Indonesia’s Poultry Value
Chain
Costs, Margins, Prices, and Other Issues

August 2013This publication was produced by Nathan Associates Inc. for review by the United States
Agency for International Development.

Indonesia’s Poultry Value
Chain
Costs, Margins, Prices, and Other Issues

DISCLAIMER
This document is made possible by the support of the American people through the United States Agency forInternational Development (USAID). Its contents are the sole responsibility of the author or authors and do notnecessarily reflect the views of USAID or the United States government.

Contents
Abbreviationsv

Glossaryvii

Prefaceix

Executive Summaryxi

1. Poultry in Indonesia

1

Industry Size

1

Importance of Industry to Food Security

2

Location of Industry

2

Commercial Broiler

3

Commercial Layer

4

Native Chicken5

2. Stakeholders

7

The Integrators

7

Feed Mills

9

Parent Stock Breeding Farms

9

Broiler Farmers

10

Village Poultry Farmers

10

Contractors

10Market Traders

10

Processors

11

Retailers

11

Animal Health Companies

11

Equipment Suppliers

11

Consumers

12

Government of Indonesia

12

3. Costs and Margins

13

Methodology

13

Cost and Margins for Broilers

15

II

Modern Slaughter/Processing

18

Costs and Margins for Day Old Chickens

19

Cost and Margins for Eggs

19

Conclusion on Margins

21

Transport Costs

21

Conclusion on Transport Costs

22

Native Chickens

22

4. Prices23

Day Old Chicken Prices

23

Broiler Prices

23

Regional and Seasonal Price Issues–Broilers

24

Egg Prices

26

Conclusion

27

5. Industry Efficiency Issues

29

6. Feed Issues

31

Conclusion

33

7. International Competitiveness35

Exporting Countries

35

Importing Countries

37

International Benchmarks

38

Conclusion

39

8. Likely Industry Development

41

Regional Development

44

Product Development

44

Conclusion

44

9. Monitoring the Industry

45

The “Real” or “Normal” Price of Broilers

45

Data Collection

46

Appendix A. Costs of Production
Appendix B. Population and Production, 2011
Appendix C. Estimate of Corn Production and Imports, 2006-2012

III

Illustrations
FiguresFigure 1-1. Relationship between Broiler, Egg, and Wet Corn Production by Region
Figure 1-2. Broiler Sector Value Chain
Figure 1-3. Commercial Layer Sector Value Chain.
Figure 1-4. Native Chicken Sector Value Chain
Figure 3-1. Breakdown of Broiler Costs
Figure 3-2. Cost per kg Broiler to Consumer in Wet Market
Figure 3-3. Breakdown of Costs in Broiler Chain to Consumer
Figure 3-4. Broiler Margins per Bird to Consumer
Figure 3-5. Margins on Sales for Each Subsector in Broiler Value Chain
Figure 3-6. Costs and Margins for 1.6kg Bird to Wet Market versus 2.2kg Bird toModern Slaughterhouse
Figure 3-7. Broiler DOC Costs and Margin ex Hatchery
Figure 3-8. Commercial Egg Costs to Consumer
Figure 3-9. Margins in Layer Chain
Figure 3-10. All Indonesia Transport Costs for Broilers to Consumer andPercentage Breakdown of Transport Costs by Activity
Figure 3-11. Transport Cost for Egg Production and Percentage Breakdown ofTransport Costs by Activity
Figure 4-1. Relationship between Broiler, Egg, and Corn/SBM Index Prices
Figure 4-2. Broiler Price by Time by Province, January 2008-November 2012
Figure 4-3. Average Broiler Price by Province, 2009-2012
Figure 4-4. Egg Price by Province, January 2008-November 2012
Figure 4-5. Average Egg Price by Province, 2008-2012
Figure 6-1. Broiler Finisher Feeds Price Jakarta
Figure 6-2. Corn Supply and Demand Scenario for Indonesia
Figure 7-1. Major Broiler Producers and Exporters, 2012
Figure 7-2. Exports of Poultry, Corn, and Soybean Mean, 2012
Figure 7-3. Cost of Live Broiler Production, December, 2012
Figure 8-1. Broiler Consumption versus GDP per capita, 2011
Figure 8-2. Egg Consumption 2007 versus GDP per capita 2011

3
4
5
6
15
15
16
16
17
18
19
20
20
21
22
24
24
25
26
27
31
33
36
36
38
41
43

TablesTable 1-1. Size of Indonesia’s Poultry Industry, 2007-2011
1
Table 1-2. Size of Indonesia’s Poultry Industry ex Government Volumes by Subsector 1
Table 2-1. Financial Performance of Value Chain Integrators, 2008-2011
8
Table 2-2. Indonesia’s Feed Milling Capacity
9
Table 3-1. Key Livestock Assumptions, National Average
13
Table 3-2. Key Pricing Assumptions
14
Table 4-1. Prices and Volumes for Broilers and Layer DOCs, 2011-2012
23
Table 4-2. Possible Causes of Provincial Price Variation
25
Table 5-1. Efficiency Issues Facing the Industry and Possible Remedies
29
Table 6-1. Import Volumes of Feed Raw Materials, 201131
Table 6-2. Volumes and Values of Imports for Broiler and Layer Feeds
32
Table 7-1. Imports and Local Production, 201238
Table 8-1. Estimates of Broiler Production, 201142

IV

Table 8-2. Growth Scenarios for Indonesia’s Poultry Meat Sector to 2020
Table 9-1. Industry Data Worth Monitoring

42
46

Abbreviations
ASOHI
CPI
DDS
DOC
DGLS
DWt
EU
FCR
FS
GDP
GAPPI
GoI
GOPAN
GP
GPMT
GPPU
HE
HIMPULI
HPAI
JCI
LWt
MMT
MT
MOA
MOT
PS
PINSAR
RM
Rp
SBM
SG&A
SEADI
SOPs
SSEN
USD

Association of the Indonesian Poultry Drug and Vaccine Suppliers.
Charoen Pokphand Indonesia
Distillers dried solubles
Day old chicken
Directorate General of Livestock (Ministry of Agriculture)
Dressed weight (carcass weight)
European Union
Feed conversion ratio
Final stock (broilers)
Gross domestic product
Association of the Indonesian Poultry Producers
Government of Indonesia
Association of the National Chicken Farmer Organizations
Grandparent stock
Feed Miller’s Association
Poultry Breeder Companies Association
Hatching egg
Native Chicken Farmers Association
Highly pathogenic avian influenza
Japfa Comfeed Indonesia
Live weight
Million metric tons
Metric tonne
Ministry of Agriculture
Ministry of Trade
Parent stockIndonesian Poultry Market Information Center
Feed raw material
Indonesia Rupiah
Soybean meal
Sales, general and administration expenses
Support for Economic Development Analysis in Indonesia
Standard operating procedures
Survei Sosial Ekonomi Nasional
US dollar = 9600Rp

Glossary
Broiler
A broiler is a chicken bred for meat production. Common strains are Cobb, Ross, and IndianRiver. Birds are placed as day old chickens on broiler farms where they are grown to market
weight, which in Indonesia is around 1.5kg live weight. This takes 30-32 days. In that time
the birds will consume about 2.4kg of feed. The feed conversion ratio is about 1.6:1 (=2.4
feed/1.5kg live weight). The dressed weight of Indonesian chickens (without head and feet) is
about 67 percent.

