INSTITUTE OF POLICY AND STRATEGY FOR AGRICULTURE AND RURAL DEVELOPMENT CENTER FOR AGRICULTURAL POLICY CARD Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed SMALL-MEDIUM ENTERPRISES IN THE LIVESTOCK FEED SECTOR IN VIETNAM VOLUME II: Feed use by pig and chicken livestock producers Pham Thi Lien Phuong 1 , Nguyen Thi Thinh 1 , Donna Brennan 2 , Sally Marsh 2 , Bui Hai Nguyen 1 1 Center for Agricultural Policy, Institute of Policy and Strategy for Agriculture and Rural Development, Hanoi 2 School of Agricultural and Resource Economics, University of Western Australia Hanoi, April 2010 i EXECUTIVE SUMMARY A survey of 300 pig and chicken producers was conducted as part of CARD Project 030/06 VIE: “Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed”. This research complemented an earlier survey of feed mills, and was aimed at obtaining an overview of animal production patterns and use of feed. It was conducted during November and December 2008 in six of the same seven provinces where the feed mill survey had been conducted: Ha Noi and Hung Yen in the north, and Binh Duong, Dong Nai, Long An and Tien Giang in the south. This study looked at chicken and pig livestock production, and investigated costs, feed use and productivity associated with each system. In this document, we report results obtained on production and selling patterns, characteristics of livestock producing households and, most importantly, the use of both industrial and raw feeds by production scale and region. A major contribution of this research is the work done to closely investigate feed use by producers. Feed conversion ratios (FCRs), and feed cost per kg liveweight gain, have been calculated for on-farm use of different feeds by producers of different production scale. This not only provides data on overall livestock production in Vietnam and the efficiency of feed use, but also provides data linking feed providers (mills) and feed users (producers). The results from the data analysis indicate that in the following areas small scale producers have production indicators that show they can be competitive with large scale producers. • The difference between average selling price/kg output and average cost/kg output was positive at all production scales for both chicken and pig producers. • Small producers tend to be more diversified in livestock production, whereas larger producers tend to specialize in production of a main livestock product. Diversification can be a risk reducing strategy for small producers. • For chicken production, the survey found no difference in cost of purchased stock between production scales. For pig production, the price of purchased stock was lower for small-scale producers (as larger producers were more likely to raise exotic breeds which are more expensive to purchase). • For pig producers there was no difference between selling price of the livestock product for different scales of production, although average batch length was longer for smaller producers. The sale price of local chicken (more often raised by small producers) was significantly higher than other breeds. • The survey found no significant difference in prices paid by producers for raw feeds by scale of production. For pig producers there was also no difference in the price paid for industrial feed by scale. However, for chicken producers the price paid for complete feed was significantly higher for small scale producers. • Small producers make more use of mixed feed diets, and we found evidence to suggest that for pig production, feed cost per kg of liveweight gain was significantly lower for pigs fed mixed feed diets compared to complete feed only diets. However, this was not the case for chicken production. The survey also identified some issues associated with small scale livestock production. ii • Small producers were more likely to have poorer infrastructure facilities, and also more likely to report incidences of disease outbreak in the previous 12 months. This is likely to be associated with poorer infrastructure facilities and lack of adequate veterinary/livestock health procedures. • Small producers were also less likely to have a production loan, and more likely to source loans from private sources rather than banks or other commercial lenders. • Feed costs as a percentage of total production costs were higher for small scale producers. This makes them particularly vulnerable to feed price increases. • Small producers were less likely to be involved in contract arrangements for the supply of feed and/or sale of livestock products. Exceptions to this generalization are that small scale producers were found to have contracts for egg supply and porker production. Some findings from this producer survey have implications for domestic SMEs producing livestock feed. • Few surveyed producers were found to be using domestic brands of industrial feeds. Foreign brands were clearly preferred by both pig and chicken producers. The main reason given for this choice by producers was that foreign brands were considered to be of higher quality and give better productivity. There was no significant difference found between the price of foreign and domestic brand feeds. • A comparison was made of FCRs achieved by producers using foreign and domestic complete feed. For broiler producers, significantly lower FCRs were achieved by producers using foreign brand complete feed. For pig producers there was no significant difference in the FCR achieved