Alternative institutional arrangements 
for contract farming in poultry 
production in Bangladesh and their 
impacts on equity
ILRI
Research Report 7
 
ISBN 92–9146–215–2
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cover.pdf   8/6/2008   11:24:10 AM
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Alternative institutional arrangements for contract 
farming in poultry production in Bangladesh 
and their impacts on equity
MA Jabbar, MH Rahman, RK Talukder and SK Raha
Bangladesh Agricultural University
 International Livestock Research Institute
ii
Authors’ affi liations 
MA Jabbar, International Livestock Research Institute, Addis Ababa, Ethiopia 
MH Rahman, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh 
RK Talukder, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh
SK Raha, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh 
© 2007 ILRI (International Livestock Research Institute).
All rights reserved. Parts of this publication may be reproduced for non-commercial use provided 
that such reproduction shall be subject to acknowledgement of ILRI as holder of copyright.
Editing, design and layout—ILRI Publications Unit, Addis Ababa, Ethiopia.
ISBN 92–9146–215–2
Correct citation: MA Jabbar, MH Rahman, RK Talukder and SK Raha. 2007. Alternative 
institutional arrangements for contract farming in poultry production in Bangladesh and 
their impacts on equity. Research Report 7. ILRI (International Livestock Research Institute), 
Nairobi, Kenya. 98 pp.
iii
Table of Contents
List of Tables         v
List of Figures         vii
Abbreviations         viii
Acknowledgements        ix
1 Background and objectives      1
 1.1 Introduction       1
 1.2 Poultry farming systems in Bangladesh    2
 1.3 The emergence of contract farming and its pros and cons  3
 1.4 Objectives of the study      6
2 Sources of data and study methodology     9
 2.1 Identifi cation of contract farming arrangements and market actors 9
 2.2 Selection of study areas and sampling of contract farming 
  enterprises        10
3 Types of contract farming and other institutional arrangements in 
 poultry production and marketing     14
 3.1 Formal production-marketing contracts    14
 3.2 Formal input marketing contracts     25
 3.3 Informal output marketing contracts    26
4 Structure and conduct of poultry input and output markets   28
 4.1 Structure and conduct of hatcheries and feed mills  29
 4.2 Trading practices and performance of feed traders   34
 4.3 Trading practices and performance of veterinary drug traders 37
 4.4 Trading practices and performance of poultry equipment traders 39
 4.5 Trading practices and performance of broiler and egg traders  40
5 Determinants of participation in commercial and contract poultry farming 48
 5.1 Choice of models to explain market participation   48
 5.2 Factors hypothesized to have infl uence on participation  50
 5.3 Factors infl uencing participation in commercial poultry farming 56
 5.4 Factors infl uencing participation in contract poultry farming 58
6 Technical and economic performance of sampled poultry farms  62
 6.1 Characteristics of meat and egg production in sampled farms 62
 6.2 Input and output marketing and prices    64
iv
 6.3 Disposal and use of poultry excreta    67
 6.4 Costs and returns of broiler farms     68
 6.5 Costs and returns of layer farms     72
 6.6 Costs and returns of breeder stock farms    74
 6.7 Overall income difference between farm types   74
 6.8 Reasons for discontinuing the poultry business   76
7 Conclusion and policy implications     79 
 7.1 Forms of contract poultry farming     79 
 7.2 Structure and performance of input and output markets  79
 7.3 Factors infl uencing participation in commercial poultry farming 80
 7.4 Performance of contract and independent poultry farms  81
 7.5 Policy implications      82
References         85
v
List of Tables
Table 1.   Meat and egg consumption in Bangladesh in selected years  1
Table 2.   Incentives for contract farming      5
Table 3.   Sample of input and output traders     11
Table 4.   Distribution of sampled poultry farmers by farm type and district  12
Table 5.   Summary of main features of contract arrangements of selected 
   integrators in the poultry sector of Bangladesh    15
Table 6.   Sharing of responsibility in broiler production between the contract 
   farmer and ABFL       20
Table 7.   Sharing of responsibility of the contract farms and contractor (ABFL) 
   in breeder stock farming      22
Table 8.   Distribution of hatcheries and feed mills by district   30
Table 9.   Number and percentage of poultry farmers using different strains 
   of broiler birds by farm type and district     32
Table 10. Number and percentage of farmers using different strains 
   of layer birds by farm type in Gazipur district    32
Table 11. Wholesalers’ and retailers’ marketing costs and margins of feed trade 36
Table 12. Average buying and selling prices (BDT/t) of wholesalers 
   and retailers of selected brands of feeds      37
Table 13. Marketing margins of equipment wholesalers by type of equipment 
   (BDT per unit of equipment)      39
Table 14. Daily costs and margins of broiler aratdars and wholesalers 
   in Mawna and Dhaka markets      44
Table 15. Aratdar’s daily marketing costs and margins per 1000 eggs 
   in Mawna and Tejgaon markets      45
Table 16. General characteristics of sample households by farm type and district 54
Table 17. Average annual gross income of farmers and percentage share 
   of income sources by farm type and district    55
Table 18. Proportion of farmers who took loans from different sources 
   and average amount borrowed (BDT) by farm type and district   56
Table 19. Estimated coeffi cients and related statistics of probit regression on 
   participation of farms in commercial poultry production by district 57
Table 20. Estimated coeffi cients and related statistics of probit regression on 
   participation of farms in contract poultry farming by district  58
Table 21. Estimated coeffi cients and related statistics of probit regression on 
   participation of farms in contract broiler and breeder stock production 
   in Kishoreganj        59
vi
Table 22. Estimated coeffi cients of multinomial logit model fi tted to the sampled 
   non-poultry, independent and contract poultry farms   60
Table 23. Estimated coeffi cients of multinomial logit model fi tted to sampled
   independent, informal and formal contract poultry farmers  61
Table 24. Average meat production (live weight) characteristics of broiler farms 
   by farm type and district      63
Table 25. Average egg production characteristics of layer farms in Gazipur 
   by farm type        63
Table 26. Average characteristics of contract breeder stock farms in Kishoreganj 64
Table 27. Factors infl uencing number of fertile eggs produced per bird in breeder 
   stock farms in Kishoreganj      64
Table 28. Quantity of industrial feed used per production cycle and prices paid 
   by broiler farms in 2005      65
Table 29. Sales outlet for broiler and eggs by farm type and district   66
Table 30. Highest and lowest prices received per unit output by farmers in 2005 67
Table 31. Percentage of farmers reporting method and location of storage of 
   poultry excreta        68
Table 32. Percentage of farmers reporting pattern of use of poultry excreta  69
Table 33. Cost structure of contract and independent broiler farms by district 70
Table 34. Estimated coeffi cients of cost function for broiler farms    71
Table 35. Costs and returns per 100 birds in broiler farms    72
Table 36. Cost structure of contract and independent layer farms in Gazipur 73
Table 37. Estimated coeffi cients of cost function for layer farms in Gazipur   73
Table 38. Costs and returns per 100 eggs in contract and independent layer 
   farms in Gazipur       74
Table 39. Costs and returns per cycle of contract breeder farms in Kishoreganj 75
Table 40. Estimated coeffi cients of cost function for breeder stock farms  76
Table 41. Factors infl uencing per capita income of the sample farms  76
Table 42. Percentage of broiler and layer farms operating before dropping out 77
Table 43. Proportion of farmers citing reasons for dropping out of poultry farming 77
vii
List of Figures
Figure 1. Structure of the broiler component of ABFL    19
Figure 2. Marketing chains used for distribution of poultry feeds   31
Figure 3. Main marketing channels for broiler producers in Gazipur and 
   Kishoreganj districts       41
Figure 4. Sale prices of broilers (BDT/kg) at different points in the market chains 
   in Gazipur and Kishoreganj      46
Figure 5. Sale prices of eggs (BDT/100 eggs) at different points in the market 
   chains in Gazipur       47
viii
Abbreviations
ABFL Aftab Bahumukhi Farms Limited
BBS Bangladesh Bureau of Statistics
BCR benefi t cost ratio
BDT Bangladesh Taka
BPC Biman Poultry Complex
BRAC Bangladesh Rural Advancement Committee
DLS Department of Livestock Services
ECNEC Executive Committee of the National Economic Council
FAO Food and Agriculture Organization of the United Nations
GDP Gross Domestic Product
IFPRI International Food Policy Research Institute
ILRI International Livestock Research Institute
NGO non-governmental organization
OLS Ordinary Least Squares
ix
Acknowledgements
The authors are grateful to the International Food Policy Research Institute (IFPRI) and the 
International Livestock Research Institute (ILRI) for funding this work out of European Union 
grants to these institutes. Chris Delgado, Steve Staal, Nick Minot, Lucy Lapar and Fakhrul 
Islam made useful comments on the study proposal and methodology. Nick Minot, Clare 
Narrod and Marites Tiongco made valuable comments on earlier drafts of this report. Ismat 
Ara and Fakir Azmal Huda were very helpful in the fi eld survey and the data management 
and analysis. The authors alone are responsible for the content of the report.
1
1 Background and objectives
1.1 Introduction
Poultry meat and egg production account for more than 30% of all animal protein worldwide 
and the share is increasing. By 2015, poultry will account for 40% of all animal protein 
(IFPRI 2000). In Bangladesh, total meat consumption increased by 54% from 305,400 t in 
1990 to 469,100 t in 2005. Per capita consumption of meat increased from 7.4 grams per 
day in 1990 to 8.2 grams per day in 1995 then marginally to 8.4 grams by 2005 (Table 1). 
The share of chicken meat in total meat consumption increased from 21.5% in 1990 to 
24.2% in 2005 while the share of duck meat decreased from 4.5 to 2.9% in the same period. 
Egg consumption increased by 132% from 67,300 tonnes to 156 thousand tonnes in the 
same period, and per capita consumption of eggs increased by 75% from 1.6 to 2.8 grams 
per day. Thus, although total consumption increased substantially, per capita consumption 
of meat and eggs increased only marginally and these rates are very low by international 
standards.
Table 1. Meat and egg consumption in Bangladesh in selected years
1990 1995 2000 2005
Meat
Total meat (× 10
3
 t) 305.4 373.8 423.5 469.1
Per capita/day (grams) 7.4 8.2 8.4 8.4
Percent share of chicken meat 21.5 24.5 23.1 24.2
Percent share of duck meat 4.5 3.7 3.2 2.9
Eggs
Total (× 10
3
 t) 67.3 97.4 133.1 156
Per capita/day (grams) 1.6 2.1 2.6 2.8
Source: http://faostat.fao.org/site/573/Desktop Default.aspx.
In the past, inland open water fi sh was the major source of protein in the country but open 
water fi shery has declined drastically. Efforts to meet protein defi ciency by increasing 
ruminant livestock production are constrained by grazing land and the high cost of imported 
feeds (Ahmed et al. 1990; Haque 1992). Increased poultry production may be a good option 
to meet protein supply requirements since poultry can be produced within a short time as 
compared to other ruminant animals. Agricultural occupations presently absorb about 57% 
of the labour force (Bangladesh Bureau of Statistics [BBS] 2002) and opportunities to expand 
employment in this sector are rather limited. 
The livestock subsector contributes 4% to the Gross Domestic Product (GDP) and 17% to 
agricultural GDP. The subsector also provides full-time employment to 20% of the labour 
2
force and part-time employment to another 50% (Executive Committee of National Economic 
Council [ECNEC] 1999). Commercial small-scale poultry production and related backward 
and forward linkage activities in marketing, input supply etc. have the potential to generate 
employment and alleviate poverty by creating more jobs per unit of added value compared 
to other livestock and agricultural activities. The challenges have been, and still are, to 
increase market participation of small poultry producers, increase productivity of poultry 
products and provide access to markets for inputs, services and outputs at remunerative costs 
and prices.
1.2 Poultry farming systems in Bangladesh
The present farming systems of poultry in Bangladesh can be broadly divided into two 
categories: traditional rural backyard or scavenging/semi-scavenging system and commercial 
farming system. Traditional poultry production is an essential part of rural farm household 
activities; a few birds are reared with little or no feed supplement to produce eggs and meat 
for home consumption and any surplus is sold. Commercial poultry farms are defi ned as 
those that raise birds in confi ned conditions based on high yielding breeds, commercial feeds 
and management practices (Ali 1993). However, the Department of Livestock Services (DLS) 
and a non-governmental organization (NGO), Bangladesh Rural Advancement Committee 
(BRAC), have promoted a small-scale semi-scavenging commercial poultry model using local 
or crossbreeds and partial supplementation with concentrate feeds (Saleque 2000; Islam and 
Jabbar 2005). In this study, the focus is on the fi rst type of commercial poultry though some 
references to the second will be made where appropriate.
In response to rapidly increasing demand for animal products and expanding market 
opportunity in the early 1990s, a commercial broiler and layer sector has emerged in 
Bangladesh. The sector is characterized by intensive production techniques (exotic and 
crossbred birds, concentrate feeds and drugs) and technical and policy support (subsidized 
credit, local production and import of day-old chicks, drugs etc). The traditional poultry 
sector, where poor smallholder producers dominate, still remains the major supplier of 
poultry meat and eggs in the rural areas. However, the rural poor have been unable to 
capture any signifi cant share of the rapidly expanding urban market (Islam and Jabbar 2005).
The total poultry population in the country increased from 91 million in 1990 to 123 million 
in 1995 and 153 million in 1997; this increase was almost entirely in the commercial poultry 
sector. In 1998, poultry population dropped sharply to 138 million due to a severe fl ood then 
stabilized at 140 million in 2006 (http://faostat.fao.org/site/573/Desktop Default.aspx).
Most commercial poultry farms in Bangladesh are small-scale (less than 5000 birds per 
batch). In 1995, large- and small-scale commercial poultry farms respectively accounted 
3
for 12 and 2% of total poultry meat production in the country with the scavenging system 
accounting for the rest (Alam 1995). The newly established commercial poultry farms 
were fairly small in the early 1990s. Most farms still rear between 1000 and 2500 birds 
but the average size of farm has been increasing slowly over time. A recent study showed 
economies of scale in poultry farming, part of which arose from hidden subsidies such as 
cheap credit and inputs which generally are not accessible to smallholder poor farmers. 
Rapid industrialization of poultry production could wrongly harm the mechanism of income 
generation for the poor in the country (Jabbar et al. 2005b).
There are presently two types of commercial poultry farms in the country: independent farms 
(the majority) and a few contract farms. Contract farming was fi rst introduced in 1994 by 
Aftab Bahumukhi Farms Limited (ABFL), a private sector company. 
1.3 The emergence of contract farming and its pros 
and cons
In recent decades, demand for livestock products in developing countries like Bangladesh 
has been increasing rapidly, propelled by income, population and urban growth. Large-
scale urban and peri-urban production principally met the demand. Although the growth in 
demand for livestock products should, in principle, bring opportunities for many livestock-
dependent poor who have traditionally dominated developing country markets, such producers 
have generally faced hard competition in these rapidly expanding markets. Small-scale or 
poor producers captured only a tiny share of the expanding markets due to their inability to 
produce high quality products at competitive costs, and lack of access to information, skills, 
technologies and other infrastructure to reach urban markets, all of which increase transaction 
costs. Further, in the absence of adequate preservation and marketing infrastructure in most 
rural areas, individual market-entry investments to fulfi l production and sanitary standards 
are prohibitively high in light of the quantities of marketable products produced. Lack of 
access to market information further reduces the negotiating position of small production units 
(Delgado et al. 1999). Government policies often support and subsidize industrial livestock 
production thereby promoting economies of scale. However, equity, environment and health 
consequences are most often overlooked. Discussions among stakeholders worldwide on the 
impacts of market reform and globalization on the poor and the environment have brought 
these issues into focus. It is generally agreed that policies and organizational arrangements are 
required for smallholders to effectively participate in the market and to minimize the negative 
environmental impacts of livestock (de Hann et al. 1997).
To overcome these constraints, organizational arrangements that allow small production units 
to benefi t from various forms of collective action—such as producer groups, input and output 
4
marketing cooperatives and product collection schemes—have been supported in a number 
of countries by government organizations and NGOs with varying degrees of success. 
Contract farming is one such institutional organization that is considered to be useful in 
facilitating market access of smallholders in high-value supply chains that require specialized 
inputs to produce and sell to markets for specialized outputs. Strengthening the supply chain 
through contracting as an instrument has long been used in various economic activities with 
varying degrees of success and impacts (Glover 1987; Farrelly 1996; Runsten and Key 1996; 
Eaton and Shephard 2001; Binh et al. 2005). 
Contract farming is emerging as a market institution for high-value agriculture in developing 
countries and in the production and marketing of livestock commodities. A recently concluded 
project on livestock industrialization, trade and social-health-environment impacts in developing 
countries, conducted jointly by the Food and Agriculture Organization of the United Nations 
(FAO) and IFPRI with national collaborators in India, the Philippines, Thailand and Brazil, 
provided a controlled baseline study of the cost structures and relative competitiveness of 
independent and dairy cooperative smallholder and medium-scale dairy and poultry operations, 
compared to some farmers undertaking contract farming (Delgado et al. 2004).
Contract production is the production of goods and services for future delivery. Before 
completing production, a producer commits to deliver a particular buyer. Typically, farmers 
have one contract that includes terms of production (e.g. specifying production methods, input 
and services provision or scale of production) and marketing (e.g. fi xing the quantity and selling 
price of transaction or mode of payment) (Economic Research Service 1997). A marketing 
contract refers to a verbal or written agreement between a farmer and a buyer (food processing 
or marketing company) which sets the price and provides an outlet for a specifi ed quantity 
of a commodity before the farmer sells the commodity. Most management decisions remain 
with the farmer, who retains product ownership during the production process. The person 
contracted assumes all production risks but shares the price risk with the contractor.
Conversely, production contracts involve paying the farmer to provide management, labour 
and facilities while assigning ownership of the product to the contractor. The contract 
specifi es in detail the production inputs supplied by the contracted farmer and the contractor, 
who may be a processor, feed mill or another farm operator or business. The contract also 
specifi es the quality and quantity of the commodity to be produced and delivered. Because 
the contractor often controls the amount produced and the production practices, the 
contractor often dominates the terms of the contract. Advantages of production contracts for 
farmers include the sharing of production and marketing risks with the contractor and the 
availability of fi nancing either directly from the contractor or indirectly through other lenders 
who are more assured of loan repayment under this arrangement.
5
Vertical integration occurs when a single fi rm can perform all or most aspects of production 
and marketing. When a single fi rm can produce complementary products and services, it can 
do so more profi tably than a number of fi rms. When carried out as part of a set of interlinked 
activities, a complementary activity can reduce cost (Berlin 2001). A vertically integrated 
poultry fi rm enters a contract arrangement with producers to produce poultry meat and/or 
eggs. It may own a feed mill to manufacture poultry feed, a hatchery for hatching eggs or 
producing day-old chicks, a processing plant to process products or retail outlets to sell the 
products. Thus, integrated large fi rms control all levels of the value chain from feed milling 
to sale of output at the retail level. Such farm activities may also be defi ned in terms of the 
principal-agent theory where the principal (fi rm) anticipates how the agent (farmer) will 
respond to each strategy it proposes. The fi rm maximizes profi t subject to two constraints: 
growers will accept the contract and abide by its terms (it must give them greater profi ts 
than they can derive from the next best alternative). Potential benefi ts of contract farming to 
producers and integrators are outlined in Table 2.
Table 2. Incentives for contract farming
Risks/hazards in livestock
Benefi ts of contract farming
Integrator, buyer or trader Contract grower
No capital
Access to investment opportunities in 
livestock; facilities construction
Access to capital
Loss of capital
Incentive to contract grower to renew 
capital
Protect against systematic 
loss
Loss of animal Protection against careless labour Protection against diseases
Quality of animal Assurance of product Access to better stock
Reliability of output price Reliability of supply Reliability of outlet
Quality and price of inputs
Quality gain for integrators
Quality assurance, avail-
ability, credit
Timing/availability of outputs Timing and availability of 
management
Timing of output sales Timely outlet
Labour supervision
Absence of issue
Absence of daily supervi-
sion
Land tenure Access to land
Environmental regulation Avoid legal responsibility for pollution
Knowledge defi ciency Access to extension
Free-rider risk Better health control Better health control
Source: Delgado et al. (2003).
Contract farming is one type of institutional arrangement that promotes linkage of 
smallholders to the market when transaction costs of direct engagement with the market 
are high for producers and/or traders. In addition to enhancing incomes of smallholder 
producers, contract farming may also be benefi cial for overall employment and infrastructure 
6
or market development for the larger community. Particularly when multinational 
agribusiness fi rms are involved, contract farming may also potentially increase access to 
lucrative export markets (Eaton and Shephard 2001; Jabbar et al. 2005a). Given current 
concerns about diseases like avian infl uenza, quality assurance is becoming an even more 
challenging task and involvement of smallholders in any supply chain is likely to make 
management of those chains even more diffi cult and costly. Under such conditions, contract 
farming may provide one avenue to keep smallholders engaged.
Contract poultry farming can generate income for resource-poor smallholder producers. 
Through contractual arrangements, the agro-industry can assist farmers in developing 
countries to shift from traditional subsistence agriculture to commercial agriculture. This not 
only has the potential to increase incomes of contracting farmers but also to multiply the 
effects in the broader economy. Production and price risks are important features of poultry 
farming. Risk sharing is one of the widely cited reasons for contracting. Numerous studies of 
contract farming emphasize risk reduction as a principal incentive for producers to enter into 
contracts (Covey and Stennis 1985).
Conversely, contract farming may disrupt existing farming systems and introduce infl exible 
production arrangements with producers, potentially jeopardizing food security and incomes 
of resource-poor producers. Moreover, where contracted product requires substantial 
investment in equipment or infrastructure, the debt burden of contract farmers may increase 
along with dependency on large integrators or agribusiness companies which may show 
characteristics of monopoly fi rms (Shivramkrishna and Jyotishi 2007). Depending on whether 
participation in contract farming is restricted to men and/or large-scale farmers, and the rights 
and treatment of locally-hired labour by such farmers, contract farming arrangements may 
negatively affect overall equity and gender relationships (Glover 1987). In particular, women 
and child workers may be disadvantaged due to unfavourable contract terms (Singh 2003). 
1.4 Objectives of the study
Contract farming has been emerging as a market institution in Bangladesh, initially under 
government-led cereal seed production then in horticultural production, and more recently 
as a private-sector initiative in poultry production. Alongside promoting private-sector 
roles in the expanding livestock industry, the Government of Bangladesh is also trying 
to create opportunities for the poor to participate in these markets. A number of studies 
have analysed the technical and economic performance of commercial poultry farms in 
Bangladesh, including contract farms in some cases, and found them generally profi table 
although there was room for better technical performance through improved productivity and 
reduced mortality. These studies also identifi ed supply-side problems that adversely affected 
7
productivity, such as inadequate supply of day-old chicks and irregular supply of electricity 
(Kamruzzaman et al. 1999; Sarker et al. 1999; Bairagi 2004; Tohura 2004; Begum 2006).
However, there is inadequate information about the nature and function of the emerging 
contract farming arrangements, their advantages and disadvantages, and especially 
the prospects of small-scale producers’ participation. The government’s Department of 
Extension recently implemented an agribusiness development project, funded by the Asian 
Development Bank, to provide investment and technical services on-demand to a variety of 
agribusiness stakeholders. The project aims to improve value-chain linkages and management 
between stakeholders; to improve post-harvest technology and processing; to develop a 
contract-based marketing system; to improve quality control and assurance mechanisms; 
to improve market management operations and to develop corporate business services for 
agribusiness stakeholders. 