Breeder (parent stock) farms
Broiler breeder farms raise parent stock (PS) that produce fertilized eggs for the production ofbroiler day old chickens. The males and females are separate genetic lines. Males are bredmore for meat and females for eggs. The breeding birds come from “grandparent” breeding
farms and are reared to 22 weeks when they become sexually mature and start egg
production. Males are placed with the females at a 1:10-12 ratio to ensure adequate egg
fertility. Each female will lay about 170 eggs for the next 42 weeks. This cycle is thenrepeated when the producer puts another flock of birds into sheds. Parent farms are owned byintegrated companies or by specialized breeding companies. Layer breeder farms produce
laying breeds. Because the birds are bred for egg production they are smaller than broiler
breeders and lay more eggs. The males of the egg laying strains are sold for meat in Indonesia
but produce much less meat than broilers and take longer to raise.

Contractors
Indonesian processing companies (“integrators”) use contractors to supply broilers to theprocessing plant or to the traditional wet market. The integrator arranges feed supply, day oldchicken supply, and the catch and delivery of grown birds to the market, along with technicaladvice to the farmers. Usually the contractor will provide batch credit for growing thechickens (requiring significant funding) and may share in the risk of mortality. The contractor
will usually pay bonuses for superior performance (lower feed conversion ratio andmortality). In countries where all birds are processed the integrators will be the “contractors.”
In Indonesia, with its large number of farms and geographic spread, specialized operators takeon this role, working closely with integrators and their broiler farm clients.

Feed Mills
Feed mills are large operations that have raw material storage capacity (often in silos). They
have grinders for grinding grain, mixers for mixing feeds, steam conditioners and presses forpelleting feeds, coolers, crumblers, packing facilities, finished product stores and load-out
facilities. Feeds come in "mash", "crumble", and "pellet" forms. They are designed to provide
a perfectly balanced diet for each type of stock. Feeds contain such ingredients as corn, rice

VIII

INDONESIA’S POULTRY VALUE CHAIN

polish, soybean meal, minerals, and vitamins. The protein content is usually around 16-17
percent for laying birds and 20-22 percent for broilers.

Hatchery
Hatcheries may be part of the breeding farm or an independent operation to which hatchingeggs are delivered. Incubation takes about 21 days and is often in two steps. Initial incubation
is in “setters,” machines in which temperature and humidity are closely controlled. Blowers orfans circulate air to ensure uniform temperature, and heating or cooling is applied. The setter
phase lasts about 18 days at which point the eggs are transferred to hatchers. On hatch day(day 21) the chicks are removed, inspected, and vaccinated. About 83 percent of the eggs are“hatchable.” Chicks are then sorted (often by sex for broilers and always for layers), counted,
and placed in chick boxes for delivery to broiler farms.

Integrator
An integrator performs all or most broiler production. They usually own breeder (PS) flocks,
hatcheries, feed mills, and processing plants and may own broiler farms or use contract
growers. They provide the chicks, feed, medication, and technical advisers who supervise
farm production. Integration reduces costs by coordinating each stage of production. In
Indonesia the integrators are companies like Charoen Pokphand and Japfa Comfeed, who own
breeding farms and feed mills and also supply day old chickens and feed to independent
farmers. In Indonesia, completely integrated operations—in which the integrator manages andfunds the entire broiler growing process—are only just developing and the integrators usually
use third-party (or sister company) contractors to coordinate with the broiler farms and thefunding of the broiler growing operation.

Layer
Laying stock are supplied from layer breeding farms. They are reared until sexual maturity(rearing phase) and begin laying eggs at approximately 18 weeks of age. The birds are usuallyhoused in cage units but floor systems are increasing being used to address welfare issues.
Layers will lay around 316 eggs until 72 weeks of age when they are sold for processing.

Native chicken
Native chickens are breeds specialized for joint production of meat and eggs. They are muchhardier than broiler or layer chickens and suited for scavenging in village environments. They
have less meat than broilers and the meat is much darker due to the exercise that the birds get.
This is preferred by many customers and the price of native chickens (“ayam kampung”) canbe double that of broiler chickens. The breeding of native chickens is usually very informal
and takes place at the village level, but specialized native chicken breeding units aredeveloping.

Processing plant
When birds are large enough, they are shipped to processing plants for slaughter. These are
specialized and fully automated slaughterhouses have strict food safety rules and waste
treatment facilities. Plants in Indonesia process up to 10,000 birds per hour. When chickens
arrive they are stunned, killed, bled, scalded, plucked, gutted, washed, chilled, weighed,portioned (or sold as whole birds), packed, chilled or frozen. They may be deboned and used
for further processing (cooked, sausages etc.) in an adjacent section to the processing plant, oron another specialized site.

PrefaceIndonesia’s large population spread over more than 17,000 islands makes food security
challenging. Poor logistics-related infrastructure and regional imbalances in food demand andsupply exacerbate the problem. Poultry is an important source of income for poor households
in Indonesia and can be an important source of livelihoods in rural areas, both in terms ofincome and employment. Poultry is also an important source of protein. In a normal year,
Indonesian farmers produce approximately 1.285 million tons of poultry meat, representing
62 percent of total domestic meat production. This is supplemented by the production of 1.2
million tons of eggs. Poultry (chicken) is considered a strategic food under the decree of
Coordinating Ministry No KEP-11/M.ECON/02/2010 and has an increasing role in theIndonesian diet. For these reasons, the Ministry of Trade is concerned by fluctuations in theprice of chicken meat over the past five years and the high disparity in price among regions(and cities).
The Trade Policy Analysis and Development Agency (TRECYDA) of the Ministry of Traderequested SEADI’s support in conducting this value chain study of the poultry sector. The
purpose of the study is to help MOT better understand the cost components of each part of thepoultry value chain in Indonesia and provide recommendations for domestic and international
trade-related policy reforms. A specific request was made to identify transport costs in theindustry. The value chain approach identifies and assesses cost factors that contribute to retailprices. With accurate information on the food supply chain available, policies can bereformulated to support efficiency in food distribution, to prepare preemptive measures toassist development of the industry, and to avoid excessive price increases and disparities
among regions.
An industry cost structure database would also allow MOT to understand how competitive theindustry might be in an export scenario and a section of this study addresses Indonesia’sinternational competiveness.

