International Food Research Journal 24(2): 761-766 (April 2017)

Journal homepage: http://www.ifrj.upm.edu.my

Economic analysis of broiler production in Peninsular Malaysia

*
Abdurofi, I., Ismail, M.M., Kamal, H. A. W. and Gabdo, B. H.

Institute of Agricultural and Food Policy Studies, Universiti Putra Malaysia, 43400 Serdang,
Selangor, Malaysia

Article history Abstract

Received: 1 January 2016 The domestic demand for broiler meat is one of the highest in the Malaysian markets. The
Received in revised form: industry requires continuous evaluation to identify the existing problems and improves its
4 April 2016
Accepted: 23 April 2016
competitive advantage. Thus, economic analysis of this sort will continue to update current
statistics on production cost, output and profitability. Following this, the study, therefore, aims
to assess the existing financial condition of farmers, marginal cost of production, total net
income and input-output ratio of broiler production in different regions in Peninsular Malaysia.
Keywords The study used multi-stage sampling in selecting 310 operators from Southern, Northern, East
Coast and Centeral regions. The analytical tools include descriptive statistics and farm budget.
Economic analysis The findings disclosed that the broiler farm incurs major cost from acquiring operating inputs
Production cost especially feed. The operations in the East Coast region was almost unprofitable for the reason
Broiler production that feed conversion rate is more than 2 resulting in higher production cost. But the other three
Peninsular Malaysia regions indicate positive returns based on the estimated input-output ratios of 1:1.09, 1:1.17
and 1: 1.23 for Northern, Southern and Central regions, respectively.The study advocates for
both managerial and policy measures that will help cut the cost of production to attract more
investors and increase export.

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Introduction However, even though the broiler meat in Malaysia

are self sufficient, relevant issues like production
The poultry industry plays a significant role to the accessibility, sustainability and non optimal resource
Malaysian economy in the provision of cheap source utilisation still exist (Shamsudin, 2013). For instance,
of protein to its multi-ethnic population. The poultry the margin between cost of production and sales is
industry accounts for 57.5% of the total value added quite small forcing farmers to accept less profit on a
in the livestock sector in 2012; higher than other single bird or a kilogram of chicken. Net of returns in
livestock individually and collectively. The poultry broiler production are not promising and thus, limit
meat has recorded more than 120% self- sufficiency the inflows of new investment (Rahman et al., 2003).
in 2007-2012 (DVS, 2012). The percentage share The higher cost of feed is one of the main reasons
of poultry to the total livestock is highly likely cited by many researchers on why the industry cannot
to increase in the future (Jamaludin, 2013). This perform better and highly rely on the price trend
is because the broiler meat has a peculiar status of the main feed ingredients (Elsedig et al., 2015;
among the multiethnic population of Malaysia; no Chanjula and Pattamarakha, 2002). They exert that
religious prohibition exist relative to other meats high cost of feed is considered as a major problem
like beef and pork which are still unacceptable for of broiler production along with a lack of knowledge
consumption by specific race or religion of the for disease prevention, outbreak of diseases,
population. Additionally, the percentage of broiler selection and mating process. The feed cost in broiler
consumption in Peninsular Malaysia accounted for production as a major cost that contributes about
96% of the total poultry consumed in 2012; while 70% to the total variable cost while, day old chicks
ducks and other poultry meat relatively accounted for (DOC) contributes about 22% and the rest like labor,
about 3% and 1% respectively (Agrofood Statistic, vitamin, and equipment jointly contributes less than
2013). Therefore, in meeting the expected higher 9% (Ravindran, 2013). In order to ensure sustainable
demand for chicken meat, the broiler industry must and continuous supply of broiler meat in Malaysia,
operate sustainable production and maintain private the factors that enhance profitability of the broiler
profitability in order to make the meat available at industry must be scrutinized. The broiler performance
reasonable price in Malaysia. is correlated with maximum profit where the

*Corresponding author.
Email: [email protected]
762 Abdurofi et al./IFRJ 24(2): 761-766

