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 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 iii Pro-Poor HPAI Risk Reduction 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 iv Africa/Indonesia Team Working Paper 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 v Pro-Poor HPAI Risk Reduction 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. vi Africa/Indonesia Team Working Paper 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 vii Pro-Poor HPAI Risk Reduction 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 viii Africa/Indonesia Team Working Paper 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 ix Pro-Poor HPAI Risk Reduction 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. x Africa/Indonesia Team Working Paper 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 xi Pro-Poor HPAI Risk Reduction 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. xii Africa/Indonesia Team Working Paper 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) 1 Pro-Poor HPAI Risk Reduction 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. 2 Africa/Indonesia Team Working Paper 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. Poultry business Poultry industry in HPAI outbreak activities Bogor - Characteristics of Impact of Labour absorption poultry business HPAI actors Household income - Value chain analysis Regulation: live poultry ban in DKI Jakarta Figure 1. Framework for poultry value chain analysis 3 Pro-Poor HPAI Risk Reduction 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). 4 Africa/Indonesia Team Working Paper 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) 5 Pro-Poor HPAI Risk Reduction 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 Africa/Indonesia Team Working Paper Figure 6. An example of mapping governance mechanisms in the formal layer value chain in Egypt (Source: Kobayashi 2006) 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 7 Pro-Poor HPAI Risk Reduction 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 8 Africa/Indonesia Team Working Paper 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 9 Pro-Poor HPAI Risk Reduction 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 10 Africa/Indonesia Team Working Paper 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 11 Pro-Poor HPAI Risk Reduction 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 Number of Respondents Actor Category Bogor District Bogor Ciawi Cibinong Leuwiliang Parung Total City Breeder 0 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 30 35 30 125 0 Poultry shop 1 1 2 1 5 0 Collector 4 6 7 3 20 5 Slaughterhouse 1 1 0 0 2 0 Slaughter point 2 8 3 3 16 8 Retailer 5 13 14 4 36 22 Supermarket 0 0 0 0 0 2 Total 50 70 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. 12 Africa/Indonesia Team Working Paper Figure 7: Map of Bogor and location of study interviews, by category of respondent 13 Pro-Poor HPAI Risk Reduction 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 Gender Percentage (%) Commodity Actor Category N Male Female Male Female Broiler Carcass Retailer 7 5 2 71 29 Retailer 3 3 0 100 0 Collector 7 7 0 100 0 Broiler Slaughter point 14 14 0 100 0 Slaughter house 2 2 0 100 0 Farmer sector 2/3 15 15 0 100 0 Retailer 3 2 1 67 33 Collector 1 0 1 0 100 Layer Slaughter point 2 1 1 50 50 Farmer sector 2/3 10 8 2 80 20 Retailer 6 5 1 83 17 Male Layer Farmer sector 2/3 2 1 1 50 50 Retailer 7 7 0 100 0 Collector 6 6 0 100 0 Duck Slaughter point 5 5 0 100 0 Farmer sector 4 44 44 0 100 0 Farmer sector 2/3 1 1 0 100 0 Retailer 9 9 0 100 0 Collector 6 6 0 100 0 Kampong Slaughter point 3 3 0 100 0 chicken Farmer sector 4 81 66 15 81 19 Farmer sector 2/3 1 1 0 100 0 Breeder 1 1 0 100 0 Retailer 7 7 0 100 0 Layer eggs Collector 5 5 0 100 0 Duck eggs Retailer 8 8 0 100 0 Kampong eggs Retailer 8 8 0 100 0 Feed mill 3 2 1 67 33 Poultry shop 5 5 0 100 0 Supermarket 2 2 0 100 0 TOTAL 274 249 25 91 9 14 Africa/Indonesia Team Working Paper 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 Age (years) Percentage (%) Commodity Actor Category N < 25 25-39 40-55 >55 < 25 25-39 40-55 >55 Broiler Carcass Retailer 7 2 3 2 0 29 43 29 0 Retailer 3 0 2 1 0 0 67 33 0 Collector 7 0 1 6 0 0 14 86 0 Broiler Slaughter point 14 0 5 9 0 0 36 64 0 Slaughter house 2 0 0 2 0 0 0 100 0 Farmer sector 2/3 15 0 1 13 1 0 7 87 7 Retailer 3 0 1 2 0 0 33 67 0 Collector 1 0 0 1 0 0 0 100 0 Layer Slaughter point 2 0 0 2 0 0 0 100 0 Farmer sector 2/3 10 0 2 4 4 0 20 40 40 Retailer 6 1 1 3 1 17 17 50 17 Male Layer Farmer sector 2/3 2 0 0 1 1 0 0 50 50 Retailer 7 0 0 4 3 0 0 57 43 Collector 6 0 0 5 1 0 0 83 17 Duck Slaughter point 5 0 0 3 2 0 0 60 40 Farmer sector 4 44 6 10 15 13 14 23 34 30 Farmer sector 2/3 1 1 0 0 0 100 0 0 0 Retailer 9 0 2 4 3 0 22 44 33 Collector 6 1 0 3 2 17 0 50 33 Kampong Slaughter point 3 0 0 2 1 0 0 67 33 chicken Farmer sector 4 81 11 33 28 9 14 41 35 11 Farmer sector 2/3 1 0 0 1 0 0 0 100 0 Breeder 1 0 0 1 0 0 0 100 0 Retailer 7 0 1 4 2 0 14 57 29 Layer eggs Collector 5 0 2 3 0 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 1 1 0 33 33 33 Poultry shop 5 0 1 3 1 0 20 60 20 Supermarket 2 0 0 0 2 0 0 0 100 TOTAL 274 24 70 131 49 8.8 26 48 18 15 Pro-Poor HPAI Risk Reduction 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 Level of Formal Education Percentage (%) Commodities Actor Category N ES JHS SHS HE ES JHS SHS HE Broiler Carcass Retailer 7 3 2 2 0 43 29 29 0 Retailer 3 1 1 1 0 33 33 33 0 Collector 7 1 3 1 2 14 43 14 29 Broiler Slaughter point 14 7 3 2 2 50 21 14 14 Slaughter house 2 0 0 0 2 0 0 0 100 Farmer sector 2/3 15 1 1 4 9 7 7 27 60 Retailer 3 1 2 0 0 33 67 0 0 Collector 1 1 0 0 0 100 0 0 0 Layer Slaughter point 2 2 0 0 0 100 0 0 0 Farmer sector 2/3 10 2 0 5 3 20 0 50 30 Retailer 6 4 1 1 0 67 17 17 0 Male Layer Farmer sector 2/3 2 0 0 2 0 0 0 100 0 Retailer 7 5 2 0 0 71 29 0 0 Collector 6 4 2 0 0 67 33 0 0 Duck Slaughter point 5 5 0 0 0 100 0 0 0 Farmer sector 4 44 21 8 14 1 48 18 32 2 Farmer sector 2/3 1 0 0 1 0 0 0 100 0 Retailer 9 5 4 0 0 