Executive Summary
The broiler and commercial egg industries in Indonesia are large. According to statistics ofthe Government of Indonesia the value of the poultry meat sector is Rp42 trillion and thecommercial egg sector Rp28 trillion. But, if industry estimates are assumed, the government
statistics appear to underestimate volumes in both sectors by about 40 percent. The
government should review industry production statistics to ensure correct data are collected
and published.
Margins in the broiler and egg sectors are evenly spread across production subsectors andwith no subsector taking margins that could be considered excessive. This suggests that bothindustries are highly competitive. Margins represent a fair return for investment and risk for
activity in both sectors.
Transport costs in the broiler and commercial egg sectors are 4.7 percent and 5.1 percent ofselling price, respectively. The largest transport cost is for raw material transported from port
to the feed mill, where inefficiencies are due to port and road infrastructure, both beyond thecontrol of industry.
Prices in the broiler and egg sectors vary by region because of regional differences in feed,
transport and cost structures but all price differences are explainable. The co-efficient ofvariation of prices between provinces, as currently undertaken, shows only that there isvariability (explainable) and does not indicate instability in the market, as has been suggested.
The industry has many inefficiencies but improvement is constrained by a structure based on
small farms, with poor infrastructure and inadequate bio-security. Larger integrators’
investment in modern broiler growing facilities will address some inefficiencies but will
mostly affect industry development (product development, food safety and sustainability),
and will not reduce costs.
Because Indonesia imports so much of its raw material, feed costs are based on an importparity cost structure. Estimates of corn production shortfalls suggest that this will continue
and corn will need to be imported for a long time, if not forever. That means that even if corn
production increases, feed prices will not decline as corn price will continue to be set atimport parity.
The cost of broiler production in Indonesia, relative to other countries, is very high and willremain so, thereby preventing Indonesia from becoming a significant exporter. Any exports
will be to niche Asian markets and be in small volumes. However, the opportunity forIndonesia to substantially increase local production through increasing demand is substantial.
As GDP rises, the consumption of poultry products in Indonesia will increase. The rate ofincrease will follow what has happened globally and likely to be biased towards what has

XII

INDONESIA’S POULTRY VALUE CHAIN

happened in Asian countries, particularly Malaysia. Tools exist to predict how the industry
will develop and government and industry should cooperate in developing accurate
production volumes and projections, especially as they relate to the many issues that willaffect both parties (e.g., location of expansion, infrastructure, environment, bio-security, cornuse, foreign exchange demands.
The poultry meat sector is projected to grow 70 percent to 90 percent by 2020, if GDP
increases by 6 percent per annum. The layer industry is projected to grow at around 50-60
percent of the broiler sector.

1. Poultry in Indonesia
Indonesia’s poultry industry has several sectors, namely poultry breeding, commercial broiler
and egg production, and village poultry production. The industry is supported by feed millers,corn producers, raw material suppliers, equipment suppliers, the animal health industry, thetransport industry, contractors, processors, traders, retailers and customers, financiers, and thegovernment.

INDUSTRY SIZE
Industry statistics vary widely. Government statistics show the following production levels.
Table 1-1

Size of Indonesia’s Poultry Industry, 2007-2011 (metric tons)
Item

2007

Layer meat (DWt)

2008

2009

2010

2011

5,862

57,27455,05557,71260,110Native chicken meat (DWt)

294,899

273,546

247,725

267,636

283.135

Broiler meat (DWt)942,784

1,018,734

1,101,765

1,214,339

1,270,438

Total Poultry Meat

1,243,545

1,349,554

1,404,545

1,539,687

1,613,683

Native hen eggs

230,472

166,618

160,921

175,528

179,605

Commercial eggs

1,382,139

1,323,606

1,318,915

1,379,607

1,449,115

Total eggs

1,612,611

1,490,224

1,479,836

1,555,135

1,628,720

SOURCE: Directorate General of Livestock (Ministry of Agriculture).

These figures equate to per capita consumption of 6.7kg poultry meat (5.3kg from broilers)and 6.8kg of eggs or 108 eggs per capita. Meanwhile, industry estimates of consumption arecloser to 9.3kg of poultry meat and 9kg of eggs. GPMT (feed miller’s association) states thatbroiler consumption is 7.1kg per capita, consistent with 8.6kg of poultry meat. Commercial
egg value is only 67 percent of the value of the poultry meat sector.
Table 1-2

Size of Indonesia’s Poultry Industry ex Government Volumes by Subsector (Rp trillion per
1.6MMT)
Broilers

Meat

Eggs

DOC

4.843

0.421

Feed

25.21819.496

Farm

6.477

3.283

Post farm

5.063

4.800

Total sales

41.60028.0002

INDONESIA’S POULTRY VALUE CHAIN

IMPORTANCE OF INDUSTRY TO FOOD SECURITY
Survei Sosial Ekonomi Nasional (SSEN) states that in 2011 Indonesians spent 1.85 percent of
their income on meat (62 percent of which is poultry) and 2.88 percent on eggs. This implies
that Indonesians spend 55 percent more on eggs than on meat. Rice is 7.48 percent, fish 4.27
percent, milk 4.32 percent, beans 1.26 percent, fruit 2.15 percent, oil 1.91 percent. While thebreakdown of poultry consumption requires clarification 1 the combined spending is 4.73
percent of income, some 10 percent above fish and milk, out of an average householdspending of 49 percent on food items. Poultry therefore represents 9.6 percent of the total
food budget (plus the large poultry component of ready meals), so is significant from a foodsecurity viewpoint. 2

LOCATION OF INDUSTRY
The poultry industry is spread throughout Indonesia, with significant egg production in East
Java, a reflection of the availability of locally grown corn and the ease of transporting eggs
from to the markets in West Java. Broiler production is countrywide but focused in West Java
(Bandung), close to its fresh bird markets that lack an adequate cold chain. Village poultry
exists across Indonesia.
Broiler and egg production, by region, is highly correlated to the population (R2 0.87 and
0.90, respectively). This has evolved due to the historical demand for live birds—whichcannot be transported efficiently over even medium distances in Indonesia due to hightemperatures and poor road infrastructure—and high demand for fresh eggs. The developmentof the industry therefore follows the development of the wet markets around the large
populations of West, East and Central Java. This has been supported by the development offeed production capacity close to the ports of major population centers around Jakarta andSurabaya.
Figure 1-1 shows the percentage of production by area along with wet corn production(tabular data on regional production of broilers and eggs is in Appendix B). Most broilers areproduced in West Java while East and Central Java supply most eggs. East and Central Java,
along with Sulawesi, produce most of the corn. Corn production in East and Central Javadrives egg production because much of the feed is produced using local corn and concentrate.
Lampung. Sulawesi, and East Java have a net corn advantage, while West Java needs toimport much of its corn.