Implementation of this project, especially with respect to contract farming, required 
information on the form of contracts that the project should promote through its advisory 
and credit services to enable small and poor entrepreneurs to engage in income-earning 
activities. Information was also needed on factors that might prevent the realization of the 
contracts and lessons that could be learned for wider application of contract farming or other 
institutional forms of business organization that might help the poor. 
However, not much was known about how contract farming worked for different 
commodities under different socio-economic, technological and policy regimes and its 
impacts on Bangladeshi smallholders. As a result, the project was implemented on the basis 
of experiences from elsewhere and, in some cases, guesses. This study provided empirical 
evidence, based on detailed fi eld studies, on some of the issues mentioned above with 
respect to the poultry sector so that future contract farming efforts may benefi t.
The goal of the study was to identify forms of market institutions that would allow 
smallholder poultry producers to commercially produce broilers and eggs to raise household 
incomes under rapidly differentiating livestock markets in Bangladesh.
The specifi c objectives were to:
Document the range and extent of contract farming and other organizational 1. 
arrangements used in smallholder poultry production in Bangladesh.
Analyse the structure and conduct of the hatchery, feeds and equipment industries 2. 
serving the poultry sector and compare the geographical distribution of and access to 
these inputs along with health, extension and credit services of poultry farming under 
independent and contract farming arrangements.
8
Identify factors that infl uence participation or non-participation in contract farming.3. 
Compare net incomes and production and marketing costs under independent and 4. 
contract farming arrangements.
Analyse determinants of cost per unit output and net income under independent and 5. 
contract farming arrangements.
Identify policy implications of the fi ndings to promote and facilitate profi table poultry 6. 
farming.
The following hypotheses were tested:
In a given area or environment where there is a choice between independent and 1. 
contract poultry farming, the decision to participate in commercial poultry production 
and the choice between independent and contract farming will depend on differences 
in ownership of production assets (physical, human, fi nancial or social). 
Contract farmers have better access to information, technology, inputs (day-old chicks, 2. 
concentrate feeds and equipment) and services (health, extension, credit and market 
information) compared to independent farmers due to specifi c contract terms and 
agreements between parties and market conditions for inputs, services and products.
Contract and independent farmers incur signifi cantly different production and 3. 
marketing costs and earn different marketing margins. 
Contract poultry farmers earn more income per unit of family resources compared to 4. 
independent poultry or non-poultry farmers.
Cost per unit output and net incomes differ signifi cantly due to differences in physical, 5. 
human, fi nancial and social assets, and business practices in buying inputs and services 
and selling products.
The report is organized as follows. Data sources and methods are discussed in Section 2. 
Section 3 discusses a typology of existing contract farmers while Section 4 analyses the 
structure and performance of the poultry input and output markets. Section 5 analyses the 
factors infl uencing participation of farm households in commercial poultry and contract 
farming. Section 6 examines the technical and economic performance of different types of 
poultry farms and the reasons why farmers drop out of poultry business. Conclusions and 
policy implications are in Section 7.
9
2 Sources of data and study methodology
2.1 Identifi cation of contract farming arrangements 
and market actors
Commercial poultry production is a relatively recent business enterprise in Bangladesh 
and contract poultry farming is even more recent. A stakeholder consultation was held in 
February 2006 to collect initial information on the types of contract farming arrangements 
in the country and to identify the market actors involved in the commercial poultry 
industry. Representatives of various segments of the poultry industry, livestock experts and 
policymakers were present. Key informants provided information on enterprises that have 
been involved in contract farming arrangements and on the types of actors involved in the 
industry. Based on key informant interviews at the stakeholder consultation, three groups of 
producers involved in the commercial poultry industry were identifi ed:
Independent farmers rearing layer or broilers. Independent farmers run their   
businesses without any contractual agreement with a third party and bear all 
production expenses and risks.
Contract farmers rearing layers, broilers or breeders. Contract farmers have contractual   
agreements with integrators, feed mills or traders to supply or purchase inputs and/or 
supply or sell outputs at pre-determined prices or prices negotiated at the time of fi nal 
transaction. 
Non-poultry farmers who are not engaged in commercial poultry farming though they   
may raise a few scavenging poultry for home consumption or sale if there is a surplus.
Independent commercial poultry producers are found throughout the country although more 
independent poultry farmers occur in districts around Dhaka and some districts linked to 
large cities like Chittagong and Khulna.
1
 ABFL practises formal contract arrangements for 
broiler and breeder stock production in Kishoreganj district only. Several other enterprises are 
involved in formal input or output contract arrangements. Their areas of operation overlap to 
some extent but others operate in exclusive areas.
The following categories of actors are involved in the poultry input supply and output 
marketing chains:
Day-old chicks: hatcheries, agents and retailers  
Feed: feed millers, wholesalers, agents, and retailers  
Equipment: wholesalers and retailers  
Drugs: distributors and retailers  
Broilers and eggs:   aratdars, wholesalers, retailers
1. Bangladesh is administratively divided into 6 divisions, 64 districts and 508 thanas or sub-districts. A thana 
typically covers an area of 275 km
2
 and has over 25 thousand people.
10
Aratdars are large traders and one of the basic institutions in the traditional market system. 
They buy and store products for varying periods of time. Broilers and eggs are stored for 
relatively short periods of time because live birds cannot be stored for more than a day 
without incurring extra feed costs and risking loss of weight, and eggs cannot be stored 
for long without the risk of spoilage. Aratdars may also engage in forward purchase 
arrangements either directly with producers or through traders without getting involved in the 
provision of inputs and services.
Wholesalers are large traders but smaller than aratdars and deal with one or more inputs 
(feeds, drugs or equipment) and/or products (broilers or table eggs). They are licensed 
full-time traders with fi xed business premises in the wholesale market and they handle 
bulk transactions. They purchase products from producers and small traders and sell to 
the retailers. Unlike aratdars, wholesalers operate in both Dhaka market and production 
areas.
Output retailers are the smallest traders and have permanent stalls in sections of the markets 
for broilers and table eggs. Input retailers sell one or more inputs and operate in local 
markets or convenient places close to producers. They mostly buy products from wholesalers 
for sale to consumers. In each category of contract arrangements, there are various other 
elements which will be discussed later.
2.2 Selection of study areas and sampling of contract 
farming enterprises 
In order to develop a typology of poultry contract arrangements being practised in the 
country, the following enterprises involved in contract farming arrangements identifi ed at the 
stakeholder workshop were sampled:
ABFL  
Biman Poultry Complex (BPC)  
BRAC  
Kazi Farms Limited  
Paragon Poultry Limited  
Nourish Feed Limited  
Selected egg wholesalers and   aratdars in Dhaka
Locations were selected where independent and contract arrangements were present 
simultaneously in order to compare farm practices and performance under the two types of 
poultry production. In order to understand the function and performance of the input and 
output marketing arrangements, market agents were selected from the same areas where farm 
samples were drawn because market agents mainly serve producers.
11
However, it was clear that all types of farms were not present in all locations. Initially, 
commercial poultry production occurred mainly in peri-urban areas but over time it has 
spread away from the main urban centres. For this reason, Gazipur and Kishoreganj districts 
were purposively selected as study areas where commercial poultry production and contract 
poultry farming are practised. Gazipur is a peri-urban district close to Dhaka city with a high 
concentration of various industries and poultry farms. The government has already declared 
Gazipur a poultry region. Both independent broiler and layer farming are widely practised 
in Gazipur although some contract arrangements in layer farming are also prevalent. 
Kishoreganj district is located further away from Dhaka than Gazipur and has an integrator 
who practices broiler and breeder stock contract farming. Independent broiler farms are also 
present in the district.
To analyse input and output marketing arrangements, fi ve hatcheries, fi ve feed mills and 84 
traders dealing in feeds, drugs and equipment (inputs) and broiler and eggs (outputs) were 
surveyed. Table 3 summarizes the distribution of trader samples. These were principally 
selected from Gazipur, Dhaka, Mymensingh and Kishoreganj districts because market actors 
there mostly served producers in Gazipur and Kishoreganj. Case studies were conducted 
where many actors in a category were unavailable.
Table 3. Sample of input and output traders
Type of input or output Wholesalers Aratdars Retailers Total
Feed 10 0 10 20
Drugs 5 0 5 10
Equipment 5 0 5 10
Broilers 5 10 8 23
Eggs 5 9 7 21
Total 30 19 35 84
A total of 183 contract farms, 120 independent farms and 60 non-poultry farms were 
sampled (Table 4). The broiler contract farms operated by ABFL in Kishoreganj were mostly 
located in Bajitpur thana and surrounding areas. Thus, all types of farms were selected from 
Bajitpur to neutralize the location effect. In order to spread the sample fairly over the entire 
study location, poultry farms of all types were listed and then 60 contract broiler farms, 
40 independent broiler farms, 40 contract breeder farms and 40 non-poultry farms were 
randomly selected from the master list.
In Gazipur district, a list of poultry farms was prepared based on unpublished information 
available from the DLS and the poultry farmers’ association. Different types of farms were 
then sampled randomly. Vertically integrated contract farming was not practised in Gazipur 
but one type of contractual agreement between BRAC and farmers was observed which was 
12
considered a type of formal contract farming. In the case of layer farms, initial stakeholder 
analysis revealed that aratdars practised one type of informal contractual arrangement with 
producers. Some producers were also contracted by feed millers but such farms could not be 
identifi ed a priori for purposes of sampling although some were represented in the random 
samples.
Table 4. Distribution of sampled poultry farmers by farm type and district
Farm type
Contract farmers Independent farmers Non-poultry farmers
Kishoreganj Gazipur Kishoreganj Gazipur Kishoreganj Gazipur
Broiler 60 42 40 42 40 20
Layer – 43 – 38 – –
Breeder 40 – – – – –
Total 100 85 40 80 40 20
Size of poultry enterprise was not considered as a sampling criterion because current 
information was not available on size distribution of poultry farms for the study districts or for 
the country as whole. A study conducted in 2000 in these two districts categorized poultry 
farms into small (less than 1000 birds), medium (between 1001 and 2000 birds) and large 
(over 2000 birds) (Jabbar et al. 2005b). However, size distribution of poultry farms might 
have changed since then as indicated by the trend towards scaling up. The study also found 
that farms often change from broiler to layer and vice versa. It was therefore decided that 
farm size would be defi ned ex post according to installed capacity or actual number of birds 
raised, as appropriate.
While conducting a survey among commercial poultry producers, Jabbar et al. (2005b) 
observed two fairly common features in the poultry industry: a change from broiler to layer 
farming or vice versa by some farms and dropping out of poultry business altogether. A 
similar pattern was observed during the participatory rural appraisal and detailed survey 
for the present study. A change from one type of poultry farming to another indicates that 
producers respond to anticipated market opportunities and are able to adapt their fi xed 
infrastructure easily or quickly to effect such changes. On the other hand, many reasons 
may contribute to business failure and lead to dropping out of this business altogether. In 
order to understand the causes of business failure and dropping out of poultry farming, 
a survey was conducted among 140 poultry farms in fi ve districts (Gazipur, Kishoreganj, 
Jamalpur, Bogra and Rangpur) where commercial poultry farming is concentrated. Since 
there was no list of farmers which dropped out of business, purposive sampling was done 
to select farms for interview. The thanas within each selected districts were visited and 
those who dropped out were identifi ed by talking to feed and output traders, DLS staff and 
other key informants.
13
To develop a typology of contract arrangements prevailing in the country, identifi ed 
enterprises involved in contract arrangements were surveyed by a case study approach 
whereby a checklist or interview guide was used for informal discussions. Data on market 
actors and farms were collected by structured questionnaires. Graduate students with 
knowledge on fi eld-level data collection were recruited and trained to conduct the surveys. 
Each survey questionnaire was developed, improved and pre-tested between February and 
March 2006. Final surveys were conducted between April and July 2006 and case studies 
of some trader categories continued until August 2006. On average, 5.2 batches of broiler 
birds were raised on broiler farms each year. Detailed data were collected for one production 
cycle on a recall basis. The data were then annualized based on the assumption that a farm’s 
activities, input use and performance per batch remained about the same. Detailed data from 
layer farms were collected for one production cycle of 17 months on a recall basis, and the 
costs and returns were calculated per unit output for the entire cycle. The sampled farmers, 
like most newly emerging commercial farmers in Bangladesh, were not yet accustomed to 
keeping systematic accounts of their business operations. However, some of them (especially 
contract farmers) had kept some records of their transactions so the recall data were reported 
partly from memory and partly from partial records. 
The survey among drop-out farms was conducted from July to September 2007 using a 
structured questionnaire but allowing open-ended questions. The interviewees were asked a 
direct question about the reasons for dropping out of the business. The survey also included 
additional information to understand the nature of the business and its management, e.g. 
fl ock size, duration of business, sources of supply of inputs and veterinary services, training 
in poultry farming, quality of the poultry houses, feeding and management practices, 
types and skills of labour employed etc. The information was important to help identify 
possible links between the stated reasons for dropping out and the technical and fi nancial 
management of the business.
Statistical Package for the Social Sciences software was used for data entry and analysis. 
During data collection and management, the team members supervised the enumerators’ 
work. Descriptive statistics were used to analyse characteristics of various samples. In 
the absence of adequate sample sizes for econometric analysis, descriptive statistics 
complemented with case study approaches were used to analyse input and output markets. 
Probit and logit models explained participation in commercial poultry and contract farming. 
Farm budgets and cost functions assessed performance of poultry farms. Specifi c concepts, 
statistics and functional forms used to analyse specifi c issues are discussed in more detail 
later.
14
3 Types of contract farming and other 
institutional arrangements in poultry production 
and marketing
Commercial poultry production is rapidly increasing and rudimentary forms of contract 
farming are emerging. However, it is unclear whether the necessary support systems such 
as infrastructure, information and legal frameworks are available to smallholders and poor 
producers to enable them participate in such contract arrangements in a remunerative 
way. Contract farming and other institutional arrangements in poultry production were 
classifi ed according to (i) scope, products or services covered, (ii) formation, enforcement 
and monitoring of the contract agreement, (iii) sharing of benefi ts, risks, responsibilities 
and liabilities and (iv) scope of sustainable participation of smallholders. Based on these 
elements, three types of contract arrangements were identifi ed: 
Formal production-marketing contracts: Actors supply inputs and services, sell 1. 
outputs, and share risks and benefi ts. The agreement is documented and signed by the 
parties.
Formal input marketing contracts: Actors supply one or more inputs and services to 2. 
producers, either directly or through market agents. The agreement is documented and 
signed by the parties. 
Informal output marketing contracts: Actors buy outputs from existing producers. The 3. 
agreement is verbal or in a form that may not be considered acceptable in a formal 
court in case of a dispute.
3.1 Formal production-marketing contracts
Only three enterprises operate this type of contract: ABFL in Kishoreganj, BPC near Dhaka and 
BRAC. Table 5 summarizes the main features of the contractual arrangements of these enterprises.
3.1.1 Broiler farming by ABFL
ABFL is a subsidiary of the Islam Group of Companies, Dhaka. It is a multi-enterprise company 
with the largest private-sector commercial operations in the agricultural sector. In 1991, ABFL 
established a broiler farm in Bhagalpur, Kishoreganj district, about 110 km northeast of Dhaka. 
The company started contract farming as an experimental program with a group of 20 farmers. 
Later in 1994, ABFL adopted a vertically integrated poultry contract growing program and 
provided technical and professional support to rural poultry farmers to encourage them to take 
up poultry farming as an income-generating activity.
15
T
able 5.
 
Summar
y of main features of contract arrangements of selected integrators in the poultr
y sector of Bangladesh
ABFL
BPC
Kazi F
arms Ltd.
BRA
C
T
ype of organization
Pri
v
ate limited compan
y
Corpor
ation
Pri
v
ate limited 
compan
y
Non-go
v
ernmental organization
Product/input/services
Commer
cial broiler: Li
v
e
 and 
dressed Breeder stoc
k
Da
y-old c
hic
ks, dressed 
broilers
Da
y-old c
hic
ks
Da
y-old c
hic
ks, broilers, la
y
ers, feed
F
orm of contr
act arr
angement
F
ormal input–output
F
ormal input–output
F
ormal input 
supply
F
ormal input–output
Bac
kw
ard linkage acti
vities for contr
acted products, inputs or services
P
a
c
kage of tec
hnology
, inputs 
or services
Medical treatment and consultation Stable price of product Da
y-old c
hic
ks
F
eed or cash loan for oper
ational 
expenses
Chic
k treatment and 
tec
hnical support
Marketing service
Medical treatment and consultation Stable price of product Da
y-old c
hic
ks, feed and medicine
Clients/suppliers
Experienced poultry farmers
Experienced poultry farmers
Agents or dis- tributors
P
oultry farmers
Criteria for selecting clients/ suppliers
Education, road communication, sincerity
, enthusiasm
F
arm location, experi-
ence of client, shed condition
F
inancial sol-
v
enc
y
,
 good
will
n/a
Size of clientele groups
Commer
cial broilers: 350 farmers, 
1500 to 2500; a
v
er
age 1800
P
arent stoc
k: 122 farmers
25 contr
act farmers; 
batc
h size 1000 to 5000 
birds; a
v
er
age 2500
550 to 600 agents or dis- tributors
215 contr
act farmers; batc
h size 
500–2000 birds; a
v
er
age 800.
Geogr
aphical locations 
co
v
ered
Six upazilas of Kishoreganj district: K
ulair
c
har
, Bajitpur
, P
akundia, Hos-
sainpur
, Kishoreganj and Sadar
Sa
v
a
r
,
 Manikgonj, 
T
ongi 
and 
T
angail (about 60 
km from the poultry complex)
All upazilas
All o
v
er Bangladesh
V
olume of input, product or 
service deli
v
ered
Commer
cial broilers: 100 t of feed 
per month P
arent stoc
k: 1000 t of feed per 
month
5000 to 8000 da
y-old 
c
hic
ks per week
1,500,000 da
y-
old c
hic
ks per 
week
100,000 da
y-old c
hic
ks per month
2500 t of feed per month
16
ABFL
BPC
Kazi F
arms Ltd.
BRA
C
V
alue of input/service deli
v-
ered
Commer
cial broiler feed: BDT* 50 
million P
arent stoc
k: BDT 17.5 million 
BDT 100,000 to 160,000 per week
BDT 30 million per week
Da
y-old c
hic
ks: BDT 30 million
F
eed: BDT 320 million
F
orw
ard linkage acti
vities for contr
acted products, inputs or services
Clients, intermediaries and us- ers of products/services
Own sales centre for dressed broiler
, dealer for feed and 
c
hic
ken
Biman Catering Centre, British, 
T
hai, Qatar
, Emir
-
ates Airw
a
y
s
Agent/distributor
Agent/distributor
Criteria for selecting clients
F
inancial solv
enc
y
,
 lev
el of 
liter
ac
y
N/A
F
inancial sol-
v
enc
y
n/a
Size of the clientele group(s)
Sales centres: F
i
v
e in Dhaka; 300 
countrywide for feed and da
y-old 
c
hic
ks 
More than 15 airlines
550 to 600
n/a
Location of supply outlet:
Dressed broilers: Dhaka, Chit- tagong, Sylhet Da
y-old c
hic
ks and feed: 
Whole 
of Bangladesh
Zia International 
Airport
Whole Bangla- desh
Whole Bangladesh
V
olume of products and serv-
ices supplied b
y
 locations and 
clientele groups
Sev
en tonnes of dressed broilers 
per da
y
6 to 10 t of dressed broil- ers per week 10,000 c
hic
ks per week 
1,500,000 c
hic
ks per week 
n/a
V
alue of Product/service sup-
plied b
y
 locations and clientele 
groups
n/a
n/a
BDT 30,000,000
n/a
Approximate market share of the organization 
10% of da
y-old c
hic
ks
1% of da
y-old c
hic
ks
10% of da
y-old 
c
hic
ks
15% c
hic
ks
Major market competitors
Kazi F
arms Ltd, P
a
r
agon for da
y-
old c
hic
ks; National Nourish 
Quality F
resh for feed
Kazi, 
ABFL and P
a
r
agon
ABFL, P
a
r
agon 
and CP
Kazi, 
ABFL and P
a
r
agon
Pro
vision for enfor
cement of 
contr
act
Mostly informal and social
P
ersuasion
Ensuring sound supply
Contr
act deeds
Monitoring mec
hanism 
Daily or weekly supervision b
y
 
120 personnel
F
ield visit b
y
 staff
n/a
Bottom–up and top–do
wn monitor
-
ing b
y
 staff
17
ABFL
BPC
Kazi F
arms Ltd.
BRA
C
System of ensuring product quality
Inspection, supervision, lab. test
V
isual inspection
n/a
T
e
c
hnical supervision
System of settling disputes
Social or legal
According to agreement
n/a
T
eam for settling dispute
System of sharing benefi
 ts
Benefi
 ts: F
armer BDT 5/kg, Com-
pan
y BDT 3/kg 
Risk: 100% farmer with insur
ance
Benefi
 ts: F
armer BDT 14/
kg Risk: 100% farmer
n/a
Are policies, institutions and support services conduci
v
e
 to 
oper
ation of the contr
actual/ 
collabor
ati
v
e
 acti
vities?
No
No comment
No comment
Y
e
s
* BDT
: Bangladesh 
T
aka. USD 1.00 = BDT 65.31 at 1 J
une 2006.
Sour
ce: Interviews with the respecti
v
e
 fi
 rms
18
ABFL included small, medium and large farms in its poultry programs. In this regard, ABFL 
differs from vertically integrated farms in developed countries where big trading companies 
usually prefer to enter into contracts solely with large-scale farms and farmers in order to 
minimize transaction costs. One of ABFL’s objectives was to increase incomes and improve 
the welfare of farmers in the surrounding area. This motivation may partly lie in the fact 
that the owner of the Islam Group of Companies comes from the locality, so contributing to 
the improved welfare of his local people through his business ventures may serve as a dual 
business-welfare objective.
Over time, ABFL has developed into a vertically integrated fi rm and established its own feed 
mill and hatchery. It consists of a modern hatchery that produces 60 thousand broilers and 
layer parent birds, and supplies 100 thousand day-old chicks per week for the fast growing 
poultry industry. The fi rm has also established retail sales centres in Dhaka to supply eggs 
and poultry meat to consumers. ABFL’s poultry complex is one of the largest in the country. 
Its initial poultry feed mill was established primarily to provide balanced feed for its contract 
poultry farms. The feed mill was later expanded to meet the demand for poultry feed 
throughout the country. ABFL currently has three feed mills with a capacity of 10 thousand 
tonnes of feed per month. The company distributes balanced feed to farms throughout the 
country using its own distribution channels.
Figure 1 shows the vertical stages of the ABFL broiler contract farming system. Other 
components of ABFL’s poultry operations are not shown, e.g. day-old chicks from hatchery 
and feeds from feed mills which are also sold in the open market in addition to being 
supplied to the contract farms.
The agreement between ABFL and a contract farmer is very simple. Any farmer located 
in the company’s operating area is eligible to enter into a contractual agreement. From 
1994 to 2003, ABFL provided day-old chicks, feeds and veterinary supplies on credit 
and ensured purchase of the output. The entire credit liability of the contract farmer was 
adjusted against the value of the delivered products. After the avian infl uenza scare in 
2003 following incidences in Southeast Asia, ABFL changed the arrangement from input 
supply on credit to cash. Although there was no avian infl uenza in the country in 2003, 
there was suspicion among producers and consumers which affected the industry. Prices of 
broilers and day-old chicks decreased drastically within a few days. Many farmers went out 
of business as they incurred unsustainable losses. ABFL reportedly incurred losses worth 
nearly Bangladesh Taka (BDT)
1
 150 million due to the incident. Consequently, the number 
of the ABFL contract farms fell from 650 to 200 in 2004 but increased to 315 the following 
year. 
