IDR 11,000-16,000 per bird. Farmers rear female layers either starting with

the DOC or buying already grown pullets (a pullet is a 6-month-old female layer ready to lay eggs).

Unless treated, female layers are culled at 17 months old; with molting treatment, female layers can

be kept until the age of 24 months. Molting is a treatment to make female layers continue producing

sufficient numbers of eggs. Egg production by female layers declines after the age of 24 months.

Day-old chicks are transported from hatcheries (breeder farms) to layer farms in ventilated trucks

owned by the breeding company. Live pullets are brought in plastic, bamboo or wooden baskets on

open trucks. The purchase of new female layer DOC by farmers occurs three times within a 24

month period, so the number per delivery of DOC is equal to 33% of existing layers.

At the time of the study, the price of a male layer DOC was IDR 1050 to IDR 2000 per bird while the

price of a female layer DOC was IDR 7000 to IDR 8500 per bird, and a pullet was IDR 33,600 to

35,000 per bird. Price fluctuations in layer DOC are generally aligned with those for broiler DOC for

meat, reflecting the opportunity cost in the production of layer DOC in terms of broiler DOC. When

the demand for broiler DOC increases (followed by an increase in price), breeders will prefer to

hatch broiler DOC, leading to reduced supply and higher prices for DOC layers.

Fluctuations in prices of male layer DOC compared to those of female layer DOC are also subject to

other supply and demand forces. Like broilers, male layers are also produced for meat. There is

seasonal demand of DOC for meat due to seasonal demand for chicken meat. The peak demand for

chicken meat occurs during month of Ramadhan (the Muslim fasting month) and Idd ul Fitr, and

Pro-Poor HPAI Risk Reduction

24

increases farmer demand for DOC in the two months prior to those festive periods, since it takes six

to eight weeks to raise male layers.

The farm management system in female layers is generally divided into three phases based on

feeding formula; namely, starters (0 to 8 weeks); growers (9 to 20 weeks); and layers (21 to 78

weeks). In the starter and grower phases, birds are housed in floor houses. The floor is made of slats

or litter (from rice hulls or sawdust). During the layer phase, birds are kept in cages/battery in open-

sided poultry houses.

The nature of layers in producing eggs can be described as s shape (sigmoid curve). There are three

stages in producing eggs i.e. increasing stage, peak stage and decreasing stage. In order to maintain

stability in the volume of production throughout the year, layer farmers usually raise layers in four

age cohorts. Therefore, in the farm there are four chicken group houses, i.e. a group for growers (1-

20 weeks old), and three groups for layer based on their particular age cohort (21-40 weeks, 41-60

weeks and 61-78 weeks old). The number of birds in each group represents one fourth of the layer

population in the farm.

Feed is usually purchased from feed mills located nearby in West Java and Banten (Wonokoyo,

Charoen Pokphand, Comfeed and Gold Coin feed companies) or is mixed by farmers themselves

(generally a mixture of concentrate and corn). The type of feed given to female layers generally

depends on the growing phase, i.e. starter, grower or layer feed. The female layer feed price is

relatively constant at IDR 4000-5000 per kg depending on nutritional content. Feed portions depend

on live weight and growth phase. For the layer phase, the amount of feed is relatively stable at

around 100 g per bird per day. The price of male layer feed is also relatively constant at IDR 4000-

4800 per kg. Farmers feed the male layers ad libitum (feed is always available). The feed conversion

ratio for male layers is around 2.0 (i.e. male layers consume 2 kg of feed resulting in 1 kg of live

weight).

Other inputs used in layer farms include vaccines for Newcastle disease (ND), infectious bursal

disease (IBD), infectious bronchitis (IB) and HPAI. Some apply vaccine chicken pox. Farmers buy

vaccines from a poultry shop or a vaccine producer. The average cost for each vaccine is IDR 1000

per bird. Altogether, such vaccine costs would be approximately IDR 4000 per bird during rearing.

Male layers from commercial farms are usually taken by collectors and sent to a slaughterhouse. In

Bogor, most male layer meat is sold to restaurants, especially “Padang” restaurants, which prefer

male layer meat that is considered tastier than that of broilers even though its price is relatively

higher. Smaller shares are sold through traditional markets and supermarkets to middle-income

socio-economic groups. Bogor consumers choose male layer meat because it has similar texture to

backyard (kampong) chicken meat, but has a lower price.