1 Poultry production statistics multiplied by market prices suggest that broiler consumption (in Rp) is
about 60 percent higher than eggs. SSEN statistics state that 28 percent of food spending is on readymeals (and alcohol), suggesting considerable spending on broilers (particularly) and eggs in thiscategory. Data should exist to isolate the broiler and egg spending but that is beyond the scope of thisstudy.
2 The observation that 10.5 percent of food spending is on tobacco (SSEN data) may suggest ways ofaddressing food security.

3

POULTRY IN INDONESIA

Figure 1-1

Relationship between Broiler, Egg, and Wet Corn Production by Region
35%
30%
25%
20%

% broilers% eggs% wet corn

15%
10%
5%
0%

COMMERCIAL BROILER
The commercial broiler-breeding sector in Indonesia relies on the supply of imported
grandparent stock (GPs) from Cobb, Ross, and Indian River pure lines in Europe and theUnited States. The GPs in turn supply parent stock (PS) day old chickens (DOCs) to PS farms
throughout Indonesia. These farms rear the birds until point of lay (22 weeks) and then enter
the laying phase to around 64 weeks. The hatching eggs are incubated and hatched inhatcheries in the PS operation (a 21-day process), or as standalone units throughout thecountry, to produce the final stock (FS) commercial broiler DOCs that are sold to broiler
farmers. Since the length of the cycle for both GP and PS is over a year, the PS progeny of a
GP import will be producing commercial broilers up to 2.5 years later. So, in effect, thecommercial broiler DOC supply is controlled by the quantity of GP imports (which iscontrolled by the MOT) with occasional shortfalls in PS being supplemented by PS DOC
imports (controlled by the MOA).
The commercial broiler DOCs are grown in company farms owned by the large integrators(10 percent), contract farms (70 percent), or independent farms (20 percent). The averagefarm size is small, with a capacity for 5,000-20,000 birds. Birds are grown to 1.0-2.0kg(average of around 1.4kg at 30 days of age). Mortality on broiler farms is 6-7 percent.
Average feed conversion ratio (FCR) is about 1.6-1.7:1, with significant variation throughout
the country due to widely differing housing, animal health, and management practices.
Contract farms produce some 70 percent of the broilers. In this system the contractors (whomay or may not be independent of the integrator) pay for the DOCs, feed, and medicines andgive farmers a growing fee with a bonus for superior performance. This system is used as thesignificant funding and management of a large number of farms (>20,000) would be difficult
for the integrator to do, so a specialized function is set up via the contractors.
Feed is supplied from nearby feed mills, delivered in bags (no bulk feed in Indonesia) tofarms usually by contract truckers. The farmer supplies any litter (many birds are on elevatedslates), water, power, and gas.

4

INDONESIA’S POULTRY VALUE CHAIN

Grown broilers are collected from farms for delivery to company-owned slaughterhouses(processing 10-15 percent of the broilers) or are collected by agents and enter the wet market
system. Agents may sell directly to the wet market retailer who will slaughter the birds in
simple facilities before trucking to the wet market stall. Alternately, birds may be soldthrough a chain of agents, who act as consolidators and distributors, all taking margins on theway through. Seventy-five to 80 percent of birds will be sold through the wet market system.
Birds processed by integrators will be sold through the developed cold chain (tosupermarkets, food service) as whole or cutup/deboned birds, or further processed into shelfstable (sausages) or frozen products (nuggets).
Birds sold in traditional markets are presented with head on/feet on3, but sold on a head
off/feet off basis. There is a preference for a carcass weight around 1kg, and 90-100 percent
of birds are cut up by the retailer. Prices of components (when sold separately) show little
variation, 4 with wings being sold at the same price as breast, or when wings are discounted,
the discount may only be 3-8 percent.
A typical flow of activities in the commercial broiler sector is contained in Figure 1-2.
Figure 1-2

Broiler Sector Value Chain
DOC GP
ImportAnimal health

GP Farm
producing PS
PS producing
HEs
Hatcheries
producing FS
DOCs

Imported raw
materials

FS DOC
delivered tobroiler farms

Local rawmaterials

Broiler farm
grow out
Slaughter

Contractor

Traders

MarketCOMMERCIAL LAYER
The commercial layer industry has only one GP farm (Isa breed) that has a 60 percent market
share of the commercial layer sector, while Lohmann and Hyline PS are imported. There are

3 Head on, feet on presentation to demonstrate that health birds were slaughtered. When purchased, the head/feetare sold separately.
4 This has implications for the MOT if imports of selected cuts are considered as a means reducing selected
product prices.

5

POULTRY IN INDONESIA

15 PS operators in East Java, North and South Sumatra, South Sulawesi, and South
Kalimantan. Hatcheries are spread nationally and receive hatching eggs from the PS farms.
The hatched DOCs are sold to commercial layer farms nationally that vary in size from 1,0001m birds and average 30,000 birds. The birds are reared on the laying farm to point of lay (18weeks) then undergo a laying phase of up to 18 months. In this time birds may lay up to 400
eggs (24kg). Cull birds are slaughtered (as are culled PS) and enter the wet market slaughter
system. Eggs are sold to traders then into the market system with most eggs being sold in wet
markets by weight. In supermarkets eggs are sold in various pack sizes.
A typical flow of activities in the commercial layer sector is contained in Figure 1-3.
Figure 1-3

Commercial Layer Sector Value Chain
DOC GP
ImportAnimal health

GP Farm
producing PS
PS producing
HEs
Hatcheries
producing FS
DOCs

Imported raw
materials

Layer DOC
delivered tolayer farms

Local rawmaterials

Layer farm

Egg Market

Males ex hatchery toGrow out and sales
through broiler
Traders

NATIVE CHICKEN
Native chicken supplies about 15 percent of Indonesia’s poultry meat. HIMPULI states that22 million households in Indonesia raise native chicken, 1 million of which have more than
30 birds. Most birds are fed scraps and cheap feeds; only 70 percent of commercial nativechicken production uses complete feeds. Industry sources state that 10 percent of these birds
are confined and fed commercial feeds while the rest scavenge.
A typical flow of activities in the native chicken sector is contained in Figure 1-2.

