Feed industry: Attaining economies of scale

There are more than 130,000 poultry farms in Bangladesh and the total investment for the poultry sector is about Tk.150 billion. About six million people are directly or indirectly dependent on the poultry sector for their livelihood.
Poultry, fisheries and livestock sectors play an important role in the development of agro-based economy of the country. They contribute around 8.0 per cent to national income, which is about 32 per cent of the total agricultural income. About 80 per cent of animal protein in our diet comes from fish and livestock. Approximately 20 per cent of the protein consumed in Bangladesh comes from poultry.
MARKET ASPECT: Feed milling industry can be divided into organised and unorganised sectors. The products are used by the poultry farms and fish farms throughout the country. The growth and stability of poultry, fishery and dairy products depend on production of balanced protein diets of international quality. But the number of such industries in the country is very small and they cannot meet the increasing demand of this sector. The distribution of feed industries, region-wise, also lacks balance. Some parts of the country have sufficient number of feed industries and the supply is also higher than the actual demand. But some other parts of the country suffer from short supply.
As per the standard of World Health Organisation (WHO), a matured person should have an intake of 22 Kg of protein per year. In Bangladesh, the average intake of protein per person per year is 4.5 Kg. A study shows that 6.0 per cent gross domestic product (GDP) growth leads to 11 per cent growth in poultry industry. Since there is a huge gap between standard intake and actual intake of protein, the industry has a scope to grow very fast in future.
RISK FACTORS: There are different risks associated with feed industry in Bangladesh, the major risk being the seasonal outbreak of epidemic in the poultry sector. Each year, avian influenza hits the poultry sector hard and affects the supply side of the industry. Other major risks are: Industry and market risks; Raw material price risk; Seasonality risk of demand; Technology-related risks; Changes in potential or existing government regulations; Potential changes in the global or national policies.
CONTRIBUTION OF FEED INDUSTRY TO THE AGRO SECTOR: Private entrepreneurs began setting up commercial poultry farms in late 1980's. They took more than two decades to become successful in their ventures. As a result, commercial feed manufacturing industry developed as a backward linkage of poultry, livestock and fisheries industries. Other contributions of the industry are:
* Feed milling industry not only provides backward linkage support to Poultry, Fisheries and Livestock industries but also helps improve and mobilise local grain and other related sectors which are the raw material providers to the industry.   
*  Total investment for the poultry sector of the country is more than Tk.50 billion. More than 130,000 poultry farms have been set up in the rural areas throughout the country. About six million people directly and indirectly depend on this sector for their livelihood. In 2010, the contribution of livestock sub-sector to the GDP was around 3.3 per cent. The industry has posted an annual growth of around 20 per cent during last one and a half decades.
PROSPECTS AND CHALLENGES: The feed        milling industries in the country face a number of challenges. These are:
*  There has been a steep rise in the prices of raw feed materials recently. Both conventional and non-conventional feed resources therefore need to be optimally used to balance nutrients, energy and protein requirement and protein-energy ratio as well as palatability so that ultimate cost-effective productivity is achieved.
* Feed manufacturers in the unorganised sector do not have in-house laboratories for carrying out the proximate analysis of aflatoxins, urease activity and toxic residues which has led to production of poorly balanced feed of questionable quality. The farmers using such rations are virtually cheated and do not get the expected products. The unregistered feed companies should appoint animal nutritionists and engineers to control the quality of feed and maintain machines.
* Adulteration in raw feed materials is a major problem. In fish meal, NPN urea and saw dust are added. Strict legislation to ensure quality of feed materials should be enacted.
* The problems of aflatoxins in most feed materials like cereals and oilcakes are a regular phenomenon. Improper storage of extracted cakes or harvested cereal results in fungal contamination and aflatoxin production. The essential amino acids like lycine and methionine are imported and custom duty on them is high. The costs of amino acids need to be brought down by reducing this duty to encourage their higher utilisation in feed formulations which would result in enhanced productivity of livestock and poultry.
* Import of maize has come under OGL for the actual users with the result that large feed manufacturers are able to import maize. The import needs to be eased for the traders so that small poultry farmers producing their feed can also use cheaper source of feed ingredients.
*  Product quality of feed mills is sometimes overlooked.
*  There is a shortage of dicalcium phosphate in the country. The basic raw material for production of dicalcium phosphate, namely bones, are available in the country in large quantities. A few more plants for production of dicalcium phosphate need to be established.
* High import duty of vaccine required for mixing in the feed increases the cost structure of the produce.
*  At present, the feed industry is not producing milk replacers for rearing of the calves and growth production rations for production of meat from sheep, goats and male buffaloes. Concerted efforts are, therefore, needed to promote and produce these balanced rations for intensive feeding of sheep, goats and male buffalo calves.
The feed industry is growing at an estimated 10-15 per cent per annum which is in line with gross national income (GNI) per capita growth rate of the country. Animal and fish feed market is quite stable compared to poultry feed. There are approximately 52 feed manufacturing and marketing companies in the country. The industry trend is shifting towards relatively higher-priced balanced feed manufactured by mechanised feed millers due to high feed conversion ratio leading to greater commercial benefit. Increased demand from the ready mix feed segment is expected to come at the cost of declining home-mix feed market and exit of smaller, low-quality producers having lower economies of scale. Attaining economies of scale in the production process is hence the key dynamics in this business.
Md. Julker Naim is a Central Banker and M. Phil fellow at the Bangladesh University of Professionals. AHM Yeasin Chowdhury is an Associate Professor, Bangladesh University of Professionals, Mirpur, Dhaka.
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