necessity of huge investment compounded with high was the major source of data while in some instances
feed cost is required to meet maximum performance secondary information was also used. The primary
and achive breeder’s objective (Tangendjaja, 2013). data was obtained via questionnaire that had been
In view of the anticipated unstable profit in the pretested and improved before actual interviews.
broiler industry necessitated largely by high cost of
production, an economic analysis aimed at revealing Sampling method
the current status of broiler production in terms of In order to closely represent the population, the
costs and benefits through various performance multi-stage sampling technique was used to select
indicators is indeed important for newcomers and a sample of broiler farmers from 2403 registered
policy formulation in Malaysia. farms in Peninsular Malaysia (DVS, 2012). The
In poultry production, total expenses greatly first action of multiple-stage sampling in this study
influenced by feed price that can reach up to 70% was to stratify the states in Peninsular Malaysia
of total cost. Feed component of total costs for according to Northern, Southern, East Coast and
broiler production increased from 51.8% in 2001 to Central regions. The second stage was the selection
68.7% in 2008 at the peak of food crisis (Donohue of the broiler farmers that are engaged in small,
and Cunningham, 2009). Production input (phsyical medium, and large scale across the regions. Finally,
amount and cost) and farm size affect inefficiency in a simple random sampling was conducted to obtain
broiler production (Padilla-Fernandez and Nuthall, 310 broiler farmers who were administered with
2012). However, this circumstance can be seen as the survey questionnaires and this sample has fulfil
a threat, particularly to small scale farmers because more than 10% of total population of broiler farms in
they have limited capital. Another findings supported Peninsular Malaysia.
that there are some problems that often plague poultry
production and heighten competitive pressure on Analytical techniques
existing farms (Adepoju, 2008). The general problems In this study, the analytical tools applied were
may include high feed cost, other production cost descriptive statistics and simple economic analysis.
like diseases and marketing problems. Therefore, the Descriptive statistics provide a summary data that
contract farming could minimize the risk and provide is normally presented as graphical and numerical
higher expected profit for small operators (Nguyen figures in order to have a clear overview of the data
et al.,2011). The poultry industry in Mirpur using (Jaggi, 2012). The data include the age of farmers,
economic analysis also was investigated that the education level, working experience, scale of broiler
production costs and benefits were used to analyze business and source of capital. On the other hand,
the relationship between resources and outputs. The economic analysis can be simple or complicated,
result revealed that high production cost and lower which depends on farm commodity and technology
profit forced several commercial farms in Mirpur (Heady and Dhillon, 1988). The research used farm
area to close down (Ahmad et al.,2008). Similar budgetary technique to compute economic indicators
study concluded that broiler farming is considered such as fixed cost, variable cost, net return and
as a profitable business and has accomplished good input-output ratio.
prospect in Punjab. However, more attention should
be given to small operators where they received Production function equation :
marginal income (Singh, 2010).

Methods and Methods Where,

Q = the quantity of output
Study area and source of data Cv = the quantity of variable inputs used
This research focused only on the broiler farms Cf = the quantity of fixed inputs employed
in Peninsular Malaysia. This is because large
number of broiler farms are in those areas and the The cost of production will be measured based
availability of production data on different sizes of on the variable inputs and fixed inputs identified
broiler operations confirmed the choice of Peninsular thorough face to face interview. One of the most
Malaysia as the study area. The study area is made important ratios in animal production is feed
up of the Northern region (Kedah, Penang, and conversion ratio. Farmers always manage the farms
Perak), Central region (Selangor), Southern region as efficient as possible in order to lower this ratio.
(Negeri Sembilan, Malacca, and Johore) and the East
Coast region (Kelantan and Pahang). Primary data
 Abdurofi et al./IFRJ 24(2): 761-766 763

Feed Conversion Rate equation : Table 1. Socio-economics characteristics of broiler

farmers in Peninsular Malaysia

If the ratio is 2, the management and technology

converts 2 kg of feed into 1 kg of meat which is not
efficient in broiler production.

Results and Discussion

Descriptive analysis
Socioeconomic and demographic characteristics
are essential information to describe socially the
current status of broiler farms ownership and
management in Peninsular Malaysia. The categories
include age of farmers, education background,
working experience, business scale and its capital
sources. The data disclosed that in terms of age,
40% of farmers are in the age class of 51 years and
above while the young farmers accounts for only 8%.
Broiler production is a capital intensive operation and
this deters new comers from entering the industry.
This could be the reason for small number of young
farmers in the industry. With respect to education,
majority (56%) of the farmers completed secondary
education, 27% of the respondents obtained primary
Source : Survey Data 2013
school certificates, 9% with degrees while 8% with
diplomas. In terms of farming experience, nearly
of 3.75% as an incentive to the industry.
60% of the farmers engaged in broiler production for
Economic analysis of broiler farming
more than 10 years, about 20% of the farmers with
5-10 year production experience and another 20% of
Broiler production and price
them with 0-5 year experience. The entrepreneurship
The result indicates that the number of broiler
training provide positive impact on management
production among each region differs slightly (Table
practices (Ezeibe et al. ,2014). In order to identify
2). The Southern part of the Peninsular Malaysia
specifically their resource management, productivity
produced the highest number of day old chick
and sustainability, the operators were classified
(DOC) while the Central part (Selangor) produced
into three categories; small scale (less than 30,000
fewer number of DOC. This is not surprising because
birds), medium scale (between 30,001 and 125,000
Johor is the largest producer. On the other hand, the
birds) and large scale (above 125,000). The result
price of DOC among regions is similar, that is, at
showed about 90% of farmers were in the small
RM 1.60 per bird. The average weight of broiler
and medium scale categories while the rest are large
production among regions ranges between 2.1 Kg
scale production. This will affect productivity since
and 2.3Kg at farm gate with a mortality rate of 3.6%
there are no economies of scale in small operations.
- 5.1%. The result of average weight of broiler and
The similar finding is reported elsewhere (Farooq et
the mortality rate identified in this study are within
al., 2001; Ahmad et al., 2008) that majority of the
the DVS statistics. The precise information on FCR
farmers are focussed on small and medium scale
that varied among regions is important to calculate
operators. Credit is an important item that enables
feed consumption each bird (Sahzadi et al., 2006).
farmers to purchase adequate inputs and to have
The East Coast maintains the highest FCR of 2.1;
optimal working capital to achive an ideal yield.
implying the consumption of 2.1Kg of corn based
In this study, it can be seen that 52% of the broiler
feed will increase the bird’s weight by a kilogram.
farmers source their credit independently, while 48%
of the farmers rely on loans from institutional source
Cost of production
to raise credit for broiler production. However, at
The components of variable cost are cost of DOC,
present government provides loans at subsidized rate
feeds, manpower, vitamins and vaccines, utility,
764 Abdurofi et al./IFRJ 24(2): 761-766