56 44 0 0 Collector 6 4 2 0 0 67 33 0 0 Kampong Slaughter point 3 3 0 0 0 100 0 0 0 chicken Farmer sector 4 81 27 19 34 1 33 23 42 1 Farmer sector 2/3 1 0 0 0 1 0 0 0 100 Breeder 1 0 0 0 1 0 0 0 100 Retailer 7 4 1 2 0 57 14 29 0 Layer eggs 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 0 0 3 0 0 0 100 Poultry shop 5 0 0 2 3 0 0 40 60 Supermarket 2 0 0 0 2 0 0 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 16 Africa/Indonesia Team Working Paper 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 Years of Experience Percentage (%) Commodities Actor Category N <6 6-15 16-25 >25 <6 6-15 16-25 >25 Broiler Carcass Retailer 7 2 3 2 0 29 43 29 0 Retailer 3 3 0 0 0 100 0 0 0 Collector 7 2 2 1 2 29 29 14 29 Broiler Slaughter point 14 3 6 3 2 21 43 21 14 Slaughter house 2 0 1 1 0 0 50 50 0 Farmer sector 2/3 15 6 3 2 4 40 20 13 27 Retailer 3 0 3 0 0 0 100 0 0 Collector 1 0 1 0 0 0 100 0 0 Layer Slaughter point 2 0 1 1 0 0 50 50 0 Farmer sector 2/3 10 2 6 1 1 20 60 10 10 Retailer 6 0 2 4 0 0 33 67 0 Male Layer Farmer sector 2/3 2 1 1 0 0 50 50 0 0 Retailer 7 0 3 4 0 0 43 57 0 Collector 6 2 2 2 0 33 33 33 0 Duck Slaughter point 5 1 2 2 0 20 40 40 0 Farmer sector 4 44 24 14 3 3 55 32 7 7 Farmer sector 2/3 1 0 1 0 0 0 100 0 0 Retailer 9 1 3 5 0 11 33 56 0 Collector 6 0 3 3 0 0 50 50 0 Kampong Slaughter point 3 0 2 1 0 0 67 33 0 chicken Farmer sector 4 81 49 20 6 6 60 25 7 7 Farmer sector 2/3 1 0 0 1 0 0 0 100 0 Breeder 1 0 0 1 0 0 0 100 0 Retailer 7 3 2 2 0 43 29 29 0 Layer eggs Collector 5 2 3 0 0 40 60 0 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 1 1 0 33 33 33 Poultry shop 5 1 3 1 0 20 60 20 0 Supermarket 2 0 0 2 0 0 0 100 0 TOTAL 274 110 94 51 19 40 34 19 7 17 Pro-Poor HPAI Risk Reduction 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 Number of Employees Percentage (%) Commodities Respondents N 1-5 6-10 >10 1-5 6-10 >10 Broiler Carcass Retailer 7 6 1 0 86 14 0 Retailer 3 3 0 0 100 0 0 Collector 7 6 1 0 86 14 0 Broiler Slaughter point 14 10 1 3 71 7 21 Slaughter house 2 0 0 2 0 0 100 Farmer sector 2/3 15 8 4 3 53 27 20 Retailer 3 3 0 0 100 0 0 Collector 1 1 0 0 100 0 0 Layer Slaughter point 2 2 0 0 100 0 0 Farmer sector 2/3 10 5 0 5 50 0 50 Retailer 6 5 1 0 83 17 0 Male Layer Farmer sector 2/3 2 0 1 1 0 50 50 Retailer 7 7 0 0 100 0 0 Collector 6 6 0 0 100 0 0 Duck Slaughter point 5 5 0 0 100 0 0 Farmer sector 4 44 44 0 0 100 0 0 Farmer sector 2/3 1 1 0 0 100 0 0 Retailer 9 9 0 0 100 0 0 Collector 6 6 0 0 100 0 0 Kampong Slaughter point 3 3 0 0 100 0 0 chicken Farmer sector 4 81 81 0 0 100 0 0 Farmer sector 2/3 1 0 0 1 0 0 100 Breeder 1 0 0 1 0 0 100 Retailer 7 7 0 0 100 0 0 Layer eggs Collector 5 5 0 0 100 0 0 Duck eggs Retailer 8 8 0 0 100 0 0 Kampong eggs Retailer 8 8 0 0 100 0 0 Feed mill 3 0 1 2 0 33 67 Poultry shop 5 5 0 0 100 0 0 Supermarket 2 0 0 2 0 0 100 TOTAL 274 244 10 20 89 4 7 18 Africa/Indonesia Team Working Paper 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 19 Pro-Poor HPAI Risk Reduction 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. 20 Africa/Indonesia Team Working Paper Table 8. Representative price list of live bird poultry on different dates, Oct-Dec 2008 (IDR) Date Item 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 8,000 Egg (kg) 14,400 11,900 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. 21 Pro-Poor HPAI Risk Reduction 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 Layer population (1,000 birds) Area 2002 2003 2004 2005 2006 2007 2008 1 Bogor City 0 0 0 0 0 0 0 2 Bogor District 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 3 Total Indonesia 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 1 Source : Dinas Agribisnis 2009 2 Disnakan, 2009 3 Ditjennak, 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 22 Africa/Indonesia Team Working Paper 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 Number of Respondents Population Ciawi Cibinong Leuwiliang Parung (birds/farm) Total Female Female Female Female Male 1,600 0 1 0 0 0 1 3,000 0 1 0 0 0 1 3,750 1 0 0 0 0 1 5,000 1 0 0 0 0 1 7,500 1 0 0 0 0 1 10,000 0 1 0 2 0 3 25,000 0 0 0 1 0 1 30,000 0 1 0 0 0 1 40,000 0 0 1 0 0 1 50,000 0 0 0 0 1 0 60,000 0 0 0 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 23 Pro-Poor HPAI Risk Reduction 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. 24 Africa/Indonesia Team Working Paper 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 Price (IDR) Layer Type of Input/Output Unit Minimum Maximum Female Layer DOC bird 7,000 8,500 Input Price 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 Live bird bird 22,000 25,000 Consumer Price Egg kg 12,000 16,000 Male Layer DOC bird 1,050 2,000 Input Price 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 25 IMPORT EXTERNAL DOC 100% 100% (0.209/ (0.209/ 1.56-1.88B) Poultry Shop 1.67-1.98B) Grand Parent Stock Male = 2 979 DOC Agent DOC 100% Female =26 814 (1.783/ Pullet Small-scale Commercial Farm (1 .19B) Pullet 59.91-62.41B 45% (1.877/ 1.992 million birds 5% (0.209/ 13.14-15.95B) Farm 1.46-1.77B) DOC 100% Manure (0.941/ Collector 100% Breeder Nucleus (Male) Breeder Farm (Female) 14.11-18.82B) (5.34 Mkg/ 53.38-74.73B) 4.171 million birds 4.171 million birds Collector (Live bird) 50% DOC 83% Male 1.189 million birds (2.086/ (0.938/ 14.60-17.73B) Female 3.968 million birds Collector (Eggs) 14.08-18.77B) Large-scale Commercial Farm 2.086 million birds 17% 3.5% (0.209/ Female (0.32 Mkg/ Commercial Farm 30% 3.5% (1.189/ 3.13-4.17B) 25% (1.289/ 3.52-4.80B) Male (Plasma 13.08-19.02B) 23.21-27.07B) 20% (0.555/ Female Live Bird 70% (2.774/ 4.171 million birds 30.51-44.38B) Slaughterhouse/Slaughter Point 7.77-10.83B) 53% 2.089/ Female 31.33-41.78B) 1.5% outside market 40% (0.599/ Male Meat (0.14 Mkg/ 20% Male 2.774 million birds 10.18-12.58B) 1.54-2.10B) 50% (0.555/ (2.93 M kg/ Female 1.498 million birds 7.77-10.54B) Restaurant 29.33-41.06B) Egg Female 11% Modern Market 10% (0.516/ Traditional Market Male 60% (1.664/ 23.30-31.62B) 9.28-10.83B) Female 60% (0.899/15.28-18.87B) 1.01 M Man ure 