1. Bangladesh Taka (BDT). USD 1 = BDT 65.31 at 1 June 2006.
19
Figure 1. Structure of the broiler component of ABFL.
The sharing of responsibilities between contract farmers and ABFL in the vertically integrated 
farming system is shown in Table 6. The contract farmers typically provide land, housing, 
equipment and labour. Farmers are responsible for building a covered shed at their own cost 
to ensure a healthy environment for proper growth of the birds. The farmers are supervised 
by ABFL extension staff. The average duration of the grow-out cycle is fi ve to seven weeks 
for an average sized (1.5 kg) broiler. Until 2003, ABFL would buy mature live broilers 
from contract farmers at a fi xed price per kilogram and then sell the broilers through its 
sales centres in Dhaka. After 2003, when price of poultry fell drastically, ABFL changed its 
contract arrangement and stipulated that farmers would be paid a lower price compared to 
the prevailing market price. For example, in 2003, farmers were paid BDT 53/kg when the 
market price was BDT 60/kg live weight.
Risk reduction was cited as an important reason for entering into a contractual agreement. 
There are two types of risks: price risk and production risk. Price risk greatly infl uences 
the variability of revenue. The biological nature of broilers and their short storage life are 
important causes of price instability. Production risk mainly happens due to the death or 
loss of birds. Outbreak of diseases may also cause considerable economic losses and erode 
confi dence in poultry farming. The major poultry diseases in the study areas were fowl 
 Feed Broiler chicks
Live broiler 
ABFL feed mill 
ABFL breeder farm 
Feed 
Eggs
ABFL assembly point
ABFL hatchery 
Contract farm 
ABFL processing plant 
Dressed broiler  
ABFL broiler sales centre 
20
cholera, Gumboro disease, fowl pox and Newcastle disease. Gumboro and Newcastle 
diseases cause huge losses.
Table 6. Sharing of responsibility in broiler production between the contract farmer and ABFL 
Particulars
1994 to 2002 2003
Contractor Farmer Contractor Farmer
Land, buildings and equipment X X
Manure handling, storage and disposal capacity X X
Day-old chicks Credit Cash
Feed ingredients, processing and delivery Credit X Cash X
Fuel, electricity and telephone X X
Facility repairs X X
Veterinary services and medicine Credit Cash
Transportation cost of all inputs and outputs X X
Labour: production and maintenance X X
Labour: supervisory and specialists X X
Source: Field survey.
Most farmers are generally risk averse and tend to choose businesses that are less revenue-
risky. Because poultry keeping is a risky enterprise and farmers are not able to deal with 
distant urban markets individually, ABFL initially tried to reduce price risk through a forward 
contract and purchase arrangement. This was later changed in favour of a risk sharing 
arrangement between ABFL and the contract farmers by assuring a certain share of the 
prevailing market price. An insurance scheme linking compensation based on mortality rate 
was introduced to reduce production risk.
There is no poultry insurance system for independent farmers in Bangladesh. ABFL is the 
only organization that has introduced an internal insurance scheme to cover the risk of loss 
and safeguard the interest of its contract farmers in case of death of immature chicks due to 
diseases and other reasons. According to this scheme, ABFL operates a contributory security 
fund. Farmers contribute BDT 1.50 per chick to the fund at the time of purchase of day-
old chicks. If chick mortality is 3%, 4–6%, 7–10% and 11–15% then 80, 40, 20 and 10%, 
respectively, of the premium contribution is refunded to the farmer. If the mortality rate is 
above 15%, the farmer can claim the full insured value as compensation. In this case, for 
birds up to 20 days old, the farmer receives BDT 20 per bird after deducting 15% from the 
number of lost birds. For birds older than 20 days, BDT 30 is paid per bird after calculating 
the benefi ts from birds up to 20 days old. The U-shaped compensation is to induce contract 
farmers to undertake better management and care of the birds to reduce mortality. In general, 
a mortality rate of up to 15% is considered normal or acceptable. In exceptional cases when 
the mortality rate exceeds 15% within 20 days or so, farmers incur heavy losses. In this 
21
situation, a fuller compensation principle is applied to encourage the farmers to continue 
poultry farming. As a result, contract farmers feel secure in the face of disease-related risks 
except in the case of avian infl uenza which had broken out when the scheme was introduced 
and so was not explicitly covered by the scheme.
The desire to overcome marketing constraints is a major motivation for joining contract 
farming. In Bangladesh, poultry farms located far away from major urban markets face several 
problems in marketing including inability to sell birds at desired times due to lack of buyers, 
inadequate transport facilities to carry birds to markets, uncertain prices and low bargaining 
power. By entering into contractual agreements, farmers can be assured of market outlets.
Access to technical knowledge and management skills is another advantage of contract 
farming. Most poultry farmers in Bangladesh start businesses without acquiring proper 
technical knowledge and management skills. Facilities to train farmers on various aspects 
of poultry farming and management are inadequate in the country. A major defi ciency is in 
knowledge about feeding regimes and management that heavily affect production effi ciency. 
Most independent broiler farm owners reported that they did not have suffi cient knowledge 
about poultry diets and optimal rations. In broiler production, the feed ratio varies for starter, 
grower and fi nisher stages and managing these properly is needed for profi t effi ciency. ABFL 
provides initial training in the management of the contract farming package and also provides 
continuous supervision throughout the growing period.
The ABFL contract broiler farming system is a partnership; the contract farmer provides land, 
housing, equipment and labour and ABFL provides inputs (initially on credit but later on 
cash), technical knowledge, supervision and an assured market for products at pre-agreed 
prices or a pricing mechanism that reduces price uncertainty.
3.1.2 Breeder stock farming contracts by ABFL
ABFL started contract breeder stock farming more recently. Its hatchery production systems 
totally depend on import of grandparent stock from aboard, usually from France, USA and 
the Netherlands. ABFL rears the imported birds under its own supervision. The eggs obtained 
from the grandparent stock are hatched and the day-old chicks are distributed to selected 
contract grower farmers as breeder stock birds. After 25 weeks, the parent stock birds lay 
hatchable eggs which ABFL buys back. After hatching they distribute the day-old chicks to 
contract and independent broiler farmers to rear as broilers.
A written agreement is made between ABFL and the contract breeder stock farmers. The 
contract is usually for a 10-year period and can be renewed upon mutual agreement. 
Unlike broiler contract farming, only solvent or relatively wealthy farmers in ABFL’s areas 
22
of operation areas are eligible to participate in the scheme because of the larger investment 
requirement. According to the agreement, ABFL provides day-old chicks, feeds and veterinary 
supplies on credit. It also offers intensive supervision and ensures purchase of the output. 
The credit liability of the contract farmer is adjusted against the value of the products. Unlike 
broiler contract farming, input credit was not discontinued in breeder stock contracts (Table 
7).
Table 7. Sharing of responsibility of the contract farms and contractor (ABFL) in breeder stock farm-
ing
Particulars
Breeder stock contract farmer 
Contractor Farmer
Land, buildings and equipment X
Manure handling, storage and disposal capacity X
Day-old chicks Credit
Feed ingredients, processing and delivery Credit X
Fuel, electricity and telephone X
Facility repairs X
Veterinary services and medicine Credit
Transportation cost of all input and output X
Labour: production and maintenance X
Labour: supervisory and specialists X
Source: Field survey.
The contract farmer typically provides labour, land, housing and equipment and builds 
a covered poultry shed under the direct supervision of ABFL experts to ensure a healthy 
environment for proper growth of the birds. Building the shed is a relatively costly 
investment, which few rural households can afford. Thus if need be, ABFL helps farmers to 
access bank loans of up to BDT 800 thousand from Uttara Bank. If any additional funds are 
required, ABFL provides 50% on credit and the farmers bear the remaining cost.
ABFL’s internal insurance scheme also covers breeder stock farms but the rates of premium 
and compensation are different. Farmers contribute 4% of the price of day-old chicks to the 
fund as premium and get refunds based on rate of mortality. If the mortality is less than 10%, 
11–25% and 26–50%, then 70, 60 and 75%, respectively, of the premium is refunded. If 
the mortality rate is above 50%, then the farmer can claim the full insured sum. In this case, 
BDT 60 per bird is paid if the bird dies at the laying stage. In the event of bird dying at the 
growing stage, the farmer receives BDT 100 per bird. The reasons for applying the U-shaped 
compensation principle are the same as for broiler contract farming discussed earlier. 
Because of this, farmers feel secure enough to subscribe to the scheme.
23
3.1.3 Broiler farming contracts by BPC 
BPC is a sister concern of Biman Bangladesh Airlines Corporation and deals in dressed 
broilers. The complex started operating in 1997. With 25 contract growers in Dhaka, Tangail, 
Manikgonj and Gazipur districts, about 60 km from the poultry complex at Savar, the system 
ensures supply of dressed chicken for Biman Catering Centre and two sales centres in Dhaka. 
Biman Catering Centre supplies chicken-based foods to different airlines operating out of the 
Dhaka International Airport.
BPC has entered into contract agreements with 25 farmers who have built good poultry sheds 
and have experience in broiler farming. Batch sizes vary from 1000 to 5000 birds with an 
average of 2500 birds. BPC also provides day-old chicks on credit, offers veterinary treatment 
and buys back live chicken from the contract farmers at a pre-determined price. In 2006 the 
price was BDT 100/kg from February to July and BDT 95/kg from August to January. The price 
is reviewed periodically based on market conditions and any price risk is shared between 
BPC and the contract farmers. However, production risk is fully borne by the farmers. 
Disputes between the contractor and the contract farmer are rare but when they occur, they 
are settled through mutual negotiation and understanding.
3.1.4 Broiler farming contracts by BRAC
BRAC is the largest national NGO in the country and its involvement in contract poultry 
farming has evolved over time. BRAC is committed to reducing poverty and empowering the 
poor through providing credit, training and technical assistance.
According to Saleque (2000), BRAC considered poultry as a potential candidate for income 
generation among landless and small farmers, particularly destitute women, many of whom 
owned a few chicken. In Bangladesh, 70 to 90% of households keep poultry while fewer 
keep goats and cattle. Landless households or those owning less than half an acre keep more 
than half of the total poultry population. Poultry is sometimes used as the fi rst investment for 
a livestock ladder to increase income and get out of poverty, in the sense that one can move 
from poultry to goats/sheep to cattle, and so on.
There were almost no job opportunities for the landless, disadvantaged Bangladeshi women 
in the 1970s and early 1980s. These women were BRAC’s targets for relief and development 
work after Bangladesh attained independence in 1972. But relief was not a mechanism 
for sustainable livelihoods for poor people as relief benefi ciaries needed income-earning 
opportunities. Since women who received relief had small poultry fl ocks, it was conceived 
that expanded poultry rearing could be an income earning activity for a large number of poor 
women. This belief that relief-dependent poor women could be helped to undertake poultry 
24
rearing as an income earning activity and thus gradually move on to self-sustained livelihood 
activities was the foundation of the poultry model that BRAC developed jointly with the DLS 
that eventually became a major development innovation (Islam and Jabbar 2005).
Between 1978 and 1985, BRAC and DLS developed a smallholder poultry model that 
targeted landless and poor households, especially women members. Initially there was no 
model or specifi c design but over time several activities were put together linked through 
a network of nine interrelated actors, each performing a specifi c task, e.g. hatching eggs, 
rearing day-old chicks to a certain age, rearing day-old chicks to mature birds, supplying 
feeds and vaccinations, and selling eggs and broilers.
DLS supplied day-old chicks from its hatcheries as foundation material for the network 
groups. After success of the pilot model, it was replicated in several areas between 
1985 and 1992 when the concept was adopted by major donors like the International 
Fund for Agricultural Development, the World Bank, the Asian Development Bank and 
the Government of Bangladesh. The adoption was carried out through a three-phase 
development project from 1992 to 2003. BRAC and DLS remained involved in the 
implementation of this development project by providing some services along with several 
other NGOs. 
DLS continued to provide day-old chicks for the project participants. However, its limited 
capacity to supply day-old chicks became a problem for expansion of the model at some 
stage. In response, BRAC started to produce day-old chicks to serve the requirements of the 
poultry model (Dolberg 2001). However, in addition to fi lling the supply shortage of day-old 
chicks, BRAC also saw a business opportunity and used the experience of the poultry model 
to develop a contract growing system. It supplied day-old chicks and other inputs on credit to 
smallholder producers and initially bought back eggs and broilers at pre-determined prices. 
The difference between this model and commercial contract growing is that BRAC focused 
on poverty alleviation by specifi cally targeting smallholders (Islam and Jabbar 2005).
After the smallholder poultry development project ended in 2004, many of its poultry 
network groups became non-functional and the many supply chains collapsed. However, 
BRAC continued to support more effi cient and functional groups by supplying day-old 
chicks through its regular livelihood enhancement program while developing alternative 
mechanisms to promote contract poultry farming as an income-generating activity among 
smallholders.
Between 2002 and 2004, BRAC tried contract farming in Sherpur district by providing key 
inputs such as day-old chicks, feed and medicine on credit and buying back broilers at pre-
determined prices. BRAC sold day-old chicks and feed to poultry farmers through dealers. It 
25
also provided support for training, vaccines and medicine and helps to sell products through 
agents at existing market prices. At the fi eld level, dealers made informal contract arrangements 
with farmers by selling inputs and buying outputs on credit. The arrangement did not work, 
however, because farmers violated the terms of the contracts, particularly when market prices 
were higher and they opted to sell their outputs in the local market instead of to BRAC.
BRAC recently entered into an arrangement with Mexicana Chicken, a fast food retailing 
enterprise of the Nasir Group of Industries. Under the arrangement, BRAC supplies hygienic 
broilers raised by 215 contract farmers in seven districts: Gazipur, Manikganj, Norshingdi, 
Kishoreganj, Tangail, Mymensingh and Brahmanbaria. Batch sizes range from 500 to 
2000 birds with an average of 800 birds. BRAC supplies farmers with day-old chicks and 
other inputs through agents, and offers technical supervision and quality assurance in line 
with specifi cations of Mexicana Chicken. BRAC usually enters into written contracts with 
producers to buy products at the prevailing market price. The contracts include a provision 
that if a specifi ed quantity of products cannot be supplied or bought due to unavoidable 
circumstances, the other party must be informed at least three days in advance.
The price risk is shared by both parties to the contract because the contract price depends 
on market price fl uctuation. The production risk is fully borne by the farmer. The contract 
arrangement assures farmers of access to quality inputs and assures the integrator of a stable 
input market.
3.2 Formal input marketing contracts
There are 130 hatcheries in the country, 68 of which are fully functional and the rest partially 
functional or closed. There are 52 registered feed mills of which 40 are fully functional. In 
some cases, a single company may include both types of enterprises; of these, Kazi Farms, 
Paragon Poultry and Nourish Feed operate formal input marketing contracts.
3.2.1 Day-old chick supply contracts by Kazi Farms
Established in 1996, Kazi Farms is the largest Bangladeshi producer of parent stock and day-
old chicks for broilers and layers. In 2006, the company established the largest poultry feed 
mill in Bangladesh. It later began exporting poultry products to the Middle East and Nepal, 
and is managing operations of a broiler-breeding farm in the Sultanate of Oman.
Kazi Farms also provides countrywide sales services through its network of over 100 
salespersons stationed in different poultry-producing areas. Day-old chicks and feeds are 
distributed by 600 feed and chick distributors countrywide. Financially solvent persons of 
high integrity, as judged by the company, are selected as distributors in charge of one or 
26
two thanas. The company enters into a written contract with the distributors under which 
they must meet the target purchase volume of day-old chicks and feed. Distributors are also 
required to deposit a security bond with the company, normally equivalent to the price of 
1000 chicks. Distributors purchase day-old chicks and feed through advance payment in cash 
or banker’s draft. There is no provision of credit sale. 
Under the informal contractual arrangement with the farmers, the company has set up 
a service network of veterinarians and animal husbandry graduates to help farmers deal 
with poultry diseases. These technical personnel regularly visit the client farmers and offer 
veterinary services free of charge. This is an investment by the company to ensure chick 
survival so that its own feed and day-old chicks business can be sustained and expanded. 
In this contract arrangement, both production and price risks are borne by the farmers. 
However, farmers benefi t from a supply of healthy day-old chicks and feed during peak and 
lean periods.
3.2.2 Contracts by Paragon Poultry and Nourish Feed
Paragon Poultry is one of the largest producers of day-old chicks in Bangladesh. It has 
developed a special type of contractual arrangement through which it supplies day-old chicks 
and feeds to poultry keepers through its countrywide network of 205 dealers. It supplies 400 
thousand day-old chicks per week and 140 t of feed per day. The company claims over 10% 
of the market share of day-old chicks in the country. It does not participate directly in the 
purchase of the farmers’ products, but some of the dealers help farmers to sell the products. 
The farmers bear all production and price risks.
Nourish Feed is one of the largest poultry feed producers in the country. It also produces 
day-old chicks as a supplementary venture. It supplies day-old chicks and feed to the farmers 
through its 160 dealers operating across the country. The company supplies 300 thousand 
day-old chicks per week and 330 t of feed per day. The company has a substantial market 
share for poultry feed and a 2% market share of day-old chicks in the country. The company’s 
major competitors in the feed market are Kazi Farms, ABFL and Paragon Poultry. It does not 
purchase of farmers’ products directly but occasionally helps farmers to sell products through 
the dealers. For this reason, the farmers bear both production and price risks.
3.3 Informal output marketing contracts
Dhaka-based aratdars and egg wholesalers sometimes make forward purchase contracts 
with layer farmers in Gazipur district. They also sometimes engage in contracts with agents 
who then buy eggs from producers with or without prior contracts to supply the aratdars. 
Forward purchase contracts differ from formal contracts in that the former are made with 
27
existing farms to purchase products rather than to establish new farms. In this arrangement, 
aratdars make lump-sum advance payment which is adjusted from the value of products at 
the time of delivery. The main benefi t for producers is that the cash advance is considered a 
source of credit to buy inputs when going to a formal credit agency may be time-consuming 
or problematic. The price of eggs is unilaterally fi xed by the aratdars. Although these prices 
approximate the prevailing market prices, they are sometimes lower than the immediate past 
prices and hence are unexpected from the producers’ point of view. The basis of fi xing price 
is not made clear by the aratdars so producers supply eggs without foreknowledge of the 
price to be paid. The aratdars in Dhaka, through their syndicates, fi x the price daily and the 
producers have no choice but to accept it. The aratdars allegedly extract unduly high margins 
or commissions through this practice. 
28
4 Structure and conduct of poultry input 
and output markets
The main inputs for poultry production are day-old chicks, feeds, equipment and veterinary 
medicines, while the main outputs are eggs and broilers. The performance of the industry can 
be assessed by examining the structure and conduct of the industry at the aggregate level as 
well as by assessing the trading practices and performance of input and output traders.
Market structure can be identifi ed by considering the number and size distribution of buyers 
and sellers, the extent to which products are differentiated, how easy it is for other fi rms 
to enter the market and the extent to which fi rms are integrated or diversifi ed (Bain 1968; 
Ferguson 1988). More specifi cally, market structure for a commodity can be evaluated in 
terms of four dimensions: (a) the degree of seller concentration, (b) the degree of buyer 
concentration, (c) the degree of product differentiation and (d) the condition of entry to the 
market. 
Concentration has two alternative meanings: (a) control of a large proportion of some 
aggregate of economic resources or activity by a small number of the units which control 
the aggregate or (b) control of a large proportion of such an aggregate by a small absolute 
number of these units (Scarborough and Kydd 1992; Abbot 1993).
In a competitive business, fi rms are expected to earn normal profi t because the existence of 
abnormal or super-normal profi t should invite new entrants into the market and thus push 
down the profi t rate to normal level. It is generally well known that in a competitive market, 
a trading fi rm’s temporal or spatial arbitrage performance depends on its fi nancial, physical 
and human capital assets as well as its ability to minimize costs. There are physical marketing 
costs (e.g. transport and storage) and transaction costs that arise from coordinating the 
exchange among relevant market agents and include the costs of obtaining and processing 
market information, negotiating contracts, monitoring agents and enforcing contracts.
Transaction costs are unique and specifi c to individual market agents, so the agents in the 
market conduct transactions on the basis of their own costs. When transaction costs are very 
high, markets become thin or even fail (Williamson 1985; North 1989; Hoff and Stiglitz 
1990; Gabre-Madhin 2001).
Gabre-Madhin and Negassa (2004) have argued that trading practices also infl uence 
trading performance. They defi ne trading practices or the way exchanges are conducted 
as observable market behavioural outcomes of underlying market institutions. Market 
institutions encompass ‘rules of the game’, rules and laws, informal norms, formal 
and informal organizations and associations. These institutions may determine trading 
29
practices with respect to, among others, mode of purchase and payment, inspection 
of goods, negotiation and enforcement of contracts, contract violations and means of 
settlement.
Some examples of trading practices include use of regular suppliers and customers, use 
of brokers/agents for purchase and sale, cash or credit purchase and sales etc. Trading 
practices may also be determined by type and composition of assets as fi rms operating 
under the same set of underlying market institutions often do not follow similar trading 
practices. In this case, in empirical estimation of performance, possible multi-colinearity 
between asset ownership and trading practices should be examined. On the other 
hand, trading practices may impact on traders’ performance through their infl uence on 
transaction costs. However, most trading practices, unlike most transaction costs, are 
observable and measurable. Thus, trading practices are sometimes used as proxies for 
transaction costs in empirical investigation.
In this study, industry-level analysis was carried out on hatcheries and feed mills only. Poultry 
drugs are either manufactured locally or imported so a full picture of the drug market could 
not be gathered for industry-level analysis. Various poultry equipment other than those 
required as main capital investment is produced by a large number of local manufacturers. 
Production of poultry equipment has developed into a cottage or small-scale industry, so 
industry-level analysis for equipment could not be done due to lack of information. However, 
trader practices and performance as proxies for transaction costs were analysed for all the 
four inputs as well as for broilers and eggs. 
4.1 Structure and conduct of hatcheries and feed mills
4.1.1 Geographical distribution of hatcheries and feed mills
Some companies or investor enterprises own both hatcheries and feed mills which, though 
registered separately, use the same distribution network. Thus, the two are discussed together. 
Available information indicates that there are 130 hatcheries in the country, 68 of which are 
fully functional and the rest either partially operational or temporarily closed. Ninety percent 
of the functional hatcheries have their own breeding or parent stock farms. There are also 52 
registered feed mills in the country but 40 are currently in operation. 
About half of the hatcheries and functional feed mills are located in Gazipur, Chittagong 
and Dhaka districts (Table 8) which have the highest concentration of poultry farms. The 
hatcheries tend to be set up closer to poultry farms or production areas because long-
distance transportation of day-old chicks is more problematic and costly than transportation 
of feeds. Thus, hatcheries are more widely distributed compared to feed mills.
30
Table 8. Distribution of hatcheries and feed mills by district
District Number of hatcheries Number of feed mills 
Gazipur 21 (16.2) 12 (30.0)
Chittagong 22 (16.9) 8 (20.0)
Dhaka 17 (13.1) 2 (5.0)
Jessore 6 (4.6) 1 (2.5)
Faridpur 7 (5.4) –
Rajbari 13 (10.0) 1 (2.5)
Bogra 5 (3.9) –
Khulna, Mymensingh 8 (6.2) 5 (12.5)
Manikganj, Narayanganj 6 (4.6) 5 (12.5)
Kishoreganj 2 (1.5) 2 (5.0)
Others* 23 (17.6) 4 (10.0)
Total 130 (100) 40 (100)
*19 for hatcheries, four for feed mills. 