Table 2. Production background and average price Table 3. Cost of broiler production (RM) in Peninsular
Malaysia

Source : Survey Data 2013

maintenance, catcher cost, and transportation. As

expected, feed cost account for 70% of total variable
cost (Table 3). The second highest cost component
is the DOC constituting 18% of the total variable
cost and the least is maintenance cost that accounts
for a negligible proportion of the variable cost. The
difference of variable cost across regions may be
due to the transportation cost. Thus, producers could
reduce the cost if they collude and buy in bulk. The
level of output has a direct relationship with the
total variable cost that is particular to a business,
and vary with scales (Ahmad et al., 2008). These
variable costs are mostly present as working capital
that applies to the production cycle (Nix, 1979). On
the whole, the total variable cost among regions in
Source : Survey Data 2013
Peninsular Malaysia differs; the Southern part spends
heavily owing to highest annual broiler production coast or maybe there was a glut during the survey
compared to other regions. The East Coast represents period. This means in the long run, the firm is not
the least as a result of less annual production. In sustainable. On the other hand, net returns for other
summary, the results reflect that the geographical regions are competitive; market prices are higher than
and socio-economic factors play predominant roles the unit cost. This implies that firms or farms in the
in cost variations among different regions of broiler Northern, Southern and Central regions are able to
production. appropriately manage their cash flows during the five
production cycles in a year. Even though, the selling
Net returns to broiler producers price per unit of broiler is marginally higher than the
The net returns for the East Coast region is the cost of production in the Northern, Southern and the
lowest compared to the Southern region which is Central regions, the economy of scale of production
the highest (Table 4). This is because farms in the played a significant role in generating high net return
Southern region produce with the least cost of in those regions.
production while farms in the Eastern Coast produce
with the highest which could be due to the differences Value of input to value of output ratio
in transportation cost. Similarly, in terms of quantity The input-output ratio is an indicator to assess
of broilers sold, the Eastern region was the least the return on investment and evaluate efficiency
while the Southern region the highest. This could of farm business. The ratio is mainly calculated by
be because of Singapore factor which consumed dividing the output cost as revenue with the input
about 40,000 live birds daily. In terms of cost per or total cost. The result showed that the ratio of
kg, the Eastern region is the only region where the broiler industry in Peninsular Malaysia is almost
production cost (RM5.1/Kg) is higher than the farm similar with slight dissimilarity occurring only in
gate price (RM4.7/Kg). The different maybe due to the East Cost region with a result of 1 : 1.01. This
the many substitutes for chicken found in the east indicates each Ringgit of input invested in broiler
 Abdurofi et al./IFRJ 24(2): 761-766 765

Table 4. Net return to broiler production in Peninsular Table 5. Value of input to output (returns) in broiler
Malaysia production in Peninsular Malaysia

Source : Survey Data 2013

productivity and export which in turn, will increase

foreign exchange in the Malaysian economy.
Source : Survey Data 2013

production will earn or attract 1.01 Ringgit. Table Acknowledgment

5 shows in terms of ratio for return on investment,
the East Coast region generated the least, while the This research was funded by Ministry of
Central region obtained the highest. It is worthy to Education (MOE), Malaysia via Research grant (No:
note that in terms of net return, the Southern region 5526015). Authors are highly appreciative.
obtained the highest value, but in terms of returns on
investment, the Central region obtained the highest References
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