1

A Project Report

On

Working Capital Management in Contract Broiler Farming Sector

for

‘’OM CHICKS INDIA PVT. LTD.’’

By

"MR. PRASAD GANESH GAVHANE"

Under the guidance of

"Prof. Kiran Patil”

Submitted to

"Savitribai Phule Pune University"

In partial fulfillment of the requirement for the award of the degree of

Master of Business Administration (MBA)

Alard Institute of Management Sciences, Pune

 2

DECLARATION BY THE CANDIDATE

I undersigned ,Mr.PRASAD GANESH GAVHANE declare that the project entitled –

“A Study On Working capital management in contract broiler farming company which

named as OM CHICKS INDIA PVT. LTD. is the record of work carried out by me, under

the guidance of MR. POPAT CHAVHAN (FINANCE MANAGER ) and has not formed the

basis for the award of any degree, diploma, associate ship, fellowship, titles in this or any

other university or other institution of higher learning. I further declare that the material

obtained from other sources has been duly acknowledged in the project.

Date: - / /2019 Mr. Prasad G. Gavhane

Place: Pune
 3

CERTIFICATE OF THE RESEARCH GUIDE

Certified that the work incorporated in the project“A Study On Working capital

management in contract broiler farming company submitted by Mr. Prasad Ganesh

Gavhane carried out by the candidate under my supervision /guidance. Material obtained

from other sources has been duly acknowledged in the project.

Date: / / 2019 Research Guide Name

Place: Pune
 4

ACKNOWLEDGEMENT

I hereby take immense pleasure to express my gratitude towards OM CHICKS INDIA

PVT. LTD. Khutbav, Pune- 412203 “for giving me an opportunity for the summer

internship project at their esteemed organization. I express my hearty thanks to Alard Institute

of Management Science and SavitribaiPhulePune University for providing the platform for

getting the practical knowledge during 2019-2020.I am grateful to Director of Alard Institute

of managementSciencefor expert guidance. I remain indebted to my respected guide Prof.

Kiran Patil and all teachers for helping, guiding and monitoring me to complete this work.I

would also like to thank those who supported me and provided prompt help for the

completion of this project successfully.

Mr. Prasad G. Gavhane

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INDEX

Page No
Sr.
Detailed Contents (only as
No
Guidelines)
1 INTRODUCTION 6
OBJECTIVE 7
SCOPE 8-9

2 INDUSTRY / SECTOR PROFILE

INTRODUCTION ( limited to 05 pages) 10

3 COMPANY PROFILE; Actual data of respective industry)

COMPANY HISTORY 11-12
VISION MISSION 13-14
ACHIEVMENTS ACCOLADES 15-18
GLOBAL PRESENCE 18-25
OTHER DETAILS 25-33
4 PRODUCT PROFILE 34

5 LITERATURE REVIEW: 35-43

BACKGROUOND SOURCES, INTERNET REFERENCES,
44-61
MODELS (if any), any other supportive information.

6 RESEARCH METHODOLOGY 62
RES OBJECTIVES, RES DESIGN, RES TOOL, TYPE OF RES,
SAMPLING, SAMPLING BREAK UP AND SIZE, SAMPLE
FRAME
DATA COLLECTION- PROCEDURE DISPLAYING FLOW
CHART

7 DATA ANALYSIS AND INTERPRETATION

TABLES AND GRAPHICAL REPRESENTATION ALONG WITH
44-60
INTERPRETATION.
OBSERVATIONS /FINDINGS/ SUGGESTIONS/
8 63-64
RECOMMENDATIONS/ CONCLUSION
9 LIMITATIONS 65
APPENDIX 66
I BIBLIOGRAPHY 66
ANNEXURE- QUESTIONNAIRE, ANNUAL REPORTS, ANY
ii
OTHER DATA FROM COMPANY/MEDIA.
 6

INTRODUCTION

Effective financial management is the outcome, among many other things of proper,
management of investment of funds in business funds can be invested for permanent or long-term
purposes, such as acquisition of fixed assets, diversification and expansion of business, renovation or
modernization of plants an machinery and research & development.

Funds are also needed for short-term purpose, i.e., for current operations of the business,
for example, in a manufacturing concern, procurement for raw material, payment if wages, general
expenses. All the goods so manufactured in a given time period, may not be sold in that time frame
itself.

Hence, some goods remain in stock, like raw material, semi finished goods, finished
marketable goods, etc., Funds are thus blocked in a various types of inventory. Every after, sales,
may not necessarily be cash sales, even credit sales may be present. It again constitutes to blockage
of funds.

Working capital refers to a firm’s investment in short-term assets, viz., cash, short-term
securities, debtors, etc., It can also be regarded as that portion of the firm’s total capital which is
employed in short-term operations. It refers to all aspects of current assets and current liabilities. In
simple terms, working capital is the investment needed or day-to-day operations.

Change in its value or without affecting the operations of any firm. Current liabilities are
those liabilities, which are intended to be paid within a year out of the current assets or the firm’s
earnings.

The main aims of working capital management is to manage the current assets and current
liabilities in such a way that satisfactory level of working capital is maintained. This is due to the fact
that if working capital management of the firm is inefficient, it is likely to become insolvent or even
may be forced to bankruptcy. The current assets should be large enough to cover its current
liabilities to ensure a reasonable margin of safety.
 7

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The primary objective of working capital management is to ensure smooth operating cycle of the
business. Secondary objectives are to optimize the level of working capital and minimize the cost of
such funds.
The superior objective of financial management is wealth maximization and that can be gained
by profit maximization accompanied with sustainable growth and development. For sustainable
growth and development, the objectives of all the stakeholders including customers, suppliers,
employees, etc should be aligned to the growth of the organization.

A) SMOOTH WORKING CAPITAL OPERATING CYCLE

1. It means raw material should be present on the requirement and it should not be a cause to
stoppages of production.
2. All other requirements of production should be in place before time.
3. The finished goods should be sold as early as possible once they are produced and inventoried.
4. The accounts receivable should be collected on time.
5. Accounts payable should be paid when due without any delay.
6. Cash should be available as and when required along with some cushion.

B) LOWEST WORKING CAPITAL

Working capital here refers to the current assets less current liabilities (net working capital). It
should be optimized because higher working capital means higher interest cost and lower working
capital means a risk of disturbance of operating cycle.

C) OPTIMAL RETURN ON CURRENT ASSET INVESTMENT

The return on the investment made in current assets should be more than the weighted average
cost of capital so as to ensure wealth maximization of the owners. In other words, the rate of return
earned due to investment in current assets should be more than the rate of interest or cost of
capital used for financing the current assets.
 8

D) MINIMIZE RATE OF INTEREST OR COST OF CAPITAL

The cost of capital utilized on working capital should be minimized so as to achieve higher
profitability. If the investment in working capital involves bank finance, interest rates should be
negotiated with the bank.
Cost can be minimized by utilizing long-term funds but in a proper mix. While deciding the mix of
working capital, the fundamental principle of financial management should be kept in mind
that fixed assets and permanent assets should be financed by long term sources of finance of
approximately same maturity and short-term or temporary assets should be financed by short-term
sources of finance.

SCOPE OF WORKING CAPITAL MANAGEMENT

Working capital plays a vital role in business. This capital remains blocked in raw materials, work in
progress, finished products and with customers.

The needs for working capital are as given below:

i. Adequate working capital is needed to maintain a regular supply of raw materials, which in turn
facilitates smoother running of production process.

ii. Working capital ensures the regular and timely payment of wages and salaries, thereby improving
the morale and efficiency of employees.

iii. Working capital is needed for the efficient use of fixed assets.

iv. In order to enhance goodwill a healthy level of working capital is needed. It is necessary to build a
good reputation and to make payments to creditors in time.

v. Working capital helps avoid the possibility of under-capitalization.

vi. It is needed to pick up stock of raw materials even during economic depression.

vii. Working capital is needed in order to pay fair rate of dividend and interest in time, which
increases the confidence of the investors in the firm.
 9

IMPORTANCE OF WORKING CAPITAL:

It is said that working capital is the lifeblood of a business. Every business needs funds in order to
run its day-to-day activities.

The importance of working capital can be better understood by the following:

i. It helps measure profitability of an enterprise. In its absence, there would be neither production
nor profit.

ii. Without adequate working capital an entity cannot meet its short-term liabilities in time.

iii. A firm having a healthy working capital position can get loans easily from the market due to its
high reputation or goodwill.

iv. Sufficient working capital helps maintain an uninterrupted flow of production by supplying raw
materials and payment of wages.

v. Sound working capital helps maintain optimum level of investment in current assets.

vi. It enhances liquidity, solvency, credit worthiness and reputation of enterprise.

vii. It provides necessary funds to meet unforeseen contingencies and thus helps the enterprise run
successfully during periods of crisis.
 10

COMPANY PROFILE

Om chicks, known for its finest quality and taste is already a favorite among many Indian

households. Reared from the finest breed of carefully selected chicks,om chiks is the leader in the

Indian broiler chicken market.

Om chiks innovation and efforts to maintain consistency, highest quality and hygiene standards are

well appreciated by the many that savor the taste of its good chicken. A well controlled process

ensures you get nothing but the freshest of chicken straight from the farms. Grown in natural

conditions with nutrition rich feed, you can be assured that every bite is tender and juicy.