Table eggs and spent layers (cull chickens) are the products of female layers. Commercial layer farms

sell live spent layers at 17-24 months of age at a weight of 2.0-2.3 kg per bird. Seasonality has an

important influence on price. In normal periods, the price of a live spent layer is IDR 15,000 per bird

but during Idd ul Fitr it can rise to as high as IDR 20,000 per kg or IDR 40,000 per bird.

Africa/Indonesia Team Working Paper

25

Output and input prices of male and female layers are shown in Table 11, with the range of

minimum and maximum prices indicated. There was little variation in these prices across the four

study sites.

Table 11. Input and output prices of male and female layers

Layer

Type of Input/Output

Unit

Price (IDR)

Minimum

Maximum

Female Layer

Input Price

DOC

bird

7,000

8,500

Pullet (15 weeks)

bird

33,600

35,000

Feed

kg

4,000

5,000

Output Price

Live bird

bird

15,000

20,000

Egg

kg

10,000

14,000

Consumer Price

Live bird

bird

22,000

25,000

Egg

kg

12,000

16,000

Male Layer

Input Price

DOC

bird

1,050

2,000

Feed

kg

4,000

4,800

Output Price

Live bird

bird

11,000

16,000

Consumer Price

Live bird

bird

20,000

22,500

Product flow and governance mechanism map

Figure 8 summarizes the layer value chain in Bogor, providing estimates for 2008 of the volumes and

value of commodities traded among the various categories of actors. Ranges are reported for the

value to capture the price ranges reported in Table 11. The lines depicting commodity flows are also

coded to represent the type of governance that generally characterizes the relationship between

actors in each link. Not shown are backward linkages to input suppliers and services, including the

feed, pharmaceutical and vaccine industries. These backward linkages are complex given the

stringent requirements for feed, breed and management required by the exotic breeds used on layer

farms, and these requirements have contributed to a relatively high degree of specialization within

the layer sub-sector. The chain starts from breeders that produce final stock, to farmers who raise

the birds and processors and other actors related to poultry distribution who supply poultry

products to consumers.

Breeder farms produce 4.2 million female-layer DOC annually and sell the majority directly to large-

scale commercial layer farms (50% of the breeder farm annual production, or 2.1 million DOC, and

representing a total value of IDR 15-18 billion) and pullet farms (45%; 1.9 million DOC; IDR 13-16

billion), but also distribute a small share through agents or distributors (5%; 0.2 million DOC; IDR 1-2

billion). These agents supply poultry shops (IDR 2 billion), which sell the DOC to small-scale

commercial layer farms (IDR 2 billion). After growing out the DOC, pullet farms sell all of their

production (1.8 million birds, taking into account 5% mortality; IDR 60-62 billion) to small-scale layer

farms. With the exception of poultry shop sales, the relationships between actors along these chains

are considered semi-coordinated in the sense that they generally involve repeated transactions

between suppliers and buyers as an informal arrangement. Farmers are less likely to have such

26

Modern Market

Poultry Shop

Collector (Eggs)

Lower Income

Consumer

Male

20% (0.555/

7.77-10.83B)

Female

40% (0.599/

10.18-12.58B)

DOC

Traditional Market

EXTERNAL

IMPORT

Higher Income Consumer

Live Bird

Meat

Egg

Manure

Technical Services

Arm’s length

Semi-coordination

Full coordination

Egg Retailer

Manure

Collector

Commercial Farm

(Plasma

4.171 million birds

Breeder Nucleus (Male)

4.171 million birds

DOC

Pullet

Farm

DOC Agent

5% (0.209/

1.46-1.77B)

100% (0.209/

1.56-1.88B)

50%

(2.086/

14.60-17.73B)

Breeder Farm (Female)

4.171 million birds

Female

53% 2.089/

31.33-41.78B)

Female

10% (0.516/

9.28-10.83B)

Slaughterhouse/Slaughter Point

outside market

Male 2.774 million birds

Female 1.498 million birds

Female

25% (1.289/

23.21-27.07B)

83%

(0.938/

14.08-18.77B)

17%

(0.209/

3.13-4.17B)

45% (1.877/

13.14-15.95B)

100%

(0.209/

1.67-1.98B)

100%

(1.783/

59.91-62.41B

Pullet

100%

(0.941/

14.11-18.82B)

Collector (Live bird)

Male 1.189 million birds

Female 3.968 million birds

Restaurant

Small-scale Commercial Farm

1.992 million birds

100%

(5.34 Mkg/

53.38-74.73B)