6

INDONESIA’S POULTRY VALUE CHAIN

Figure 1-4

Native Chicken Sector Value Chain
EGG
TRADER

FEED MILL &MEDICATIONMARKET

BREEDING
FARM/DOCLAYER/GROWER
FARM

CONSUMERSMARKETCHICKEN
TRADER2. Stakeholders
Major production stakeholders are breeders, feed millers, broiler farmers, processors, local
slaughterhouses, and regional market players (traders and wet market operators), along withancillary supply chain operators (notably animal health and equipment). Large integrators
control the key sectors of DOC and feed supply, in addition to an increasing volume ofcontract broiler growing and processing. Any discussion of the industry is dominated by arecounting of the activities of these companies.

THE INTEGRATORS
Chareon Pokphand
CPI has approximately 12 feed mills across Indonesia with 4.5MMT capacity and a 33
percent market share in poultry feed. Mills include Banten, two in East Java, Medan (NSumatra), Semarang (Central Java), Lampung, and one being built in West Java. CPI has
Cobb 500 and Ross 308 broiler PS and Isa Brown layer PS. PS operations have been extended
to East Nusa Tenggara and Papua. CPI has at least five broiler processing plants (two in
Banten, Medan, Sidoarjo and Surubaya; owns its own broiler farms; and uses contract broiler
growing for most of its live bird supply. It is a market leader of further processed products(Golden Fiesta, Fiesta, Champ and Okay brands) with processed chicken sales in 2011 up 19
percent from 2010. In 2011 feed produced 77 percent of sales revenue, DOCs 13 percent, andprocessed chicken 9 percent.

Japfa Comfeed Indonesia
JCI has 11 feed mills across Indonesia (Medan, Padang, Lampung, Bati-Bati, Makassar,
Tangerang, Cirebon, Sragen, Sidoarjo, Surabaya, Banyuwangi) with a market share in poultry
feed of 25 percent. JCI (through Multibreeder Adirama Indonesia) has Indian River broiler PS
and Lohmann Brown layer PS. It has seven broiler slaughterhouses (in Pekanbaru,
Banjarbaru, Lampung, Bogor, Pabelan, Grobogan and Bali through Ciomas Adisatwa) andincreased processed chicken sales by 56 percent in 2011. It has a significant market share infrozen and shelf stable processed products through So Good Foods. It has corn driers in Pare
Pare and Lampung and its bag making operation in East Java produces 5,700 MT ofpolypropylene bags.

OthersSierad has three feedmills in Sidoarjo (East Java), Tangerang (Banten), and Lampung (South
Sumatra). Its market share for feed is around 8 percent. Malindo has a capacity of 0.9MMT
with 7 percent of the poultry feed market from mills in Cakung, Cikande, and Gresik.
Wonokoyo’s feedmills in East Java and West Java produce about 0.6MMT of poultry feed perannum (about 5 percent market share). It has Cobb PS broilers and Isa layer PS.

8

INDONESIA’S POULTRY VALUE CHAIN

CP, JCI, Sierad, and Malindo are listed companies. Their financial performance issummarized in Table 2-1.
Table 2-1

Financial Performance of Value Chain Integrators, 2008-2011 (000,000 Rp)
Structure

2008

2009

2010

2011

CP (GROWTH 2008-2012, 35%)
Sales

13,311,141

14,569,267

15,077,822

17,957,972

Net profit

253,977

1,619,418

2,219,861

2,219,861% Net profit

1.9%

11.1%

14.7%

12.4%

Assets8,848,204
JCI (GROWTH 2008-2012, 23%)

Sales

12,666,000

14,340,000

13,956,000

15,633,000

Net profit

305,000

637,000

959,000

617,000% Net profit

2.4%

4.4%

6.9%

3.9%

Assets8,266,000
SIERAD(GROWTH 2008-2012, 73%)Sales

2,332,000

3,243,000

3,643,000

4,029,000

Net profit

27,00037,00061,00023,000% Net profit

1.2%

1.1%

1.7%

0.6%

Assets2,642,000
MALINDO(GROWTH 2008-2012, 53%)

Sales

1,729,647

1,868,616

2,036,519

2,639,481

Net profit

9,042

75,970179,906

203,966% Net profit

0.5%

4.1%

8.8%

7.7%

Assets1,327,801
TOTAL

Sales

30,038,788

34,020,883

34,713,341

40,259,453

Net profit

595,019

2,369,388

3,419,767

3,063,827% Net profit

2.0%

7.0%

9.9%

7.6%

SOURCE: Company annual reports

The weighted average growth of the companies from 2008 to 2012 was 34 percent, reflecting
the underlying growth in the sector. The growth in broiler processing (via CP and JCI) is
much higher than this, reflecting industry trends.
Some interviewees expressed the belief that large integrators were making excessive profits
from the industry. The listed companies alone have total invested assets of US$42.22 billion.
This is a very significant commitment to the industry and a weighted average net profit of 7.6
percent is commercially acceptable. The entire industry relies on these companies, who alone
have the financial, physical, and human resources to import and process the genetic and feed
raw material base to the industry and to develop technology, processes, products, and services
to take the industry to the next level (see later).

9

STAKEHOLDERS

FEED MILLSThere are 68 feed mills in Indonesia with a capacity of up to 18.5MMT. With national
coverage, there is ample capacity to supply a growing poultry sector. All major mills producepelleted and crumbled feed for broilers and pelleted and mash feed for layers. All feed is inbags, which increases production and transport costs.
Table 2-2

Indonesia’s Feed Milling Capacity
RegionNo. of Feedmills

Capacity (‘000MT)

North Sumatra

8

2,250

South Sumatra

4

1,500

West Sumatra

1

250

Banten11

3,500

DKI Jakarta

4750West Java

8

2,000

Central Java

6

1,500

East Java

20

5,250

South Sulawesi

5

1,250

South Kalimantan

1

250

Total

68

18,500SOURCE GPMT.

GPMT, the feed miller’s association, represents 40 feed mill companies and coordinates feedissues with the government, especially issues related to raw material imports. GPMT statesthat layer feed production is 5.4MMT, of which a significant component is concentrate, usedon average at 35 percent of the complete diet. It says that broiler feed is 5.5MMT per annum.
Feed production in 2012 was 12.3MMT so there is about 50 percent surplus capacity.
Feed raw materials are imported through major international traders and shipped in Panamax
and Handimax vessels. Since 75 percent of the raw materials are imported (and 100 percent of
the soybean meal is imported), corn and soybean meal exporters (United States, Brazil, India)
have a significant interest in Indonesia’s poultry industry. The American Soybean Associationand US Grain Council are very active in promoting their products

PARENT STOCK BREEDING FARMS
The breeding sector is largely in the hands of the large integrators. CP (Cobb and Ross) andJCI (Indian River) own GP broiler operations and operate the majority of parent farms forthese breeds. Sierad, Malindo, Wonokoyo, and others operate the balance of the PS farms. Isa
owns the only layer GP operation, and that operation supplies 60 percent of the layer parent
stock. CP and JCI use Isa and Lohmann breeds and own the majority of the PS farms for thesebreeds.
The breeding sector is represented by•

GAPPI, the Association of the Indonesian Poultry Producers. This association
represents the large companies that have feed, PS farms, contract growing andprocessing. GAPPI members have important roles in other associations.