This superior quality chicken is now available at affordable prices. Through a nationwide network of

over 25,000 retail outlets. The next time you are out shopping, look out for the om chicks Chicken

sign in any of your neighborhood chicken stores. And always ask your retailer for om chiks.
 11

COMPANY HISRORY

Om Chicks (india) Private Limited is a Private incorporated on 25 May 2011. It is classified as Non-

govt company and is registered at Registrar of Companies, Pune. Its authorized share capital is Rs.

10,000,000 and its paid up capital is Rs. 9,900,000. It is inolved in Agricultural and animal husbandry

service activities, except veterinary activities.[This class includes specialized activities, on a fee or

contract basis, mostly performed on the farm.]

Om Chicks (india) Private Limited's Annual General Meeting (AGM) was last held on 30 September

2018 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on

31 March 2018.

Directors of Om Chicks (india) Private Limited are Rajendra Tukaram Thorat, Vanita Rajendra Thorat

and Om Chicks (india) Private Limited's Corporate Identification Number is (CIN)

U01400PN2011PTC139652 and its registration number is 139652.Its Email address is

[email protected] and its registered address is TREASURE PARK, 'C' BUIDING, FLAT NO. 1201,

SANG NAGAR, ARANYESHWAR PUNE MH 411009 IN.

 12

MORE INFORMATION

GST IN 27AABCO4908R1ZV

CIN U01400PN2011PTC139652

Date of Incorporation 25 May, 2011

Status Active

Company Category Company limited by Shares

Company Sub-category Non-govt company

Company Class Private

Business Activity Agriculture and Allied Activities

Authorized Capital 100.0 lakhs

Paid-up Capital 99.0 lakhs

Paid-up Capital % 99.0

Registrar Office City Pune

Registered State Maharashtra

Registration Number 139652

Registration Date 25 May, 2011

Listing Status Unlisted

AGM last held on 30 Sep, 2017

Balance Sheet last updated on 31 Mar, 2017

Authorised Capital 10,000,000

Paid Up Capital 9,900,000

 13

VISION &MISSION

VISION

OM CHICKS INDIA Group look forward to making big strides in our more recent ventures, which
include our Contract Broiler Farming core business and our Poultry farming & feed business.

Today, A growing economy is expected to increase consumer spending power and in turn lead to
higher consumption patterns. This is likely to boost demand for our poultry Farming as well as
Poultry Feed products. The Om Chicks Group is looking to leverage the potential offered by the
development of the retail sector as well as the demand from hotels and restaurants.

We will also be leveraging new opportunities or need-gaps that could arise in the market in the near
future. Our operating systems are powered by the strong advanced infrastructure apart from
exceptionally knowledgeable & dedicated people. This fine balance between the human element
and technological expertise has been our biggest strength.
 14

MISSION

"Premium quality Broiler feed for Better Performance"

Our mission is to focus on our contract Broiler Farmers delight by providing quality Broiler feed and
good technical services under supervision of veterinarian Doctors. We have doing continuous
improvements in all aspects of our Quality with the help of our experienced and skilled professional
team. We have to become great workplace and reliable productivity of Broiler and best of best
service provider.

We believe in…

• Delight of our contract Broiler farmers, suppliers and at all employees those are hard workers.
• Transparency in all processes with our internal working team and external customers.
• Continuous development and learning process for new one.
• Innovation in products and services for Better Productivity.
• Sharing of knowledge among our contract Broiler farmers and employees.
• Admiring achievements, skills and talent by rewarding broiler production teams.
• Professionalism with team work.
• Best quality for commercial Broiler poultry feed, Layer feed & Breeder Feed.

We Promise to...

• To provide appropriate and balanced nutritional solutions to customers.

• To provide consistent quality of all its products throughout the year in all climatic conditions.
• To provide technical services to farmers to enable them to run their business profitably.
• To continue and upgrade its research and development activities constantly to provide better
products & technical aspects for poultry farming

In addition, we are publishing a bi-monthly technical Bulletin “ANAND WARTHA” with technical
inputs, advancement in poultry farming and Knowledge to help the Farmers. The Bulletin is
published in local language Marathi.

We also organize technical seminars in all our operational areas for farmers to aware them poultry
related latest technical information.
 15

ACHIEVEMENTS

The 2017 broiler production is projected at 4.5 million tons which is approximately seven
percent more from last year possibly because of rising domestic demand for poultry meat. The
growth in the broiler segment is expected to remain strong due to consumer preference for poultry,
increasing income levels, and changing food habits. The live market sales of broiler meat still
constitute more than 90-95 percent of total volume of sales; the processed chicken meat segment
comprises only about 5% of total production. More than 80 percent of India’s poultry output is
produced by organized commercial farms. Major poultry companies have vertically integrated
operations which comprise approximately 60-70 percent of the total chicken production. Major
companies/ integrators, own hatcheries, feed mills, and primary processing facilities and often
provide credit, extension services, and veterinary medicine to the contractual farmers. Integrators
contract with multiple smaller farmers who rear the chicks to slaughter weight. The live birds are
then either purchased by the integrators for slaughter and further processing or by a wholesaler
who distributes them via live markets. Broiler production is mainly concentrated in the states of
Tamil Nadu, Andhra Pradesh, Maharashtra, Uttar Pradesh, and Telangana. The Cobb breed
constitutes around 65-70 percent of the broiler market. The grandparent stock for Vencobb is
owned by one major enterprise which sells parent stock to multiple integrators throughout India.
Other popular breeds in India include Ross, Marshall, Hubbard, Hybro Avian, and Anak. The size of
the poultry farms varies significantly from small farms with just 200 birds to large farms of more
than 50,000 birds. Most of the poultry farms are simple open sheds while only a few large poultry
integrators have controlled-environment housing with automatic feeding and drinking systems. High
capital costs and unreliable power supplies restrict large scale adoption of the controlled
environment poultry barn model in India. The broilers in India are usually reared for 35-40 days to a
market weight of 1.8 to 2.2 kg. The feed conversion ratio for broilers has reportedly improved
considerably over the years to 1.65 from 2.2 in the 1990s. Supply-demand situations generate
significant seasonal fluctuation in broiler prices: prices may rise in summer due to reduced
production but decline during certain Hindu festivals. The major industry players attempt to support
prices by reducing chick placements when demand falls. Global share of major broiler meat
producers (2016) 3.2 Market size and placement of birds: The average bird placement in broiler
segment is 65-70 million birds per week. Five major players (Suguna in Coimbatore, Venky’s and Om
chicks in Pune, CP, Sneha, and Shalimar in Kolkata) constitute 60 per cent of the broiler meat
market. The average live wt of 1.8-2.2 Kg. Broiler meat production has been growing in India at a
rate of 7-8 per cent. One third of the production is carried out by 14% 13% 14% 5% 4% 4% 2% 2% 2%
 16

2% 17% 21% Brazil European Union China India Russia Mexico Argentina Turkey Thailand Indonesia
Others United States 10 individual farmers while two third by contract farmers (integration farmers).
Average farm size is 7000-8000 birds. Birds’ placement depends on feed prices, status of disease
outbreaks, financial status of farmers and the profitability related to the prevailing demand and
price of final product in the market. Feed price constitutes around 80 percent of the total production
cost and therefore is the major component in changing production and marketing scenario of
poultry and poultry products. At lesser feed prices, more farmers are willing to enter into the
business and most of them would want to place more birds. In absence of any suitable market
information, it becomes hard to assess the demand much well in advance every year emphasizing
the importance of availability of suitable market information. The industry should work together to
assess the actual market size and must introduce a mechanism where demand patterns of the
population can be assessed. (Credit: GAIN report, 2016).
Broiler Poultry- Growth Rate S.No. Year Poultry Production (million tons) % annual poultry
production growth rate 1. 2011-12 2.48 13.22% 2. 2012-13 2.68 8.01% 3. 2013-14 1.92 -28.50% 4.
2014-15 3.05 59.16% 5. 2015-16 3.26 6.75% 6. 2016-17 3.46 6.13% The poultry meat growth is
showing fluctuations as the data collection is being standardized and now, commercial poultry and
other than commercial poultry data is also gathered.

Broiler Poultry Growth Rate

SR. NO Year Poultry % annual

Production Production
(Million Tons) growth Rate
1 2011-12 2.48 13.22%
2 2012-13 2.68 8.01%
3 2013-14 1.92 28.50%
4 2014-15 3.05 59.16@%
5 2015-16 3.26 6.75%
6 2016-17 3.46 6.13%
 17

Feed consumption of Bird

Historic and Modern

Sr. No

Number of Hatcheries 11,405 (1934) 323 (2001)[34]

Incubator Capacity 276 million eggs (1934) 862 million eggs (2001)[34]

Hatchery Average Incubation

24,224 eggs (1934) 2.7 million eggs (2001)[34]
Capacity

Annual Broiler Production 366 million broilers (1945) 8.4 billion broilers (2001)[34]

Average live weight 3.03 pounds (1945) 5.06 pounds (2001)[34]

Live weight price 36 cents per pound (1948) 39.3 cents per pound (2001)[34]
 18

Feed Conversion Efficiency 4.70 lbs feed per lb live 1.83 lbs feed per lb live weight
weight (1925) (2017)[35]
Feed conversion ratio

Mortality 18% (1925) 4.5% (2017)[35]

GLOBAL PRESENCE :-

The poultry sector has undergone major structural changes during the past two decades due to the
introduction of modern intensive production methods, genetic improvements, improved preventive
disease control and biosecurity measures, increasing income and human population, and
urbanization. These changes offer tremendous opportunities for poultry producers, particularly
smallholders, to improve their farm income. Evidence from case studies shows that it is difficult to see
a bright future for smallholder poultry production in a rapidly changing industry structure; however,
smallholders can still compete with larger producers with savings that smaller units can achieve
because of foregone or cheaper overheads, lower labour costs per unit and, possibly, more intensive
supervision, leading to relatively high-profit efficiencies.