50%

(2.93 M kg/

29.33-41.06B)

3.5%

Remark: % = percent of total volume handled by each

individual actor category (volume/value in billion IDR)

95%

8.82

Mkg/

97.02

-

132.3

0B)

11%

1.01 M

kg/

10.10-

14.14B

)

70% (0.388/

7.77-8.74B)

30%

(1.189/

13.08-19.02B)

30%

(0.166/

3.33-3.74B)

60%

(0.084 Mkg/

1.01-1.34B)

40%

(0.056 Mkg/

0.67-0.90B)

60%

(0.313/

6.88-7.82B)

30%

(0.10 Mkg/

1.20-1.60B)

70%

(0.22 Mkg/

2.64-3.52B)

Male 60% (1.664/ 23.30-31.62B)

Female 60% (0.899/15.28-18.87B)

3.5%

(0.32 Mkg/

3.52-4.80B)

Male

20%

(0.555/

7.77-10.54B)

70% (2.774/

30.51-44.38B)

1.5%

(0.14 Mkg/

1.54-2.10B)

Large-scale Commercial Farm

2.086 million birds

OUTSIDE BOGOR

Tangerang, Subang, Cianjur,

Cipanas, Bandung, Pasuruan,

Palembang, Cigombong,

Cidahu, Jakarta, Depok, Bekasi,

Male

90% (1.498/

29.96-33.70B)

Female

90% (0.809/

17.79-20.22B)

Male

10%

(0.166/

3.33-3.74B)

Female

10%

(89 865/

1.98-2.25B)

Male

100% (1.189/

16.64-22.59B)

Female

65% (2.163/

36.77-45.43B)

Slaughter point

40% (0.203/

4.46-5.07B)

Grand Parent Stock

Male = 2 979

Female =26 814

(1.19B)

Carcass Retailer

Middle Income Consumer

Figure 9. Layer value chain in Bogor (volumes and value)

27

longer term arrangements with certain poultry shops. Indeed, there are many poultry shops that

farmers can choose the right for transaction.

Female-layer farms produce eggs and spent layers. Small-scale female-layer farmers in Bogor are

generally independent farmers. They have no contract system for procuring inputs or selling table

eggs. These farmers are free to decide from whom to buy feed, vitamins and vaccines, and to whom

they sell the table eggs and spent layers. They do, however, usually have regular suppliers of pullets.

Larger-scale farmers exhibit more systematic semi-coordination; they partner with feed suppliers

and egg collectors in informal agreements. This coordination is important to ensure the continuity of

feed supply and to ensure markets for selling products, both eggs and birds.

All eggs produced by small-scale farms are sold to collectors (5.3 million kg; IDR 53-75 billion),

usually in arm’s-length transactions, while those from large-scale farms are sold in roughly equal

shares to regular buyers among collectors and modern markets (2.9 million kg; IDR 29-41 billion,

respectively). Egg collectors also import an estimated 1.0 million kg (IDR 10-14 billion) of eggs from

outside the district (especially Tangerang, Cianjur, Cidahu and Cigombong). Of the egg collectors’

volume, an estimated 95% of eggs (8.8 million kg; IDR 97-132 billion) are exported to outside Bogor

(Jakarta, Depok and Bekasi) in open-market transactions; the remaining 5% are sold in equal shares

(0.3 million kg; IDR 4-5 billion each) as regular suppliers to supermarkets and in arm’s-length

transactions to egg retailers in traditional markets.

Female-layer farmers sell a cohort of spent layers every 20 weeks (5 months), so the number of

spent layers marketed in a year should be close to 50 % of the layer population. Small- and large-

scale commercial female-layer farms contribute roughly equal shares of spent layers. Large-scale

farms sell spent layers through established relationships with buyers (semi-coordination) mainly to

collectors (83%; 0.9 million birds; IDR 14-19 billion), with a smaller share going to slaughterhouses

(17%; 0.2 million birds; IDR 3-4 billion). Small-scale farms sell all of their spent layers to collectors

(0.9 million birds; IDR 14-19 billion).