using foreign or domestic brands. These results indicate that there may be a quality difference between foreign and domestic brands for chicken complete feed, but it was not evident from our results for pig complete feed. However, producers perceive a quality difference, which is sufficient to influence their choice of industrial feed in favor of foreign brands. This finding supports results from the survey of feed mills (Vol I) which suggest that improving quality control is a major issue for domestic mills. • Larger scale producers are more likely to have contract arrangements for feed supply. As most of the producers were using foreign brand industrial feeds, we can assume that they have contracts for feed supply from foreign mills. As livestock production scale increases in Vietnam, and with it the likelihood of contract feed supply arrangements, SMEs producing livestock feed could find themselves increasingly locked out of the feed supply markets. • There is evidence from the survey of feed mills that SMEs obtain a greater share of their revenue from production of concentrate, compared to large firms who focus more on production of complete feed. Our results show that mixed feed diets (which use concentrate and are more likely to be used by smaller producers) perform well in terms of feed costs per kg of liveweight gain for pig production. The effective use of concentrate feed in mixed diets for pig production needs to be further explored by SME livestock feed producers, through possible direct links with small producers and/or farmer cooperatives. iii ACKNOWLEDGEMENTS The authors gratefully acknowledge funding for this research work from AusAID’s CARD Program for Project 030/06 VIE: Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed. The authors acknowledge contributions made to the research work from CAP staff other than the listed authors, including: Pham Tuyet Mai, Tran Cong Thang, Nguyen Ngoc Que, Nguyen Do Anh Tuan, Nguyen Anh Phong and Nguyen Le Hoa. The authors also acknowledge helpful discussions with Mr Le Van Lich (VAFA), Mr Tran Cong Xuan (VPA), Ms Bui Thi Oanh (MARD) and Mr La Van Kinh (IAS for South Vietnam) as well as participants in the two stakeholder workshops held in December 2009 in Hanoi and January 2010 in HCMC. Advice on technical issues was received from the Vietnamese experts mentioned above, and also from Dr. Johanna Pluske (livestock economics consultant) and Professor John Pluske (animal nutritionist) from Murdoch University in Western Australia. We also thank Dr Johanna Pluske for her helpful comments on the draft report. We also acknowledge and sincerely thank staff of six provincial Departments of Agriculture and Rural Development who assisted our team to carry out the survey of producers in their provinces. The effort of the team of enumerators is also highly appreciated, and finally, we thank the 300 chicken and pig producers for their time and willingness to support the survey work and give details associated with their businesses. LIST OF ABBREVIATIONS ANOVA Analysis of Variance CAP Center for Agricultural Policy CARD Collaboration for Agriculture and Rural Development DARD Department of Agriculture and Rural Development FCR Feed Conversion Ratio IAE Institute of Agricultural Economics IAS Institute of Agricultural Science IFPRI International Food Policy Research Institute MARD Ministry of Agriculture and Rural Development NSD No Significant Difference SD Standard Deviation SME Small and Medium Enterprise VAFA Vietnamese Animal Feed Association VHLSS Vietnam Household Living Standard Survey VPA Vietnamese Poultry Association VND Vietnam Dong iv TABLE OF CONTENTS EXECUTIVE SUMMARY i LIST OF TABLES vi 1 Introduction 2 1.1 Objectives and research questions 3 1.2 Survey implementation 3 1.2.1 Classification of chicken households 4 1.2.2 Classification of pig households 4 2 Demographic characteristics 6 3 Chicken production systems 8 3.1 Households hatching their stock 8 3.2 Broiler households with purchased stock 8 3.3 Layer households with purchased stock 10 3.4 Summary of chicken production systems 11 4 Pig production systems 13 4.1 Production activities 13 4.2 Production of porkers 14 4.3 Summary of pig production systems 15 5 Feed use on farms 17 5.1 Chicken feed use 17 5.2 Pig feed use 24 6 Marketing chains 31 6.1 Availability and use of contract arrangements 31 6.2 Suppliers of feed inputs 32 6.3 Market outlets 35 7 Infrastructure and other characteristics of production 37 7.1 Production infrastructure 37 7.2 Diseases and measures for prevention 42 7.3 Access to production inputs 44 8 Production cost and profit 49 8.1 Costs of production 49 8.2 Livestock and its contribution to total agricultural revenue 52 9 Summary of key findings and implications for small-scale livestock producers and SMEs producing livestock feed 54 9.1 Production systems 54 9.1.1 Breed raised 54 9.1.2 Diversification 54 9.1.3 Production infrastructure 55 9.1.4 Prices paid and received for livestock 55 9.2 Production inputs, supply and distribution channels 55 9.2.1 Prices paid for livestock feeds 55 9.2.2 Choice of industrial feeds 55 9.2.3 Access to and use of credit 56 9.2.4 Supply of industrial feeds 56 9.2.5 Distribution of outputs 56 9.2.6 Use of contract arrangements 56 9.3 Costs of production and revenue 57 9.3.1 Feed costs as a percentage of total costs 57 v 9.3.2 Contribution of livestock revenue to total agricultural revenue 57 9.4 Feed use 58 9.4.1 Feed use for chicken production 