Smallholders also have problems meeting high demands for food safety, traceability and compliance,
because of high coordination costs and high transaction and marketing costs. Increasingly it appears
that smallholders’ ability to maintain their competitiveness in these types of markets is dictated by
their ability to establish market trust and reputation along the marketing and distribution channels.
 19

Changes in the structure of the poultry sector in developing countries

over the last four decades, there has been rapid growth in livestock production and a rapid change in
how animal products are produced, processed, consumed and marketed. Growth in livestock
production in both developed and developing countries has been led by poultry. From the 1990s to
2005, consumption of poultry meat in developing countries increased by 35 million tonnes – almost
double the increase that occurred in developed countries.

The increase in poultry meat consumption has been most evident in East and Southeast Asia and in
Latin America, particularly in China and Brazil.The share of the world’s poultry meat consumed in
developing countries rose from 43 to 54 percent between 1990 and 2005, which accounted for 36
percent of the large net increase in meat consumption in developing countries over this period.
Further, the proportion of the world’s poultry meat produced in developing countries rose from 42 to
57 percent. It is estimated that production and consumption of poultry meat in developing countries
will increase by 3.6 percent and 3.5 percent, respectively, per annum from 2005 to 2030 because of
rising incomes, diversification of diets and expanding markets, particularly in Brazil, China and India.

The trends described above, and our current knowledge of smallholder involvement, raise a critical
issue: for once, a sector in which the poor are heavily involved is growing. In fact, pork and poultry
are the prominent growth sectors of developing-country agriculture. If the poor fail to remain active
or participate in this sector, they will miss a tremendous opportunity to improve their livelihoods. If
they participate, farm income could rise dramatically; however, the conditions under which this could
occur are unclear. Although the above-mentioned issues are real, it has also been suggested that the
principal reason for the exit of smallholders from livestock production in developed countries is that
they are not competitive enough, with the larger operations that benefit from both technical and
allocative economies, embodied in genetic improvement of animals and feeds or improved
organization – especially in the case of poultry and pig production where profitable adoption simply
requires larger farm sizes. This is a particularly difficult issue for smallholders, as it conveys a sense of
inevitable economic doom propelled by technological progress. Most livestock production experts do
not look much beyond this explanation when assuming the inevitability of livestock industrialization
in developing countries. In this reading, we try to disentangle the issues and provide empirical
evidence drawing on case studies, involving household surveys, which capture various factors
 20

affecting profitability, including transaction costs and efforts to mitigate environmental externalities,
for different sized producers in a number of countries.

1. Demand-side factors affecting the global poultry sector: Growth of the poultry industry has been
both demand and supply driven. The factors that can cause the demand curve to shift are: (1)
increases in income; (2) increases in the price of poultry substitutes such as pork or beef; (3) increases
in the preference for poultry; and (4) decreases in the price of poultry complements. Factors
influencing this shift are growth in population, increases in real per capita incomes, income elasticity
of demand, urbanization and variations in real prices. Additionally, in many countries, the
population’s tastes and preferences for food products are changing, resulting in a shift away from
“inferior” goods towards those considered “superior”. The regions where annual income growth rates
are highest, such as Africa (4.2 percent), Asia (3.5 percent) and Latin America (2.3 percent), are also
those where the population growth rates are highest (between 1.2 percent and 2.2 percent)
 21

As income increases, meat consumption tends to increase. High expenditure elasticity in poultry
indicates its dominance in the diet both in the developed and the developing world. There is
generally a positive relationship between per capita consumption of poultry products and per capita
incomes. This positive relationship supports the general economic theory which suggests that as
incomes increase, particularly in developing countries, people will increase their consumption of high
income-elastic food. Throughout the world, this shift has traditionally involved the substitution of
meat for starches. This additional meat can be produced either domestically by the reallocation of
resources or by import.

2. Supply-side factors affecting the global trends of the poultry sector:Technology change in the
poultry industry has been very rapid. The move from free-ranging to confined poultry operations
dramatically increased the number of birds that one farmer could manage.

This shift facilitated the substitution of capital for labour in animal production, and led to a significant
increase in labour productivity. Technology change in the poultry industry, led by advances in
 22

breeding that improved animal size, fecundity, growth rate and uniformity, has enabled farmers to
increase output per unit of feed, produce more birds per year, improve animal disease control and
decrease mortality. In terms of management techniques, the move to enclosed production systems in
which animals of different ages are segregated and raised apart has had a positive impact on disease
control.

The ability to use vaccines and pharmaceuticals to control the spread of poultry diseases helped
expand the large-scale operations, allowing farmers to achieve significant economies of scale and
unit-cost reductions. Further, the introduction of evaporation shed cooling in hot climates (e.g. in
Thailand) has had a tremendous impact on the industrialization of the sector
 23

The move towards increased processing of birds into a variety of convenience foods has further
accelerated the growth of the poultry industry. Concurrently, there has been a major structural
change in the poultry industry throughout much of the world. Specifically, the commercial poultry
industry in the developed world and in many developing countries has moved towards large-scale
vertically integrated broiler operations that contract grow-out operations to smaller farmers. Today,
the commercial poultry industries in most countries are moving towards such large-scale vertically
integrated operations. These operations are characterized by a high level of vertical control
(ownership) or coordination among suppliers of production inputs, poultry growers, poultry
processors and marketers
 24

The specific degree of integration, however, varies among countries and firms. For the most part,
integrated poultry operations involve most or all of the following segments: breeding flocks, hatchery,
feed mill, production units, assembly of live birds or eggs, poultry slaughtering or packing plants,
further processing units, delivery vehicles and distribution centres. Feed mills and further-processing
segments are not always included in the integration, although they are an essential part of the
production system. In some countries, it was the feed industry which was responsible for the initial
integration of the poultry industry. In other countries, it was either the breeding company or the
hatcheries which were responsible for the integration. In still other countries, integration was based
on the potential market for further processing and fast food, as processors sought to add value to
their business and become closer to the final customer. The move towards vertical integration
appears to mirror the stabilization of the economy and the growth of the urban market.
 25

The expansion of these large integrated operations has tended to occur in countries with developing
or existing urban markets that supply the major cities. However, in some countries, integrated
operations are moving closer to the source of inputs; Brazil is an example. In countries where live
chickens are still sold mostly in informal markets, such as India, Indonesia and Viet Nam, forward
linkages are also becoming evident, particularly as these countries are faced with the highly
pathogenic avian influenza (HPAI) situation and concern is growing about the poultry-to-human
spread of the virus (Indonesia and Vietnam). Although there is a move to integrated operations in a
number of developed and developing countries, for many developing countries production practices
are such that the majority of producers still maintain small flocks which are kept outdoors and are
exposed to outside influences. At the same time, these small backyard producers may be interspersed
with large-scale commercial operations, giving rise to highly concentrated regions of production near
urban areas. Poultry products are among the most perishable, so they have to be produced in close
proximity to the demand.
 26

Researchers from the International Food Policy Research Institute, read that In Asia, Latin America and
Africa the geographical concentration of poultry operations tends to be around major cities. Poultry
distribution patterns can be explained by the distribution of human population, i.e. where there is a
dense human population then there is likely to be a dense poultry population. Growing
concentrations of animals in large units near cities are associated with greater pollution and increased
risk of transmission of both zoonotic and other diseases. Notably, HPAI began in areas with high
poultry population density, such as China, Indonesia, Thailand and Vietnam. Increasing concerns over
environmental and health externalities associated with concentrated and intensive poultry
production near urban areas are causing countries to rethink zoning issues.

Declining poultry prices- Collectively, the changes outlined above have led to a decline in world meat
prices over time, particularly for poultry. However, prices are expected to rise as a result of the rising
price of maize. Between the 1980s and the 1990s, real prices of poultry declined at a rate of 3 percent
per year. This decline continued but at a slower rate. The downward trend in prices was brought
about by a number of factors, such as improvements in the efficiency of production of large-scale
poultry operations and rapid technological progress, as in the case of the United States of America.

It is important to note that there was an increase in poultry prices between 2003 and 2004, which
could be attributed to a reduction in export supplies caused by several outbreaks of H5N1 HPAI. In
2004/2005, as HPAI outbreaks were reported in some 40 countries previously not infected by the
virus, poultry prices noticeably dropped – by 11 percent. Poultry prices are expected to increase over
the period 2005 to 2030 at 0.2 percent per year, reflecting increasing demand in China and sub-
Saharan Africa, and increasing prices of feed grains such as maize.