60% 95% kg/ (0.084 Mkg/ Slaughter point Egg Retailer Carcass Retailer 1.01-1.34B) 10.10- Tech nical Services 70% (0.388/ 40% Male 8.82 7.77-8.74B) (0.056 Mkg/ 90% (1.498/ Mkg/ 14.14B 0.67-0.90B) 29.96-33.70B) ) Female 90% (0.809/ 97.02 Arm’ s length 30% 60% 30% Male Male 17.79-20.22B) (0.166/ (0.313/ (0.10 Mkg/ 10% 100% (1.189/ - 70% 40% (0.203/ 3.33-3.74B) 6.88-7.82B) 1.20-1.60B) (0.166/ 16.64-22.59B) 132.3(0.22 Mkg/ 4.46-5.07B) 3.33-3.74B) Female 0B) Semi-coordination 2.64-3.52B) Female 65% (2.163/ Higher Income Consumer 10% 36.77-45.43B) Middle Income Consumer Lower Income (89 865/ Consumer 1.98-2.25B) Full c oordination OUTSIDE BOGOR Tangerang, Subang, Cianjur, Cipanas, Bandung, Pasuruan, Remark: % = percent of total volume handled by each Palembang, Cigombong, individual a ctor category (volume/value in billion IDR) Cidahu, Jakarta, Depok, Bekasi, Figure 9. Layer value chain in Bogor (volumes and value) 26 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 27 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 Cost of Average Actor Category Input Price Output Price Other Inputs 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 28 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. 29 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 Broiler (1,000 birds) Area 2002 2003 2004 2005 2006 2007 2008 1 Bogor City 127 158 188 188 188 157 NA 2 Bogor District 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 3 Total Indonesia 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 1 Source : Dinas Agribisnis 2009 2 Disnakan, 2009 3 Ditjennak, 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 30 Table 14. Population of broilers per sampled farm in Bogor Population Number of Respondents (birds/farm) Ciawi Cibinong Leuwiliang Parung Total 1200 0 1 0 0 1 2500 1 0 0 0 1 5000 1 0 1 0 2 8000 0 0 0 1 1 9000 0 1 0 0 1 20,000 0 0 1 0 1 30,000 0 0 1 0 1 36,000 0 1 0 0 1 42,000 0 1 0 0 1 100,000 0 0 1 0 1 102,000 0 1 0 0 1 120,000 0 0 1 0 1 150,000 0 0 1 0 1 1,500,000 1 0 0 0 1 Total 3 5 6 1 15 feed mills around West Java and Banten such as Wonokoyo, Charoen Pokphand, Comfeed and Gold Coin. The price of broiler feed is relatively constant at IDR 4000-5000 per kg. Feed consumption per bird depends on the length of their growing cycle. Ad libitum feeding is practised (feed always readily available). The feed conversion ratio after fattening is around 1.7-1.8 (i.e. farmers spend 1.7 to 1.8 kg feed to get 1 kg live weight of broiler). Other inputs used in broiler farms are vaccines against ND and IBD, which farmers buy from poultry shops or vaccine producers. The vaccine price was IDR 43,000–50,000 per 1000 doses. Cost for vaccine during fattening was reported to average IDR 150 per bird. Commercial broiler farms sell live broilers at a weight of 0.8-1.6 kg per bird after 30-40 days of fattening. Broilers from commercial farms are usually taken by collectors to slaughterhouses, which produce carcasses. The live chickens are transported from the farm in open trucks in plastic, bamboo or wooden baskets. From slaughterhouses, carcasses are sold to restaurants, supermarkets and traditional markets. Most Bogor consumers choose broiler meat as a protein source, because it is cheaper than kampong chicken and other types of meat. The broiler price at present is IDR 20,000 per bird, but during Idd ul Fitr (a special day) it increases up to IDR 25,000 per bird. The ranges of 2008 output and input prices for broiler systems are shown in Table 15. Table 15. Input and output prices in broiler chain, 2008 (IDR) Price Price Category Item Unit Minimum Maximum DOC bird 2,000 4500 Input Feed kg 4,000 5000 Output Live bird bird 11,000 16,000 Consumer Live bird bird 20,000 25,000 31 Product flow and governance mechanism map The broiler value chain is mapped in Figure 9. As in the case of layers, the breeds used for broiler production are exotic and therefore entail stringent requirements for feed, breeding and management and lead to specialization within the production portion of the broiler chain. Again, backward linkages to these specialized inputs and services (such as the feed, pharmaceutical and vaccine industries) are not shown, with the exception of the breeding companies. The chain starts from these breeding companies which produce final stock, then to farmers who raise the birds, and onto processors and traders who provide poultry products to consumers. There are two types of broiler farmers. The first is non-contract, independent farmers, accounting for approximately one-third of broiler farms. These farmers are free to decide from whom they buy inputs (feed, vitamins and vaccines) and to whom they sell the output, whether in open-market arm’s length transactions or according to informal arrangements with regular clients. More common (two-thirds of broiler farms) is the second type being full coordination in the form of the integrated contractual collaboration (PIR) between broiler farmers and a company, similar to that described above for male-layer farms. The company acts as the nucleus, providing production input and marketing the farmers’ output, while farmers act as plasma, providing chicken houses and rearing the broilers. This contract is valid for one fattening cycle and can be prolonged. The contract agreement between a company and a farmer will usually consist of (1) an input supply agreement from the company to provide DOC, feed, drug, vitamins, vaccines and disinfectant under a contract price; (2) provision by the farmer of a land certificate as a guarantee to the company, a poultry house with standard equipment and an obligation to look after the chickens during fattening; (3) purchase by the company at a contract price of all fattened chickens produced; (4) no sale of the chickens by the farmer to anyone other than the company; (5) the difference between the cost of input used by farmers and the value of output will be the basic profit (or could be loss) for the farmer. There are several breeders in Bogor who sell