Percentages in parentheses.
Source: Field survey (2006).
4.1.2 Structure of day-old chick and feed markets
In this study, the potential capacity of production of day-old chicks and the potential 
hourly production capacity of feed were considered in order to assess the level of industry 
concentration. In the hatchery industry, the three-fi rm seller concentration was estimated 
at 30% and the 10-fi rm seller concentration at 72%. The respective corresponding fi gures 
for the feeds industry are 27 and 50%. According to Bain’s classifi cation of industry on the 
basis of seller concentration, the poultry hatchery industry in Bangladesh can be classifi ed as 
moderate to highly concentrated. The concentration of the feed industry is slightly lower and 
has been decreasing since the 1990s due to entry of new fi rms (Khan 1998). However, the 
industry remains generally underinvested as indicated by supply shortage of day-old chicks 
and need for advance booking and payment. Broiler and layer farm owners are the buyers of 
day-old chicks and feeds. There are many small poultry farms which are scattered all over the 
country. The small size, dispersed location and passive role of the poultry farms indicate low 
buyer concentration.
4.1.3 Marketing chains for day-old chicks and feeds
A few hatcheries distribute day-old chicks in different districts while others operate in their 
local areas. Some hatcheries specialize in either broilers or layers while others produce both 
types. Each hatchery may use more than one strain of breeding stock for broilers and layers. 
Five companies have also started grandparent farms.
31
The hatchery owners sell the day-old chicks at the hatchery, directly to the broiler and layer farm 
owners at sales centres or to poultry farmers through sales agents. In the case of contract farming, 
the contractor sells day-old chicks from the hatchery to the selected contract growers. Taking the 
hatchery industry as a whole, a large proportion of total production is disposed through sales 
agents. The commercial broiler and layer farmers usually need to make advance bookings with 
the hatcheries with a portion of the order value as down payment at least one month before the 
date of delivery. However, the duration of advance booking varies depending on the hatchery 
or buyer. Advance booking is used mainly because total demand for day-old chicks from broiler 
farms at a particular time is sometimes higher than the installed capacity in the hatchery industry 
as the industry is underinvested. Thus, there is need to assure supply from the demand side. Also, 
because of the perishability of the day-old chicks, hatchery owners want to have an assured order.
Day-old chicks are packed either in paper boxes or bamboo baskets. A standard box carries 
51 day-old chicks. Hatcheries use their own or hired means of transport to ferry day-old 
chicks from the hatchery to the sales centres or agent’s store. Commercial farm owners 
arrange their own transport from the agent’s store. Farmers generally do not use specialized 
transport but transport day-old chicks in passenger buses, rickshaw vans or locally made 
three-wheeler vehicles called nasimon or korimon. These non-specialized means of 
transportation are hazardous and increase the likelihood of mortality during movement, 
though defi nite information on mortality during transportation was not obtained.
Different feed mills distribute their products in different ways. Some feed manufacturers 
distribute feeds through agents while others use independent traders (wholesalers and 
retailers). Some like BRAC have their own sales centres and selected agents for feed 
distribution. Enterprises with both hatchery and feed mills use the same distribution channels 
or sales agents for both products. Figure 2 shows typical feed marketing chains.
Figure 2. Marketing chains used for distribution of poultry feeds.
Mill’s sales centre
Wholesaler
Retailer
Feed mill
Poultry farmer
32
4.1.4 Product differentiation
Product differentiation refers to the extent to which buyers distinguish competing outputs of 
the various sellers established in the industry (Bain 1968). Buyers and sellers in the hatchery 
industry use strain of breeding stock as the main criterion to differentiate products. Currently, 
several broiler and layer strains are available in the country though three broiler strains and 
one layer strain dominate the market (Tables 9 and 10).
Table 9. Number and percentage of poultry farmers using different strains of broiler birds by farm 
type and district
Strain
Kishoreganj Gazipur Both areas
Contract Independent Contract Independent Contract Independent
Hubbard Classic 27 (45) 8 (20) 7 (17) 17 (40) 34 (33) 25 (31)
Kasila 22 (37) 14 (35) 30 (71) 9 (21) 52 (51) 23 (28)
Cobb-500 11 (18) 15 (38) 4 (10) 11 (26) 15 (15) 26 (31)
CM Classic Starbro – 3 (8) 1 (2) 1 (2) 1 (1) 4 (5)
Hibro – – 4 (10) 4 (5)
Total 60 40 42 42 102 82
Percentages in parentheses.
Source: Field survey (2006).
Table 10. Number and percentage of farmers using different strains of layer birds by farm type in 
Gazipur district
Strain Independent Informal contract Overall
Hi-sex brown 11 (29) 15 (35) 26 (32)
Hi-land 2 (5) 4 (9) 6 (7)
Hyline 4 (11) 9 (21) 13 (16)
Babcock-300 4 (11) 2 (5) 6 (7)
Ross-308 – 1 (2) 1 (1)
Shaver -579 2 (6) 6 (14) 8 (10)
ISA brown 4 (11) 2 (5) 6 (7)
Shaver star cross – 2 (5) 2 (3)
BV-300 3 (8) 1 (2) 4 (5)
Victoria – 1 (2) 1 (1)
Brown nick 5 (13) – 5 (6)
Flex 1 (3) – 1 (1)
Golden 1 (3) – 1 (1)
Lohman brown 1 (3) – 1 (1)
Percentages in parentheses.
Source: Field survey (2006).
33
Poultry farmers do not really know what they are buying as they have no way to ascertain the 
biological characteristics of the various strains or their quality. Hatcheries use different brand 
names for broiler and layer day-old chicks and some hatcheries have established goodwill 
among buyers by providing quality day-old chicks and differentiated products. Hatchery 
owners, especially large ones, care about their reputation in the market as farmers may not 
be able to tell the strain of chick at the time of purchase but know how it performs afterwards 
(this is called an ‘experience good’). So, suppliers of day-old chicks know that they can sell 
low quality chicks in the short-run but this will eventually affect their reputation and they 
will lose customers. Kazi Farms and other input marketing contract operators are examples of 
suppliers who are concerned about reputation.
Two types of feeds are used in the poultry sector: ready-to-use and feed ingredients. Broiler 
farmers use ready-to-use manufactured feeds while layer farmers purchase feed ingredients 
separately for mixing. The ready-to-use feeds of different feed mills available in the market 
are not homogeneous in nature. Manufacturers differentiate poultry feeds on the basis of 
quality, brand name, sales promotion and packaging.
4.1.5 Condition of market entry
Condition of entry refers to the disadvantage of potential entrant fi rms as compared 
to established ones. The apparent supply shortage of day-old chicks indicates under-
investment in the hatchery industry. Reasons for under-investment include legal barriers 
(lengthy licensing process), shortage of investment capital or shortage of raw materials. 
However, hatchery owners reported that the Bangladeshi hatchery industry currently has 
no legal barriers to entry for potential entrants. Inputs for the hatchery industry, (e.g. parent 
stock, equipment) can be easily imported from abroad. The main problems for potential 
fi rms are lack of capital and qualifi ed personnel. These conditions and excess demand 
for day-old chicks enable the established fi rms to control the market for day-old chicks. 
In the feed industry, there is no legal barrier for potential entrants. Conversely, there are 
incentive programs such as tax holidays and import duty exemption on equipment and feed 
ingredients. However, feed manufacturers cited scarcity of raw materials and inadequate and 
irregular power supply as major barriers to entry for potential investors in the feed industry.
4.1.6 Market conduct of hatcheries and feed manufacturers
In terms of price policy, the hatchery owners set the price of day-old chicks independently 
but consider the reaction of competitors in the market. They usually sell day-old chicks at 
fi xed price to farm owners and agents but provide a commission to the agents. It is important 
to note that there is no bargaining between buyers and sellers of day-old chicks at any point 
in the supply chain; it is basically a supply-driven market. Similarly, feed millers usually 
34
set the prices for wholesalers, there being little scope for bargaining except that rates of 
commission may vary depending on volume of purchase.
In terms of product development policy, the hatcheries in Bangladesh have not developed 
their own research and development systems to produce day-old chicks. The parent stock is 
imported and hatcheries try their best to maintain the inherent quality of the birds through 
proper management. They are always conscious about the quality of the day-old chicks they 
produce but none disclosed any criteria or processes through which the quality of birds could 
be evaluated. Feed millers also use state-of-the-art technology to manufacture feeds based 
on imported and local raw materials. The industry does not conduct any organized research 
to develop feeds based on local raw materials nor does it have any links with academic 
research institutions to carry out such research through bilateral arrangements.
In terms of sales promotion, some hatcheries advertise in newspapers and magazines or use 
posters, leafl ets and workshops to promote their products in spite of excess demand for day-
old chicks. Some fi rms also provide incentives (such as foreign trips) to the agents for better 
sales performance.
Feed millers usually promote their products through advertising, seminars and workshops and 
by providing quality assurance and incentives such as differential commissions to traders. 
Some millers also provide incentives to farmers.
4.2 Trading practices and performance of feed traders
4.2.1 Trading practices
Ten feed wholesalers were selected from four market places to assess how the feed wholesale 
and retail markets operate and perform: fi ve from Sreepur, two each from Gazipur Sadar and 
Mymensingh Sadar and one from Dhaka. Thirteen feed retailers were also selected: six from 
Sreepur, three each from Gazipur Sadar and Bajitpur thana in Kishoreganj district, and one 
from Mymensingh Sadar.
The wholesalers purchased feeds from different mills. About 10% of the traders purchased 
feeds from mills located 105 to 110 km away. Twenty percent of traders who travelled 75 to 
80 km to buy feeds while the rest covered travelled between 5 and 45 km.
Forty-six percent of retailers collected feed from sellers located 10 km away, 31% bought 
feed from sellers 20 to 50 km away while 23% had the feed delivered directly to them. Thirty-
eight percent of retailers sold feed within a fi ve-kilometre radius, 15% sold feed within 10 km 
and 23% supplied feed to buyers situated up to 20 km away. Only 8% of retailers travelled 
up to 35 km away to sell feed.
35
Sampled wholesalers handled six brands of processed feeds used by the broiler farmers: 
National Feed, Sunny Feed, Biswas Feed, Nourish, Quality Feed and Saudi-Bangla Feed. 
Thirty percent of wholesalers handled only one brand, 30% handled two, 10% handled three 
while the rest dealt with feed ingredients. Wholesalers sold feeds to both poultry farmers and 
retailers. Seventy-eight percent of retailers and 75% of farmers bought feeds regularly from 
wholesalers. 
Samples retailers sold ten brands of feeds. Twenty-three percent of traders sold National Feed, 
23% handled Chomak Feed and 8% each handled one of the four remaining brands. Each 
of the remaining retailers handled two brands. We could not establish whether this apparent 
brand specialization was because of conditions imposed by feed millers.
The feed manufacturers set the wholesalers’ buying price. Some manufacturers charged BDT 
0.15 less per kilogram of feed to cover the cost of transport when wholesalers transported 
feed themselves. The wholesalers sold feed to retailers and farmers either for cash or on 
credit. In 2005, 90% of wholesalers reportedly sold feeds on credit to an average of 45 
buyers. In setting the selling price, 90% of wholesalers charged a fi xed margin on the total 
cost of feed marketing and 10% of the wholesalers marked up a certain percentage of the 
total cost as profi t. The price of feed varied from brand to brand. Moreover, individual sellers 
did not charge the same price to all buyers. Feed prices were discriminated on the basis of 
mode of payment (cash vs. credit) and volume of purchase (small vs. large), as reported by all 
traders, while 90% also considered regularity in purchase or store loyalty as a basis for price 
discrimination. There was no arrangement of cost and risk sharing in feed trading between 
manufacturers and wholesalers.
Retailers bought feeds at a price fi xed by the wholesalers. Retailers were very loyal to their 
suppliers and frequently sold feed on credit. In 2005, one retailer served an average of 33 
farmers and retailers set the selling price of feed by adding a fi xed margin to the cost of 
marketing and the purchase price of the feed. The selling price of feed was discriminated on 
the basis of quantity of purchase, mode of payment and customer loyalty.
Generally, wholesalers and retailers did not use any form of sales promotion but usually 
sold feeds on credit. Retailers also helped farmers to sell their products on time. In this way, 
an informal relationship or contract was established between feed traders and poultry farm 
owners at the local level.
4.2.2 Traders’ business performance
Wholesalers handled 87 t of feed per trader per month and spent an average of BDT 15,454 
per tonne on feeds whose average sale price was BDT 16,439. Wholesalers incurred BDT 
36
486 as marketing costs, 80% of which was related to purchase activities and the rest to 
sales activities (Table 11). This resulted in an operating margin of BDT 985 per tonne on the 
purchase price. The sampled feed retailers sold an average of 52 t of feeds per month. The 
average purchase price was BDT 15,404 per tonne and the sale price BDT 16,379/t. Retailers 
incurred BDT 321 as marketing costs, 74% of which was for purchase-related activities, 
resulting in an operating margin of BDT 975 (6.3% of the purchase price). 
Table 11. Wholesalers’ and retailers’ marketing costs and margins of feed trade
Cost item
Wholesaler (n=10) Retailer (n=13)
Amount (BDT) Amount (BDT)
Purchase price 15,454 15,404
Marketing costs
Communication 20.88 (4.3) 20.27 (6.3)
Transportation 203.95 (42.0) 137.56 (42.8)
Loading & unloading 12.57 (2.6) 24.67 (7.7)
Wastage 30.84 (6.3) –
Shop rent 48.28 (9.9) 40.76 (12.7)
Labour 82.30 (16.9) 70.56 (22.0)
Electricity charge 13.97 (2.9) 15.79 (4.9)
Telephone 9.77 (2.0) –
License fee 7.39 (1.5) 6.48 (2.0)
Subscription 10.17 (2.1) 5.32 (1.7)
Others* 45.98 (9.5) –
Total 486.10 (100.0) 321.41 (100.0)
Sale price 16,439 16,379
Margin 985 975
Percentages in parentheses.
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
*Cost of collecting market information and negotiating contract, which can be consid-
ered as part of overall marketing and transaction costs.
Source: Field survey (2006).
Transport and labour were the two main cost items for both categories of traders. Because 
data on actual turnover for the whole year were not available, the annual rate of return per 
unit of operating capital could not be accurately calculated to assess if the generated returns 
were comparable to other businesses or at least equivalent to the going bank rate.
Normally, the retail average purchase and sale prices should be equal to or greater than the 
wholesale selling sale price. However, the retail prices were lower than the average whole-
sale selling price. One explanation for this is that the sampled wholesalers did not sell their 
stock to the sampled retailers so a one-on-one comparison was not possible. In addition, the 
37
sampled retailers did not handle the same brands or combination of brands of feeds as the 
sampled wholesalers. Prices also varied from brand to brand (Table 12); this could also partly 
explain the price differences between wholesalers and retailers.
Table 12. Average buying and selling prices (BDT/t) of wholesalers and retailers of selected brands 
of feeds 
Brand of feed
Wholesaler (n = 10) Retailer (n = 13)
Buying price Selling price Buying price Selling price
National 13,225 14,135 13,333 14,267
Biswas 15,000 16,000 – –
Quality 21,000 22,000 21,200 22,000
Nourish 16,000 17,000 13,975 14,925
Saudi-Bangla 14,500 15,500 – –
Suny 13,000 14,000 – –
Surma – – 13,500 14,500
Chomok – – 13,133 14,000
Kazi – – 15,100 16,100
Pancha – – 15,500 16,500
Fresh – – 17,500 18,500
Aftab – – 15,500 16,500
Jayso – – 15,300 16,500
Average 15,454 164,39 15,404.10 16,379.20
Source: Field survey (2006).
4.3 Trading practices and performance of veterinary drug 
traders
More than 100 pharmaceutical companies in the country have been reportedly involved in 
the veterinary drugs business. An estimated BDT 3500 million worth of health and nutrition 
products are marketed annually in the country though the volume of poultry drugs business 
is not accurately known (Ahammad 2006). In order to analyse the trading practices and 
performance of wholesale and retail traders of veterinary drugs, fi ve wholesalers of poultry 
drugs were selected: four from Sreepur and one from Joydevpur Sadar thanas of Gazipur 
district. Six retailers were also selected: three from Sreepur and one each from Fulbaria, 
Bajitpur and Mymensingh Sadar thanas. 
The marketing chain for drugs is simple and comprises only three actors: pharmaceutical 
companies, wholesalers and retailers. The pharmaceutical companies distribute drugs to both 
wholesalers and retailers. Retailers also purchase drugs from wholesalers for sale to poultry 
farmers. Wholesalers collect drugs from Dhaka and Tongi where most of the drug importers 
38
and manufacturers are located. The sampled drug traders started this business between 1995 
and 2005. One of the retailers started this business in 1990, the other four between 1998 and 
2003, and one in 2005. The sampled wholesalers usually sold drugs of seven pharmaceutical 
companies: ACI Limited, Arif (Bangladesh) Ltd., Renata Ltd., Rampart Power Bangladesh 
Ltd., Square Pharmaceuticals Ltd., ACME Laboratories Ltd. and SKF. In addition to these 
seven companies, Jayson, Veds, Techno Drug and Aventis also supplied drugs directly to the 
sampled retailers. 
The pharmaceutical companies set the prices of drugs for both wholesalers and retailers. 
All the wholesalers and retailers reported that they often sold drugs on credit. In 2005, each 
wholesaler sold veterinary drugs on credit to an average of 200 buyers while retailers sold 
drugs on credit to an average of 101 poultry farmers. Thus, the average seller of veterinary 
drugs served many more farmers than the average feed trader.
Each wholesaler reportedly handled 5 to 15% of the market in their areas of operation, 
indicating that the market is quite competitive. Different wholesalers sold drugs at different 
prices depending on the brand and reputation of the manufacturing company. The company 
usually bore the cost of transporting veterinary medicines from the factory to wholesaler’s 
store and other costs associated with transportation (e.g. damage). Each of the sampled 
retailers reportedly handled between 1 and 40% of the market in their areas of operation, 
indicating that competition might not be very high in some places. 
Both wholesalers and retailers promoted sales by offering credit and other incentives to 
buyers. All fi ve wholesalers offered credit, four provided incentives to traders and two 
provided incentives to farmers. Of the six sampled retailers, fi ve practised credit sale, two 
provided incentives to farmers and three tried to maintain personal contact with buyers. 
The wholesale and retail sale price was set in various ways such as by adding a fi xed margin 
to unit cost plus purchase price of drugs. All sampled wholesalers adopted the prevailing 
market price as their selling price while 80% of retailers set the sale price by adding a 
fi xed margin to their cost of marketing. All wholesalers and about two-thirds of retailers of 
veterinary drugs practised price discrimination. Most wholesalers used volume of purchase 
and loyalty as the basis for price discrimination while 67% of retailers used cash or payment 
of arrears.
39
4.4 Trading practices and performance of poultry equipment 
traders
Traders in poultry equipment handled a range of equipment including brooders, waterers, 
chick guards, feeders, egg trays, feed trays, mugs and bungas (pots used to lift feed 
ingredients at the time of sale and to distribute feeds on the feeding tray).
In order to analyse their business practices and performance, fi ve wholesalers and fi ve 
retailers were selected from Dhaka, Sreepur, Gazipur and Mymensingh Sadar thanas. One 
wholesaler started this business in 1996 and two others in 2000 and 2001, respectively. On 
the other hand, three of the retailers respectively entered the business in 1995, 1999 and 
2000 and two in 2001. Both wholesalers and retailers invested their own capital.
Three of the wholesalers procured their equipment from Nayabazar while two bought theirs 
from Islambagh where manufacturers mainly marketed their products. Wholesalers regularly 
got their supply of equipment from selected suppliers and then sold it to retailers. Three 
wholesalers sold directly to farmers, two travelled 20 to 25 km and three travelled 65 to 70 
km to buy equipment. Three wholesalers sold to buyers within 20, 30 and 60 km of their 
business premises while two sold to buyers all over the country. The market share of individual 
wholesalers varied from 5 to 30% of the market in their areas of operation.
Manufacturers usually set prices for wholesalers who set the resale price by adding a fi xed 
margin to the purchase price and cost of marketing the equipment. The margin varied 
depending on the size and value of equipment (Table 13). 
Table 13. Marketing margins of equipment wholesalers by type of equipment (BDT per unit of 
equipment)
Equipment
Purchase price plus 
marketing costs
Sale price Marketing margin
Brooder 385 520 135
Waterer 29 33 4
Chick guard 139 148 9
Feeder 29 32 3
Egg tray 12 14 2
Feed tray 30 33 3
Bunga 26 29 3
Mug 28 31 3
Net for fencing (per square foot) 13 15 2
n=5.
Source: Field survey (2006).
40
Out of the fi ve sampled wholesalers, four based price discrimination on the purchase and 
buyers’ loyalty while two based it on mode of payment. There was no contractual arrange-
ment between manufacturers and wholesalers and no sharing of cost or risks in trading of 
poultry equipment. Wholesalers adopted various means of promoting their products: two 
used credit sale, two provided incentives to buyers and three maintained personal contact 
with buyers. 
Generally, retailers regularly purchased equipment from selected wholesalers. Three of the 
fi ve retailers travelled 75 to 80 km to buy equipment while the other two travelled 85 to 90 
km and 115 to 120 km, respectively. However, their sales were confi ned within 4 to 60 km of 
their respective business premises.
In buying equipment, three retailers mentioned that the price was set by wholesalers. One 
retailer mentioned that the price was negotiated with the suppliers while another used the 
prevailing market price. All retailers set their selling price by adding a fi xed margin to the 
buying price and cost of marketing the equipment. They did not sell products on credit. The 
market share of individual retailers in their areas of operation was 25% for one trader, 20% 
for each of three traders and 10% for another. The retailers of equipment charged different 
prices to buyers depending on sales volume and customer loyalty. Due to risks in the 
business, retailers had no arrangement for cost sharing either with suppliers or the ultimate 
buyers of the equipment. Eighty percent of retailers kept good contact with the poultry 
farmers to increase their sales while the rest provided discounts as incentives to encourage 
buyer loyalty.
4.5 Trading practices and performance of broiler 
and egg traders 
4.5.1 Marketing chains for broiler producers
The contract broiler farmers of Kishoreganj sold their products to the contractor or integrator 
(ABFL). Contract farmers delivered birds to the company’s purchase points or headquarters. 
The company disposed of the birds through its retail sales centres in Dhaka for sale to 
consumers or to wholesalers and retailers in Dhaka. Some birds were processed at the 
company’s processing plant in Kishoreganj into dressed broilers and chicken nuggets which 
were then supplied to the company’s retail sales centres in Dhaka and various supermarkets 
(Figure 3).
BRAC’s contract growers in Gazipur, Manikganj, Norshingdi, Kishoreganj, Tangail, 
Mymensingh and Brahmanbaria delivered their birds to BRAC’s purchase points from 
where they were transported to BRAC’s processing plant in Gazipur. Dressed broilers were 
41
then supplied to Mexicana Chicken, the fast food outlet with which BRAC has a supply 
contract to deliver hygienic chicken. The processing plant also produced dressed broilers for 
supermarkets from live birds supplied by contract farmers and BRAC’s broiler farm.
Figure 3. Main marketing channels for broiler producers in Gazipur and Kishoreganj districts.