Consumers as a whole have benefited from the livestock industrialization process, as a result of
reduction in meat prices. It is known that poultry meat and eggs contain protein and micronutrients,
such as vitamins from group B, iron and zinc, which could provide an important contribution to the
health and nutrition of consumers. For the urban poor, the fall in prices meant an increase in their
purchasing power, leading to greater economic access to poultry and other meat. Moreover,
especially in the case of poor households engaged in small-scale backyard poultry raising (which is
likely to be their main source of animal protein), responding to increased demand probably also leads
to higher levels of home consumption.
 27

Increased trade in poultry products further increases demand: Broiler products dominate the
international poultry trade. The Russian Federation dominates in terms of broiler imports, followed
by Japan and the European Union.

Brazil and the United States of America dominate in terms of broiler exports. China is emerging as an
active broiler exporter. Brazil has overtaken the United States of America in terms of chicken-meat
exports, expanding by 21 percent from 2000 to 2005, largely due to increases in production and in
demand from foreign markets.
28
 29

The United States of America’s market share of chicken meat exports decreased by 7 percent over the
same period, because of lower import needs in the Russian Federation. The United States
Department of Agriculture predicts that there will be continued higher demand for Brazilian products
because of their competitiveness and aggressive market promotion efforts by Brazilian poultry
exporters in new markets. According to FAO 2007 report, trade in poultry meat is projected to
increase at a faster rate than production and consumption.

Rise of large-scale retail outlets

The emergence of large-scale retail outlets, including supermarkets and hypermarkets, in developing
countries reflect a structural change that alters the way in which meat and dairy products are
assembled, inspected, processed, packaged and supplied to consumers.

As a result, livestock markets tend to be divided between the “wet” markets for fresh and warm meat
and supermarket outlets for processed, frozen, packaged and branded meat. The relative significance
of each market segment is closely linked to the purchasing power of households and individuals, their
demand for leisure, their preferences with respect to the form and texture of meat upon purchase,
and the relative value or price premium they are willing to pay for a safer product.

Wet markets are still the main output market for live broilers produced by smallholders and
independent commercial producers. There are, however, no guarantees that these markets will
continue to offer economic opportunities for smallholders over the longer term, even if they are
relatively efficient producers, because of large fluctuations in live broiler prices, changing
consumption patterns and habits, and the rapid expansion of the large-scale retail sector with its
demands for product consistency and known safety.

Increased concerns over sanitary and phytosanitary issues and food safety

Increasing international trade and globalization are also important drivers of change in the poultry
sector. More precisely, they influence the relative competitiveness of producers and production
systems in supplying the rising demand for poultry products, particularly in international markets.
Increased and long-distance trade requires compliance with standards and regulations and SPS
 30

requirements to ensure food quality and safety, as well as public intervention and investment and
private costs. Food control and certification systems must be of a high standard. In addition to the
health and safety standards and regulations agreed by international bodies (such as the World
Organisation for Animal Health (OIE) for animal and human health measures, the Codex
Alimentarius Commission for human health measures, and the International Plant Protection
Convention for plant health measures), technical requirements may be imposed by retailers. These
may include demands for particular meat cuts, carcass size and weight, leanness of meat, egg colour
or labelling with particular information or in specified languages.

Large retailers require a reliable supply of agricultural products from their suppliers (producers) with
consistency in volume and in quality; hence, they vertically integrate to reduce production risk and
transaction costs.

Producers who become part of this integrated chain may face a change in contractual arrangements
(e.g. becoming dedicated contract farmers) with increased levels of assistance and higher prices for
quality products, but with increased risk if contracts are not met or the retailer closes down. This
applies particularly where the farmer must specialize to satisfy volume, safety and quality
requirements.

Smallholders can find it increasingly difficult to compete with large-scale producers if they are
required to make investments to meet the needs of a retailer. For smallholders to stay involved in this
fast-growing segment of the market, they need to integrate into high-value chains through contract
farming or other forms of institutional arrangements that have process-based food-safety systems in
place and can deliver a form of branding. If smallholders choose to operate independently, it will be
harder for them to remain involved over time as markets become more demanding in terms of
information about the quality of the product at the time of sale and as market chains become
complex.

Changing structure of the industry and supply chains associated with the retailing/marketing of
poultry products in developing countries:

Under conditions of clearly specified quality and safety standards, and high risk and uncertainty in
output and input markets, vertical integration is a well-known strategy to resist shocks in input and
 31

output prices, especially for small producers operating in a market, subject to price instability. It is
also an efficient way to provide technical assistance to the producers and to diffuse new technologies.
For example, the Charoen Pokphand Group in Thailand has been promoting new housing and
manure-management systems over the last six years, resulting in drastic shifts in production among
its contract farmers. Let’s take a look at their crisp video to understand how CP chicken products are
made:

The introduction of contractual production arrangements within a framework of vertical coordination

reduces transaction costs associated with information and secures benefits from market ownership
and control over product quality and safety by controlling technical inputs and processes at all levels.
Large retailers and large commercial firms in developing countries are increasingly tending towards
vertical coordination. All or most aspects of production (from parent stock to processing) are owned
or controlled by an individual company known as the “integrator”. Under production contracts, the
integrators agree to supply the major inputs, such as day-old chicks (DOCs), feeds, veterinary care and
medicines, and technical services. The integrators also arrange for the marketing of live broilers.
Integrators bear all input and output price risks and share production risks with the broiler growers.
However, the growers typically do not have a share in the benefits of increasing output prices (nor do
they share in losses resulting from falling output prices).

Integrators operate in all aspects of production, including raising parent flocks, rearing DOCs and
mixing feeds. Conversely, the broiler producers supply the labour, land, sheds, water, electricity and
management skills needed for production. They, in turn, receive a growing fee per bird based on
performance indicators such as feed conversion ratio, harvest recovery and average live weight.
Compensation, additional to the growing fee, is given to growers who surpass the performance
standards. In the case of growers who fall below the standards, corresponding amounts per bird are
subtracted from the fee. Company field representatives are assigned to visit farms on a regular basis
to assist producers with their management and help them to achieve maximum performance and
efficiency. Contract broiler farmers have virtually no problem marketing live birds, as the integrators
arrange for the lifting of live birds from the broiler farms too. The integrator, who owns the birds, will
either sell the live broilers to big wholesale traders or process the birds as chilled chicken to be sold to
consumers. In the case of independent broiler growers, output is sold to traders, wholesalers or
retailers, or directly to consumers. Lack of negotiating power and lack of access to market information
contribute to high transaction costs for independent farmers. Further, lack of facilities for collective
action or other institutional arrangements makes it more difficult for smallholder producers to reduce
 32

transaction costs. However, overcoming these constraints is not impossible for smallholders if they
have the ability and incentives to integrate into a more dynamic private sector business.

Impact of structural changes on profitability of small-scale producers – results from case studies

The main concern with regard to the forces promoting the scaling-up of livestock production in
developing countries is that they might drive small-scale producers out of business altogether, and
the question of whether the displacement is being accelerated by policy distortions, externalities or
structural factors such as transaction costs that disproportionately affect small-scale farms. If true
economies of scale resulting from technology, management or transport are driving the incentives for
larger-scale poultry farming, then other things being equal, we would expect larger farms to be more
profit efficient and have higher or equal unit profits compared to small farms. In such circumstances,
the larger farms could eliminate competition from small farms over time by cutting their profit
margins. Small farms can stay in business by using family labour valued below market price; this
works well in developing countries where there are limited employment opportunities in other
sectors. But as soon as employment opportunities in other sectors rise, many smallholder producers
will opt out.

Fairoze et al., 2006 findings say that in Thailand, large independent broiler farms made higher profits
than medium-sized independent farms. Fee contract farmers in the Thai broiler sample had similar
per unit profits at large and small scales. In Brazil, as in the case of Thailand, small and large broiler
farms have similar average profits per kg. This may reflect the fact that in the Brazilian case, the
majority of small and large-scale farms are contracted to vertically integrated operations. Much of the
inputs are supplied by the integrator and in most cases the small and large-scale farms are using
similar if not the same technology. Moreover, small-scale farms do not explicitly cost family labour,
allowing them to maintain their unit profits close to large farms. There is, however, a growing concern
that smallholders might be excluded from the process of contractual arrangements, as integrators
would prefer to contract with large-scale farmers so as to minimize production and transaction costs
associated with searching for and screening prospective farms, negotiation of contracts, delivery of
inputs and services, monitoring of growers’ management on farm, and enforcing contract terms.

Tiongco et al. (2006) observed that an integrator’s transaction costs are incurred on a per grower
basis and do not depend on the size of the farm. Moreover, small farms usually require more
 33

technical assistance from the integrator per unit of output. For example, a farm visit may require the
same amount of time regardless of the scale of production. It was also observed that there was no
significant difference between small and large farms in terms of the growing fees paid by integrators
per unit of output. Holding the growing fee per unit constant, integrators would rather contract with
larger producers to lower their cost of procurement or to lower the cost of default.