broiler DOC to contracted farmers (60% of total DOC production; 48.8 million birds; representing a total value of IDR 98-220 billion), independent farmers (15%; 12.2 million; IDR 24-55 billion) and poultry shops (25%; 20.3 million; IDR 41-92 billion). There are two types of poultry shops: non-nucleus shops which sell DOC to independent farmers (70%; 14.2 million; IDR 36-71 billion) and nucleus shops which sell to plasma farmers (30%; 6.1 million; IDR 15-31 billion). Once the cycle is completed, plasma farms send roughly half of their ready-to-slaughter broilers to processing plants belonging to the nucleus and sell the other half to collectors, under direction of delivery orders issued by nucleus (50%; 26.1 million; IDR 287-417 billion, respectively). Independent farmers sell their production to slaughterhouses (20%; 5.0 million; IDR 55-80 billion), collectors (70%; 17.6 million; IDR 193-281 billion) and slaughter points (10%; 2.5 million; IDR 28-40 billion). Collectors in turn export over two-thirds of the live birds they handle (69%; 34.2; IDR 479-616 billion) to destinations outside Bogor (e.g. Rancamaya, Sukabumi, Subang, Bekasi, Tangerang, Lampung and Central Java) The remainder are distributed to slaughter houses (8%; 4.0 million; IDR 55-71 billion) and slaughter points inside traditional markets (3%; 1.5 million; IDR 21-27 billion) and outside these markets (20%; 9.9; IDR 138-178 billion). 32 EXTERNAL IMPORT 15% INTERNAL (12 203 424/ Independent 24.41- Poultry Shop Farmers 54.92B) 70% (14 237 328/ 25% Nucleus 35.59- (20 339 040/ Non-Nucleus Breeder 71.19B) 40.68-91.53B) FEED, DOC MEDICINE Grand Parent Stock DOC PS 70% Male = 32 284 Nucleus 20% (17 583 100/ Female = 290 558 30% (5 023 743/ 193.41- (IDR 8.07B) (6 101 712/ 55.26-80.38B) 281.33B) 15.25- 30.51B) Manure Collector 60% (48 813 695/ Plasma 97.63-219.66B) 50% Contract (26 084 819/ 11.61% Farmers 286.93-417.36B) Collector (5 735 329/ 50% 63.09-91.77B) (26 084 818/ 49 403 248 birds 10% 286.93-417.36B) (2 511 871/ 8% 20% 27.63-40.19B) Live bird (3 952 260/ ( 9 880 650/ 69% Processing Plant 55.33-71.14B) 138.33-177.85) (34 243 800/ Poultry Slaughter Point Meat 479.40-616.40B) Poultry 12 392 521 birds 20% Slaughterhouse (1 795 201/ 5% 8 976 003 birds Processed meat 5% 25.13-32.31B) (1 304 241/ 40% 30% 70% 10% 18.26-23.48B) (3 590 401/ (3 717 756/ 3% (8 674 765/ (897 600/ 5% 50.27-64.63B) 52.05-66.92B) (1 482 097/ 121.45- 12.57-16.16B) Manure/waste (1 304 241/ 20.75-26.68B) 18.26-23.48B) 5% Traditional Market 156.15B) Catering Restaurant Technical services Hotel Modern Market Slaughter Point Carcass Retailer 4 894 642 birds 1 482 097 birds 9 572 365 birds Arm’s length 30% 70% 100% 30% (1 468 393/ (3 426 249/ (1 482 097/ 70% (2 871 709/ 29.37-36.71B) 68.52-85.66B) 29.64-37.05B) (6 700 656/ 57.43-71.79B) Semi-coordination 134.01- 30% 167.52B) (2 692 801/ 37.70-48.47B) Rich Consumer Middle Consumer Poor Consumer Full coordination 90% OUTSIDE BOGOR Rancamaya, Sukabumi, 90% Subang, Bekasi, (23 476 336/ Tangerang, Jawa Tengah, 328.67- Lampung, Depok, jakarta Remark: % = percent of total volume handled by the 422.57B) individual actor category (volume/value in billion IDR) Figure 10. Broiler value chain in Bogor (volumes and value) 33 After slaughtering, carcasses and other products from processing plants are mostly (90%) exported outside Bogor (especially to Jakarta, Depok, Bekasi, and even to Batam), with the remainder sold to modern markets (5%) and restaurants (5%). Processing plants produce a mix of products for different market segments. They cut carcasses (meat) into several commercial parts such as breast, drumstick, back, thigh, wing, and also for fillet. Each product has different values, so volume and value estimates are not reported here. Carcasses from slaughter houses are sold to modern markets (40%; 3.6 million; IDR 50-65 billion), restaurants (20%; 1.8 million; IDR 25-32 billion), carcass retailers (10%; 0.9 million; IDR 12-16 billion) and exported outside Bogor (30%; 2.7 million; IDR 38-48 billion), e.g. to Jakarta, Depok, Bekasi, Sukabumi, Lampung and Central Java. Carcasses from slaughter points are sold to restaurants (30%; 3.7 million; IDR 52-67 billion) and to carcass retailers in traditional markets (70%; 8.7 million; IDR 121-156 billion). From traditional markets, carcasses are sold to low-income consumers (30%; 2.9 million; IDR 57-72 billion) and middle-class consumers (70%; 6.7 million; IDR 134-168 billion), while those from modern markets are sold to middle-income consumers (70%; 3.4 million; IDR 69-86 billion) and upper-class consumers (30%; 1.5 million; IDR 29-37 billion). The average of value-added for each major downstream actor category was calculated using the Hayami method (Table 1). Table 16 shows that layer business actors that combine the function of slaughter point up to retailer generate the highest value added: IDR 6576 per bird. For a simple carcass retailer, value-added gain is an estimated IDR 1791 per bird. Table 16. Average value-added in the broiler chain, by actor category (IDR/bird) Cost of Average Actor Category Input Price Output Price Other Inputs Value Added Carcass retailer 22,000 24,000 209 1791 Collector 13,400 16,000 365 1915 Slaughter point 14,583 21,000 1535 4463 Slaughter point & retailer 15,200 24,000 1744 6576 Collector & slaughter point 13,800 21,000 1900 4880 Role of associations The constellation of industry organizations is the same as that described for the layer value chain. Public policy and regulation As for layer farms, the government has made specific regulations targeted to broiler farmers raising more than 15,000 birds to meet environmental and regional planning requirements (Regents Regulation 2003). Again, farmers rarely declare that their farms have more than this number of birds to avoid those regulations. More regulations and measures on local and national level to respond to the disease through targeting of vaccination, culling and banning of poultry from residential areas are discussed in Section 4.6. The government provides certain services to protect and promote the value chain, including provision of free Pullorum vaccine to breeders and monitoring of quality of feed and DOC every two 34 months. The livestock services also take blood samples of DOC to send to Balitvet Bogor to confirm the HPAI status of flocks. 