10

INDONESIA’S POULTRY VALUE CHAIN•

GPPU, the Poultry Breeder Companies Association. This is effectively the PS farmassociation, principally responsible for breeding DOCs for the broiler and the layer
industries. It represents 90 large breeding companies

There are now few breeding companies in the world and Indonesia has access to the best
genetics in the world. Cobb-Vantress, Aviagen (Ross) and Hendrix (Isa) offer significant
assistance by providing standard operating procedures and international benchmarking.

BROILER FARMERS
Broiler farm ownership is dominated by small independently owned farms (averaging 520,000 bird capacity) that produce birds by contract for the large integrators (60-70 percent of
production) or are independent (20 percent of production). The integrated companies aredeveloping larger farms (100,000 capacity with higher quality hardware) currently
representing some 10 percent of total production, but will grow. The broiler farm sector isrepresented by•

GOPAN, the Association of the National Chicken Farmer Organizations. This
politically active association represents the demands of all poultry farmers.

•

PINSAR, the Indonesian Poultry Market Information Centre, represents
independent small farmers largely by providing market intelligence on a daily basis.

VILLAGE POULTRY FARMERSNative chicken raised in villages supply 15 percent of Indonesia’s chicken meat and eggs.
While much of the output is consumed by the producer, there is a significant market for“ayam kampung” chicken, priced at a significant premium. This sector is represented by
HIMPULI (the Native Chicken Farmers Association). Given that 22 million households arereported to produce village chickens (with 1 million farms having more than 30 birds), this
sector is huge when measured by the population involved.

CONTRACTORS
Sixty to seventy percent of broiler birds are grown through a contract growing system. The
system’s managerial and logistical requirements are huge when compared to the average farmsize, so major integrators use contractors to meet these requirements. Contract truckers
transport feed raw materials and finished feed. Contractors organize (and fund) broiler
growing for the large integrators. This requires considerable working capital so banks also
have a stake in the industry’s profitability.

MARKET TRADERS
Traders supply and distribute final products. Corn farmers in Indonesia have very small
acreages so corn consolidation and distribution is a major task involving many tiers of traders.
This results in significant trader margins that adversely affect corn farmers’ profitability and
impedes the development of corn production.
Traders also control post-farm consolidation and distribution of eggs and broilers. Traders canbe catchers, collectors, and consolidators and may slaughter birds for sale to the market
retailer or on-sell live birds to a second (or even third) level of trader who will undertake theslaughter.

STAKEHOLDERS

PROCESSORS
The number of modern slaughterhouses and processing plants is increasing, and integrators
are developing national coverage. This trend is enabling production of higher quality birds
that are distributed through the cold chain and have a shelf life of up to 10 days. The rapid
rise of further processing is being driven by the development of supermarkets and by supplydriven demand for shelf stable and frozen products. Meanwhile, small slaughter operations in
the backs of houses supply wet market traders with dressed birds. The sustainability of suchoperations is in doubt because of food safety concerns.

RETAILERS
Most of Indonesia’s eggs and broilers are sold in traditional wet markets. Broilers aredelivered to the market slaughtered with head and feet on without any cooling or ice.
Typically a retailer will sell 50kg of chicken per day with 50-100 retailers common in amarket. The quantity of broilers sold cut up varies but appears to be 90-100 percent. 5
Purchase of a whole bird for cut up on site is common.
Broiler meat is also sold through the modern cold chain to supermarkets and the food service
sector. The share of further processed products is growing, with frozen products such as
chicken nuggets holding significant shelf space in supermarkets where retail margins are 30
percent. 6 This supply is led by CPI and Ciomas (JCI), who report significant growth in the
fresh and frozen sectors.
Eggs are sold as branded products in supermarkets by weight and in packs (6,10,12 pieceetc.). Eggs are sold in the wet market by weight.

ANIMAL HEALTH COMPANIESAnimal health represents some 1-2 percent of the cost of production of live birds, with the
majority of this cost being vaccination, feed additives (vitamins, enzymes, anti-coccidials),
and farm medications. ASOHI, the Association of the Indonesian Poultry Drug and Vaccine
Suppliers, represents 16 provincial branches and aims to coordinate production anddistribution to the private and public sectors, with the government being a major purchaser ofpoultry drugs and vaccines for smallholder development programs. Companies like Evonik(major supplier of amino acids) offer significant technical assistance to the industry.

EQUIPMENT SUPPLIERS
Most broiler farms use basic construction materials (bamboo) so shed construction is not amajor industry. These farms normally have manual feeders and bell drinkers manufactured inIndonesia. Cages are the main equipment on layer farms. As the industry develops so will thehenhouse construction and automatic equipment sectors. Feed mill, slaughterhouse, andprocessing equipment is sourced from EU and China.

5 Ex Bogor market survey.
6 Prices observed for products in supermarkets were as follows. Whole chicken Rp 40-56,000/kg.
Bone in breast, legs, thighs, wings up to Rp 70,000/kg, boneless breast up to Rp 82,000/kg. Frozen
breaded products Rp 60-100,000/kg.

11

12

INDONESIA’S POULTRY VALUE CHAIN

CONSUMERSAll Indonesians accept poultry so the entire population has a significant stake in the sector.
Consumers vary in spending power and demand characteristics but all have a stake in productvolume, price, and quality and food safety is becoming a significant issue, highlighted byIndonesia’s experience with avian influenza. While the government wants to improve foodsafety by modernizing the retailing of broiler meat and shutting down wet markets, this willtake time to achieve.

GOVERNMENT OF INDONESIA
The poultry industry is a significant employer. Industry sources state that three million people
are employed in the industry. The industry also imports a significant quantity of raw material(estimated at Rp47trillion – US$4.9billion) delivered mill so it has a big impact on foreignexchange requirements. It uses 6MMT of locally produced corn so the efficiency of its
poultry production (to reduce imports) is important to the government. Imported and local
raw material movements rely on the government maintaining or increasing port capacities andcapabilities. A significant quantity of feed, chickens, and eggs are transported by road, so
related infrastructure must also be adequate. The industry is already a significant user ofelectricity, and water use will increase in volume and concentration as the slaughter sector
modernizes. Not least, integrators are significant contributors of tax, while much of theindustry seems to escape taxation.