Smallholders will have at least a chance to compete with larger-scale producers, as they have the
ability to produce at a lower per unit cost of production or at least achieve profits per unit of output
that are similar to those of large-scale farmers. If smallholders are not able to sustain a rate of
productivity growth equal to or greater than that of large farms under these conditions, they will have
a hard time remaining in business.

There are, basically, five elements that are essential to ensure smallholders’ access to markets. First,
producers need access to extension services or technical assistance so that they stay up to date with
the specialized techniques needed to ensure the safety of high-value products. Second, they need
access to good infrastructure so as to be able to manage flows between chain links quickly, so as to
meet the rigid deadlines imposed by buyers and reduce transportation and distribution costs. Third,
they need access to good sources of information so as to be well informed of changing market
demands and to be able to integrate this information rapidly across the supply chain. Fourth,
producers need to have the ability to produce products that are certifiably safe and of good quality.
Certification systems need to be not only consistent but also credible, to meet buyer and customer
demands. Lastly, producers need to have good mechanisms for coordination of their supplies to the
markets so as to ensure the timely delivery of high-quality products. If market failures are preventing
smallholders’ access to these important elements, it is very possible that they will lose much of their
current market access unless some sort of institutional arrangement can be made to address the
problems.
 34

PRODUCT PROFILE

PRODUCT NAMES:-

1) Pre-Starter Feed( at 0-11 age)

2) Starter Feed ( at 12-21 age)

3) Grower Feed ( at 22-27 age)

4) Finisher F1 Feed ( at 28-32 age)

5) Finisher F2 Feed (at 33-42 age)

PRODUCT INFORMATION:-

Feed ingredients for poultry diets are selected for the nutrients they can provide, the absence of
anti-nutritional or toxic factors, their palatability or effect on voluntary feed intake, and their
cost. The key nutrients that need to be supplied by the dietary ingredients are amino acids
contained in proteins, vitamins and minerals. All life functions also require energy, obtained
from starches, lipids and proteins.
Feed ingredients are broadly classified into cereal grains, protein meals, fats and oils, minerals,
feed additives, and miscellaneous raw materials, such as roots and tubers. These will be
discussed in separate headings below. More information on measuring the nutrient composition
of ingredients and the process of formulating poultry feeds is available in the section on feed
formulation.

Cereal grains
The term “cereal gains” here includes cereal grains, cereal by-products and distillers dry grains

with solubles (DDGS). Cereal grains are used mainly to satisfy the energy requirement of poultry.

The dominant feed grain is corn, although different grains are used in various countries and
 35

regions of the world. For instance, in the US, Brazil and most Asian countries corn is by far the

most important energy source for all poultry feed, whereas wheat is the predominant supplier of

dietary energy for poultry diets in Europe, Canada, Australia, New Zealand and the Russian

Federation. Of course, in reality, a feed manufacturer will use any grain in a poultry diet if it is

available at a reasonable price. For instance, in some parts of the US and China wheat is often

used in place of corn if its price is below that of corn. In Australia, sorghum is a key grain during

the summer season instead of wheat, while in the Scandinavian countries barley and rye are

used when these grains are at the right price. Although the amounts and types of cereal grains

included in poultry diets will depend largely on their current costs relative to their nutritive

values, care must be taken to avoid making large changes to the cereal component of diets as

sudden changes can cause digestive upsets that may reduce productivity and predispose the

birds to disease.

Corn (maize)

Wheat
 36

Table 1. ME value and key nutrient composition of cereal grains

Protein ME Calcium Available P

Ingredient (%) (kcal/kg) (%) (%) Lysine (%)

Wheat 13.0 3153 0.05 0.20 0.5

Corn 8.5 3300 0.05 0.20 0.3

Sorghum 9.0 3263 0.02 0.15 0.3

Barley 11.5 2795 0.10 0.20 0.4

Rye 12.5 2734 0.05 0.18 0.5

Triticale 15.4 3110 0.05 0.19 0.4

Oats 12.0 2756 0.10 0.20 0.4

The quality of cereal grains will also depend on seasonal and storage conditions. Poor growing or
storage conditions can lead to grains with a lower than expected energy content or
contamination with mycotoxins or toxin-producing organisms such as fungi and ergots. Genetic
and environmental factors also affect not only the content of nutrients in grains but also the
nutritive value, which takes into account the digestibility of nutrients contained in an ingredient
in the target animal.

In addition to the cereals themselves, their by-products, such as wheat bran, rice bran and DDGS,
are used widely in poultry feed. Cereal by-products are typically high in fibre, or non-starch
polysaccharides (NSP), which are poorly utilised in poultry and are low in ME.

Protein meals
Protein is provided from both vegetable and animal sources, such as oilseed meals, legumes and
abattoir and fish processing by-products.

Vegetable protein sources

Vegetable protein sources usually come as meal or cake, the by-product of oilseed crops. The
main oilseed crops include soybean, rapeseed/canola, sunflower, palm kernel, copra, linseed
 37

peanut and sesame seed. After the oil is extracted, the remaining residue is used as feed
ingredient. Oilseed meals make up 20-30% of a poultry diet. Inclusion levels do vary among
formulations for different species and for the same species in different regions.

Soybean

Canola seed

Lupins (lupinus angustifolius)

The main vegetable protein sources used in Australian poultry diets are soybean and canola.
Other sources like cottonseed, sunflower, peas and lupins may be included in poultry feed
formulations if these are available at a reasonable price.

Many oilseeds and legumes contain anti-nutritive factors. Some of these anti-nutritive factors
can be destroyed by heat and are used in heat-treated meals. New cultivars of some oilseeds
and legumes have been developed that are naturally low in anti-nutritive factors (ANF),
permitting higher levels of the unprocessed grains to be included in poultry diets without ill-
effect. The typical energy values and nutrient composition of vegetable protein sources are
shown in Table 2.
 38

Table 2. ME values and Nutrient composition of vegetable protein sources

Protein Calcium Available P

Ingredient (%) ME (kcal/kg) (%) (%)

Soybean meal 48.0 2557 0.20 0.37

Canola meal 37.5 2000 0.66 0.47

Cottonseed meal 41.0 2350 0.15 0.48

Sunflower meal 46.8 2205 0.30 0.50

Peas 23.5 2550 0.10 0.20

Lupins 34.5 3000 0.20 0.20

Animal protein sources

The main animal protein sources used in poultry diets are meat meal, meat and bone meal, fish
meal, poultry by-product meal, blood meal and feather meal. Although the production of animal
protein for human consumption has been under continual pressure and marred by much
controversy, the world-wide and domestic consumption of animal protein continues to grow and
much of the future supply of meat protein will come from poultry. With increased animal protein
production there will be increased demand for feed and, in particular, a demand for ingredients
high in protein and energy.
The animal industry evolved as a means of adding value (i.e. higher nutrient level and availability,
flavour, variety, etc.) to ingredients that were of marginal food value for humans. These
ingredients include grains that are of poor quality or damaged by harvest or storage conditions;
as well as a means of recycling by-products of brewing, vegetable oil, meat, milk and egg
production. Approximately 50% of the live market weight of ruminants and 30% of poultry is by-
product. These by-products are rendered, ground and available as a feed source.

Animal protein meals are usually defined by inputs. Those specifically used in poultry diets
include meat (no bone) or meat and bone meal from ruminants and/or swine; blood meal;
poultry by-product meal; feather meal; and fish meal. There are specific limitations now assigned
to these products with regards to inputs used and guarantees with respect to minimum nutrient
 39

levels. For example meat and bone meal may be specifically from ruminants and must be free of
hair, wool and hide trimmings, except where it is naturally adhering to heads and hoofs. The
products are rendered, which is a biosecure process that evaporates water, extracts fat and
yields a finished ground product high in protein (which has no resemblance to the raw product)
and minerals. The products are marketed with guarantees as to minimum protein, phosphorus
and calcium levels.

There are some challenges associated with the use of animal protein sources. First, food safety is
the most important concern people have about the recycling of animal protein meals back
through animals as feed ingredients. This is based on the links between the prion disease bovine
spongiform encephalopathy (BSE – mad cow disease) and a variant Creutzfeldt-Jakob disease in
humans. Importantly for poultry production though, researchers have been unable to
demonstrate the transfer of prions to poultry (Moore J et.al. (2011) BMC Res Notes. Vol.4, p.501)
and no symptoms of disease have been observed in birds up to five years after direct challenges.
The proteins (prions) associated with BSE are not destroyed by traditional methods of rendering
and are capable of causing disease when BSE contaminated meat and bone meals are injected
cerebrally into ruminants.
As a consequence of the public’s concerns about BSE, Australia does not allow the use of
ruminant by-products in feed for ruminants; however, ruminant by-products are available for
use in poultry feed.

FEED MILL

Feedmill
In addition to BSE contamination, there are concerns that animal protein meals are responsible
for food borne pathogen contamination, such as Salmonella. Typically these bacteria are
destroyed by rendering and possible recontamination is often negated by pelleting of
manufactured feeds. In most cases, if poultry acquire Salmonella it is likely to be from an
environmental source other than feed. It is possible for animal protein meals to be contaminated
 40

with high levels of heavy metals, dioxins and PCBs (pesticides); however, meals are monitored
and regulated to minimise this contamination.