The collectors in turn sell spent layers either to slaughter points inside traditional markets (10%; 0.5

million birds; IDR 9-11 billion), slaughterhouses (25%; 1.3 million; IDR 23-27 billion) and outside

Bogor (65%; 2.2 million; IDR 37-45 billion), especially to Jakarta, Tangerang, Subang, Cianjur and

Cipanas. From the slaughterhouses, outside market, carcasses are supplied either to carcass (poultry

meat) retailers in traditional markets (60%; 0.9 million birds; IDR 15-19 billion) or to restaurants

(40%; 0.6 million birds; IDR 10-13 billion) in open market sales. Slaughter points inside the traditional

markets act as live bird retailers. Some consumers buy and slaughter the birds at the slaughter

points (60%; 0.3 million birds; IDR 7-8 billion). Other consumer buy live birds (40%; 0,2 million birds;

IDR 4,6-5.3 billion) and slaughter them at home.

In contrast, and while fewer in number, male-layer farm have much stronger market coordination

with input providers and output buyers. All male-layer farmers that we interviewed in Bogor work

under a written contract agreement with PT Salim Wijaya, in a variant of the Nucleus-Plasma

Farming System (Plasma Inti Rakyat: PIR) system, representing full coordination. In PIR, there is a

sharing of product resources and risks between the company and farmer. This business has grown

from an initial contracting of 10 farmers to several hundred chicken farmers today. The company

provides production inputs including male-layer DOC and sells the farmers’ output, while the

farmers provide chicken houses and rear the birds. The contract agreement covers one 6-8 week

28

cycle of growing out the male-layers like broilers, with the contract agreement repeatedly renewed

for new production cycles. The male-layer system delivers roughly the same total number of birds

annually as the spent layer system. At the end of the cycle, male layers are sold either to collectors

(30%; 1.2 million birds; IDR 13-19 billion) or to slaughterhouses (70%; 2.8 million birds; IDR 31-44

billion). Collectors sell the male layers on the open market (arm’s length) to areas outside Bogor.

Carcasses from slaughterhouses are sold on arrangement to supermarkets (20%; 0.6 million; 8-11

billion) while those from slaughter points are sold on the open market to retailers in traditional

markets (60%; 1.7 million; IDR 23-32 billion) and restaurants (20%; 0.6 million; 8-11 billion).

The average value-added for each commodity handled in the layer chain was calculated using

Hayami’s method (Table 1). As depicted in Figure 8, the marketing chain of spent layers starts from

the live bird in the farm, which is subsequently bought by collectors and then sold to

slaughterpoints. From slaughterpoints, poultry carcasses go to retailers and finally to consumers.

Note that the chain could be handled by one person that acts as a collector, slaughter point and

retailer, or by separate people at each node of the chain, which will influence the amount of value

added generated by such a person. Table 12 shows that collectors combined with slaughterpoints

and retailers had the highest value-added: IDR 7100 per bird. As a collector only, the value-added

gain is at least IDR 2635 per bird.

The table egg marketing chain in Bogor includes two actors: collectors and retailers. The value-added

of layer egg retailers was higher than that of the collectors with a value of IDR 791 per kilogram and

IDR 135 per kilogram, respectively. Other input costs spent by retailers are retribution, water and

electricity.

Table 12. Average value-added of spent layers and table eggs

Actor Category

Input Price

Output Price

Cost of

Other Inputs

Average

Value-Added

Spent layers (IDR/bird)

Carcass retailer

21,000

24,000

209

2,791

Collector

15,000

18,000

365

2,635

Slaughter point & retailer

19,000

25,000

1,535

4,256

Collector & slaughter point

16,000

22,000

1,744

4,465

Collector, slaughter point & retailer

15,000

24,000

1,900

7,100

Table eggs (IDR/kg)

Retailer

12,500

13,500

209

791

Collector

12,000

12,500

365

135

Role of associations

Industry organizations related to the layer business are found mainly at national level among input

suppliers. These include, at the national level, the Association of Indonesian Poultry Breeders

(Gabungan Perusahaan Pembibitan Unggas Indonesia: GPPUI), the Indonesian Animal Drug

Association (Asosiasi Obat Hewan Indonesia: ASOHI) and the Feed Mill Association (Gabungan

Perusahaan Pakan Ternak: GPMT). Three companies operating in Bogor are members of GPMT: P.T.

Charoen Pokphand, P.T. Japfa Comfeed and P.T. Gold Coin (nationally, there are 18 GPMT member

companies). GPPUI members include eight breeder companies and play an important role in

29

controlling the production of DOC to stabilize prices and control supply. In general, these

associations play a key role as a partner to the government in regulating poultry and related

industries. The main roles of the poultry industry associations are:

Sharing information among members

Serving as a partner of government in facing crises such as the HPAI outbreak

In some cases, acting as a cartel in setting the prices of their products.