58 9.4.2 Feed use for pig production 58 9.4.3 Feed conversion ratios (FCRs) 58 9.5 Competitiveness of smaller livestock producers 60 9.6 Implications for SMEs producing livestock feed 61 REFERENCES 63 vi LIST OF TABLES Table 1 Sample size by province and scale classification of broiler and layer chicken, number of households 4 Table 2 Sample size by province and scale classification of piglet heads, number of households 5 Table 3 General demographic characteristics of households by major livestock product, region and scale 6 Table 4 Percentage of household heads with specified education level by livestock production type, region and scale of production 7 Table 5 Chicken producers hatching their own stock a (may purchase as well) 8 Table 6 Breed types of broiler chickens and number of batches per year 9 Table 7 Characteristics of broiler production for those purchasing stock 10 Table 8 Breed types of layer chickens 10 Table 9 Characteristics of layer production for producers with purchased stock 11 Table 10 Structure of pig producing households, % in each category 13 Table 11 Sources of piglets for raising porkers (from own sow or purchased), by region and scale and type of system, heads per farm per year 14 Table 12 Distribution of piglets purchased for porker production by breed type %14 Table 13 Production indicators for porker production (all sources of weaners) 15 Table 14 Percentage of households using complete feed in each production stage by region, scale and breed type 17 Table 15 Percentage of households using concentrate feed in each production stage by region, scale and breed type 18 Table 16 Feeding regimes on chicken farms, percentage of farms using different feeds: complete only, complete and mixed feed, mixed feed only 19 Table 17 Average daily quantity fed to broiler chickens for each feeding regime: by region, scale and breed type, grams per day 20 Table 18 Diet composition used by farmers feeding mixed and complete feed 20 Table 19 Feed conversion ratio for broilers by region, scale, breed and feed type 21 Table 20 Effect of brand on FCR from complete only diet, for medium and large farms 22 Table 21 Feed cost per day and per kg liveweight gain: by region, scale, breed and diet type 23 Table 22 Mean prices of industrial feed by type, region, scale and brand: ‘000 VND per kg 24 Table 23 Sample size and percent of farms using complete feed for sow and porker production: by production stage, region and scale 24 Table 24 Distribution of farms (%) and total kg fed per day, according to feeding regime (complete only vs mixed), for region and scale by pig type 26 Table 25 Mean diet composition for porkers fed a mixed diet 27 Table 26 Feed conversion ratios for porkers, by feed type, region and scale 27 Table 27 Effect of brand on FCR from complete only diet 28 Table 28 Feed cost per day and per kg porker liveweight gain, by region, scale and by diet type 28 Table 29 Mean prices of industrial feed by type, region, scale and brand (‘000 VND per kg) 29 Table 30 Mean prices of some main raw feed by region and scale (‘000 VND per kg) 30 vii Table 31 Percentage of chicken and pig producing households involved in contract farming, and nature of the contract 31 Table 32 Percentage of animal feed bought from different suppliers 33 Table 33 Preference of producers for feed produced by foreign and domestic mills (% households use) 34 Table 34: Percent of revenue from sales to each type of customer 35 Table 35 Percent of chicken and pig producing households with different types of floor and roof materials for animal rearing infrastructure 38 Table 36 Percent of chicken and pig producing households with different materials used for walls of rearing places 39 Table 37 Some indicators of production infrastructure (% of chicken and pig producing households using) 40 Table 38 Types of cooling and warming systems (% of chicken and pig producing households using) 41 Table 39 Experience of disease outbreak in the last 12 months and types of diseases for chicken and pig producers (% of households having disease) 42 Table 40 Measures for disease prevention (% of chicken and pig producing households using) 43 Table 41 Main provider of veterinary service in the last 12 months (% of chicken and pig producing households) 44 Table 42 Main providers of agricultural extension service in the last 12 months (% of chicken and pig producing household) 45 Table 43 Percentage of households having loans for livestock production, and main loan sources in the last 12 months 46 Table 44 Main reasons for not having a loan in the last 12 months (% of chicken and pig producing households) 47 Table 45 Proportion of total production cost of each cost item for chicken and pig producers 50 Table 46 Cost of production per kg of livestock output, compared with average selling price per kg 51 Table 47 Revenue from main livestock product and its importance in overall farm revenue 52 Table 48. Summary of feed use by chicken households (broiler) 59 Table 49. Summary of feed use by pig households 60 2 1 Introduction The livestock production sector in Vietnam has for a long time been considered as small- scale production for the most part, mainly using residual feed products and domestic labor. In 2006, the share of industrial feed used in the livestock sector was 41.6% 1 , which is lower than the world average of 48.2% (Wild, 1994, cited in Department of Livestock Production, 2007) and especially low compared to countries with advanced