Secondly, with respect to feeding the animal protein meals, the important practical issue is the
variability in available nutrients (those that can be absorbed and retained by the bird) and limits
to incorporation to maintain a diet balanced for all nutrients, particularly calcium and
phosphorus. Table 3 shows the determined averages that are used in determining nutrient levels
for meat and bone, blood, feather and poultry meals.

Table 3. ME values Nutrient levels in selected animal protein meals

Nutrient Meat & Bone Blood Feather Poultry

ME (MJ/kg) 11.2 15.2 13.7 13.1

Protein (%) 50.4 88.9 81.0 60.0

Fat (%) 10.0 1.0 7.0 13.0

Calcium (%) 10.3 0.4 0.3 3.0

Phosphorus (%) 5.1 0.3 0.5 1.7

Lysine (%) 2.6 7.1 2.3 3.1

Methionine (%) 0.7 0.6 0.6 1.0

Cystine (%) 0.7 0.5 4.3 1.0

Animal protein meals provide a good source of essential amino acids (e.g. lysine and methionine)
and are also good sources of energy and minerals (particularly calcium and available
phosphorus). However, there can be significant variation in availability (absorption and
retention) of amino acids due to the day to day variation in inputs as well as processing
conditions (temperature, moisture, pressure and time). The variation within processing plants
can often be greater than variation between plants. It is important for users to establish strict
criteria as to the quality of product and work with their suppliers to ensure these criteria are
met. Quality should include measurements that indicate moisture; nutrient availability
 41

(particularly essential amino acids); levels of minerals (for example, calcium can vary from 8–
12%; phosphorus from 4–6%); and stability of fat (all meals should be stabilised with an
antioxidant).

The most accurate way of measuring the ‘feed value’ of an ingredient is to use an animal assay
or bioassay. However, these assays are extremely time consuming and expensive. One of the
most promising predictors of nutrient level and availability is near-infrared reflectance
spectroscopy. This technology is rapidly being adopted by feed manufacturers and enables rapid
screening of incoming products for a wide variety of measurements (moisture, protein, amino
acid availability, fat, etc.). In most cases the samples can be prepared, scanned and results
assessed in a few minutes. However, calibrations are still being established for meals and further
research is required to classify the cause of variation in feed value.

Animal protein meals have a long history in poultry nutrition. Utilisation of this valuable feed
ingredient is important in minimising loss (nutrient and economic value) in the production of
safe, high quality poultry meat, eggs and bioproducts.

The typical ME values and nutrient composition of common animal protein sources are shown in
Table 4.

Table 4. ME values and nutrient composition of selected animal protein sources

Protein ME Calcium Available P Lysine
Ingredient (%) (kcal/kg) (%) (%) (%)

Meat meal 50.0 2500 8.00 4.00 3.6

Fish meal 60.0 2720 6.50 3.50 5.3

Poultry by-product meal 60.0 2950 3.50 2.10 3.4

Blood meal 80.0 2690 0.28 0.28 6.9

Feather meal 85.0 3016 0.20 0.75 1.7

Fats and oils

Fats and oils, collectedly termed lipids, are regularly used in poultry feed to satisfy the energy
need of the animal as lipids have more than twice the amount of ME compared with
carbohydrates or proteins per kg weight. Lipids are also an important carrier for fat soluble
vitamins (A, D, E, and K) as wells for the provision of an essential fatty acid, linoleic acid, in the
 42

diet. A variety of fats and oils are used in feed, including lipids of animal origins (usually fats, i.e.,
tallow, lard, except fish oil) and lipids of vegetable origin (usually oils, i.e., soy oil,
canola/rapeseed oil, sunflower oil, linseed oil, palm oil, cottonseed oil).

In practical feed formulation, the level of lipids rarely exceeds 4% in compound feed. However,
even a small decrease in digestibility can cost dearly in terms of dietary energy. Like any other
nutrient, a varying proportion of lipids are undigested depending on their sources and the
species and age of the animal to which they are fed. Some of the data are summarised in Table
5.

Table 5. Lipid source and bird age on total tract digestibility of lipids
Lipid source Digestibility (%) Bird age (week) Digestibility (%)

Tallow 73.6 1 53.2

Soy oil 85.0 2 80.7

Tallow-soy blend 75.4 3 85.9

Poultry fat 82.1 5 85.7

Palm oil 77.2 Average 76.4

It is surprising that nearly a quarter of dietary lipids are lost in the excreta of chickens. The
significance of this can be seen from the fact that even with a seemingly small amount of
inclusion, say 2.5% added fat in feed, it contributes as much as 7-9% of the dietary energy of a
typical poultry diet. Thus, any improvement in digestibility, which may be achieved via the use of
appropriate additives, such as enzymes, acidifiers and emulsifiers, will have a significant impact
on the energy content of diets.

Minerals and vitamins

Minerals are vital for normal growth and development in poultry, such as bone formation and
body processes such as enzyme activation. Some minerals such calcium and phosphorus are
required in large quantities. For example, laying hens require between 3.5-4% calcium, 0.3-0.4%
available phosphorus and 0.2% sodium in their diets for egg production. Other minerals, such as
copper, iron, manganese, zinc, selenium, cobalt, iodine and molybdenum, are required in
milligram quantities but deficiency of these minerals will lead to serious health problems in mild
cases and death in severe cases.
 43

Similarly, vitamins are essential for the body systems of poultry. Both fat soluble (A, D, E, K) and
water soluble (biotin, choline, folic acid, niacin, riboflavin, thiamine, pyridoxine, pantothenic acid
and B12) are needed in the diet to maintain proper health and wellbeing of poultry.

Some vitamins and minerals are provided by most ingredients but the requirements for vitamins
and minerals are generally met through premixes added to the diet. Diets may also contain
additives for specific purposes. These are discussed in more detail in the section on feed
additives.
 44

WORKING CAPITAL MANAGEMENT WITH COMAPATIVE STUDY

CONCEPTS/DEFINITIONS OF WORKING CAPTIAL

There are two concepts of working capital, namely:

1. Gross Working Capital

2. Net Working capital
The term, gross working capital is synonymous with working capital management, which
means the total current assets.

The term, Net defines in two ways:

 The most common definition is the difference between current assets and current liabilities.
 Net working capital can also be defined as that portion of firm’s current assets, which is
financed with long-term funds.

Meaning of Working Capital

Working capital may be regarded as the lifeblood of a business. Its effective provisions
can do much to ensure the success of business, which its inefficient management can lead not only
to loss of projects but also the ultimate downfall of what otherwise, might be considered as
promising concern. Thus, its management is considered as one of the most important aspects of
firm’s Financial Management.

The term working capital stands for that part of the capital which is required for the
financial working of the company is simple words; we can say that working capital is the
investment needed for carrying out day to day operations of the business smoothly.

Working capital refers to a firm’s investment in short term assets, viz. Cash short-term
securities, Accounts receivable (debaters) and inventories of raw materials, work in progress and
finished goods.
 45

It can be regarded as that portion of the firm’s total capital, which is , employed in
short-term operations. Funds thus invested in current assets keep revolving false and are being
constantly concerted in to cash and this cash flow out again in exchange for other current
assets. Hence, it is also known as revolving or circulating capital.

According to gene Stenberg , “circulating means current assets of a company that

are changed in the ordinary course of business from one form to another, as for example form
cash from cash to inventories, inventories to receivables, receivables into cash”.

These are invariably a time lag between the sale of goods and the receipt of cash. There is
therefore need for working capital in the form of current assets to deal with the problem arising out
of lack of immediate realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity.

Classification of working capital

Working capital can be classified into two ways.

1) On the basis of concept.

2) On the basis of time.

Concept of working capital

1) Gross working capital.

2) Net working capital

Gross working capital

 46

The gross working capital refers to the firms’ investment in the total current assets of the
enterprise. The current assets are those assets with in the ordinary course of business can
converted into cash with in the short period of normally one accounting year.

Net working capital

The net working capital can be defined into ways the most common definition of working
capital is difference between current assets and current liabilities.

Net working capital can also be defined as that portion of firm’s current assets. Which are financed
with long- term funds?

Need for working capital

The need for working capital to run the day to day activities cannot be over emphasized we will
hardly find a business firm, which does not require any amount of working capital. Indeed, every
firm differs in these requirements of the working capital.

The main objective of financial decision making is to maximize share holders wealth and
to endeavor this firm should earn sufficient returns requires a successful sales activity.

For a successful sales activity the firm has to invest sufficient funds in current assets
current assets are needed because sales do not concept into cash instantaneously. There is
always an “operating cycle” involved in the conversion of sales into cash.

OPERATING CYCLE
 47

Operating cycle is the time duration required to convert sales after the conversion of
resources into inventories into cash. In other words, an operating cycles refers to length of time
necessary to complete

The following cycle of events.

1) Conversion of cash into raw materials.

2) Conversion of raw materials into work in progress.

3) Conversion of work -in-progress into finished goods.

4) Conversion of finished goods into accounts receivables.

5) Conversion of accounts receivables into cash.