Layer farmers are represented by the Association of Indonesian Poultry Farmers (Perhimpunan

Peternak Unggas Indonesia: PPUI) and PINSAR (Assosiasi Peternak Unggas Se-Indonesia = Indonesian

Poultry Farmer Association and Information Centre). As with other poultry industry associations, the

role of PPUI and PINSAR also includes sharing information on input and output prices among

members, brokering between members in terms of sales, and in some cases yielding market power

(not unlike a cartel) in establishing their output price.

At the local level in Bogor, there is also a Slaughter Point Society (Ikatan Warga Pemotong Ayam:

IPWA). The members are slaughterhouse workers in the Bogor Area. They meet once a week to

discuss recent issues concerning the supply of live birds from farmers and current demand for

carcasses. The main role of this society is to ensure that there is a single price of carcasses in all

traditional markets in Bogor, particularly at times when prices are potentially unstable.

Public policy and regulation

The local government has established regulations stating that it is compulsory for layer farmers

raising more than 10,000 birds to meet environmental and regional planning requirements (Regents

Regulation 2003). This law necessitates additional farmer expenses for environmental assessment

and site suitability for farm location. Therefore in the registration form, it is very rare for farmers to

state that their farm raises more than 10,000 birds to avoid these regulations. There were around 40

layer farmers who reportedly raised around 40,000 birds in Bogor without the local government

permission.

Since the beginning of the HPAI outbreak, there have been several new policies and measures at the

various levels of government to respond to the disease, e.g. on vaccination, culling and banning of

poultry from residential areas; these are discussed in Section 4.6.

30

3.2 Commercial broilers

Broiler population

The total broiler population in Bogor (Bogor City and Bogor District) is around 1% of Indonesia’s

population, similar to the corresponding share of the human population. From 2002 to 2008, the

broiler population in Bogor has experienced an upward trend, though stalling at 8.4 million birds in

2004-2006 before making a rapid jump in 2007 (Table 13).

Table 13. Broiler population in Bogor, 2002-2008

Area

Broiler (1,000 birds)

2002

2003

2004

2005

2006

2007

2008

Bogor City1

127

158

188

157

NA

Bogor District2

6,071

7,029

8,294

8,258

8,222

12,756

13,793

Total Bogor

6,198

7,187

8,482

8,446

8,410

12,914

13,793

Total Indonesia3

865,075

847,744

778,970

811,819

797,527

891,659

1,075,885

Bogor as % of Indonesia

0.70

0.85

1.09

1.04

1.05

1.45

1.28

Source : 1 Dinas Agribisnis 2009

2Disnakan, 2009

3Ditjennak, 2009

The jump in the broiler population in 2007 was caused by an increase in numbers of farms. The

number of large-scale broiler farms (> 15,000 birds) in Bogor increased from 42 (2006) to 82 (2007).

The data show that the impact of HPAI was transitory and the recovery was very fast. The number of

broilers produced per fattening cycle (one cycle is 30-40 days) by the 87 large commercial farms in

the district in 2009 reached 4.0 million birds or 24 million per year (the broiler production is 6 cycles

a year).

Characteristics of actors in the broiler chain

Broiler farms were found in all four study areas. These are generally run as sector 2 and 3 family

commercial enterprises for their main source of income. Farm sizes of sampled farms varied widely

from 1200 to 1.5 million birds (Table 14).

Breeding companies supply DOC of exotic breeds specialized for broiler production, transporting

them from the hatcheries on the breeder farms to client farms by ventilated trucks owned by the

breeding company. At the time of the study (February-April 2009), the price of a broiler DOC was IDR

3200. Broiler DOC prices tend to fluctuate during the year, indirectly reflecting seasonal demand for

chicken meat. Peak demand for chicken meat occurs during the Muslim fasting month and Idd ul Fitr

and given that the broiler production cycle is four to six weeks, farmer demand for DOC increases in

the month prior to that time. Demand for DOC tends to increase about 50-65% during this period,

while the DOC price increases by 40-50% and can be as high as IDR 4500 per bird. When demand for

broiler meat decreases (usually at the time when consumers are under pressure to allocate their

income for tuition fees for their children), DOC prices drop as low as IDR 2000 per bird.

There are two kinds of feed used in the broiler sector: starter feed (<3 weeks old) and finisher feed

(3-6 weeks old). During the fattening period, broiler chickens stay in the same poultry house (all in,

all out system) with litter floor (made from rice hulls or sawdust). Feed is usually purchased from