3.3 Kampong chickens Kampong chicken population The kampong chicken population is the second largest poultry population in Bogor after broiler chickens and represents around 0.5-0.8% of the national total, which is relatively smaller than Bogor’s 1% share of the national human population. Table 17 indicates that kampong chicken population in Bogor has trended downward from 2.1 million in 2002 to 1.3 million in 2008 (Table 17). HPAI is associated with high mortality among kampong chickens. Also, local government policies (see also Section 4.6) which focused initially on the depopulation of kampong chickens within a certain area (for Bogor only the afflicted Rukun Warga [RW]), may have contributed to a further decline in backyard farmers rearing kampong chickens and subsequently the numbers of kampong chickens. However, later on once HPAI was considered to be endemic, only voluntary focal culling of the infected flock was applied. Thus, the effect of depopulation on the kampong chicken population has probably not been very significant. According to the District Livestock Service (DLS) for Bogor District, compensation was rarely applied at any time since the first introduction of HPAI. If paid, however, farmers incurred significant losses from the depopulation of kampong chicken because the compensation rate for depopulated chicken was only 50% of the chicken value, depending on availability of funds for the program. Some farmers even stopped rearing kampong chickens (5% according to respondents in focus group discussions, and switched to other activities like trading, rearing other livestock (goats and sheep) or factory labour. Table 17. Kampong chicken population in Bogor, 2002-2008 Numbers of Kampong Chicken (1,000 birds) Area 2002 2003 2004 2005 2006 2007 2008 1 Bogor City 642 642 721 721 721 308 NA 2 Bogor District 1,543 1,418 1,418 1,233 1,202 1,007 1,306 Total Bogor 2,185 2,060 2,139 1,954 1,923 1,315 1,306 3 Total Indonesia 275,292 277,357 276,989 278,954 291,085 272,251 290,803 % Bogor on Indonesia 0.79 0.74 0.77 0.70 0.66 0.48 0.45 NA= not available 1 Source : Dinas Agribisnis 2009 2 Disnakan, 2009 3 Ditjennak, 2009 Characteristics of actors in the kampong chicken value chain Of the respondents keeping kampong chickens (n=82), nearly all (98%) kept small flocks of less than 100 birds. Most kampong chickens are still raised in a traditional system in small backyard flocks ranging free to scavenge for feed. The other farmers in the sample (2%) kept larger flocks of 100-170 birds per farm, and it is also reported that there are a few larger farms in the district that produce 35 large cohorts of kampong chickens using the small-scale broiler system with over 1000 birds in an all- in, all-out cycle. Nearly all of the respondents were classified as sector 4 farmers; only one was classified as sector 3. Farming, though, is actually a secondary activity for many people who keep kampong chickens; the main activity of respondents in the sample was government employees (10% of the sample), village office staff (40%), traders (20%), factory labourers (5%), private workers (15%) or housewives (10%). Respondents keeping kampong chickens tended to be better educated, but with less business experience than other actors in the chain, and 15% were women (Tables 3 to 7). Rearing kampong chickens is often not considered a business enterprise as such, but serves several functions. First, it provides a source of food for home consumption, enhancing food security in the household and community (through gifts). Farmers usually sell their chickens only when they need to pay bills, for example tuition fees for their children, so keeping chickens also serves as a type of financial savings and liquidity instrument. Respondents reported selling 2-5 birds per semester (6 months). They are also used in social and cultural events, such as wedding parties or other events in which kampong chickens cannot be replaced by any other poultry. Kampong chickens are always available and have a special position in society, as well as simply being appreciated as a popular hobby. For these reasons, as well as the low investment required and its ease, keeping kampong chickens is ubiquitous and evenly distributed across the district. The management system used for kampong chickens ranges from extensive in small flocks, to semi- intensive and intensive as flocks get larger. Sector 4 kampong chicken keepers generally source chicks from their own flock (88%), but may also buy in pullets from other farms (12%). The pullet price was IDR 35,000-40,000 per bird, higher than final bird price, because it has high quality to be used for hen replacement stock. There is frequent exchange of breeding stock through informal loans, gifts, exchanges and such purchases. Sector 3 producers may also import kampong DOC from suppliers outside the district. Feed is usually mixed by sector 4 farmers (83% of respondents) themselves – generally mixture of concentrate and corn – or food waste, and chickens are often allowed to range freely to scavenge as well. Farmers feed the chickens in the morning, giving them 1 kg per 15 birds per day. In the more intensive management system, feed may be purchased from poultry shops or agents or a combination of all sources. The price of kampong chicken feed was relatively constant at IDR 2000- 3500 per kg depending on the nutrients contained in the feed and the place purchased. Feed and drinking troughs are usually made by the farmers themselves (65%) or purchased from poultry shops (35%). Other inputs include ND and HPAI vaccines, though some do not use vaccines (20 %). Only 10% of the farmers buy vaccines from poultry