Working Capital Progress

Cash

Raw material

Finished Goods

Account Receivable

Sales
 48

Raw
Cash
material

Finished
Sales
goods

Account
receivable

OPERATING CYCLE

On the basis of time:

1) Permanent or fixed working capital

2) Temporary or variable working capital

Permanent working capital:

Permanent working capital is the minimum amount or minimum level ofCurrent assets.
Which is continuously required by the enterprise to carry out its normal business operation?
For e.g., every enterprise has to maintain a minimum level of raw materials. Work – in – progress,
finished goods and cash balance for paying Wages, salaries, rent etc. during the year. This minimum
 49

level of current assets is called permanent or fixed working capital as this part of capital is
permanently blocked in current assets.

Regular working capital is the amount of working capital needed for the continuous
operations of the business of the company without any breakage

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary working capital is the amount of working capital, which is required to meet the
seasonal and special needs of the business.

1) Seasonal working capital refers to that financial requirement that crop up during a
particular season behind the regular working capital most businesses require at stated intervals
large amount of current assets to fill the demands of the seasonal busy periods.

2) Special working capital refers to that part of the working capital, which is required to meet
special extengencies such as launching of extensive marketing campaigns or conducting research
etc.,

The individual composite items of working capital of current asset and current liabilities.

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

CURRENT ASSETS:

Current assets are those, which can be converted into cash within one year without effecting
the operations of the firm.

List of current assets:

1) Cash in hand & bank balance

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances

 50

5) Investments

a) Government other trustee securities

b) Fixed deposits with the banks

6) Inventories of stock

a) Raw Materials

b) Work in progress

c) Stores and spares

d) Finished goods

7) Prepaid expenses

8) Accrued income

CURRENT LIABILITIES

Current liabilities are those, which are intended to be paid in the ordinary course of business
within a short period of normally one year out of the current assets of the income of the business,

List of current liabilities:

1) Bills payable

2) Sundry creditors or accounts payable

3) Short term borrowings

a) Banks

b) Others

a. Unsecured loans

b. Public deposits maturing one year

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c. Deposits from dealers, selling against.

4) Dividends payable

5) Bank overdraft

6) Accrued or outstanding expenses

7) Provision for taxation

8) Sales tax and excise tax.

Theme of working capital

Working capital management is considered as one of the most important aspects of firm’s
financial management. The goal of working capital management is to manage the firm’s current
assets and current liabilities in such a way that the satisfactory level of working capital is maintained.
Each of the current assets should be managed efficiently in order to maintain the liquidity the
firm while not keeping too high of any one of them.

The success of business concerns among other things depends upon the manner in which
its working capital is managed. The interaction between the current assets and current
liabilities is there fore the main theme of the theory of working capital.

It is a task of financial manager to maintain an appropriate level of working capital. i.e.,

enough current assets to pay neither off current liabilities, either excess nor less because in either
case the result could be the failure of the business. Excessive working capital impairs firm’s
profitability, as ideal investment earns nothing. On the other hand, inadequate amount of
working capital can threaten the solvency of the firm because of its inability to meet its
current obligations.

Optimum Working Capital Position:

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The firm should maintain a sound working capital position. It should have adequate working
capital to run its business operations. Both excessive as well as inadequate working capital positions
are dangerous from the firms point of view. Excessive working capital means idle funds, which earn
no profits for the firm. Paucity of working capital not only impairs the firm’s profitability but also
results in production interruption and inefficiencies.

The danger of excessive working capital is as follow:

It results of unnecessary accumulation of inventories. Thus, chances of inventories handling,

wastage, theft and losses increase.

It is an indication of defective credit policy and slag credit collection period. Consequently
higher incidence of bad debts results, which adversely affects profits.

It makes management complacent, which degenerates into managerial inefficiency.

Tendencies of accumulating inventories tend to make speculative profits grow; this may
tend to make dividend policy liberal and difficult to cope with when firm is unable to make
speculative profits.

Inadequate working capital is also is as follows:

It stagnates growth. It becomes difficult for the firm to undertake profitable projects due to
inadequate of funds.

It becomes difficult to implement operating plans and achieve firms profit targets.

Operating inefficiencies creep in and it becomes difficult even to meet day - to - day
commitments.

Fixed assets are not efficiently utilized for the lack of working capital funds. Thus the
firm’s profit would deteriorate.
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Paucity of working capital fund renders the firm unable to avail attractive credit
opportunities.

The firm’s losses its reputations when it is not in a position to honor it short - term
obligations. As a result, the firm tight credits terms.

OVERALL WORKING CAPITAL

Financing of working Capital

There are different types of financing polices in vague for financing working capital
requirement. The requirements of working capital may be for fixed working capital and variable
working capital requirements.

The fixed proportion of working capital should be generally financed from the fixed capital
sources while the variable working requirement of a concern may be met the short-term
sources of capital.

The various sources of financing of working capital are as follows.

Sources of Working Capital

Long -term financing Short term financing Spontaneous financing

Finance Institutions Short term Credits Trade Creditors

Debentures Loan from Banks Outstanding Expenses

Public Deposits Commercial Papers Shares

Factoring

Working Capital Policies:

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The financial manager should determine the optimum level of currents assets. So that the
wealth of shareholders is maximized. A firm needs fixed current assets to support a particular level
of output. However, to support the same level of output, the firm can have different levels of
current assets to fixed assets. Dividing current assets by fixed assets give CA / FA ratio.

Conservative Working Capital Policy:

It firm’s maintains higher investment on current assets to a constant investment on

fixed assets, i.e., assuming a constant level of fixed assets, a higher CA/FA ratio indicates
conservative current assets policy it implies greater liquidity and lower risks.

“Aggressive Working Capital Policies”

If a business firm maintains the lower level of current assets to constant fixed assets that is a
lower CA/FA ratios means an aggressive current policy. Assuming other factors constant. It indicates
higher risks and poor liquidity.

Average Working Capital Policies:

If a business firms maintains moderated level of current assets to constant fixed assets. That
is the current assets policy of the most of the firm may fall between in conservative and
aggressive working capital policy, which is called average working capital policy, It indicates
moderate liquidity and risks. Working capital can be done in the following main methods:

Cash Management

Receivable Management

Inventory Management
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INVENTORY MANAGEMENT:

The proceeding two chapters basic strategies and consideration in managing current assets
namely, cash and receivables, are stocks of product of a company is manufacturing for sale and
components that make up a product. Inventories like receivables are also a significant portion of
must firm’s assets and accordingly require substantial investment. To keep these investments from
becoming unnecessarily large, inventories must be managed efficiently. The various forms in which
inventories exist in a manufacturing company are

a) Raw materials:

Raw materials are those basic inputs that are converted into finished products through the
manufacturing process. Raw material inventories are those units, which have been purchased and
stored for future productions.

b) Work-in-progress:

The ‘work-in-progress is that stage of stock, which is in between raw materials and finished
goods. They are semi-finished products that need more work before they become finished
products for sale. The quantum of WIP depends on the time taken in the manufacturing process.
The greater time taken in the manufacturing, the more will be the amount of work-in-progress.

c) Finished goods:

Finished goods inventories are those completely manufactured products, which are ready
for sale. Stocks of raw material and work-in-progress facilitate production while stock of finished
goods is required for smooth marketing operations.
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The level of three kinds of inventories to a firm depends on the nature of its business. A
manufacturing firm will have substantially high level of all three kinds of inventories.

A fourth kind of inventory:

Firm also maintain suppliers. Suppliers include office and plant cleaning material oil, fuel,
light bulbs etc. These materials do not directly enter into production, but are necessary for
production process. Sally these supplies are small part of inventory and do not involve significant
investment. Therefore a sophisticated system of inventory control may not be maintained for them.

NEED FOR HOLDING FOR INVENTORY:

 These are generally three major motives for holding inventories.

 The transaction motive which emphasis the need to maintain inventories to facilitate
smooth production and sale operation.
 The precautionary motive, which necessitates holding of inventories top guard against at the
risk of unpredictable changes in demand and supply forces and other factors.
 The speculative motives which increase the decision to increased are reduce inventory levels
to take advantage of price fluctuations.
 A company should maintain adequate stock of material as it not possible fro a company to
procure raw material whenever it is needed and also for a continuous and smooth and
interrupted production process.

Objectives of Inventory Management:

The main objectives of inventory management of are optional and financial

1. Operative objectives mean that the material and spares should be available

in sufficient quality to achieve interrupted

Production and sale operation.

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2. Financial objectives means that investment in inventories should not remain idle
and minimum working capital should be locked in it.

Both inadequate and excessive inventories are not desirable. They are to danger points
with in which the firm should operate. The objective of inventory management should be to
determine and maintain the optimum level of inventory management. The optimum level will
lie between two danger points of excessive and inadequate inventories.

The firm should not over invest in inventories as excess a level of inventories consumes
funds of a firm which cannot be used for any other purpose, and there it involves an
opportunity cost, carrying costs such as costs of storage, handling, insurance and inspection.
These costs will impair the firm’s profitability further maintaining inadequate inventory are

 Production holds-up
 Failure to meet delivery commitments
 Inadequate raw materialism work-in-progress inventories will result infrequent production
interruptions. Thus the efficient inventory management should ensure a continuous supply
of materials to facilitate uninterrupted production.
 Maintain sufficient stock of raw materials in periods of short supply and anticipate price
changes.
 Maintain sufficient finished goods inventory for smoothes sales operations and efficient
customer service.
 Minimize the carrying cost and time.
 Control investments in inventories and keep it at an optimum level.
 Costs associated with inventory.
The costs associated with Managing Inventory

The analysis inventory management by calculating inventories to total current assets,

inventory turnover ratio. Holding period of the inventory and change in sales and inventory.

