Procurement arrangements for linking broiler farmers in Ilesa, Osun state, Nigeria to a chicken processor, The case of Imo hill farms limited.

Abstract

In Osun State, Nigeria, live birds from smallholder farmers dominate the market. Live birds are sold unprocessed at live weight prices to traders in the chain. Extended feeding of broiler chickens, continuous consumption of other resources and high transaction cost forces broiler farmers to patronize daily markets and dispose of their live birds within the shortest possible time. 

This situation denies the farmer the opportunity to access and link up with profitable off-takers of live birds, especially outside yuletide seasons. Broilers raised under intensive systems of production are processed by large-scale processors such as Imo Hill Farms (IHF) Limited who process and slaughter these birds using intensive processing facilities. However, IHF’s chicken processing facilities of 5000 BPD are currently underutilized. 

This has resulted in losses incurred due to unaccounted depreciation and accumulated interests from fixed assets, under-utilization of the firm’s capital assets, human resources and a poor return to investments. Previous attempts by the organisation (IHF) to establish linkages and partnerships with broiler farmers to the address the firm’s challenge of under-utilized facilities has been ineffective and inefficient due to knowledge gaps and information deficits as regards procurement strategies for the chain, performance of the chain, organisation of broiler farmers, linkages and market power amongst actors in the chain.

Through a value chain study, the purpose of the study is to identify procurement arrangements that can be used to establish value chain linkages between Imo Hill Farms Limited (IHF) and broiler farmers to efficiently maximize the utilization of chicken processing facilities owned by the firm. The study employed a qualitative approach including desk research, interviews and a focus group discussion. This approach is driven by the need to fully explore the knowledge gaps and information deficit in developing procurement strategies that can be used to integrate the broilers farmers into the value chain with IHF.

The broiler value chain in Ilesa comprises of the informal chain (live bird chain) and the formal chain but the chain is characterized with activities of actors that drives the value chain deep into a low-trust and weak value chain. The market governance structure of the chain further describes the arms-length relationship and transactions between the chain actors. Challenges such as unstable prices of inputs, market uncertainty and inaccessibility are major drivers limiting broiler production in the chain.

Procurement arrangements used in the broiler chain include spot markets, vertical integration and contract farming models. Independent broiler farmers in the chain use spot markets due to fewer market institutions and low-quality requirements for live broilers. There are no industrial processors offtaking birds from the farmers. Delayed payments on the side of contracting firms (processors outside Ilesa) discourages farmers from participating in the formal broiler value chain. Procurement terms and conditions that can be used to link broilers in the chain to IHF includes flexible contractual arrangements between the farmers and the processor, guaranteed supply of inputs at steady prices, organization of farmers into groups/clusters, partnership with financial institutions or credit schemes facilitated by the Government, monitoring and information exchange between the farmers and the IHF.

In a quest to maximize IHF’s processing facilities, it recommended the farmers and processors need to create and building trust backed up with contracts to protect the interest of both parties. Also, a value chain finance linkage model that connects the processor, specialized input suppliers, broiler farmers and a financial institution will address the challenges of broiler production and marketing in the chain which will guarantee the secured supply of chicken to IHF in maximizing its chicken processing facilities.

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