livestock industries such as Sweden, Norway, the US, Japan, South Korea at over 80% (MARD, 2007). Livestock feed has been shown to account for a considerable share of total livestock production cost, ranging from 75-78.2%, depending on the household scale (IFPRI- MARD, 2001). As a result, farmers get a limited profit from livestock production: about 1,000 VND per kg of pig output (IAE, 2005) and about 3,000 VND/kg of chicken output (Dinh Xuan Tung, 2001). High production cost is the most important reason for the low competitiveness of the Vietnamese livestock sector (IAE, 2005). In addition, livestock households in the last few years have had to face a lot of risks related to production, often deriving from disease outbreaks, and unstable market conditions. There are mixed opinions on the use of residual products and low quality feeds associated with the small-scale and dispersed production system. Some people support the use of these feeds as it is believed to reduce the production cost and help make use of local feed by-products and idle home labor. However larger farm-scale production is preferred by many, who criticise the former production system for its low efficiency, low quality of meat, and prevalence of diseases. There are concerns that the quality of feed used by these small-scale producers is not stable, especially when there are constraints in managing and controlling the quality of industrial feeds. This study aimed to look at these two types of livestock production, and investigate costs and productivity associated with each system. If small scale households prove to be comparably productive to larger scale production, this supports the idea of maintaining and promoting this system, as livestock production is often the main livelihood of small rural households, along with support for larger scale production. A survey of pig and chicken producers was conducted as part of the overall project with the aim of obtaining an overview of animal production patterns and use of feed. It was conducted during November and December 2008 in six of the same seven provinces where the feed mill survey was conducted: Ha Noi and Hung Yen in the north, and Binh Duong, Dong Nai, Long An and Tien Giang in the south. Information collected, together with results from the survey of feed mills, will provide a basis for commenting on the competitiveness of rural small and medium enterprises in the livestock sector in Vietnam. The survey of feed mills looked at the supply of industrial livestock feeds, whereas this survey looks at the demand for animal feed. Results obtained on production and selling patterns, characteristics of livestock producing households and most importantly, their use of both industrial and raw feeds are analysed separately by production scale and region. This information not only provides data on overall livestock production in Vietnam, but also further helps make the link between feed providers (mills) and feed users (producers). Thus we have some basis for policy recommendations for small-medium 1 Vietnam’s animal feed processing industry is expected to raise the share of industrial feed in the livestock sector to 55.5% in 2010, 67.3% in 2015 and 70.1% by 2020 (Strategy for Livestock Development to 2020, MARD, 2007). 3 feed mill enterprises in their dealings with both small-medium and larger livestock producers. 1.1 Objectives and research questions The main objective of this producer survey was to get overall information on production characteristics of livestock producing households, and more importantly, detailed information on feed use. Pig and chicken households were selected for the survey as these are the two most important livestock species in Vietnam in terms of meat production. During the scoping activities carried out for the study, it became apparent that small scale livestock producers were often regarded as those who usually use raw combined feeds, low-protein materials (sometimes with contaminants), lacked adequate quality control and had poor equipment. On the contrary, large scale livestock producers were thought to mainly use industrial feed for their livestock. It is difficult to conclude which feeding pattern is more economical for households, as the cost paid for more expensive industrial feed may or may not be covered by reduction in the length of time the stock are raised (that is, greater feed efficiency). Therefore, in this study, the aim was to gain a deeper insight into feed use by different types of households in terms of scale, region, and breed type raised. It was hoped that these insights would provide some useful suggestions for SMEs in the feed production sector to survive in the competitive livestock feed market. The research therefore focused on answering the following questions: • How different is the livestock production system and production infrastructure between households by scale and region? • Are the marketing chains used for input procurement and output distribution by household types different? • How do households differ with regard to feed use: industrial versus raw/combined feed, Feed Conversion Ratios, feed cost per kg liveweight gain? • How does production cost and profit vary between livestock household groups? • Is there an opportunity for small and medium producers to directly access feed mills, especially SMEs? 1.2 Survey implementation The livestock producer survey was implemented in six of the seven provinces where the feed mill survey had been done previously: Ha Noi and Hung Yen in the north, and Binh Duong, Dong Nai, Long An and Tien Giang in the south. In total, 300 livestock producing households were surveyed: 50 households were interviewed in each province and these were almost equally divided between chicken and pig producing households. The sampling design for the 300 livestock producing households was based on the VHLSS 2006 framework, so that it would be representative of the overall production situation. Within each province, the aim was to interview 25 households producing chickens and 25 producing pigs. With consultation from the Livestock Division of provincial Departments of Agriculture and Rural Development (DARDs), we selected one of the biggest livestock producing districts in each province. From that district, [...]