Industry Profie: Poutry Farm in Indonesia

MARKET INTELLIGENCE REPORT ON

DEVELOPMENT OF POULTRY FARMS IN INDONESIA

August 2009

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Backgrounds

The country’s poultry farming industry has gone through the global crisis relatively unscathed. The animal husbandry industry performed well in 2008 when the crisis began to hit In 2009, when the purchasing power of the people is still weak as a result of the economic slow down, the poultry farming industry continues to expand. Chicken and chicken egg production continue to increase providing cheaper source of protein in the country .

The country’s production broiler DOC (Daily Old Chick) surged to 1.2 million in 2008 from 1.1 million in the previous year. Increase was also recorded in the production egg layer DOC – from 64 million in 2007 to 68 million in 2008.

The increase in production, however, brought on a problem. The domestic market was oversupplied by 27% in mid 2009, up from only 5% in 2008 causing a price fall on the domestic market.

Meanwhile, the prices of chicken feed rose resulting in an increase in production cost and selling price of live chicken when the purchasing power of the general consumers has not significantly improved.

Description of product

Generally chicken farms consist of those raising :

1. Non pure bred chickens or free range chickens, which are raised traditionally by small farmers.

2. Pure bred chickens, which were originally imported into the country including broilers and egg layers.

Imported Day Old Chick (DOC) in the form of DOC of Final Stock (FS DOCS). Final Stock chickens are raised only in one production cycle not for breeding

Broiler DOCs will be ready for slaughtering in 8 weeks and layer DOC will take 73 week to be ready for breeding.

Commercial pure bred chickens are the product of animal breeding technology either through cross breeding of a number of different lines (pure bred lines) Chickens of this type have higher productivity, more resistant to diseases. and other superior qualities.

The rapid expansion of poultry breeding industry has created new related lines of business such as breeding farms, hatchery, slaughterhouse operation, egg trading, poultry feed industry, animal medicine industry, etc.

Chicken farm could be classified into four categories – small farms with less than 40,000 chickens, small medium farms with 100,000-300,000 chickens, medium farms with 500,000 -1 million chickens and large farms with more than one million chickens each.

Production capacity and producers

Based data at the Indonesian Association of Poultry Farm Companies (GAPPI), Indonesia has 40 chicken farm companies including 16 categorized as large companies.

The country’s total installed capacity is 40 million Daily Old Chickens (DOC) per week or 2,080 million per year. However, currently production is only 26 million per week - or a capacity utilization of 65%.

Chicken farm business producing broilers and DOCs are dominated by large companies using modern technology. Most companies operating in commercial chicken farming industry are foreign investment (PMA) companies dominating 70%-80% of the domestic market. Among the largest companies are the Thailand based Charoen Popkhand, Korea’s CJ Feed Jombang, and Malaysia’s Sierad.

Integrated Animal Husbandry Industry

Business in animal husbandry industry is still dominated by foreign investment companies such as Charoen Pokphand, Japfa Comfeed, Sierad Produce and CJ Feed. They integrate animal husbandry industry with animal feed industry and industry processing animal husbandry products..

PT. Charoen Pokphand is one of the largest operator of chicken farms . In addition to chcken farms it has chicken feed factories and shrimp feed plants, and chicken meat processing factories producing sausage kwon with the brand of Prima Food.

PT. Japfa Comfeed also has poultry feed factories , chicken farms, and chicken meat processing factories producing sausage with the brand of So Good.

Small livestock farms as partners

Small livestock farms which are much larger in number are facing threat from expanding large companies. They have lost domination of the market as they are behind in technology and capital

A number of large companies like Sierad Produce, Charoen Pokphand Indonesia, and Japfa Comfeed Indonesia have established cooperation with small farmers by providing the farmers with fund to start business in livestock farming, and supplying them with maintenance and production facilities including DOC, feed, medicines. and vitamins. The companies are involved only by helping the farmers to keep the DOCs healthy and grow to be ready for harvest as scheduled.

The companies generally promise incentives for properly observing the food conversion ratio (FCR) the standards set by the companies. The incentives is in the form of extra income added to the original contract.

The partnership system adopted by the CP Group developed since 1987 is more in the contract price. Plasma farmers having contract with the CP Group are required to have at least 5,000 chickens each . Currently CP cooperate with thousands of plasma farmers in Sumatra, Java, Kalimantan, Sulawesi, and NTB.

PT Wonokoyo adopts a partnership system almost the same as used by CP but a farmer is required only to have at least 1,000 chickens. The company has developed the partnership system since 1999 in Java especially East Java.

The plasma farmers of CJ Feed are required to have 4,000 chickens each. It has developed plasma farms in Banten and West Java.

Meanwhile, Sierad Produce has developed partnership with around 1,000 small farmers in West Java, Central Java, and East Java. It produces 1.5 million DOCs a week and 900,000 of which are for its plasma farmers and the rest are sent to the market to be sold to independent chicken farmers. Sierad plans to expand its partnership system, therefore, it will increase its DOC production. Currently its DOC production facilities are operating at 55% of their capacity. Recently Sierad secured a loan of Rp225 billion from Bank BNI to finance its business expansion.

Production of broilers and egg layers up

Based on data from the animal husbandry directorate general, the country’s production of broilers in the period of 2004-2008 increased from year to year. The production depends much on supplies of FS DOCS from the DOC producers.

In the first quarter of 2008, the country’s production of broiler FS DOCs rose to 16.5% to 26.8 million per week from 23 DOCs per week in he same period in the previous year.

Meanwhile, the country’s production of broiler FS DOCs in the second quarter of 2009 rose to 28.2 million DOCs per week from 24.1 million per week in the same period in 2008.

The production of broilers grew 5.89% from 975 million in 2004 to 1,230 million in 2008.

The country’s production pure bred layer FS DOCs in the first quarter of 2008 fell 4.1% to 0.7 million per week from 0.73 million per week in the same period in 2007. The production pure bred layer FS DOCs rose to 1.55 million DOCs per week in the second quarter of 2009 from the same period in 2008.

In the second quarter of 2009, imports of layer parent stock (PS) totaled 51,660 chickens. In the same period in 2008, there was no import of layer PS chickens. Increase in supply of layer PS on strong demand ahead of Idul Fitri.

The country’s production of layer chickens also increased in the 2004 - 2008 period growing 5.47% a year on the average. The production of egg layers rose from 55 million in 2004 to 68 million in 2008.

Chicken farms in West Java the largest

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