3. Costs and Margins
We have quantified the cost structure and margins of the broiler and layer value chainsseparately and present our quantification method below.

METHODOLOGY
From the placement of day old parent stock to the final sale of broilers and eggs to theconsumer, we broke the value chain into input and output activities. We then used our own
broiler production model and local data to calculate outputs and costs of live bird production.
Data on post-farm costs were taken from interviews. We made breed standard assumptions
for the inputs (feed) and outputs of parent stock farms (total eggs, hatching eggs) andhatcheries (hatchability). Farm and hatchery costs were estimated on the basis of Asianbenchmarking.
Input/output assumptions quoted in interviews were used for broiler farms (farms costs, live
weight, FCR and mortality) and layer farms (farm costs, egg production, mortality). These arelikely to be overstated, meaning broiler farm and contractor margins may be overstated in our
analysis. The relationship between farmer and contractor margins will vary as risks andrewards are shared under varying scenarios (e.g. credit terms, mortality risk). Our assumption
is that the contractor margin will be greater than the farmer margin because contractor
investment and risk are greater.
Our assumptions are biased towards the interviews that were all done around Jakarta,
Tangerang, and Bogor. Regional differences in livestock performance, feed costs, post-farmcosts, prices, and margins will be minor relative to the overall analysis; we attempt to explainthese via the final price differences among provinces. Table 3-1 provides details on ourassumptions about livestock; Table 3-1 provides details on our assumptions about pricing.
Table 3-1

Key Livestock Assumptions, National Average
Broiler

Commercial Layer

Hatching eggs per breeder

166

225

Hatchability

82%

80%

Mortality

6%

8% in lay

FCR

1.6:1

2.2:1 for layer feed

Kill weight (LWt)

1.6kg

Note: Broilers in Indonesia are weighed on the farm with a full crop compared with weighing at a slaughterhouse with empty
crop in the developed world. This means that the FCR is being understated by some 3-4 percent relative to internationalcommercial benchmarks. The FCR of 1.6:1 that is used compares to a Cobb breed standard of 1.5:1. Also, breed differencesin hatching egg production will result in a range of production across Indonesia. Prices for feed, DOCs and eggs and broilers
were taken from market statistics.

14

INDONESIA’S POULTRY VALUE CHAIN

Table 3-2

Key Pricing Assumptions
Broilers

Layers

DOC cost (Rp/DOC) ex hatchery

3,500

5,000

Average feed cost (Rp/kg)

6,500

4,600

Broiler price ex farm (Rp/kg LWt)

15,300Broiler price retail (Rp/kg DWt)

26,000Egg price (Rp/kg egg)

16,000Note: Figures as of December 2012 around Jakarta/Bogor – as a base case. Average Feed cost will vary as to whether it issold ex mill, ex trader or ex contractor, as well as there being regional price differences. Since 20% of layer feed is estimatedto be ex home mixing, this cost reflects this.

Data on feed mill production costs were taken from interviews, as were data on transport
costs in the value chain. Because feed is the major cost item in live bird and egg production,
we also attempt to identify the SG&A and income tax component of producing feed.
In identifying margins in the value chain one must standardize definitions. Our approach is toquantify as much information as possible and then define “margins” as follows.
DOC margin
Feed margin
Farm margin (broiler and layer)
Trader/consolidator/s margin
Retailer margin

Gross margin before SG&A, before tax
Net margin after SG&A, after tax 7
Gross margin 8 before tax (if any)
Gross margin 9 before tax (if any)
Gross margin 10 before tax (if any)

The reason for taking feed margin as net margin is due to the availability of financials for four
listed companies whose feed sales represent about 75 percent of total feed sales—hence we
can attempt to allocate SG&A and tax costs. In addition, feed milling operations havesignificant SG&A and financing costs that other stakeholders do not have so the use of net
margin for feed mills and gross margins for others is probably more equitable than using
gross margins for all—although that can be easily done. 11 The DOC margin is small so we
did not attempt to quantify SG&A (with these costs being relatively high for a breeding
operation with a significant sales force). Retailers in local markets will have minimal
investment, SG&A, and tax so their margin (as owner-operators) is largely a return on labor.
Larger retailers’ (supermarkets) margin is taken as gross margin, but they will havesignificant costs (e.g., marketing, labor, power).
Our base case analysis is for birds sold fresh in traditional markets. An analysis for chicken
processed in modern plants follows later.

7 Assumed to be 7.4 percent after analysis of financial statements of listed companies
8 To cover return on investment and management. External labor included in farm costs.
9 To cover all costs (return on investment, costs of credit, management, staff costs) but not transport.
10 To cover costs of running market retail outlet.
11 The addition of the SG&A, financing costs, and tax to the net margin will produce the grossmargin.

15

COSTS AND MARGINSCOST AND MARGINS FOR BROILERS
The cost and margin structure of broilers starts with the purchase of the PS DOC, through the
PS farm onto the hatchery producing the commercial DOC to the broiler farm. Feed is
supplied ex-feed mill with costs broken down to raw material cost CIF, transport to the mill,feed production costs, SG&A, finance costs, tax, and estimated feed mill margin (data aretabulated in Appendix A). Broiler farm operating costs and margins are calculated before thebird leaves the farm where it then has costs associated with trader margin, transport,slaughter, and retail margin. See Figure 3-1.
Figure 3-1

Breakdown of Broiler Costs (Rp/kg DWt)
30000
25000
Market cost/margins

20000

Trader costs/margins
Farm costs/margins

15000

Feed costs on farm

10000

DOC cost

5000
0

Figure 3-2 shows the buildup of costs by activity and time, from the PS farm, through the feedmill and broiler farm to the market. Costs are provided for each activity and cumulated.
Figure 3-2

Cost per kg Broiler to Consumer in Wet Market (Rp/kg DWt)
30000
25000
20000
15000
11343

10000
5000
0
-5000

243 361951640

365 19875

50

418 107 597 860 1003 239 933

1866 2443

187

1604 1399

1653

187

-1866

16

INDONESIA’S POULTRY VALUE CHAIN

The breakdown of costs in each subsector of the broiler chain, as the industry usually thinksof it, is presented in Figure 3-3.
Figure 3-3

Breakdown of Costs in Broiler Chain to Consumer
Rp/kg dressed weight and as percent of total costs by subsector in the chain
16000