The chains for the independent broiler producers were different and complex. Dhaka, 
Chittagong and Khulna are major urban markets served by commercial broiler and egg 
producers as well as producers of scavenging local chicken and eggs throughout the 
country. Each of the 62 district towns and other smaller urban centres are also served by 
local producers in those districts. The marketing chains at the district level may vary to some 
extent between the districts. This study focused only on the Dhaka market and its supply 
channels especially from the two districts where farm surveys were conducted, Gazipur and 
Kishoreganj.
Feed trader 
in Sararchar
/Aratdars wholesalers 
in Mawnamarket
Traders of Dhaka
Consumers in 
Sararchar
, 
, 
Traders of 
Comilla
Sylhet
Chittagong
Aratdars
Wholesalers
Consumers 
in Gazipur
Retailers
Kishoreganj
broiler & layer 
farmers
Gazipur broiler/layer 
farmers
Retail traders in 
Gazipur
Wholesalers of Dhaka 
Retailers of Dhaka markets
Consumers 
in Dhaka
Consumers in Sylhet
Comilla, Chittagong
Retailers in Sararchar
Feed traders
42
Figure 3 gives a generic fl ow of supply chains for broiler and eggs to Dhaka from Gazipur 
and Kishoreganj districts. There were some differences between broiler and egg supply chains 
in two respects; some traders handled both products while others specialized in only one. 
Additionally, the nodes in the supply chains and their actors and functions are not exactly the 
same for the two products. However, Figure 3 summarizes the principal nodes in the supply 
chains for the two products.
Broiler farmers in Kishoreganj sold broilers with the help of feed and medicine traders at the 
Sararchar wholesale market. The feed traders telephoned different market places to collect 
information about the price of broilers. The terms and conditions of transactions were mostly 
settled over the phone. The traders then collected the broilers from the farm gate in the 
presence of the negotiator (feed trader). The transaction was mainly done in cash. The feed 
traders received a commission from the farmers of BDT 0.50/kg of broilers sold. A few live 
birds were also sold to the local retailers at the farm. However, the role of feed traders in 
broiler and egg marketing in Kishoreganj was not as prominent as in Gazipur.
The supply chains from Gazipur and the actors involved were much more complex (Figure 
3). Key nodes or points in the Gazipur supply chain are Mawna wholesale market, Dhaka 
central market in Tejgaon and various municipal markets in the city where consumers usually 
shop. The fi rst intermediary in the chain was sometimes the feed trader who either bought 
products from farmers or facilitated the linkage between farmers and traders with or without 
a fee. The main motivation of feed traders was to promote sales of feeds by helping the 
farmers to link with regular buyers.
Mawna wholesale market plays an important role in the supply chains for broilers in Gazipur 
district. It is a small business centre located in Valuka Upazila in Gazipur. There are about 40 
traders (media partners/aratdars) at the market, who act as commission agents of the aratdars 
of Dhaka central market in Tejgaon. Mawna market also has 15 to 20 traders and brokers. 
Out of the 40 traders, fi ve ran their businesses individually while 35 did so in partnership 
with others. They kept contact with feed traders and poultry growers at the village level and 
broiler traders in Tejgaon central market. Traders in the central market made specifi c orders 
to be delivered to the media partners. Sometimes the media partners kept a small stock of 
broilers to meet emergency orders from Dhaka. They charged the farmers a fi xed commission 
of BDT 2.00/kg which was unrelated to the price of the product.
At the Mawna market, price was negotiated between the aratdars in Mawna and the buyers 
in Dhaka central market. Although the forces of supply and demand were important, buyers 
in Dhaka dominated as they were fewer and more organized than the broiler growers and the 
aratdars in Mawna.
43
The Tejgaon broiler market in Dhaka city is considered the central market for commercial 
broilers and local poultry. Live chicken from different districts of Bangladesh are assembled 
in this market. There are about 32 broiler aratdars at the market but some of them also act 
as wholesalers. The market has a long covered shed with supply of water and electricity. The 
broiler aratdars usually buy from 10 to 12 suppliers from different districts and sell to 24 
to 32 wholesalers in various Dhaka markets. The suppliers deliver the consignments to the 
aratdars’ premises. The market is open seven days a week and transactions are completed by 
0800 hours. Commercial broilers are sold by weight while local chicken are sold by number. 
The price is set daily through bargaining. In fi xing the daily price, the aratdars consider the 
level of demand and the volume of supply in the market. Transactions are made both in cash 
and on credit. In case of credit sale to wholesalers, the buyers return the dues in the evening 
or the next morning. The aratdars set prices on behalf of the broiler suppliers and charge a 
commission for their services.
Sixty percent of sampled broiler wholesalers Dhaka purchased broilers from traders and 
while the rest bought broilers from traders as well as aratdars at Tejgaon. Buying prices were 
determined by bargaining with aratdars or traders but, in most cases, wholesalers accepted 
the aratdars’ price. Wholesalers usually set the sale price by marking up the total cost as 
profi t. All wholesalers discriminated selling price on the basis of volume of purchase and 
buyer’s loyalty while 40% of wholesalers also considered mode of payment as a basis for 
price discrimination. In 2005, only 40% of wholesalers bought broilers on credit from about 
16 suppliers; payment was made after the broilers were sold.
In order to understand the retailing of broilers, eight retailers were interviewed: four from 
Mawna Chowrasta in Gazipur, three from Karwan Bazar in Dhaka city and one from Tejgaon, 
Dhaka. The retailers in Mawna market were regular broiler traders by occupation. All of 
them ran their businesses using an average of BDT 75 thousand from their own funds. Their 
average volume of business was estimated at 313 kg of broilers per day. Only one of the four 
retailers purchased broilers from suppliers on credit.
Karwan Bazar in Dhaka city is an important wholesale and retail market of livestock products 
including broilers and eggs. Sampled broiler traders invested an average of BDT 83,333 in 
their businesses. The average volume of business per retailer was estimated at 100 kg per 
day. Of the three sampled retailers, two purchased broilers on credit. Retailers received an 
estimated daily margin of BDT 500.
Table 14 shows the estimated daily costs and margins of aratdars in Mawna and Tejgaon 
markets and wholesalers in Tejgaon market. Aratdars sold broilers on behalf of the broiler 
suppliers, collected money from buyers in case of credit sale and deducted a commission 
from the proceeds and paid the balance to the suppliers.
44
Table 14. Daily costs and margins of broiler aratdars and wholesalers in Mawna and Dhaka markets
Mawna aratdars 
(n = 5)
Tejgaon aratdars 
(n = 5)
Tejgaon wholesalers 
(n = 5)
Volume handled per day (kg) 4200 2012 830
Purchase price na na 66,981.00
Marketing costs
Communication/telephone 26.67 64.27 16.67
Transportation – – 61.00
Loading and unloading – 72.00 –
Wastage (mortality) – 20.00 334.90
Shop rent 44.00 29.80 92.50
Labour 120.00 120.00 153.33
Electricity 17.92 17.92 11.67
Licence fee 1.37 1.37 1.37
Subscription – 575.00 –
Others 96.00 204.00 150.00
Total 305.96 1152.36 821.44
Cost of purchase na na 67,802.44
Sale price na na 69,520.80
Margin 8400* 4024* 1718.36
Commission received at the rate of BDT 2.00/kg.
na= not applicable (Aratdars do not buy broilers but act as agents of broiler suppliers).
Source: Field survey (2006).
For wholesalers, 41% of the daily cost was due to wastage or mortality of birds and 19% 
was due to labour. Wholesalers’ return on investment was 2.53%. Aratdars received a 
commission so the rate of return on investment did not apply to them.
4.5.2 Marketing chains for egg producers
This section will discuss the supply chains linking Gazipur district with the Dhaka market. 
The egg aratdars of Tejgaon central market and Mawna undertake informal forward purchase 
contracts with layer farmers in Gazipur district. The sampled egg aratdars of Tejgaon were 
professional traders with between nine and 20 years of experience. They had each invested 
between BDT 300 thousand and BDT 1 million of their own capital. Sixty percent of the 
aratdars advanced money (credit) to layer farmers to supply them with farm eggs regularly 
according to agreed terms and conditions. In 2005, the aratdars advanced an average of BDT 
31,667 per farmer to six farmers. The daily volume of business was 66 thousand eggs per 
aratdar. Sixty percent of the aratdars monitored the production performance of the contracted 
layer farmers weekly while the rest did not. There was no risk-sharing arrangement between 
farmers, aratdars and buyers.
45
Egg aratdars in Mawna had fi ve to six years of experience and had invested between BDT 
300 thousand and BDT 700 thousand in their businesses. Most aratdars advanced cash to the 
layer farmers to ensure a regular supply of eggs; each aratdar advanced an average of BDT 
80 thousand to about 25 layer farmers. Thirty percent of the aratdars monitored the layer 
production performance weekly while 25% did so every other day. They received eggs from 
the layer farmers located 10 to 15 km away and their daily volumes varied from 5000 to 80 
thousand eggs with an average of 26 thousand eggs per aratdar. They generally followed the 
price announced by the aratdars at central market in Dhaka to fi x the local purchase price. 
Farmers bore the cost of transport regardless of whether they delivered the eggs to the aratdar 
or the aratdars collected eggs directly from the farmers. As in Tejgaon, there was no risk-
sharing arrangement between farmers, aratdars and buyers.
The aratdars’ association in Tejgaon met every night at 2200 hours to set the price for the 
following day. The price was set by considering the demand and supply situation and size 
of eggs in the market. The aratdars were responsible for collecting proceeds from the sale of 
eggs and remitting them to farmers after deducting costs and payable commissions. About 
40% of the aratdars charged a 5% commission while the rest charged BDT 0.15 per egg. In 
practice, the rate of commission varied from farm to farm and supplier to supplier based on 
the amount of loan advanced by the aratdar. The egg aratdars at Mawna and Tejgaon markets 
charged a daily storage fee of BDT 150 and 158, respectively, per 1000 eggs stored. They 
incurred costs amounting to BDT 24.40 per 1000 eggs in Mawna and BDT 12.44 in Tejgaon 
resulting in a margin of BDT 126 and BDT 146, respectively (Table 15). Transport was the 
principal cost for both locations. 
Table 15. Aratdar’s daily marketing costs and margins per 1000 eggs in Mawna and Tejgaon markets
Cost item
Mawna market (n = 4)  Tejgaon market (n = 5)
Amount (BDT) Percent Amount (BDT) Percent
Commission 150.00 158.00
Communication 1.83 7.5 0.74 5.9
Transportation 17.31 70.9 8.83 71.0
Shop rent 1.28 5.3 0.66 5.3
Labour 3.69 15.1 1.94 15.6
Electricity 0.24 1.0 0.13 1.1
Licence fee 0.05 0.2 0.14 1.2
Total cost 24.40 100.0 12.44 100.0
Margin 125.60 145.56
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Source: Field survey (2006).
Egg wholesalers in Tejgaon handled an average of 17,500 eggs per day. The aratdars at the 
central market set the wholesale buying price; 40% used the prevailing market price, 60% 
46
added a fi xed margin to the purchase price and marketing cost and 20% marked up the 
purchase price and marketing cost. All wholesalers discriminated selling price on the basis of 
mode of payment, volume of purchase and buyer loyalty. In 2005, only 20% of wholesalers 
bought on credit from two suppliers and made a margin of BDT 5.00 by selling 100 eggs.
Retailers in Dhaka sold an average of 1060 eggs per day. Twenty percent of the retailers bought 
eggs on credit at the price set by the wholesalers and aratdars. The sale price was determined 
by adding a percentage of the total cost of marketing to the cost and buying price of eggs. The 
retailers also charged different prices to buyers depending on the size of purchase and buyer 
loyalty. They earned a gross margin of BDT 58.49 per 100 eggs and BDT 620 per day.
Figures 4 and 5 respectively illustrate the average prices of broilers and eggs at different 
points in the supply chain. Producers received different prices in the survey year due to 
seasonal differences in supply and demand. Therefore, the extent of price spread along the 
supply chain may differ under different demand-supply or market conditions which could not 
be fully captured by the data collected. However, the fi gures indicate the actors involved in 
the supply chains and their possible margins under an average condition.
Figure 4. Sale prices of broilers (BDT/kg) at different points in the market chains in Gazipur and Kishoreganj.
Kishoreganjbroiler 
farmers (70)
Retailers at Shararchar
(86)
Feed traders at 
Shararchar
(80)
Consumers of 
Shararchar
Consumers of 
Gazipur(85)
Gazipur broiler farmers
(72)
Feed traders
(75)
Retail traders in 
Gazipur(80)
Aratdars/wholesalers in Mawna
market (75)
Traders of Dhaka
(83)
Aratdars of Tejgaon, Central
market, Dhaka (85)
Wholesalers of Dhaka 
markets (86)
Retailers of Dhaka markets
(90)
Consumers of Dhaka
Chittagong
Traders of 
Comilla Sylhet
47
Figure 5. Sale prices of eggs (BDT/100 eggs) at different points in the market chains in Gazipur.
 
Gazipur layer farmers 
(330) 
Feed traders 
(335) 
Aratdars/wholesalers of 
Mawna market (335)
Traders of Dhaka 
(355) 
Aratdars of Tejgaon,
Central market, Dhaka
Wholesalers of Dhaka markets 
(375)
Retailers of Dhaka markets 
(433) 
Consumers of Dhaka Consumers of Gazipur  
Retail traders of Gazipur 
(375) 
48
5 Determinants of participation in commercial 
and contract poultry farming
5.1 Choice of models to explain market participation
Earlier studies on market participation focused on explaining the non-engagement or 
partial engagement of subsistence and semi-subsistence agricultural households in markets, 
especially the food market. Theoretical and empirical contributions to this debate include 
Becker (1965), Barnum and Squire (1979), Singh et al. (1986), Goetz et al. (1988), von Braun 
et al. (1989), de Janvry et al. (1991), Sadoulet and de Janvry (1995) and Taylor and Adelman 
(2002). In these studies, it is argued that in a competitive market environment where 
factors and products are tradable so production and consumption decisions are separable, 
households maximize profi ts subject to their production constraints then maximize utility 
subject to their income and time constraints. However, in semi-subsistence agricultural 
situations, all factors and products are not readily tradable because of high transaction costs 
leading to missing markets or market failure. In such situations, production and consumption 
decisions may not be separable, so households usually maximize utility subject to their 
production constraints, consumption needs and time constraints, and may engage in market 
sales only when the household’s shadow price of a commodity is lower than the market price 
minus transaction costs of that commodity.
Another set of theoretical and empirical studies focused on methodological issues related to 
explaining the decision process in market participation and technology adoption. The main 
tenets of these studies are that the decision about market participation is mostly a two-stage 
process whereby the fi rst step is the decision to engage in market and the second a decision 
on the extent of engagement. Technology adoption also involves a similar process whereby 
the fi rst decision is to adopt a technology followed by a decision on the extent of adoption. 
In empirical verifi cation of these decisions, the statistical estimation problem is posed by 
samples with a dependent variable taking a value of zero representing non-participation 
in market and positive values indicating varying degrees of participation in market. Such 
variables are called censored or limited dependent variables. Ordinary least squares (OLS) 
procedures are unsuitable for estimating the parameters of independent variables to explain 
the censored dependent variable because several essential assumptions of such models are 
not satisfi ed and the predicted values cannot be interpreted as probabilities. 
In order to analyse such two-stage decision processes, the probability of a household’s 
participation in market fi rst is estimated by using logit or probit regression and then the entire 
sample, with both zero and non-zero values, is used to assess the determinants of the level of 
participation by applying Tobit regression (Tobin 1958; McDonald and Moffi t 1980; Maddala 
49
1983; Kinsey 1984; Goetz 1992; Greene 1993). Some applications of these procedures in 
market participation analysis include King (1980), Lee (1982), Walton and Ragin (1990), 
Goetz (1992), Roncek (1992) and Key et al. (2000).
Goetz (1995) suggested that the tobit procedure may be applied in two different ways. First, 
a full tobit model can be used in which the entire sample, with zero and positive values, is 
included. In this case, an estimated coeffi cient shows the joint effect of a regressor on both 
the probability of the dependent variable being non-zero (probability of participation in 
market) and the extent of participation. Second, a truncated model can be used in which 
only farms with non-zero values for participation are included. In this case, an estimated 
coeffi cient shows the effect of a regressor on the probability of higher extent of participation. 
The sample with non-zero participation is a truncated part of a larger sample so truncated 
tobit is more appropriate than OLS estimator to estimate coeffi cients.
The parameters of logit, probit and tobit models are estimated by maximum likelihood 
estimation methods. However, there may be diffi culties in obtaining consistent estimates by 
this method if there is a possibility of selectivity bias in samples. In this case, selectivity bias 
may be corrected by using an alternative procedure suggested by Heckman (1976). In the fi rst 
step, the probability of participation is estimated by using probit regression. In the second 
step, an additional variable—the inverse Mills ratio (calculated from the probit model)—is 
added to the model of the extent of participation to adjust for selection bias. 
In this study, we were interested in assessing the probability of rural household participation 
in commercial poultry farming in general and contract poultry farming in particular. By 
defi nition, commercial poultry farming is a cash crop or fully market-oriented enterprise. 
If a rural household practised poultry farming, it had to decide on the scale of operation. 
Therefore, household models dealing with non-engagement or partial engagement in markets 
were not relevant to analyse these samples and selectivity models were used instead. Probit 
and multinomial logit models were used since the fi rst step was to determine the probability 
of a household’s participation in commercial poultry and contract farming. Distribution of the 
size or scale of operation of participant households showed that there was a large distance 
between the censored point (non-participant) and the fi rst positive value (the smallest scale 
of operation). Moreover, there were small differences in the scale of operation among the 
participants in a particular type of poultry enterprise in a given district as indicated by low 
standard error of means of the size of broiler and layer fl ocks. For example, in Kishoreganj 
district, the average installed capacity of contract broiler farms was 2131 birds while that of 
independent broiler farms was 2000 birds. In Gazipur, contract broiler farms had an average 
installed capacity of 1115 birds while that of independent broiler farms was 1087 birds. 
50
Average installed capacities of contract and independent layer farms in Gazipur were 1076 
and 1362 birds, respectively. 
The actual sizes of the enterprises during the survey period were slightly lower than the 
installed capacities for all the enterprises and districts. These fi gures indicated that the size 
of a particular enterprise was relatively fi xed in a given district. Therefore, it was apparent 
that the decision of a household to participate in commercial poultry and contract farming 
and the decision on the scale of the enterprise were joint and simultaneous. Once a decision 
was made to establish a commercial poultry enterprise, the size of the enterprise was also 
chosen almost instantaneously. Thus, only factors infl uencing the probability of participation 
in commercial poultry and in contract farming were analysed in detail.
Gazipur and Kishoreganj districts had a longer history of commercial poultry development 
compared to other districts. Smaller scale poultry farms could be found in the two districts 
and it appears that over time, the sizes of enterprises have increased and relatively stabilized 
at some level (see Jabbar et al. [2005b] for an indication of this pattern). In other districts 
where commercial poultry farming has a shorter history or is emerging, it may be possible to 
fi nd poultry farms of more varying sizes.
5.2 Factors hypothesized to have infl uence on participation
Contract farming is sometimes considered as a possible institutional mechanism to give 
smallholders access to higher priced markets and a strategy to get out of poverty by 
benefi ting from the expanding markets for high-value products. In Bangladesh, most farmers 
are smallholders or landless. Since poultry is a rapidly growing sector, if smallholders can 
capture a fair share of this market, it will lead to an equitable distribution of benefi ts to 
different scales of farms from the expanding poultry market. This study examined the nature 
of participation of rural households in commercial poultry and the factors that determined 
their participation.
Three types of farms were sampled: non-poultry, independent commercial poultry and 
contract poultry farms. Contract farms were involved in production of broilers, layers or 
breeder stock. In terms of participation, the following options could be considered and 
compared:
Among all farms, non-poultry vs. commercial poultry farming  
Among participants, independent poultry vs. contract poultry farming  
Among contract poultry farms, broilers/layers vs. breeder stock production  
Among all farms, non-poultry vs. independent poultry vs. contract poultry farming  
Among commercial farms, independent broiler/layer vs. contract broiler/layer vs.   
contract breeder stock production
51
Thus, if participation is considered as a dependent variable, there are options where either 
two or three discrete choices are involved without any order of preference or value. For 
binary choices, probit regression model was used to identify factors that explained the 
choices. In case of three discrete choices, multinomial logit regression model was used 
to identify factors that explained the choices. Types of contract farms were different in the 
two survey districts so the districts and the aggregate sample combining the two districts 
were analysed separately. Several sets of independent variables were tried in different 
combinations to identify the best-fi t equation, based on a set of hypotheses about the effect of 
these variables on the relevant choices. The factors hypothesized to infl uence participation in 
commercial poultry and contract farming are discussed below.
5.2.1 Age of the household head
It was hypothesized that the probability of participating in commercial poultry and contract 
farming would be lower for older farmers as they may be unfamiliar with improved 
poultry production technologies and management or may have diffi culties adopting new 
technologies quickly. 
5.2.2 Education of the household head
It was hypothesized that the probability of participating in commercial poultry and contract 
farming would be higher for better educated farmers as this would allow them to acquire 
knowledge and skills about improved commercial poultry production technologies quickly. 
They may also be more willing to learn.
5.2.3 Supply of family labour 
Because poultry is a labour-intensive enterprise that requires close supervision throughout a 
production cycle, it was hypothesized that households with a higher supply of family labour 
would be more likely to participate in commercial poultry and contract farming.
5.2.4 Land holding
It was hypothesized that the probability of participating in commercial poultry and contract 
farming would be higher among households with larger land holdings as it might allow 
allocation of some land to poultry away from crop production. Larger land holdings might 
also allow diversifi cation of production enterprises into poultry, fi shery, horticulture etc. to 
increase income.
52
5.2.5 Farm income
Higher farm income (from crops, horticulture, fi sheries and large animals but not poultry) 
might infl uence participation in commercial poultry and contract farming either positively 
by providing capital for investment in poultry or negatively by discouraging investment in 
poultry if other farm activities provided good income and employment opportunities. A 
potential endogeneity problem here is that income from poultry might have been invested 
by some farmers to increase farm income. However, verifi cation of this would have required 
information on farm income levels before the poultry farm was established. Because this data 
was not available, existence of this relationship could not be tested and no defi nite direction 
of infl uence was hypothesized.
5.2.6 Remittance income
Some household members work away from home, either within the country or abroad. 
Income that they remit may constitute a varying proportion of household income and may 
infl uence participation either positively by providing investment and operating capital or 
negatively as working away from home may mean less household labour to run a commercial 
poultry enterprise. Therefore, no defi nite direction of infl uence was hypothesized.
5.2.7 Non-agricultural business income
Having non-agricultural business income might infl uence participation either positively by 
providing investment, operating capital and scope for further diversifi cation of income or 
negatively as labour supply for commercial poultry operations might be limited. Therefore, 
no defi nite direction of infl uence was hypothesized.
5.2.8 Borrowing
In theory, credit can play a role in establishing a farm where capital constraints limit 
ability to invest. Credit can also help regular operations by facilitating access to inputs and 
services. However, it was diffi cult to use credit as a variable to explain if it played any role 
in a farmer’s decision to participate in commercial poultry or in the choice of the form of 
commercial poultry farming to be pursued. This was because of a number of reasons, which 
are explained below.
At the time of the survey, some respondents had outstanding credit from formal or informal 
sources but it was unclear if that was for initial investment, operational expenses or both. 
Also, we were unable to ascertain whether the farmers actually needed credit. 
53
It was not clear if the respondents obtained investment credit before they started the business. 
Initially, contract farmers in Kishoreganj received inputs and some investment capital on 
credit but after the avian infl uenza scare in 2003, credit supply of inputs was replaced by 
cash sale except in the case of breeder stock farms. 