shops or vaccine producers, priced at IDR 25,000 per 500 doses; most (70%) use vaccines from livestock services when provided for free. Most kampong chicken farmers sampled (87%) keep only kampong chickens, while the remaining respondents mix kampong chickens with other breeds (broilers) and species, especially ducks. Kampong chickens and ducks were kept in separate henhouses but allowed to roam in the same yard. Sector 4 kampong chickens are kept until they are anywhere between 6-12 months old, and slaughtered for home consumption or sold when cash is needed or for other reasons. Hens may be retained longer for egg production and raising chicks. Households with larger flocks are generally more commercially oriented with more regular sales and production cycles. Sector 3 producers 36 follow practices similar to the broiler and layer systems for exotic breeds. At the time of the study, the farm gate selling price was IDR 20,000-25,000 per bird and IDR 18,750-25,000 per kg of eggs. Given the dispersed small-scale nature of most kampong chicken production, collectors play a key role in linking farmers to retailers. Local collectors transport live chickens and eggs to traditional markets by bicycle, motorcycle or public transport. Collectors also handle the larger volumes of table eggs, kampong broilers and spent hens produced from the commercial larger-scale kampong chicken farms. Wholesalers transport chickens or eggs from Bogor and other districts, especially Sukabumi and Cianjur, in open trucks to traditional markets in Bogor or to Jakarta and other districts, where they are sold to retailers or taken to slaughter points. Retailers sell live kampong chickens in traditional markets, often keeping them in bamboo/wooden baskets. Some retailers also provide slaughtering facilities, or may send chickens to slaughter points and then sell the carcasses. Bogor consumers choose kampong chicken because it has a delicious taste (especially among the rich) or for ritual ceremonies. Consumers prefer to buy kampong chickens from live bird retailers, which may relate to the Muslim preference to make sure of the ‘halal’ status of the bird they consume. Ethnic Chinese also buy live kampong chickens and have them slaughtered at slaughter points for consumption and for the “Imlek” celebration. Kampong chicken eggs are popular as traditional medicine. Kampong chicken prices at the agent (wholesaler) level were relatively constant at IDR 25,000 per bird. Retail prices were around IDR 30,000-50,000 per bird on a normal day, and increased up to IDR 100,000 per bird during Idd ul Fitr. Table 18 summarizes maximum and minimum prices from the chain in 2008. Table 18. Input and output prices in the kampong chicken chain (IDR/unit) Price Category Item Unit Minimum Maximum DOC bird 4,000 5,000 Input Price Pullet (15 weeks) bird 35,000 40,000 Feed kg 2,000 3,500 Output Price Live bird bird 20,000 25,000 Egg kg 18,750 25,000 Live bird bird 30,000 50,000 Consumer Price 1 Egg Kg 25,000 32,500 11 kg = 20 eggs Product flow and governance mechanism map Figure 10 summarizes the structure of the kampong chicken value chain, including both egg and meat commodity chains. Estimates of product volumes and value handled by the various actors were conditioned by the dispersed, variable and non-linear nature of sector 4 production and marketing systems and our reliance on information from a relatively small sample of farmers, so they should be considered qualitatively representative rather than quantitatively accurate. Kampong chickens are raised predominantly on sector 4 backyard farms (95% of annual production; 1.4 million birds), with the remainder on sector 3 commercial farms (5%, 76,000 birds). 37 Commercial kampong chicken farms buy DOC from breeders outside Bogor or hatch the chickens themselves. Backyard farms buy pullets from collectors (69,000 birds; representing a value of IDR 2 billion) or from traditional markets (86,000 birds; IDR 3-4 billion). The rest are hatched from their own flocks (89% of annual production). Due to different market segments, kampong chicken eggs are sold in units of eggs, while table eggs are denominated in units of kilograms. Kampong chicken eggs from commercial farms are sold as an open market (arm’s-length transactions) to egg collectors (90% of commercial farm production; 2.3 million eggs; IDR 2 billion) and under informal arrangements to clients in modern markets (10%; 0.2 million eggs; IDR 195-260 million). Egg collectors, who also import additional eggs supplies from other districts, re-sell most of their stocks to egg retailers in traditional markets within Bogor (76%; 2.2 million eggs; IDR 2 billion), and part to modern markets within Bogor (20%; 0.6 million eggs; IDR 1 million), with a small portion (6%) exported outside the district (Jakarta). Eggs produced by backyard farms are largely consumed by farmers, shared with relatives or hatched for replacement stock. Most demand for kampong chicken is either for direct consumption or religious purposes (i.e. no processing industry for kampong products such as meatballs, chicken nuggets etc.). The primary consumers of kampong chickens are exclusive restaurants and households. Demand for kampong chicken is unstable and formalized transaction arrangements (such as contracts) are not utilized. Kampong chickens from commercial farms are sold to collectors (80%; 51,000 birds; IDR 1 billion) as open-market transactions and to restaurants (20%; 13,000 birds; IDR 0.3 billion) under informal arrangements. Note that the mortality rate of kampong chickens while on farm was reported to be 15%, so the number of chicken sold is 15% lower than the number of DOC used. Kampong chickens from backyard farms are sold to collectors (60%; 0.7 million; IDR 15-18 billion) or given to relatives (25%; 0.3 million; IDR 9-15 billion) and the remainder consumed on farm. Collectors distribute kampong chickens to slaughter points and retailers inside traditional markets (50% of their total volume traded; 