CASH MANAGEMENT
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Cash , the most liquid asset, is of vital importance to the daily operations of business firms,
while the proportion ot corporate assets held in the form of cash is very small, often between 1 &3
percent its efficient management is crucial to the solvency of business in very important sense cash
is the focal point of fund flows in business. In view of its importance, it is generally referred to as
the” Life Blood of a business enterprise”.

Need for holding cash: John May nard Keynes put forth, there are possible motives for holding cash.

Transaction Motive:

Firms need cash to meet their transactions needs. The collection of cash (from sale of goods
and services, sale of assets and additional financing) is not perfectly synchronized with the
disbursement of cash (for purchase of goods and services acquisition of capital assets and
meeting other obligation.) Hence, some cash balance is required as a buffer.

Precautionary Motive:

There may be some uncertainty about magnitude and timing of cash inflows from sale of
goods and services, sale of assets and issuance of securities. Like wise there maybe uncertainty
about cash out flows on account of purchases and other obligation. To protect it against such
uncertainties, a firm may require some cash balance.

Speculation Motive:

Firm would like to tap profit making opportunities arising form fluctuations is commodity
prices, security prices, Interest rates and foreign exchange rates. Cash rich firm is better prepared
to exploit such bargains. Hence firms, which have such speculative earnings, may require additional
liquidity.

Goals of cash management:

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Precisely speaking, the primary goal of cash management in firm is to trade off
between liquidity and profitability in order to maximize long-term profit. This is possible only
when the firm aims at optimizing the use of funds in the working capital pool. This overall
objective can be translated in to the following operation goals.

 To satisfy day business requirements

 To provide for schedule major payments
 To face unexpected cash drains
 To seize potential opportunities for profitable long tern investments
 To meet requirement of bank relationships
 To build image of credit worth ness
 To earn on cash balances
 To build reservoir for net cash in flows till the availability of better uses of funds by
conscious planning.
 To minimize the operating cost of cash management

Importance of cash management:

Cash management is one of the critical areas of working capital management and assumes
greater significance because it is most liquid asset used to satisfy the firms obligations but it
is a sterile asset, as it does not yield anything. Therefore finance manager has to manage cash that
the maintains its liquidity position without jeopardizing if profitability.

Problem of prognosticating cash flows accurately and absence of perfect to incidence

between the in flows and out flows of cash added to the significance of cash management. In
view of above, at one time affirm may experience dearth of cash because payment of taxes,
dividends, seasonal inventory etc., Build up while at other times, it may have surfeit of cash
stemming out of large sales and quick collections of receivables.

It is interesting to observe that in real life management spends his considerable time in
managing cash, which constitutes relatively small portion of firm’s current assets. This is why in
recent years a number of new techniques have been evolved to minimize to cash holding of the

firm.

RECEIVABLES MANAGEMENT:
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The term “receivables” refer to the debt owned by the customers for goods purchase
from the firm or services rendered by the ordinary of business.

The firm is said to have granted trade credit to customers when it sells its products or
services and does not receive cash for it immediately.

Trade credit is an essential marketing tool as a bridge for the movement of goods
from production and distribution stage to customers finally. Receivables are also known as
accounts receivables, trade receivables or book debts.

The purpose of maintaining or investing in receivables is to meet competition and to

increase the sales and projects.

Basic features of receivables arising out of credit

They involve an element of risk as cash payment has yet to be received.

They are based on economic value, which is passed to the buyer immediately at the time of
sale of goods, services while the seller expects an equivalent value to be received later on.

They imply futurity as payment for goods or services received by the buyer will be made by
him at future date.

Granting and creating debtors amount to the blocking of firms funds. Thus, there is a need
for careful analysis and proper management of receivables as substantial amounts are tied up in
trade debtors.

Objectives of receivables management:

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The purpose of credit management is not to max sales (if so, firms would sell on credit to
all); nor to min risk (if so, firms would sell on credit to anyone).

The objective of the firm is to manage its credit a way that sale are expanded to such an
extend to which risk remain with is an acceptable limit.

Main Objectives are:

Obtain optimum values of sales.

Control the cost of credit and keep it at minimum.

COMPONENTS OF WORKING CAPITAL:

The working capital in OM CHICKS PRODUCTS consists of different components like

inventory, Sunday debtors, cash and bank balance, current liabilities etc which are shown in the
following table along with amount invested in each for the period of 5 years.

The structure of working capitals is presented in the table for the purpose of effective
analysis of current assets; current assets liabilities and networking capital have been calculated. Each
component of current assets and current liabilities and expressed as a proposition to total assets
total liabilities.
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RESEARCH METHODOLOGY

The data have been collected form both the primary and secondary sources. The data was
collected from the officials of the organization. However, the entire study was based on the
secondary data, which are collected from the books, records, journals and profiles of the
organization

In order to analyze the financial position of the unit, various techniques of financial
management such as working capital requirements and funds flow statements have been used here
to arrive at just logical conclusion the figures contained in the annual reports.

Primary data:

The primary data collect the information of company balance sheet from 2004
to 2008. The various methods for finding primary data re observation survey experimentation
and mutual interactions.

The study is based on the analysis of data which was collected from the previous
years’ annual reports from secondary sources. It is collected from the sources like financial
statements of OM CHICKS INDIA PVT. LTD. PUNE.

Secondary data

Any data that was gathered earlier for some other purpose is called secondary data.
Advantage in using secondary data is that it is more economical and time saving.

However, the entire study was based on the secondary data, which are collected from
the books, records, journals and profiles of the organization
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NEED OF STUDY:

Management of working capital is very important for the success of a business. It has been
emphasized that a business should maintain a sound working capital position and also that there
should not be an excessive level of investment in working capital.

In recent times it has acquired a greater level of importance. It is reflected by the fact that
financial managers spend a great deal of time in managing current assets and current liabilities.
Arranging short term financing, negotiating favorable credit terms, controlling the movement of
cash, administering accounts receivables and monitoring the investment in inventories, consume a
great deal of their time.

There are numerous aspects of working capital management, which make it an important
function of the financial manager. It maintains proper liquidity & also helps in increasing the
profitability of the concern.

SCOPE OF STUDY:

The objective of financial decision-making is to maximize the shareholder’s wealth. In order

to achieve this, sufficient profits are necessary which ion turn are d n les. There is invariably a long
gestation period between manufacturing and marketing cycle of business operations. Current assets
are required because sales are not converted in cash instantaneously.
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There is always an OPERATING CYCLE that is involved in conversion of sales into cash. The
continuing flow from cash to suppliers, inventory to accounts receivable and back into cash in
‘operating cycle’.

In simple terms, an operating cycle refers to the length of time necessary to complete the
following cycle of events:

1. Conversion of cash into inventory,

2. Conversion of inventory into receivables &

3. Conversion of receivable into cash.

There is hardly a running business firm, which does not require working capital. Even a fully
equipped manufacturing concern is sure to collapse without.

1. An adequate supply of raw materials to process,

2. Cash to meet the wage bills,
3. The capacity to wait for the market for its finished products,
4. The ability to grant credit to tits customers

Similarly, a commercial enterprise is virtually a useless without merchandise to sell. Working

capital, thus, is the life-blood of a business. As a matter of fact, any organization, whether profit-
oriented or otherwise, will not be able to carry on, day-to-day activities without adequate working
capital.

OBJECTIVES:

Primary Objective:-

 To evaluate the financial performance of the company by using

Working capital and funds flow statement.
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 To analyze the working capital performance of the company for the last six years that is
2000-200 1 to 2005-2006.
 To find out net working capital every current year.

Secondary Objectives:-

 To find out funds from operation was current year.

 To give suitable suggestions or recommendations based on the
Findings.

LIMITATIONS OF STUDY:

 The information used is primary from historical annual reports like profit and loss
account, Balance sheet and Company Details.

 Limited time span was major constraint.

 Since financial matters are sensitive in nature the same could be acquired easily.
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APPENDIX

Working capital is the amount of an organization requires, ensuring smooth functioning of its day to
day operations, ‘running cash’ is the business term using by organizations. It is calculated by
obtaining the net difference between current assets and current liabilities in an organization
(current assets – current liabilities).

The corporate finance literature traditionally focused with study of long term financial decisions.
Analyzing investments, capital structure, dividends and company valuation were the favourite topics
among the researchers. As we study investments, two types of investments can be identified. Short
term and long term are sub-categories of the investments.

BIBLIOGRAPHY

BOOKS REFERRED

 1 ) K h a n M . Y . J a i n P . K . – F i n a n c i a l M a n a g e m e n t (2008) – Tata Mc Graw Hill

Publishers – New Delhi4)Maheshwari.Dr.S.N. – Management Accounting and
Financial Control(2006) – Sultan Chand and Sons
Company Journals – OM CHICKS INDIA PVT.LTD. AND VENKATESHWARA HATCHERIES

 Main Economic and Social Indicators – GOOGLE