Some informal contract farmers in Gazipur borrowed from aratdars or wholesalers in 
Dhaka under forward sale contracts, exclusively or mostly to cover operation costs of 
already established farms rather than for new investments. Thus, these farmers could not be 
considered in the analysis to explain participation in commercial or contract poultry farming.
A few non-poultry farms also borrowed money for agricultural purposes. However, 
borrowing status was included in the models where appropriate to explain if a particular type 
of farm had higher or lower probability of borrowing.
5.2.9. Risk perception
In theory, differences in perception about risk in the poultry enterprise might infl uence the 
decision to participate in commercial and contract poultry farming. In addition to normal 
production and market risks, avian infl uenza has added a new dimension to the industry 
environment as it may require mass culling or complete stamping out of fl ocks in affected 
areas even if a particular farm is not directly affected. When ABFL introduced contract broiler 
farming in Kishoreganj in 1994, avian infl uenza was not an issue of concern for the poultry 
industry in Bangladesh. Prospective participants in contract farming were only concerned 
about the normal production and market risks (mortality, market access and price), which 
the contract farming arrangement addressed. However, after the avian infl uenza scare of 
2000 and drastic (though temporary) fall in broiler prices, many farms underwent losses 
and gave up contract farming. Partly in response to this, ABFL introduced a compulsory 
contributory insurance scheme for its affi liated contract growers to cover mortality risk (see 
Section 3), which encouraged some of the farmers who dropped out due to losses to restart 
contract farming and some to enter the business.
1
 In Gazipur, there was no insurance scheme 
for sharing of risk by formal or informal contractors so producers bore all production risks. 
Although this study recognized the importance of risk perception in choice of farming types, 
differences in the evolution of the circumstances in the two districts made it impossible to 
discern the risk perception of the sample farmers in a way that would allow it to be used as a 
variable to explain participation in commercial and contract poultry farming.
1. The country’s fi rst outbreak of avian infl uenza was reported in April 2007 in one of the farms operated by 
BPC. Subsequent outbreaks were reported in a number of other private farms in several districts and the disease 
was contained after quick intervention by the government and other stakeholders.
54
Table 16 summarizes the average values of some of the variables. In both districts, 
commercial poultry farmers were signifi cantly younger than non-poultry farmers. 
Independent layer farmers in Gazipur were and signifi cantly younger than all other 
farmer types in both districts. Non-poultry farmers in both districts were signifi cantly less 
educated than other groups. Breeder stock farmers had the highest level of education. 
These observations suggest that young educated persons are adopting commercial poultry 
production, especially breeder stock farming, using modern technology that requires formal 
education.
Table 16. General characteristics of sample households by farm type and district
Characteristic and district
Broiler Layer
Breeder 
stock
Non-
poultry
Contract Independent Contract Independent
Age of household head (years)
Gazipur 38 (2.26) 39 (1.85) 38 (1.78) 32 (1.49) – 43 (2.05)
Kishoreganj 40 (1.33) 36 (1.62) – – 38 (1.39) 45 (2.06)
Education of household head (years)
Gazipur 9 (0.61) 9 (0.67) 10 (0.54) 10 (0.44) – 4 (1.05)
Kishoreganj 9 (0.52) 8 (0.46) – – 11 (0.44) 4 (0.56)
Land holding (acres)
Gazipur
1.86 
(0.29)
2.06 (0.26)
2.57 
(0.33)
2.21 (0.38) –
2.03 
(0.21)
Kishoreganj
3.70 
(0.64)
2.09 (0.53) – –
6.49 
(0.57)
1.52 
(0.12)
Percent farms with remittance income
Gazipur 9.5 9.5 2.3 2.6 – 5.0
Kishoreganj 3.3 1.7 – – 5.3 12.5
Percent farms with non-agricultural business income
Gazipur 35.7 42.9 16.3 21.5 – 15.0
Kishoreganj 38.3 33.3 – – 36.8 27.5
Standard error of the mean in parentheses.
Source: Field survey (2006).
Land is the most important productive asset of rural households in Bangladesh. It can be 
used as a proxy for wealth or poverty as it indicates the potential for generating output and 
income. On this basis, it appears that breeder stock farmers in Kishoreganj were generally 
the wealthiest of all types of farmers. In Kishoreganj, contract farmers were wealthier 
than independent farmers who were wealthier than non-poultry farmers. In Gazipur, the 
differences in land ownership between the types of farmers were less pronounced. Contract 
farmers in Kishoreganj were wealthier than those in Gazipur. Broiler and layer farmers in the 
two districts allocated 2.7 to 6.7% of their land to poultry. Breeder stock farms devoted 8.6% 
of a larger average holding to poultry.
55
The average income earned by different types of farmers varied considerably (Table 17). In 
both districts, non-poultry farmers earned the lowest gross income. Commercial poultry 
accounted for over half of gross income among contract and independent broiler farmers in 
Kishoreganj but about 30% among their counterparts in Gazipur. Contract and independent 
layer farmers in Gazipur earned, respectively, 68 and 52% of their income from poultry. 
Breeder stock farmers earned 68% of their income from poultry, indicating a high degree of 
specialization. About one third of the income of non-poultry farmers came from remittances 
from family members working away from home, either in-country or abroad. Remittance 
was not very important among the other types of farmers though it constituted about 10% 
of income among broiler farmers in Gazipur. In both districts and across all types of farms, 
farms without any remittance had lower average incomes compared to those with remittance.
Table 17. Average annual gross income of farmers and percentage share of income sources by farm 
type and district
Breeder 
farms
Layer farms in 
Gazipur
Broiler farms in 
Kishoreganj
Broiler farms in 
Gazipur
Non-poultry farms
Kishore-
ganj
(n = 40)
Con-
tract
(n = 43)
Inde-
pendent
(n = 38) 
Contract
(n = 60)
Inde-
pendent
(n = 40)
Contract
(n = 42)
Inde-
pendent
(n = 42)
Kishore-
ganj
(n = 40)
Gazipur
(n = 20)
Average gross 
income per farm 
(BDT)
452,601 224,446 191,534 185,074 153,711 157,082 144,713 103,605 108,000
Average gross 
income of farms 
without remit-
tances (BDT)
447,351 223,283 189,955 180,241 150,711 140,511 130,570 70,305 99,000
Percent share by 
source
Crop 15.9 13.9 13.3 21.6 15.2 15.5 18.1 40.0 51.3
Other agricul-
tural services
13.3 11.2 9.8 15.7 23.0 20.4 19.4 20.5 32.3
Scavenging 
poultry
0.2 0.1 0.1 0.3 0.1 0.3 0.4 0.3 0.4
Commercial 
poultry
60.0 68.2 52.6 52.5 54.6 30.8 30.2 – –
Business 9.5 6.1 23.4 7.4 15.2 22.6 22.9 7.1 7.7
Remittance 1.2 0.5 0.8 2.5 1.9 10.4 9.1 32.1 8.3
Total 100 100 100 100 100 100 100 100 100
Includes income from fi shing, service, livestock etc.
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Source: Field survey (2006).
Several sources of loans for broiler and layer farmers were identifi ed though in practice farmers 
used only a few. Independent farmers took more loans than contract farmers except breeder 
stock farmers who mostly borrowed from integrators. ABFL contract farmers in Kishoreganj 
received loans from traders, commercial banks and agricultural banks after the company 
stopped giving inputs on credit (Table 18). The formal sector, especially commercial banks, 
still remains a minor source of credit for poultry and other commercial agricultural activities. 
Contract farmers in Gazipur borrowed from broiler and egg aratdars in Mawna and Dhaka.
56
Table 18. Proportion of farmers who took loans from different sources and average amount bor-
rowed (BDT) by farm type and district 
Source of loan
Kishoreganj Gazipur
Contract Independent Contract Independent
Broiler farms
Friends and relatives – 30,000 (2.5) – 57,500 (4.8)
Traders 40,000 (1.7) 34,000 (2.5) – –
Money lenders – – 29,000 (2.4) –
Commercial banks 104,250 (10) – – 35,000 (7.1)
Agricultural banks 166,000 (3.3) 60,000 (7.5) 170667 (7.1) 15000 (2.4)
Others 70,000 (1.7) 30,000 (5.0) 5000 (2.4) –
NGOs – 54,000 (12.5) – 33,714 (16.7)
All sources 106,750 (17) 47,833 (30) 109,200 (12) 36,231 (31)
Layer farms
Friends and relatives – – 200,000 (2.3) 27,188 (10.5)
Traders – – 70,000 (2.3) –
Commercial banks – – 33750 (4.7) 14,000 (2.6)
Agricultural banks – – 8750 (4.7) 30,000 (2.6)
Others – – 70,000 (2.3) 28,750 (10.5)
All sources – – 60,714 (16) 26,775 (26)
Breeder farms
ABFL 78,289 (94.7) – – –
Friends and relatives 1,500,000 (2.6) – – –
Commercial banks 729,412 (42.1) – – –
Agricultural banks 800,000 (2.6) – – –
NGOs 60,000 (2.6) – – –
All sources 305,776 (100)
Percentage of farms borrowed loans in parentheses.
Source: Field survey (2006).
5.3 Factors infl uencing participation in commercial poultry 
farming
Having considered the general characteristics of the sampled farms, credit and risk 
perception were not included as variables. The results of best-fi t equations with the remaining 
variables are discussed below. Table 19 shows the coeffi cients of the probit regression 
equation and related statistics that explain the probability of participation in commercial 
poultry.
The log likelihood function and the proportions of samples correctly predicted for their 
likely status in terms of participation indicate a good fi t of the equation. There were some 
57
minor differences between the two districts in terms of the signifi cance of certain factors 
in explaining the nature of participation. As expected, the probability of participation in 
commercial poultry was signifi cantly lower among older farmers, signifi cantly higher among 
better educated farmers and signifi cantly higher among farmers having more labour supply 
and land. 
Table 19. Estimated coeffi cients and related statistics of probit regression on participation of farms 
in commercial poultry production by district
Independent variables
Gazipur ? 
(St error)
Kishoreganj ? 
(St error)
Both districts ? 
(St error)
Age of household head (year) –0.0111 
(0.0105)
–0.0344*** 
(0.0093)
–0.0231*** 
(0.0064)
Education of household head (year) 0.1439***
(0.0330)
0.1737*** 
(0.0352)
0.1433*** 
(0.0219)
Family labour supply (person units)
0.2056** 
(0.1002)
0.1483** 
(0.0758)
0.1802*** 
(0.0565)
Land holding (acres)
0.0005 
(0.0014)
0.0013 
(0.0010)
0.0014* 
(0.0008)
Farm income (BDT)
–0.000008* 
(0.000005)
–0.000002 
(0.000003)
–0.000006***
(0.000002)
Remittance income dummy (yes = 1) –0.1860 
(0.6260)
–0.5752 
(0.5678)
–0.2137 
(0.3582)
Non-agricultural business income dummy (yes = 1) –0.1228 
(0.3162)
0.0172 
(0.2763)
–0.0174 
(0.1948)
Borrowing dummy (yes = 1) 7.6472 
(186086.73)
0.8513** 
(0.3492)
1.0883*** 
(0.2924)
Maximum likelihood estimates
Log likelihood function –43.25890 –57.64815 –111.4442
Restricted log likelihood function –63.37018 –95.34712 –163.1068
Chi square 40.22256 75.39793 103.3251
Signifi cance level 0.000 0.000 0.000
Percent correct prediction 95 83 89
N 185 180 365
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
Non-poultry = 0, participants = 1.
In Gazipur, the probability of participation in commercial poultry decreased signifi cantly 
as agricultural income increased, while in Kishoreganj the nature of infl uence was similar 
but not statistically signifi cant. Remittance and non-agricultural business income had 
negative effects on the probability of participation in commercial poultry though this was 
not statistically signifi cant. As explained earlier, higher farm and non-farm income may have 
discouraged participation in commercial poultry due to better income and employment 
from agriculture. However, a reverse causality is also possible as involvement in commercial 
poultry might have led farmers to invest labour and capital in poultry rather than in non-farm 
58
business. Commercial poultry farmers had a signifi cantly higher probability of borrowing 
compared to their non-poultry counterparts.
5.4 Factors infl uencing participation in contract poultry 
farming
Table 20 shows the coeffi cients of the probit regression equation and related statistics that 
explain the probability of participation in contract poultry farming.
Table 20. Estimated coeffi cients and related statistics of probit regression on participation of farms 
in contract poultry farming by district
Independent variables
Gazipur
? (St error)
Kishoreganj
? (St error)
Both districts
? (St error)
Age of household head (years) 0.0027 
(0.0064)
0.0098 
(0.0085)
0.0021 
(0.0049)
Education of household head (years) 0.0003 
(0.0216)
–0.0319 
(0.0301)
–0.0063 
(0.0166)
Family labour supply (person units) 0.0678 
(0.0439)
–0.0063 
(0.0556)
0.0191 
(0.0321)
Land holding (acres) –0.0012* 
(0.0007)
0.0001 
(0.0004)
0.0002 
(0.0003)
Farm income (BDT) 0.000005
(0.000003)
0.000008** 
(0.000004)
0.000005** 
(0.000002)
Remittance income dummy (yes = 1) –0.2743
(0.4459)
0.1234 
(0.7727)
–0.0789 
(0.3538)
Non-agricultural business income dummy (yes = 1) –0.2764
(0.2058)
–0.0212 
(0.2522)
–0.1328 
(0.1513)
Borrowing dummy (yes = 1) –0.7034***
(0.2573)
0.0783** 
(0.2786)
–0.1610 
(0.1730)
Maximum likelihood estimates
Log likelihood function –106.7001 –72.78010 –192.4608
Restricted log likelihood function –114.2935 –83.75774 –204.4303
Chi square 15.18683 21.95529 23.93890
Signifi cance level 0.034 0.003 0.001
Percent correct prediction 69 90 86
n 165 140 305
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
Independent = 0, contract = 1.
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
The log likelihood function and the proportions of samples correctly predicted for their 
likely status in terms of participation in contract poultry farming indicate a good fi t of the 
equation, especially for Kishoreganj district. However, compared to the function explaining 
participation or non-participation in commercial poultry, the function had a slightly weaker 
fi t indicating that some important variables explaining participation in contract farming 
might not have been identifi ed or may have been omitted. In both districts, only land 
holding and farm income appeared to play some role in the probability of participation in 
59
contract farming. In Gazipur, the probability of participation in contract farming decreased 
signifi cantly as land holding increased but in Kishoreganj, land holding had no signifi cant 
effect. In Kishoreganj, the probability of participation in contract farming increased with an 
increase in farm income but income had no effect in Gazipur. In Gazipur, contract farmers 
were less likely to take loans while opposite was true in Kishoreganj especially because all 
the contract breeder stock farmers there took loans because the contractor did not supply 
inputs on credit as before.
In Kishoreganj, ABFL introduced both broiler and breeder stock contract farming farmers 
theoretically had a choice between the two. The coeffi cients of the probit regression equation 
and related statistics explaining the probability of participating in contract broiler or breeder 
stock farming are shown in Table 21. 
Table 21. Estimated coeffi cients and related statistics of probit regression on participation of farms 
in contract broiler and breeder stock production in Kishoreganj
Independent variable ? (Standard error)
Age of household head (years) –0.009865 (0.009244)
Education of household head (years) 0.016896 (0.032851)
Family labour supply (person units) –0.20996*** (0.0674)
Land holding (acres) 0.000258 (0.00030)
Farm income (BDT) 0.000005*** (0.000001)
Remittance income dummy (yes = 1) 0.18402 (0.66018)
Other business income dummy (yes = 1) 0.28574 (0.26375)
Maximum likelihood estimates
Log likelihood function –67.25925
Restricted log likelihood function –78.74247
Chi square 22.96645
Signifi cance 0.0008
Percent correct prediction 75
n 140
***, ** and * indicate signifi cant at less than 1, 5 and 10% respectively
Broiler = 0, breeder stock = 1.
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
The log likelihood function and the proportion of the sample correctly predicted for their 
participation in broiler or breeder stock contract farming indicate a good fi t of the equation. 
The probability of producing breeder stock rather than broilers was signifi cantly lower among 
households with more family labour. Female family members were allowed to work in broiler 
farms but not in breeder stock farms. The reason for this was unclear though it is possible to 
speculate that since women also handled various household activities including cooking, 
they were more likely to pose a risk to the breeder birds. Thus, a larger overall labour supply 
60
allowed for participation in broiler farming but not necessarily in breeder stock farming 
where male labour had to be hired as needed. The probability of participation in breeder 
stock farming increased signifi cantly with higher farm income perhaps because this allowed 
higher capital investment required for breeder stock farming compared to broiler farming. 
Other factors did not have a signifi cant infl uence on the choice between contract broiler 
and breeder stock farming. All the breeder stock farmers borrowed money so this was not 
included as a variable.
In order to compare the profi les of non-poultry, independent and contract poultry farmers 
simultaneously, a multinomial logit model was fi tted to the entire sample. Table 22 
summarizes the results.
Table 22. Estimated coeffi cients of multinomial logit model fi tted to the sampled non-poultry, inde-
pendent and contract poultry farms
Independent farms
a
 
? (Standard error)
Contract farms
a
 
? (Standard error)
Intercept 0.314* (0.926) –1.406 (0.888)
Age (years) –0.054*** (0.019) –0.030* (0.018)
Education (years) 0.207*** (0.050) 0.273*** (0.048)
Family labour supply (person units) 0.271** (0.120) 0.358*** (0.116)
Landholdings (acres) 0.003** (0.001) 0.003** (0.001)
Gross household income (BDT) 0.0001 (0.0001) 0.0001 (0.000)
Farm income (BDT) 0.0001*** (0.0001) 0.0001 (0.000)
Dummy remittance income (yes = 1) –0.595 (0.906) –0.131 (0.808)
Dummy other business income (yes = 1) –0138 (0.442) 0.005 (0.423)
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
a. Reference category is non-poultry farms.
–2 log likelihood = 567.921, chi square = 11.488, Sig = 000, N = 339.
Pseudo r square: Cox and Snell 0.28, Nagelkerke = 0.324, McFadden = 0.16.
Compared to non-poultry production, the probability of being an independent or contract 
poultry farmer was signifi cantly lower among older household heads and signifi cantly higher 
among better educated household heads, households with more labour and households with 
larger land holdings. The probability of being an independent poultry farmer was signifi cantly 
higher among households with larger farm income but the effect was not signifi cant among 
contract farmers. The infl uence of remittance income and other business income was not 
signifi cant. Among commercial poultry farmers, another multinomial logit model was fi tted 
to simultaneously compare the profi les of independent, informal and formal contract farmers. 
The results are summarized in Table 23.
61
Table 23. Estimated coeffi cients of multinomial logit model fi tted to sampled independent, informal 
and formal contract poultry farmers
Informal contract
a
 
? (Standard error)
Formal contract
a
 
? (Standard error)
Intercept –3.154*** (0.076) –3.128*** (0.750)
Age (years) 0.011 (0.013) 0.016 (0.013)
Education (years) 0.171*** (0.0430 0.130*** (0.040)
Family labour supply (person units) 0.229*** (0.071) 0.013 (0.076)
Landholdings (acres) –0.001 (0.001) 0.002** (0.001)
Gross household income (BDT) 0.0001 (0.0001) 0.0001* (0.000)
Farm income (BDT) 0.0001 (0.0001) 0.0001* (0.000
Dummy remittance income (yes = 1) 0.035 (0.709) 0.467 (0.741)
Dummy other business income (yes = 1) –0.380 (0.349) 0.607* (0.355)
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
a. Reference category is independent farms.
–2 log likelihood = 628.704, Chi square = 86.714, Sig = 0.000, N= 339.
Pseudo R square: Cox and Snell 0.23, Nagelkerke = 0.26, McFadden = 0.12.
The probability of engaging in informal contract poultry farming was signifi cantly higher 
among better educated household heads and among households with more labour. The 
probability of being involved in contract farming was also signifi cantly higher among better 
educated household heads and households with larger land holdings and larger gross, farm 
and non-agricultural incomes. The effects of other factors were not statistically signifi cant. In 
Kishoreganj, the probability of engaging in contract broiler farming or production of breeder 
stock was signifi cantly higher among households with larger farm incomes compared to 
independent poultry farmers. Other factors were not statistically signifi cant.
62
6 Technical and economic performance of 
sampled poultry farms
The technical and economic performance of broiler, layer and breeder stock farms was 
analysed in each district. Technical performance was measured in terms of biological 
production parameters. The following were measured for broilers: feed conversion ratio, 
mortality rate, sale weight and fattening days to sale weight. For layers, the measured 
parameters were the length of laying period, mortality, egg production per laying period and 
age at fi rst laying for layer birds. Economic performance was measured in terms of costs and 
returns per unit of output, benefi t–cost ratio and income per unit of family labour. Family 
labour was the main resource employed by smallholder commercial poultry farms.
6.1 Characteristics of meat and egg production in sampled 
farms
The average meat production (live weight) characteristics of the contract and independent 
broiler farms are summarized in Table 24. There were signifi cant differences between 
Gazipur and Kishoreganj but not so much between farm types within a district. Both 
independent and contract farms in Gazipur were about half the size of the corresponding 
farms in Kishoreganj. Contract farms in Kishoreganj had a capacity utilization of 72% while 
that of independent farms was 87%. In Gazipur, contract farms had a capacity utilization 
of 80% and compared to 87% in independent farms. Farms in Gazipur also used a shorter 
fattening period and achieved a lower sale weight than those in Kishoreganj. Feed conversion 
ratio was more favourable in Gazipur but mortality rates were not signifi cantly different 
between the two districts and farm types. Price received per kilogram of broilers in Gazipur 
was also lower than in Kishoreganj.
Egg production characteristics of the layer farms in Gazipur are summarized in Table 25. 
Contract farms were smaller in size and their capacity utilization was lower than that of 
independent farms. However, contract farms reared birds for a longer duration so produced 
more eggs per laying period than independent farms. Mortality rates were about the same for 
both types of farms but about 12% mortality rate could be considered high for commercial 
farms as it had implications for costs and profi ts.
Breeder stock farms are a special type of enterprise observed only in Kishoreganj. Large 
integrators normally undertake such operations but in Kishoreganj, ABFL introduced contract 
breeder stock farms as an innovation. These contract farms were closely supervised by ABFL 
to minimize disease risk and ensure high quality output. The birds produced an average of 
178 eggs over a 337-day laying period (Table 26).
63
Table 24. Average meat production (live weight) characteristics of broiler farms by farm type and 
district
Characteristic
Contract Independent
Kishoreganj Gazipur All Kishoreganj Gazipur All
Capacity (no. of birds per batch) 2131 (154) 1115 
(79)
1713 
(108)
2000 (210) 1087 
(110)
1624 
(127)
Actual no. of birds reared 1537 (117) 892 
(56)
1271
(79)
1738 (308) 946
(95)
1332
(163)
Duration of fattening (days) 37 (0.4) 34 
(0.9)
36
(0.5)
37 (0.4) 32 
(0.5)
35
(0.4)
Sale weight per bird (kg) 1.42 (0.03) 1.38
(0.06)
1.41
(0.03)
1.44 (0.03) 1.28
(0.02)
1.36
(0.02)
No. of batches completed in last 12 
months 
4.92 (0.2) 5.07
(0.2)
4.98
(0.1)
5.12 (0.2) 5.31
(0.3)
5.22
(0.2)
Feed conversion ratio
2.19 (0.07) 2.13
(0.09)
2.22
(0.06)
2.26 (0.16) 1.98
(0.07)
2.12 
(0.09)
Mortality rate (%)
6.7 (0.92) 7.6 
(0.99)
7.2 
(0.67)
9.8 (2.13) 6.5
(1.28)
9.0 
(1.23)
Standard error of mean in parentheses.