0.9 million birds; IDR 22-30 billion) and to slaughter points outside traditional markets (5%; 0.1 million; IDR 2 billion), to restaurants (20%; 0.3 million; IDR 9-12 billion), to farm (4%; 0.07 million; 1.7-2.4 billion), or export them outside Bogor (21%; 0.4 million; IDR 9-13 billion). Carcasses from slaughter points outside traditional markets are all delivered on a regular basis to restaurants. Birds delivered to traditional markets are sold directly to consumers, either as carcasses from slaughter points to middle-income consumers (50%; 0.4 million; IDR 13-22 billion) and to rich consumers (20%; 0.2 million; IDR 5-9 billion), or by retailers as live birds to middle-economic consumers (20%; 0.2 million; IDR 5-9 billion) and to backyard farms as replacements (10%; 0.1 million; IDR 3-4 billion). Table 19 shows that a kampong chicken business player that acts as a collector up to retailer gains the highest added value, IDR 7891 per bird. As a collector only, the added value gain is the least, IDR 2635 per bird. The added value of kampong chicken eggs gained by a retailer is IDR 4791 per kilogram. 38 External Live Birds Breeder Meat DOC Backyard Farm Eggs Pullet 20% (Non-commercial) (12 860/ 257.19- 1 437 263 birds Manure 321.49M) Arms length 10% (86 206/ Informal 2.59-4.31B) 60% 4% Commercial Farm (733 004/ (68 965/ Semi Coordination Breeder 14.66-18.33B) 1.72-2.41B) 75 645 birds 80% (51 438/ Slaughter Point DOC 1.03- 5% Pullet 1.29B) Collector 156 617 birds (86 206/ 90% (Live bird) 1.72-2.16B) (2.34M eggs/ 1.76-2.34B) 1 724 119 birds Collector 20% Manure Collector (344 253/ (Egg) 8.61- 2.94M eggs 12.05B) 10% 100% (260 406 eggs/ (86 206/ 20% 195.30- 2.16-3.02B) (588 000 eggs/ 260.41M 20% 6% 529.20- (599 300 eggs/ 172 400 eggs/ 646.80M) 449.48-599.30M) 155.16-189.64M) Modern Market Traditional Market 848 406 eggs 50% 74% 862 060/ (2.18M eggs/ 55% 21.55-30.17B) 1.96-2.40B) (939 677/ Restaurants 18.79-23.49B) Retailer-Slaughter point Egg Retailer 20% (169 681 eggs/ 21% 169.68- (362 635/ 100% 220.59M) 80% OUTSIDE BOGOR 9.07-12.69B) 20% (2.18M eggs/ (678 725/ Gift 15% Cianjur, Sukabumi, Solo, (172 412/ 2.18-2.83B) 678.73-50% (183 251/ Gift 5.17-8.62B) 50% 20% Purwokerto, Jakarta 882.34M) (24.74M eggs/ 5.50-9.16B) 25% (431 030/ (172 412/ 18.55-24.74B) 50% (305 419/ 12.93-21.55B) 5.17-8.62B) (24.74M 9.16-15.27B) eggs/ Relatives 18.55- Middle Consumer Rich Consumer 24.74B) Remark: % = percent of total volume (volume/value in Billion IDR) Figure 11. Kampong chicken value chain in Bogor (volumes and value) 39 Table 19. Average value added in the kampong chicken chain, by actor category Cost of Average Actor Category Input Price Output Price Other Inputs Value Added Kampong Chicken (IDR/bird) Live bird retailer 24,500 30,000 209 5,291 Collector 22,000 25,000 365 2,635 Slaughter point & retailer 24,000 32,000 1,743 6,256 Collector, slaughter point & retailer 20,000 30,000 2,109 7,891 1 Kampong chicken egg (IDR/kg) Retailer 20,000 25,000 209 4,791 Collector 18,750 20,000 350 900 1 1kg=20 eggs Role of associations Associations related to kampong chicken business are found among sector 4 farmers. There are nine farmers’ associations at subdistrict level in Sukamakmur, Citeureup, Cigombong, Ciomas, Parung, Gunung Sindur, Rumpin, Dramaga and Sukaraja. Based on focus group discussion respondent data, most of these are not listed as official poultry associations, except the group in Ciawi. Generally, the main role of the poultry business association is sharing information among members about difficulties in running the business, good practices in marketing or poultry management and also handling disease. Public policy and regulation Policy and regulation does not generally penetrate into sector 4 kampong chicken farming given its dispersed, small-scale nature. The link between public extension services and kampong chicken farmers is weak; a majority of the respondents (65%) reported not having information about poultry rearing management and handling poultry disease. The government made new regulations for kampong chicken farmers in order to control HPAI including measures related to culling, vaccination and banning chickens from residential areas (see Section 4.6). A specific regulation now provides vaccination only to farmers who keep their chickens in cages. As for layer and broiler farms, the government has also made specific regulations targeted to kampong farmers raising more than 300 birds to meet environmental and regional planning requirements (Regents Regulation 2003). 3.4 Ducks Duck population The duck population in Bogor has varied widely since 2002, at first increasing slightly until 2005, nearly doubling in 2006, then falling off dramatically in 2007 and 2008 (Table 20). Although HPAI is not associated with mortality in ducks, ducks are seen as carriers of the virus and those on sector 4 farms have been subject to restrictions and depopulation as part of the government response to the outbreak, contributing to a decline in backyard farmers keeping ducks and duck numbers. Bogor 40 ducks account for 0.26-0.77% of the national population, lower than the area’s corresponding 1% share of the human population. Table 20. Duck population in Bogor, 2002-2008 Numbers of Ducks (1,000 birds) Area 2002 2003 2004 2005 2006 2007 2008 1 Bogor city 8 8 8 8 8 8 NA 2 Bogor district 121 122 129 136 241 151 95 Total Bogor 129 129 137 144 249 151 95 3 Total Indonesia 46,001 33,863 32,573 32,405 32,481 35,867 36,931 % Bogor on Indonesia 0.28 0.38 0.42 0.44 0.77 0.42 0.26 1 Source : Dinas Agribisnis 2009 2 Disnakan, 2009 3 Ditjennak, 2009 Characteristics of actors in the duck value chain As in the kampong chicken chain, ducks are raised in small flocks in extensive backyard systems on numerous small-scale sector 4 farms (98% of duck farms); and in larger flocks in more intensive systems on a small number of sector 3 commercial farms (2% of farms). On sector 4 farms, most ducks are still raised in the traditional system with fewer than 100 birds