... feed for broiler production in the first stage of production (which had an average length of 29 days) Over the entire sample, 90% of farmers used complete feed in the initial stage, but the percentage of farms using complete feed is lower in the second and third stage of production In the north, the difference in the use of complete feed between the stages is much more dramatic, with a halving of the. .. Composition of feed mix Maize Rice Bran Other The composition of the diet used by those farmers who used both complete and mixed feed is shown in Table 18 These data are for the average over the production cycle 20 Overall, only 89% of feed used was actually mixed feed, with the other 11% being complete feed (most likely at the early stages as shown in Table 14) The ingredients in the feed mix vary... concentrate used in the south than in the north (3 3% compared to 19%) Maize was a much higher share of the diet in the north (6 6%) compared to the south (4 8%) Rice was a more important ingredient in the south There was a greater tendency to use rice on large farms, more of which were located in the south The feed conversion ratio (FCR), the kg of feed fed per kg of liveweight produced, is shown in Table 19... households raising sows also purchase piglets, however more households in the north are involved in this combined pattern than southern ones The majority of the pig farms surveyed (8 3%) had sows, although it was more common to have sows in the south than in the north (8 5% vs 78%) The share of households with sows increases by production scale, ranging from 67% in the small group to 94% in the large group... stages and then switched to mixed feed, although there were a few cases reported where the farmers actually put complete feed into a mixed feed At the aggregate level 9% of broiler farmers used only mixed feed, and 53% used only complete feed Complete and mixed feed in combination was the most common feed used for broiler farms in the north, and complete feed only was the most common for farms in the south... the south (8 9 days) and the final weight of the pigs was 5 kg heavier in the north The selling price per kg of the porkers was significantly higher in the south (3 4,000 VND/kg) compared to the 14 north (3 0,000 VND/kg) There was no significant difference in length of batch, final weight or sale price between the different scales of production Table 13 Production indicators for porker production (for all... exotic breeds (5 6%), while medium and small producers are more likely to raise crossbreds (6 0% and 71% respectively) Interestingly, local breeds were more common in the south where industrial production is more common, while crossbreds are more common in the north (7 0%) The production length was relatively longer in the north (1 14 days) than in the south (8 9 days) and the final weight of the pigs was... for the survey, given their expected similarity to other producers in the survey sites The report mainly focuses on the production differences between pig and chicken producing households by scale and province, with more analysis of their use of industrial feed versus raw feed, and feed conversion ratios (FCRs) for livestock production Evidence of different supply and marketing chains and production infrastructure... FCR indicates a lower feed use efficiency for weight of feed fed The first column shows the mean feed conversion ratio for each group depicted in the rows of the table The mean FCR in the overall sample was 3.16, and was 3.53 in the north and 2.88 in the south, but these values were not statistically significantly different The small scale farms had an FCR of 4.00 which was significantly higher than the. .. Anova 4% The science profession and the livestock industry use Feed Conversion Ratios (FCRs) as a standard measure of productivity However, if a more productive feed costs more per kg, it may be worthwhile for farmers to use the cheaper feed with the higher FCR if the net cost per kg of weight gain is lower In Table 21 the feed cost per day for the two different feed regimes is shown, together with the . and medium enterprises in the agro-food chain: the case of animal feed SMALL-MEDIUM ENTERPRISES IN THE LIVESTOCK FEED SECTOR IN VIETNAM VOLUME II: Feed use by pig and chicken livestock. increases in Vietnam, and with it the likelihood of contract feed supply arrangements, SMEs producing livestock feed could find themselves increasingly locked out of the feed supply markets. • There. the efficiency of feed use, but also provides data linking feed providers (mills) and feed users (producers). The results from the data analysis indicate that in the following areas small scale