Source: Field survey (2006).
Table 25. Average egg production characteristics of layer farms in Gazipur by farm type
Characteristics Contract Independent t-value
Average capacity (no. of birds per batch) 1076 (135) 1361 (212) –1.30
No. of birds reared per batch 899 (71) 1285 (21) –2.00**
Age at fi rst laying (days) 158 (2) 163 (8) 0.58
Duration of rearing birds (days) 574 (11) 535 (14) 2.13**
Length of laying period (days) 408 (10) 385 (15) 2.13**
Mortality rate (%) 11.8 (0.9) 12.8 (0.9) –1.17
No. of eggs per bird during laying period 335 (9) 308 (10) 2.09**
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
Standard error of mean in parentheses.
Source: Field survey (2006).
Bird productivity differed signifi cantly between strains of birds and decreased 
signifi cantly with increased feed use, indicating possible overfeeding (Table 27). 
Productivity increased signifi cantly with higher costs of drugs and vaccinations which 
may have reduced mortality rate. Since there were no similar independent breeder stock 
farms to compare, it was unclear if this performance was good or bad. The selling price 
of 100 hatching eggs was BDT 788 against the highest corresponding price of BDT 357 
for table eggs for consumption; this might compensate the lower egg productivity of 
breeder stock farms.
64
Table 26. Average characteristics of contract breeder stock farms in Kishoreganj
Characteristic Value
Capacity (No. of birds per batch) 3200 (111)
No. of male day-old chicks/pullets 413 (14)
No. of female day-old chicks/pullets 2883 (100)
Ratio of female to male birds 7:1
Price of day-old chicks (BDT/unit) 192.89 (6.77)
Laying period (days) 337 (6.27)
No. of eggs per bird during laying period 177.68 (3.5)
Selling price of 100 hatching eggs (BDT) 787.63 (9.42)
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Standard error of the mean in parentheses.
Source: Field survey (2006).
Table 27. Factors infl uencing number of fertile eggs produced per bird in breeder stock farms in 
Kishoreganj
? (Standard error)
Constant 212.221*** (49.483)
Feed in laying period (kg/bird) –1.664*** (0.554)
Laying period (days) 0.089 (0.085)
Mortality (%) 0.215 (0.324)
Strain 1 dummy (Arber acres plus = 1, other = 0) –14.061* (7.413)
Strain 2 dummy (Hubbard classic = 1, other = 0) –29.914** (10.874)
Strain 3 dummy (Kasila = 1, other = 0) –7.424 (7.736)
Strain 4 dummy ( ISA JA57 = 1, other = 0) 24.768** (10.686)
Rearing capacity used (%) –22.280 (21.100)
Drug and vaccination cost (BDT) 7.43E-005* (0.000)
Education of owner (years) 1.450 (1.183)
Age of owner (years) 0.436 (0.344)
Ratio of hired and family labour –2.031 (1.569)
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
R2 = 0.67, Adj R2 =0.51, F = 4.145, signifi cance = 0.001, n=40.
Source: Field survey (2006).
6.2 Input and output marketing and prices
6.2.1 Feed use and prices
The quantity of poultry feeds used and the prices paid are shown in Table 28. All broiler 
farmers used industrial feed. Both contract and independent broiler farmers in Gazipur used 
signifi cantly less feed per production cycle compared to farmers in Kishoreganj because of 
65
a lower fattening period in Gazipur. Farmers in Gazipur paid signifi cantly more for broiler 
feeds; the reason for this was unclear because Kishoreganj was farther away from major feed 
mills except the one owned by ABFL which may dominate the Kishoreganj market. However, 
independent broiler farmers in Kishoreganj paid signifi cantly higher prices than contract 
farmers, probably because contract farmers usually paid ex-factory prices to ABFL while 
independent farmers bought in the open market.
Table 28. Quantity of industrial feed used per production cycle and prices paid by broiler farms in 
2005 
Items
Kishoreganj Gazipur
Contract Independent Contract Independent
Broiler farms
Quantity used (kg/100 birds) 294a (6.2) 275b (8.3) 261a (10.4) 232b (5.3)
Price (BDT/50 kg) 812a (2.8) 828b (5.8) 842a (2.8) 841a (4.5)
Layer farms
Quantity used (kg/100 birds) – – 5762a (171) 5091b (214)
Price (BDT/50 kg) – – 717a (7.6) 704a (9.2)
Breeder farms
Quantity used (kg/100 birds) 5303 (93) – – –
Price (BDT/50 kg) 701 (0.92) – – –
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Standard error of the mean in parentheses.
In each row, means with the same superscript are not signifi cantly different at the 0.1 level.
Source: Field survey (2006).
In Gazipur, the two types of broiler farmers paid almost the same price perhaps because 
feed market here was more competitive. Most independent broiler and layer farmers in both 
districts bought feed on credit from feed traders. Payment was made after selling broilers and 
eggs. Analysis of feed trader practices discussed in Section 4 indicated that prices paid per 
unit of feed by poultry farmers could potentially differ between farms within a district due 
to differences in the brand and volume of feed purchased, purchase terms (cash vs. credit), 
purchase source (wholesaler or retailer) and terms for coverage of transport cost (buyer or 
seller).
Independent layer farmers in Gazipur used signifi cantly less feed than contract farmers 
per production cycle because of the laying period was shorter. Most layer farmers used 
manufactured feeds while a few bought feed ingredients which they used to prepare the 
feed. Independent farmers paid a lower price per unit than contract farmers but the price 
difference was not signifi cant. In Kishoreganj, breeder stock farmers paid a signifi cantly lower 
price per unit of feed than broiler farmers because breeder and broiler farms use different 
types of feed. 
66
6.2.2 Sales outlets and prices of broiler and eggs
In Kishoreganj, all contract farmers sold their broilers to ABFL and all independent farmers 
sold to wholesalers (Table 29). In Gazipur, 71% of contract farmers and 88% of independent 
farmers sold to wholesalers while the rest sold to aratdars. Over 75% of contract and 
independent layer farmers in Gazipur sold their eggs to aratdars while the remaining 25% 
sold to wholesalers.
Table 29. Sales outlet for broiler and eggs by farm type and district
Kishoreganj Gazipur
Contract Independent Contract Independent
Broiler farms
Wholesalers – 40 (100) 30 (71) 37 (88)
Aratdars – – 12 (29) 5 (12)
ABFL 60 (100) – – –
All 60 (100) 40 (100) 42 (100) 42 (100)
Layer farms
Wholesalers – – 6 (14) 8 (21)
Aratdars – – 37 (86) 28 (74)
Cooperatives – – – 2 (5)
Total – – 43 (100) 38 (100)
Percentages in parentheses.
Source: Field survey (2006).
Eighty-fi ve percent of contract broiler farmers in Kishoreganj delivered birds to the ABFL 
purchase centre or the processing plant while 15% delivered birds to buyers at the farm gate. 
All contract broiler farmers and nearly all independent broiler farmers in Gazipur delivered 
their birds to buyers at the farm gate. Among layer farmers in Gazipur, 84% of contract 
farmers delivered eggs to buyers at the farm gate and 16% sold eggs at the local market. 
Sixty-three percent of independent farmers delivered eggs to the farm gate and 29% sold their 
eggs at the local market. An additional 8% delivered eggs to the buyers’ purchase centre.
All contract and independent broiler farmers in Gazipur sold their birds on cash basis. In 
Kishoreganj, 95% of independent farmers sold their birds on cash basis with the remaining 
5% selling on credit. Fifteen per cent of contract broiler farmers sold their outputs to 
integrators on cash basis, 12% on credit and 63% on a combination of cash and credit. 
Since the farmers paid cash for day-old chicks, feeds and drugs, the reason for selling birds 
on credit or cash-credit combination was unclear. Among layer farmers in Gazipur, 95% of 
contract farmers and 84% of independent farmers sold eggs on cash basis while the rest sold 
eggs on credit.
67
In terms of method of price fi xation, all contract broiler farmers in Gazipur and Kishoreganj 
had a priori price agreement with the integrator or other contract buyers. Among independent 
broiler farmers, 92% in Kishoreganj and 95% in Gazipur used bargaining to determine the 
spot price while the remainder either agreed to take the post-sale price (price at which the 
product was sold by the buyer trader) or sold at a previously agreed price. Among layer 
farmers in Gazipur, 82% of both contract and independent farmers agreed to take the post-
sale price and 18% used bargaining to determine the spot price; only one contract farmer 
had a pre-agreed price.
Lowest and highest prices received per unit output by layer and broiler farmers in the two 
districts in 2005 are summarized in Table 30. In both the districts, there was a near 50% 
difference between the highest and lowest prices received by contract and independent farmers 
due to seasonal variation in supply and demand for broilers and eggs. Since prices paid to 
contract farmers were linked to the prevailing market prices, both contract and independent 
farmers faced similar price movements and highest and lowest prices received by different farm 
types were similar except in case of broiler prices in Gazipur where the average lowest price 
received by independent farmers was signifi cantly better than that received by contract farmers. 
It may be recalled that contract farmers in Gazipur usually forward sell to aratdars in Dhaka 
against advances or loans so the farmers may have been subjected to a lower price than the 
prevailing market price which independent farmers received.
Table 30. Highest and lowest prices received per unit output by farmers in 2005
Kishoreganj Gazipur
Contract Independent Contract Independent
Broiler farms
Highest price (BDT/kg) 76.13a (0.59) 76.01a (0.63) 74.29a (0.93) 76.00a (0.83)
Lowest price (BDT/kg) 54.00a (0.87) 52.00a (1.47) 52.00a (1.23) 57.00b (1.12)
Layer farms
Highest price (BDT/100 eggs) – – 361a (3) 357a (4)
Lowest price (BDT/100 eggs) – – 250a (4) 252a (5)
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Standard error of the mean in parentheses.
In each row, means with the same superscript are not signifi cantly different at the 0.1 level.
Source: Field survey (2006).
6.3 Disposal and use of poultry excreta
Poultry excreta create health and environmental hazards unless properly used, stored or 
disposed of. About 80% of broiler farmers in Kishoreganj, 71% of independent farmers in 
Gazipur and 48% of contract broiler farmers in Gazipur dumped excreta in open spaces. The 
rest of the farmers stored poultry excreta in protected covered reservoirs (Table 31).
68
Table 31. Percentage of farmers reporting method and location of storage of poultry excreta
Farm type Storage system and location
Contract farmers Independent farmers
Kishoreganj Gazipur Kishoreganj Gazipur
Broiler Dump in open space/no specifi c place 80 48 81 71
Protected covered reservoir 18 52 20 29
Open and protected covered reservoir 2 – – –
Layer
Dump in open space/no specifi c place – 38 – 60
Protected covered reservoir – 63 – 39
Breeder stock
Dump in open space 53 – – –
Protected covered reservoir 48 – – –
All
Dump in open space/no specifi c place 69 43 81 66
Protected covered reservoir 31 58 20 34
Open and protected covered reservoir 1 – – –
Source: Field survey (2006).
The use of protected covered reservoirs was slightly higher among layer farmers in Gazipur 
and breeder stock farmers in Kishoreganj. Farmers usually avoided the extra cost of proper 
storage methods because there was no environmental regulation in the country. Local public 
heath authorities, producers and contractors were aware of the long-term consequences of 
dumping of poultry excreta in open spaces.
Improper storage and disposal of excreta poses a risk of water pollution and other heath hazards 
in areas where intensive poultry production is carried out and especially where population 
density is high. Use of stored excreta may reduce environmental risks to some extent if it is stored 
for a short time. Up to 47% of farmers in both districts did not have a specifi c use for stored 
excreta (Table 32). Use of excreta as manure in crop fi elds or fi sh ponds was common among 
some farmers, who also sold excreta for use in vegetable fi elds or fi sh ponds.
6.4 Costs and returns of broiler farms
In estimating costs and returns, all purchased inputs and services were valued at their actual 
acquisition costs, including transport cost where applicable. Transport costs may not be 
incurred for farms located near the input store compared to those located far from the input 
store. Thus, the nominal purchase price might be the same for the two farms but the total 
acquisition cost per unit of the same input would be different. 
Family labour was valued according to the opportunity cost principle, taking the local wage 
rate of BDT 80 for male labour and BDT 40 for female labour. Depreciation on buildings 
and equipment was estimated by the straight-line depreciation method. Interest on operating 
69
cost was estimated assuming a 10% interest rate which was the rate that the country’s public 
commercial banks charged on short-term loans.
Table 32. Percentage of farmers reporting pattern of use of poultry excreta
Farm type and pattern of use of poultry excreta
Contract Independent
Kishoreganj Gazipur Kishoreganj Gazipur
Broiler farms
Used as manure in crop fi eld 2 45 0 35
Used as manure in fi sh pond or sold 7 7 3 5
Sold 20 13 50 19
Used as manure in crop fi eld/fi sh pond or sold 5 2 5 5
Manure in crop fi eld and sold 23 7 12 19
Unspecifi ed 43 26 30 17
Layer farms
Used as manure in crop fi eld – 39 – 10
Used as manure in fi sh pond – 12 – 14
Sold – 12 – 32
Used as manure in crop fi eld/fi sh pond or sold – 7 – 8
Unspecifi ed – 30 – 36
Breeder stock farms
Used as manure in crop fi eld 5 – – –
Used as manure in crop fi eld and sold 20 – – –
Used as manure in fi sh and sold 5 – – –
Used as manure in crop fi eld/fi sh pond or sold 23 – – –
Unspecifi ed 47 – – –
All farms
Used as manure in crop fi eld 3 42 0 24
Used as manure in fi sh pond or sold 6 11 3 10
Sold 12 12 50 25
Used as manure in crop fi eld/fi sh pond or sold 12 2 5 4
Used as manure in crop fi eld and sold 22 5 12 11
Unspecifi ed 45 28 30 26
Total 100 100 100 100
Table 33 summarizes the cost structure of broiler farms in both districts. Contract farms 
generally had higher average costs than independent farms while Gazipur’s independent 
farms had the lowest unit cost. Labour was mainly from family sources. Casual and fi xed 
hired labour was less than 2% of the total cost. Contract and independent broiler farmers in 
Kishoreganj hired, respectively, 337 and 342 person-days of casual labour per year per farm. 
Over 90% of the hired workers were women. Contract breeder stock farms in Kishoreganj 
70
hired 594 person-days per farm per year, 39% of whom were women. In Gazipur, contract 
and independent broiler farms hired, respectively, only 46 and 53 person-days per farm per 
year; women comprised up to 30% of hired workers.
Table 33. Cost structure of contract and independent broiler farms by district
Cost and return
Contract Independent
Kishoreganj Gazipur All Kishoreganj Gazipur All
Total cost per 100 birds (BDT) 9744 9316 9532 9101 8691 8913
Percent share by source
Casual labour 0.80 0.64 0.72 1.03 0.99 1.01
Family labour 8.98 5.45 7.26 3.74 6.94 5.30
Day-old chicks 27.77 33.07 30.00 34.56 35.97 35.17
Feed and additives 50.75 48.70 50.12 50.53 46.82 48.55
Drugs and vaccines 3.54 4.23 3.83 4.26 3.15 3.70
Others* 1.03 0.78 0.93 0.71 0.35 0.53
Interest on operating capital 4.64 4.65 4.65 4.69 0.99 4.67
Total variable cost (A) 97.51 97.53 97.52 98.48 94.21 97.90
Fixed hired labour 0.94 0.97 0.95 0.57 0.44 0.50
Depreciation on buildings and equipment 1.55 1.50 1.54 0.94 1.68 1.59
Total fi xed cost (B) 2.49 2.47 2.50 1.53 2.12 2.10
Total cost (A+B) 100 100 100 100 100 100
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
*Polythene, water, litter, electricity etc.
Source: Field survey (2006).
Contract and independent layer farms in Gazipur hired, respectively, 196 and 275 person-
days of casual labour per farm per year; up to 3.5% of these were female. Farms in Gazipur 
were generally smaller than in Kishoreganj so they mostly used family labour. Many young 
women in Gazipur and Dhaka were employed in garment industries so getting them to work 
in less attractive poultry farms may have been diffi cult.
Estimated coeffi cients of the cost function show that cost per unit output was signifi cantly 
higher for contract farms in Kishoreganj. Cost per unit output decreased signifi cantly as farm 
size and utilization of physical capacity increased, indicating economies of scale. Cost per 
unit output increased signifi cantly as number of fattening days and sale weight increased. 
Cobb-500 was slightly more costly than other strains (Table 34).
Differences in labour use did not signifi cantly affect cost per unit output.
1 
Given that the 
technology package was almost fi xed, inter-farm differences in labour use were expected 
to be low. To capture any effect of labour input intensity, labour and labour squared were 
1. Prices are usually used as variables in cost functions rather than quantities of inputs. However, unpaid 
family labour accounted for most of the labour input of the sampled farms. These were rated at the prevailing 
constant wage rate in the area so the source of any variation was the quantity of labour and not the wage rate.
71
specifi ed as variables. The labour variable was automatically excluded by the best-fi t model, 
indicating that labour input did not vary widely across the sample. The ratio of hired labour 
to family labour was included as a variable to see if increased use of hired labour had any 
effect on the cost per unit output but the coeffi cient was not signifi cant. Table 35 shows the 
costs and returns per 100 birds in broiler farms.
Table 34. Estimated coeffi cients of cost function for broiler farms 
Independent variable ? (Standard error)
Constant 5.766** (2.304)
Farm type dummy (contract = 1, Independent = 0) 0.066*** (0.023)
District dummy (Kishoreganj = 1, Gazipur = 0) 0.117** (0.057)
Market outlet dummy (farm gate = 1, other = 0) 0.028 (0.049)
Ln number of day-old chicks reared –0.136*** (0.028)
Ln rearing capacity used –0.070 (0.043)
Ln mortality rate –0.011(0.009)
Ln fattening days 0.551*** (0.116)
Ln sale weight per bird (kg) 0.254*** (0.067)
Ln education of household head (years) 0.006 (0.006)
Ln of total labour (person days) na
Ln square of total labour (person days) 0.010 (0.015)
Ln ratio of no. of hired and family labour –0.001 (0.007)
Dummy (strain, Kasila = 1, other = 0) 0.036 (0.033)
Dummy (strain, Hubbard Classic = 1, other = 0) –0.001 (0.035)
Dummy (strain, Cobb-500 = 1, other = 0) 0.058 (0.040)
Feed price (BDT/bag) 0.228 (0.335)
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
R2 = 0.45, Adjusted R2 = 0.41, F= 9.33, n=183, Signifi cance = 0.000.
na: Variable was automatically excluded by the model.
Dependent variable, Ln total cost per 100 birds.
Source: Field survey (2006).
Net return per unit output was the lowest for contract farms in Kishoreganj and highest 
for independent farms in the same district. When family labour cost was included, the 
benefi t cost ratio (BCR) ranged from 1.01 to 1.05 between farm types and districts. Since 
this is a residual over all costs, it is a return to management. When family labour was 
excluded so that the benefi t accrued to family labour, the BCR rose to between 1.09 
and 1.11; this was considered reasonable. This translated into a return per person-day 
of family labour ranging from BDT 108 for contract farms in Kishoreganj to BDT 215 for 
independent farms in the same district. Independent farmers in Kishoreganj earned the 
highest labour income per unit of labour while contract farms in the same district earned 
the lowest labour income. 
72
Table 35. Costs and returns per 100 birds in broiler farms
Cost and return (BDT)
Contract farms Independent farms
Kishoreganj Gazipur All Kishoreganj Gazipur All
Total cost (A) 9744 9316 9532 9101 8691 8913
Total gross return (B) 9845 9729 9797 9554 8998 9269
Net return (B–A) 101 414 265 453 306 356
BCR with family labour cost 1.01 1.04 1.03 1.05 1.04 1.04
BCR without family labour cost 1.11 1.10 1.11 1.09 1.11 1.10
Return to family labour per person-day 108 176 134 215 134 160
BCR: benefi t cost ratio.
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Source: Field survey (2006).
Although independent farms in Gazipur incurred the lowest cost per unit output, they earned 
the second lowest labour income rate. The reasons for the signifi cantly different labour 
income rates were unclear. Possible reasons include the sum of small differences in cost per 
unit, prices received per unit output and differences in technical performance. The labour 
returns were similar to or slightly higher than the prevailing wage rates for skilled labour in 
the respective districts, indicating that poultry was a reasonable option for income generation 
for mixed smallholder farmers.
In Kishoreganj, 93% of hired labourers in broiler farms were women. Because these women 
had few opportunities for alternative employment, poultry farming provided a reasonable 
employment opportunity, though at a signifi cantly lower wage rates than male labour. 
Gazipur is a peri-urban area with higher opportunities for alternative employment because of 
the presence of various industries. Thus, returns to family poultry workers in this district were 
comparable to hired industrial wage labourers.
6.5 Costs and returns of layer farms
Table 36 summarizes the average cost per unit output and its component shares for contract 
and independent farms in Gazipur. The cost per 100 eggs was higher for independent farms 
though feeds and additives accounted for about 75% of costs in both farm types. Shares of 
different cost items did not differ much between the two farm types. The unit cost of some 
items may have been higher in independent farms. In the cost function, egg productivity per 
bird was the only statistically signifi cant variable that affected the cost per 100 eggs (Table 
37).
73
Table 36. Cost structure of contract and independent layer farms in Gazipur
Items Contract farms Independent farms
Average cost per 100 eggs 318 358
Percentage share by source
Casual hired labour 0.00 0.28
Family labour 8.18 5.87
Day-old chicks 3.14 4.19
Feed and additives 74.84 75.98
Drugs and vaccine 4.09 4.47
Other costs
a
1.57 1.68
Interest on operating capital 4.72 4.75
Total variable cost (A) 96.54 97.21
Annual fi xed labour
b
1.26 1.40
Depreciation on building and equipment 2.20 1.40
Total fi xed cost (B) 3.46 2.80
Total cost (A + B) 100 100 
a. Polythene, water, litter, electricity etc.
b. Labourers who are hired on annual basis.
Source: Field survey (2006).
Table 37. Estimated coeffi cients of cost function for layer farms in Gazipur 
Independent variable ? (Standard error)
Constant 233.630*** (87.932)
Dummy (farm type, contract = 1, other = 0) –4.910 (15.073)
No of starting day-old chicks/pullet –0.008 (0.020)
Mortality rate (%) 1.913 (1.294)
Days at fi rst laying 0.588 (0.394)
No. of eggs per laying period per bird –0.131*** (0.044)
Capacity used (%) 25.132 (43.682)
Education (years) –0.911 (2.400)
Dummy (Sale location, farm gate = 1, other = 0) –1.738 (16.944)
Ratio of no. of hired and family labour –6.422 (10.438)
No. of total labour (person days) –4.458 (13.956)
Square of no. of total labour (person days) 1.972 (1.512)
Dummy (strain 1, BV-300 = 1, other = 0) –55.952 (35.086)
Dummy (strain 2, Brown Nick = 1, other = 0) –4.754 (23.639)
Dummy (strain 3, Hyline = 1, other = 0) –11.143 (27.733)
Dummy (strain 4, ISA Brown = 1, other = 0) –52.253 (32.827)
Dummy (strain 5, Shaver = 1, other = 0) –16.666 (27.292)
Dummy (strain 6, Hysex brown = 1, others = 0) –13.458 (20.855)
*** signifi cant at less than 1%. 
R2 = 0.38, Adjusted R2 = 0.21, F= 2.208, n = 79, signifi cance = 0.012.