per farm (usually between 25-75 birds). Farmers that raise backyard ducks do so on farms that are individually owned and the ducks are raised as an additional activity, not usually as a main source of household income. Referring again to Table 3, all sector 4 duck farmers involved in the FGD were men. These respondents confirmed that duck keeping is largely male-dominated, both in terms of labour inputs and decision-making, which is attributed to the practice of moving ducks to paddy fields for feeding after the rice harvest to minimize feed cost. Since this activity is done far from home, it is mainly done by men. Women are nonetheless involved in collecting eggs and sweeping the duck houses. Otherwise, sector 4 duck farmers are of similar age and education background as other actors in the poultry sector, though with somewhat less business experience. All of the duck farms focus primarily on the production of eggs. Farmers raise local varieties such as Tegal, Cirebon or Alabio. They are usually situated close to ponds and swamp wetlands, providing a favourable habitat and natural feed sources such as small fish or fish not used for human consumption. During the day, farmers let their ducks feed in the wetlands. At night, farmers house their ducks and give supplementary feed from food waste, rice bran or other by-products, as much as 100 grams per bird. Utilization of local resources in this manner enhances sustainability of this type of low-input system. Feed and stable equipment such as feed and drinking troughs are purchased from poultry shops or homemade, depending on the scale of the farm. Ducks were usually kept in open houses with earth floors. Some farmers combined it with litter (rice hull or rice straw). Other inputs include vaccines against ND and HPAI, although many (60%) do not apply vaccines. Farmers bought vaccine from poultry shops or vaccine producers (15%) or received them from the livestock services for free (25%). Vaccine prices ranged from IDR 35,000-50,000 per 1000 doses. These farms produce table eggs and live ducks for meat. 41 In general, these households only keep ducks (62% of sector 4 duck farms) though a significant share (38%) mix ducks with other species, especially kampong chickens. As noted above, kampong chickens and ducks are housed separately poultry houses but were allowed to roam in the same yard. As duck flocks kept get larger, farms are more commercially oriented and practice more intensive production systems. Many of such small-scale commercial farms keep flocks of 100-150 ducks. There are two kinds of duck farmers at this level: those who keep female layer ducks and duck breeders. Female layer duck farmers produce table eggs and spent layer ducks. Duck breeders produce duck pullets, fattened male ducks and spent layer ducks. Pullets are transported from hatcheries at breeder farms to other farms by motorcycle or public transport. At the time of the study, the price of a pullet was IDR 25,000-30,000. Male ducks were raised for 8-12 weeks for meat, while layer ducks were kept for 18 months. Inputs such as feed and medicines were obtained from poultry shops. The price of duck feed was relatively constant at IDR 1500 (in huller) to IDR 2500 (in poultry shops) per kg depending on the location of purchase. Duck farms sell live ducks at a weight of 1.0-1.5 kg per bird. Live-bird off-take from duck farms is handled primarily by specialized collectors and distributed to the same marketing channels as described for kampong chickens. Local collectors transport small numbers of ducks to traditional markets by bicycle, motorcycle or public transport, or in larger numbers in bamboo or wooden baskets in open trucks; 20-30 live ducks are put into bamboo baskets with a hole made for the neck and head. The consumer price of live duck during normal days was IDR 27,500 per bird, but during Id ul Fitr (special day) was up to 33,000 per bird. Both collectors and wholesalers play an important role in egg distribution. Collectors collect eggs from farms, and then sell them to wholesalers in traditional markets for final sale by retailers. Egg trays are used to pack duck eggs, with thirty eggs per tray, packing ten trays together. There is no coordination among the actors (farmers, collectors and wholesalers) involved in the distribution of live ducks and eggs. Duck egg consumers are mainly tukang jamu (traditional medicine) vendors, martabak traders or salty egg producers. The price of duck eggs was relatively constant, but during rainy season it increased due to a decrease in production. Retail prices of duck eggs were IDR 1200- 1500 per egg. Ranges of output and input prices in the duck value chain in 2008 are shown in Table 21. Table 21. Prices in the duck value chain, 2008 (IDR/unit) Price Category Item Unit Minimum Maximum Input Price Pullet (15 weeks) Bird 25,000 30,000 Feed Kg 1,500 2,500 Output Price Live bird Bird 20,000 25,000 Egg Kg 16,000 19,200 Consumer Price Live bird Bird 27,500 33,000 1 Egg Kg 19,200 24,000 1 1Kg = 16 eggs 42 Product flow and governance mechanism map The value chain map for ducks is presented in Figure 11. There is generally little market coordination between duck farmers in Bogor, input providers and output buyers. The chain starts from sector 3 farms outside Bogor that supply DOD (day-old ducklings) and pullets to other sector 3 and sector 4 farmers. Sector 3 farms sell male and spent ducks to collectors (70,000 birds per year equal to IDR 1-2 billion). Backyard farms sell 95% (140,000; IDR 3 billion) of male and spent ducks to collectors and the rest (7,000; IDR 0.2 billion) is given to relatives or sold directly to middle-income-group consumers. Collectors export the majority of live ducks outside Bogor, especially to Jakarta, Depok, Tangerang (80%; 252,000; IDR 5-6 billion) and distribute the remainder to restaurants (4%; 13,000; IDR 0.3-0.4 billion), retailers/slaughter points in traditional markets (15%; 465,000; IDR 1 billion), and to backyard farms (1%; 3,000;