Dependent variable: cost per 100 eggs per cycle.
Source: Field survey (2006).
74
Costs and returns of contract and independent layer farms in Gazipur are summarized in 
Table 38. Net return and BCR per 100 eggs were signifi cantly higher for contract farmers; 
Independent farmers only broke even. Returns per person-day were BDT 167 for contract 
farmers and BDT 73 for independent farmers. For contract farmers, these returns were com-
parable to the skilled labour wage rate in the district which has many industries. Conversely, 
the returns for independent farmers were far below the going wage rate. Since poultry is only 
one of the enterprises that farmers can engage in and since female labour has a slightly lower 
opportunity cost, the lower earnings for independent farms were still acceptable.
Table 38. Costs and returns per 100 eggs in contract and independent layer farms in Gazipur
Item Contract farms Independent farms
Total cost (A) 318 358
Gross return (B) 354 359
Net return (B – A) 36 1
BCR with family labour cost 1.11 1.00
BCR without family labour cost 1.21 1.07
Return to family labour per person-day 167 73
BCR: benefi t cost ratio.
Source: Field survey (2006).
6.6 Costs and returns of breeder stock farms
Table 39 shows the costs and returns of breeder stock farms per production cycle of about 
17 months. Feeds accounted for 60% of the total cost and day-old chicks for 16%. Operating 
cost items such as day-old chicks, industrial feeds, additives and drugs were supplied on 
credit by the integrator so these items were excluded in calculating the interest on operating 
costs. Returns included revenue from sales of hatching eggs, rejected eggs, culled birds, used 
litter and bags, and insurance refunds. The BCR of 1.10 was comparable to that in Gazipur. 
Cost per unit increased signifi cantly with longer laying periods but decreased with higher egg 
productivity (Table 40).
6.7 Overall income difference between farm types
Per capita income from all sources was regressed on a number of factors to compare overall 
farm income of different farm types in both districts and the contribution of poultry income 
to overall income (Table 41). Income per capita from all sources did not differ signifi cantly 
between contract and independent poultry farms. Income per capita was signifi cantly lower 
in Kishoreganj than in Gazipur, in broiler and layer farms and in larger families. Conversely, 
it was signifi cantly higher among better-educated farmers and in households with remittance 
and business incomes.
75
Table 39. Costs and returns per cycle of contract breeder farms in Kishoreganj 
Costs Quantity BDT Percent
Hired male labour (person-days) 2655 185,821 4.62
Hired female labour (person-days) 1063 37,193 0.92
Total hired labour (person-days) 3718 223,013 5.55
Day-old chicks (number) 3296 645,168 16.04
Industrial feed until laying period (kg) 42,162 590,272 14.68
Industrial feed & additives during laying (kg) 131,950 1,847,296 45.94
Drugs – 206,000 5.12
Electricity – 94,263 2.34
Other costs
a
 – 124,017 3.08
Interest on operating capital 31,258 0.78
Total variable cost 3,762,288 93.55
Total male family labour (person-days) 534 37,384 0.93
Depreciation on housing – 133,635 3.32
Depreciation on tools and equipment
b
– 89,181 2.22
Total fi xed cost 260,200 6.47
Total cost 4,022,487 100.00
Returns   
Hatching eggs (number) 468,829 3,694,370 83.83
Rejected eggs (number) 17,460 45,921 1.04
Culled birds (number) 2821 611,404 13.87
Used litter and bags – 38,277 0.87
Refund from insurance – 16,928 0.38
Total gross return 4,406,900 100.00
Gross margin (Gross revenue—variable costs) 644,613  
Net return (Gross margin—fi xed costs) 384,413  
BCR with family labour (male) 1.10  
BCR without family labour (male) 1.11
Return to family labour per person day (BDT) 790
a. Litter, tax, sterilization, polythene, sacks etc.
b. Waterer, feeder, fan, generator, laying box, egg tray, van, hand tube well, pump/motor, tank, drum, bucket, 
nipple drinker etc.
BCR: benefi t cost ratio.
BDT: Bangladesh Taka. USD 1.00 = BDT 65.31 at 1 June 2006.
Source: Field survey (2006).
76
Table 40. Estimated coeffi cients of cost function for breeder stock farms
Independent variables ? (Standard error)
Constant 4.665 (4.804)
Ln no. of day-old chicks reared 0.020 (0.192)
Ln mortality (%) –0.022 (0.056)
Ln days of fi rst laying 0.493 (0.564)
Ln laying period (days) 1.020 (0.362)
Ln capacity used (%) –0.334 (0.235)
Ln no. of fertile eggs per bird –1.216*** (0.381)
Ln education of owner (years) 0.097 (0.102)
Ln ratio of no. of hired and family labour (person-days) 0.154 (0.212)
Ln total no. of labour in poultry –0.194 (0.322)
Dummy (strain 1, Arber acres plus = 1, other = 0) 0.038 (0.091)
Dummy (strain 2, Hubbard Classic = 1, other = 0) –0.066 (0.132)
Dummy (strain 3, Kasila = 1, other = 0) –0.121 (0.098)
Dummy (strain 4, ISA JA57 = 1, other = 0) –0.097 (0.121)
*** Signifi cant at less than 1%.
R2 = 0.66, Adj R2 – 0.48, F = 3.603, n = 37, signifi cance = 0.003.
Dependent variable: Ln total variable cost per 100 eggs.
Table 41. Factors infl uencing per capita income of the sample farms
Independent variables ? (Standard error)
Constant 25719.332*** (7253.358)
Dummy (Farm type, Contract = 1, Independent = 0) –232.745 (3126.589)
Dummy (Location, Kishoreganj = 1, Gazipur = 0) –5615.329* (3243.522)
Dummy (Enterprise 1, Broiler = 1, otherwise = 0) –7774.724* (4407.682)
Dummy (Enterprise 2, Layer = 1, Otherwise = 0) –10799.550* (5551.167)
Dummy (Enterprise 3, Breeder stock = 1, Otherwise = 0) 15287.068** (6328.806)
Dummy (Business income, Yes = 1, Otherwise = 0) 14590.923*** (2834.937)
Dummy (Remittance, Yes = 1, Otherwise = 0) 37665.660*** (5586.187)
Education of owner (years) 1268.216*** (370.492)
Family size (number of persons) –2410.935*** (534.023)
Age of owner (years) –12.960 (120.776)
***, ** and * indicate signifi cant at less than 1, 5 and 10%, respectively.
R2 = 0.28, Adj R2= 0.26, F = 13.548, n = 37, Signifi cance = 0.000.
Source: Field survey (2006).
6.8 Reasons for discontinuing the poultry business
Out of the 140 sampled poultry farmers in fi ve districts that discontinued the poultry 
business, 84% raised broilers and 16% layers. These farmers were in business for an average 
77
of 3.1 years for broiler farms and 6.3 yeas for layer farms. Forty-six percent of the layer 
farmers operated for more than seven years before discontinuing the business while 61% of 
broiler farmers dropped out within three years of setting up the business (Table 42).
Table 42. Percentage of broiler and layer farms operating before dropping out
Years of operation
Broiler farms (%)
n = 118
Layer farms (%)
n = 22
All farms (%)
n = 140
1 23.7 9.1 21.4
2 19.5 13.6 18.6
3 18.6 9.1 17.1
4 16.1 4.5 14.3
5 11.9 13.6 12.1
6 6.8 4.5 6.4
7 or more 3.4 45.6 10.1
Chi square = 44.391, signifi cant at less than 1% level.
Source: Field survey (2006).
Table 43 lists the cited reasons for dropping out of poultry farming. Most farmers gave several 
reasons so the percentages do not add up to 100.
Table 43. Proportion of farmers citing reasons for dropping out of poultry farming
Perceived main reason(s) for dropping out
Percent 
sample
Input price higher than output price; lower price of output; output price not remunerative 81
Problems related to day-old chicks:
Price was high 63
Desired quality was not available 51
Timely supply was not available 34
Adequate quantity was not available 31
Shortage of capital 60
High mortality of birds 47
Low productivity of birds 43
Low demand for products in local market 33
Moved into other business 29
Disagreement among family members/partners 26
Diffi cult to sell in distant markets 17
Source: Field survey (2007).
The main reasons leading to business failure and eventual dropping out of business were 
inconsistency between input and output prices, problems related to supply and price of 
day-old chicks, shortage of capital, high mortality and low productivity, low local demand 
for products and diffi culty in accessing distant markets. All these reasons were enterprise-
78
neutral (i.e. similar pattern among broiler and layer farms) and scale-neutral. For each 
reason or combination of reasons given for dropping out of poultry keeping, there was no 
signifi cant difference in the scale of operation between those who cited the reason and those 
who did not. No systematic technical and management problems were associated with the 
stated reasons for dropping out except for high mortality and low productivity, which had 
implications for contract farms.
Forty-seven percent of the 140 drop-out farms cited high mortality leading to unsustainable 
losses as the main reasons for dropping out of business. Mortality in the year the business 
was discontinued averaged 9.4% for the entire sample but 12.6% for those who discontinued 
poultry farming because of high bird mortality; this difference was not statistically signifi cant. 
Contract farmers under ABFL are covered by an insurance scheme which allows them 
to claim full compensation if bird mortality rates are above 15%. However, independent 
poultry farmers do not have a similar insurance scheme so high bird mortality often forces 
independent farmers to discontinue poultry production.
High mortality may have been due to the farmers’ lack of technical skills in poultry 
management. Of the 66 farmers who dropped out of poultry business due to high mortality, 
61% had no formal training. However, 42% had obtained technical knowledge on poultry 
farming from neighbours, 21% from traders of day-old chicks and feeds, 17% from drug 
suppliers or agents of pharmaceutical companies and 20% through trial and error or 
other means. Of the farmers who did not cite bird mortality as a reason for stopping 
commercial poultry farming, 31% had obtained technical knowledge on poultry farming 
from neighbours, 42% from traders of day-old chicks and feeds, 16% from drug suppliers or 
agents of pharmaceutical companies and 11% through trial and error or other means. Thus, it 
appears that lack of formal technical knowledge on commercial poultry farming was a major 
reason for high mortality leading to business failure.
Forty-three percent of the 140 drop-out farms cited losses due to low productivity of birds 
as the main cause of business failure. Of these, 75% did not get supply of day-old chicks in 
time, 70% did not get the desired number of day-old chicks, 97% said the quality of day-old 
chicks was low and 89% were dissatisfi ed with the quality of veterinary drugs. Of the farmers 
who did not drop out of poultry business because of low bird productivity, 60% did not get 
supply of day-old chicks in time, 50% did not get the desired number of day-old chicks, 75% 
said the quality of day-old chicks was low and 63% were not satisfi ed with the quality of 
veterinary drugs. Thus, problems with quality veterinary drugs and supply of day-old chicks 
appeared to be the main factors that led to losses and business failure although other factors 
may have played a role.
79
7 Conclusion and policy implications
7.1 Forms of contract poultry farming
A rapid appraisal involving various stakeholders and detailed follow-up surveys among 
enterprises involved in various forms of contract arrangements indicated that there were three 
major types of contractual arrangements in the country’s poultry sector:
Production marketing contract: The contractor supplies inputs and services to the contract 
farmers and then buys the farmers’ poultry products. Three different enterprises operate this 
system: ABFL, BRAC and BPC. However, the terms and conditions vary among the contractors; 
terms and conditions cover input provision, risk sharing, price fi xation procedures, extent of 
geographical coverage and number of poultry farms involved. The three enterprises together 
handle less than 700 contract broiler farms in different districts. The enterprises do not all 
operate in the same areas so they are not direct competitors at the farm level.
Formal input marketing contract: Actors are involved in contracts to supply day-old chicks, 
poultry feed and/or services directly to farmers or through contracted agents. The agreement 
is documented in writing and signed by the parties. Kazi Farms, Paragon Poultry and Nourish 
Feed Mill belong in this category. These companies do not usually buy outputs from farmers 
but agents and traders who handle the contractor’s inputs often facilitate sale of farm outputs 
as a promotional service to create and expand their input markets. The companies differ 
in terms of the degree of contractual relations and extent of inputs and services provided. 
Because the main purpose of these enterprises is to promote input marketing, their business 
strategies are very dynamic and adaptable to market conditions.
Informal output marketing contract: Actors are involved in contracts to buy farm outputs. 
The agreement is either verbal or in a form that may not be acceptable in a formal court in 
case of dispute settlement. Primarily stockists (aratdars) and wholesalers of Dhaka central 
broiler and egg markets and those from other major markets in the supply chains enter into 
contracts with producers either directly or through agents. The contracts are usually made 
with already existing poultry farms. Many small-scale commercial poultry farmers enter 
into such informal contracts because of limited access to formal credit to set up new farms 
or meet operating costs of established farms or because of the diffi culties and real costs of 
accessing such credit. 
7.2 Structure and performance of input and output markets
Other than physical investment in buildings and major machineries, the main inputs in 
the poultry industry are day-old chicks, feeds, veterinary drugs and small equipment. The 
80
main outputs are broilers and eggs. The structure and performance of the hatchery and feed 
industries were assessed at the aggregate level by looking at seller and buyer concentrations, 
degree of product differentiation and entry conditions for new fi rms. Performance of markets 
for drugs and small equipment were also assessed by analyzing the trading practices and 
performance of wholesale and retail traders of these inputs. Similarly, the structure and 
performance of the broiler and egg markets were analysed by looking at the supply chains, 
market actors and their market shares, roles, trading practices, costs and marketing margins.
The level of concentration in the hatchery industry in Bangladesh was low to moderate and 
the hatcheries were located in as many as 31 districts. Only 52% of the hatcheries were in 
operation while there was signifi cant waiting time and advance payment required for farmers 
to get timely supply of day-old chicks from operational hatcheries indicating unexploited 
production capacity and room for additional investment. Product differentiation was refl ected 
in the use of several imported strains for broilers and layers.
The concentration in the feed industry was lower than in the hatchery industry. Seventy-fi ve 
percent of the feed processing plants were in operation. They had not developed their own 
distribution channels. Six brands of processed feeds for broiler farms were available in the 
study areas while layer farmers purchased feed ingredients to prepare feed. Feed markets 
were competitive at all levels. At the factory level, feeds were sold on cash basis while at 
retail level most feeds were sold on credit. There were no legal barriers to entry into the 
hatchery and/or feed manufacturing industries but inadequate supplies of raw materials and 
irregular electricity supply were major disincentives for new investments in these industries.
Supply chains for broilers and eggs differed between independent and contract farmers and 
between the two districts. In Gazipur, the chains were fairly complex involving a number 
of nodes. Some actors at the upper end of the chain, such as aratdars and wholesalers, had 
greater control of the market especially in infl uencing the price at all levels of the chain. 
However, there were signifi cant seasonal differences in prices of broilers and eggs due 
to seasonal differences in demand. The estimated price spread between producers and 
consumers of broilers and eggs indicated that market actors at different levels made different 
rates of margins but the overall price spread appeared reasonable relative to the services 
provided and level of investment made.
7.3 Factors infl uencing participation in commercial poultry 
farming
The results of probit and logit models indicated that the probability of participation in 
commercial poultry farming was signifi cantly higher among households with higher 
81
education, larger land holdings and more family labour, and signifi cantly lower among older 
farmers and farmers with more agricultural income. This indicated that family labour was 
already engaged in good income generation so there was little immediate incentive and 
scope for diversifi cation. Commercial poultry farmers were also more likely to have borrowed 
from formal or informal sources of credit compared to non-poultry farmers.
Among commercial poultry farmers, the profi les of independent and contract farmers did 
not differ signifi cantly except that in some cases, the probability of engaging in some kind of 
contract arrangement was signifi cantly lower among households with larger land holdings 
but signifi cantly higher with higher farm income which might have provided required capital 
for investment. Contract farmers in Gazipur were less likely to have borrowed from formal 
or informal sources of credit but the opposite was true in Kishoreganj where all the contract 
breeder stock farmers had borrowed from at least one source of credit.
In Kishoreganj where there was an opportunity to choose between participation in contract 
broiler or breeder stock farming, the probability of being a contract breeder stock farmer 
was signifi cantly lower in households with more family labour but higher in households 
with larger farm income that might have provided the required capital. This may have been 
because female labour was generally excluded from breeder stock farms, which was not the 
case for broiler farms. Thus, even with more family labour, effective family labour available 
for breeder stock farming was lower. Overall, relatively wealthier and more educated 
households engaged in commercial poultry production. The profi les of independent and 
contract farmers involved in commercial poultry production were not signifi cantly different. 
The form of contract chosen was often a function of what was available in a given area as 
enterprises offering contract arrangements did not operate countrywide.
7.4 Performance of contract and independent poultry farms
Formal contract farms and broiler production were prevalent in Kishoreganj while informal or 
semi-formal contract farms and layer production was dominant in Gazipur. The average fl ock 
size in contract and independent farms in Kishoreganj was 2000 birds in Kishoreganj and 
1000 birds in Gazipur. 
The average profi tability of broiler farms did not differ signifi cantly between contract and 
independent farms but it differed between the two districts. Contract layer farms performed 
much better than independent layer farms. These differences were due to differences in feed 
conversion ratio, fattening days and sale weight (for broilers), and egg production per bird per 
laying period and length of laying period (for layers). 
82
Overall, the poultry enterprise generated returns to family labour that were comparable 
to prevailing wages for semi-skilled and skilled labour in the study areas. This indicated 
that commercial poultry production was a reasonable option for income and employment 
generation. Commercial poultry farming also helped to diversify the income of both 
independent and contract poultry farmers. However, the extent of wage employment 
generation at the producer level was relatively low as most of these farms relied on family 
labour. Moreover, female workers were paid less than their male counterparts; this might 
be a refl ection of the labour market which currently offers women fewer alternative 
employment opportunities.
Based on a sample of independent poultry farms in fi ve districts, the key reasons for business 
failure after one or more years of operation were identifi ed as high input prices, irregular 
supply of day-old chicks and poor quality of veterinary drugs. These factors caused high 
mortality and low productivity.
7.5 Policy implications
Formal production-marketing contract farming or classical contract farming represents a 
small share of the commercial poultry industry in the country. Therefore, one may conclude 
that formal contract farming offers few opportunities for potential commercial poultry farmers 
in Bangladesh to participate in such farming arrangements. Among the three operators, 
BRAC has a greater potential to help small-scale farmers to participate in contract poultry 
production; the average land holdings and fl ock sizes of BRAC’s contract farmers are the 
smallest among the three operators.
The main advantage of production-marketing contracts to the producers is an assured outlet 
for their products. However, sharing of production and price risks, and mode of payment 
for inputs vary among the three operators. The lack of regulations on minimum wages in 
the poultry industry has led to wage discrimination between male and female workers in 
independent and contract farms. This problem probably may not be solved immediately 
but creation of awareness about this inequality may be a fi rst step towards redressing the 
problem.
Formal input marketing contracts cover supply of inputs and services. The three large 
enterprises that operated this type of contract will continue to play a dominant role in the 
expanding poultry industry. A dual structure is emerging in the hatchery and feed industries 
whereby a few large operators derive economies of scale and control large market shares. 
If policy distortions (e.g. cheaper credit, import subsidy on raw materials and tax relief) 
continue to favour the large operators, their smaller counterparts may be pushed out of 
business. 
83
Continued competition in the industry will be benefi cial for producers, inputs suppliers and 
input traders as it will keep prices low and improve services and product quality. So long as 
the input industries remain competitive and new entrants have adequate incentives to join, 
arrangements will emerge that are benefi cial to both poultry producers and input suppliers. 
However, if concentration in the input industries increases due to true economies of scale or 
policy distortions, poultry producers are less likely to benefi t.
The true extent of informal output marketing or forward purchase contracts could not be 
ascertained. However, evidence from Gazipur indicates that this arrangement may be fairly 
widespread. Forward purchase contractors are informal moneylenders who provide credit 
to small-scale producers whose access to formal credit is either limited or costly. Lack of 
information on supply, demand, prices and market power of buyers were the main problems 
for producers under this type of contract. Easier access to formal credit at interest rates and 
terms comparable to larger operators will increase the bargaining power of small-scale 
producers under forward sale contracts. The entry of additional formal contract farming 
operators will increase opportunities for producers to choose between input purchase and 
output marketing options. It will also increase the bargaining power of producers who enter 
into informal forward purchase contracts.
Some formal and informal contractual arrangements may not always provide adequate 
incentives to smallholder farmers. Current formal contract arrangements provide an assured 
market outlet. However, prices are generally linked to prevailing market prices so contract 
farmers do not get a price advantage over their independent counterparts. In fact, producers 
with informal forward purchase contracts are sometimes disadvantaged due to lack of access 
to market information on supply, demand and prices. Therefore, access to market information 
needs to be improved in order to provide farmers with an opportunity to continue to engage 
in contract arrangements. In addition, policy should encourage more business enterprises to 
enter into contract arrangements with small-scale poultry farmers. 
The input- and output-related factors that led to business failure can be addressed by market 
institutions modelled on contract farming. In the Bangladesh context, contract farming 
currently covers a small share of the industry so there is wide scope to expand this type of 
market organization for the benefi t of producers, hatchery owners, feed manufacturers and 
integrators.
The hatchery and feed industries have unused capacity and unexploited investment 
opportunities. They also face constraints such as lack of raw material, irregular electric 
supply and lack of investment capital. Removing these constraints at input supply and 
output marketing domains will require joint efforts of private investors and public-sector 
organizations involved in research, extension, credit, trade and power supply. Local research 
84
in hatchery management is seriously lacking among hatchery owners and in publicly-funded 
livestock research organizations. As a result, all poultry strains are imported. Adaptive 
research is essential for sustained and effi cient functioning of the industry.
The input industries and the output marketing channels have created many production- and 
marketing-related jobs. Small traders and market actors are also involved in creating an 
equity effect in the industry. Policy should encourage increased investment and competition 
in the industry for the benefi t of investors, traders, producers and the labour market.
The dynamic growth of the industry shows that new norms and practices are evolving 
as a result of innovative actions by larger enterprises in response to market demand and 
investment opportunities. However, timely access to quality inputs, services, credit and 
markets remained major challenges for smallholder producers. 
The risk of major diseases, especially avian infl uenza, remains a problem for the industry. 
In April 2007, an outbreak of avian infl uenza was reported in a farm operated by BPC. The 
disease soon spread to other private farms in several districts but was quickly contained after 
the government and other stakeholders intervened. The consequences of the outbreak and 
the containment strategy need to be assessed to learn lessons for future management of such 
outbreaks. 
The potential risk of avian infl uenza may limit expansion of formal contract poultry farming 
and may also lead to emergence of terms that are more favourable to integrators. For 
example, ABFL’s decision to change its terms of input supply from credit to cash was aimed at 
reducing its share of the price risk. However, this move created capital constraints for small-
scale producers who now have to access credit from private moneylenders at high interest 
rates.
In this regard, ABFL’s self-fi nancing insurance scheme that covers normal disease risk should 
be reviewed to assess its suitability to include epidemic diseases like avian infl uenza. Other 
integrators or insurance industry players may adapt and scale up this scheme throughout the 
country. By accommodating such high risk events, the insurance scheme will allow small 
producers to remain engaged in the poultry sector alongside large operators. However, the 
public sector needs to provide a general policy and regulatory framework to facilitate the 
use of such insurance schemes by individual enterprises and to ensure that the interests of all 
parties are adequately safeguarded.
85
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Alternative institutional arrangements 
for contract farming in poultry 
production in Bangladesh and their 
impacts on equity
ILRI
Research Report 7
 
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