55.1%

14000
12000
10000
8000

21.6%

6000
11.7%

11.6%

4000
2000
0

DOC

Feed

Farm

Trader/market

The DOC price and margin is 12 percent of the final price, feed cost and margin is 55
percent, 12 farm production costs and margins are 12 percent, and post-farm costs and margins
are 122 percent. Total margins (as defined) in the total chain are 33 percent of the selling
price of the chicken into the market. Figure 3-4 presents a breakdown, with no attempt being
made to isolate transport margins. Thirty-seven percent of the margins are post farm.
Figure 3-4

Broiler Margins per Bird to Consumer
Rp/Kg DWt and as percent of total margin by sector
3000
28%

2500
22%

2000

19%

19%

Traders

Slaughter/market

1500
12%

1000
500
1%
0
DOC farm (DOC)

Feedmill

Farmer margin

Contractor

The margins are shown in Figure 3-4 as total margins (Rp/kg DWt) and as a percentage, bysector, of the total. The DOC margin component is very low because the cost of the DOC isonly 11 percent of the final price, but also it seems that the DOC price (and margin) was low

12 But higher if we include the feed component of the DOC cost. Also, this is farm gate price ex milland does not include any contractor margin.

17

COSTS AND MARGINS

when this analysis was done and that DOC prices should increase to ensure viable margins.
Feed mill margins represent 12 percent of total margins as we have used net margins. If we
had used gross margins, the feed mill margin would be about 24 percent of the total, but as
discussed the net margin is a better indicator of real profit as SG&A, finance, and tax costs
are significant. Farmers take 22 percent of the margin, while contractors take 28 percent. The
farmers’ margins will depend on any bonus (or discounts) they get above the average
payment by contractors and will vary, as livestock performance varies, from batch to batch.
That the contractors’ margin is the highest (as a percentage of total margins) is expected
because they bear the market risk on price and performance, provide the full batch
funding/credit, and bear significant administration costs that we have not deducted from thegross margin.
Twenty percent of farms are independent and don’t use a contractor. These famers takeresponsibility for finance, farm risk, and market demand. It is likely that many make lower
margins as they struggle to fund and manage variable production and marketing variables.
That is why there has been a move to use contractors, who provide a more stable production
base for the farmers. Integrators who produce birds directly (upwards of 10 percent of
production) also act as contractors and traders. This involves higher costs but also higher
margins (due to efficiencies that can be built into this system) and this production model will
increase.
Of interest to any subsector is the margin to be made on sales. This margin (as we defined) at
each stage of the value chain (as a percentage of the sales) is as follows:
Figure 3-5

Margins on Sales for Each Subsector in Broiler Value Chain (%)
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
DOC

Feed

Farm

Contractor

TraderRetailer

Figure 3-5 shows that margins are spread evenly across the supply chain and fairly represent
the reward to investment and risk, and in no case are excessive. The fact that the farm,
contractor, trader, and retailer are making between 6 percent and 10 percent gross margins
also suggests these are highly competitive sectors, as are the DOC and feed sectors. 13 As
noted, the higher margin for contractors is justified on the basis of their high investment andrisk.

13 The DOC margin for a DOC price of Rp 3000 (end 2102) is abnormally low and will increase as
DOC prices return to Rp 3500.

18

INDONESIA’S POULTRY VALUE CHAIN

MODERN SLAUGHTER/PROCESSING
The preceding analysis relates to selling birds into the traditional market. If we change theproduction model to one in which 2.2kg live weight birds (with a 1.8:1 FCR) are produced
and delivered directly from a farm to a modern slaughterhouse, with a yield of 78 percent andan increased processing cost of Rp 6700/bird 14 and an increased selling price of Rp 45,000,
then we have the cost structure shown in Figure 3-6 and tabulated in Appendix A.
Figure 3-6

Costs and Margins for 1.6kg Bird to Wet Market versus 2.2kg Bird to Modern Slaughterhouse
Rp/kg of final DWt bird
50000

WET MARKET

40000

MODERN SH
30000

20000
11859

11438
10000
1961
0

421

108

602

867 1011 237

2600
1196 2093

6000

4007
150

508

359
-419

-10000This model demonstrates the following:•

Farmer and contractor payments and margins will increase to reflect the increased
weight and time that birds are on the farm along with the increased working capitalrequirements.

•

The higher yield achieved from a heavier bird will reduce DOC costs per kilogram.

•Feed cost will increase per kilogram live weight due to the deterioration in FCR, but
this is more than offset by the yield improvement.

•

The elimination (or reduction) of traders eliminates a nonproductive margin.

14 This is an illustrative best estimate cost only as birds that go to modern slaughterhouses will beprocessed in different ways (whole, cutups, deboned with different packaging options) so each productwill have a different cost structure and selling price. This cost includes sales costs.

19

COSTS AND MARGINS•

Slaughter costs are significantly higher but so is quality, enabling an increased margin
via sales to supermarkets 15 and food service.

•

Margins to the slaughterhouse increase significantly, as they need to, to cover theinvestment. Conversely, modern slaughterhouses generally need to receive a higher
price than the wet market price to justify the investment. The margin (after sales
costs) in the above example is 18 percent. This will increase as products are further
processed (higher investments) and sales and marketing costs increase.

•

Supermarket margins are assumed to be 26 percent in the above example. This willvary by outlet and will increase as product value (via further processing) increases.
Typically supermarket retail margins for poultry are 20-30 percent for fresh productand for further processed products like nuggets between 30 to 40 percent.

COSTS AND MARGINS FOR DAY OLD CHICKENSThe influence of the DOC supply chain and the margins taken there (as a proportion of total
broiler costs) are often exaggerated. The costs and margin in the broiler DOC supply isestimated to be as follows. The total cost of DOCs in the price of retail broilers is 11 percent
while the DOC margin is <1 percent of the price of the broiler in the market.
Figure 3-7

Broiler DOC Costs and Margin ex Hatchery (Rp/DOC)
3500
3000
2500
2000

1758

1500
1000
500

261

391

387
102

213

81

0
Cost of PS DOC

PS rearing feed

Other PS rearing

PS laying feed

Other PS laying

Hatchery

DOC margin

Again, feed is the major cost for rearing and laying breeding stock that produce the DOCs. At
Rp 3000 per DOC the margin would be only 2.5 percent of the DOC price, and if the pricewas Rp 3500 the margin would be 16.5 percent (a more sustainable margin). This suggests,
given our estimate of the DOC cost structure, that DOC will need to rise to Rp 3500-4000 toensure viable margins.

COST AND MARGINS FOR EGGS
The cost and margin structure of egg production is shown in Figure 3-8. Because the DOC
cost structure for layer is relatively very low (1.6 percent of egg price), the value chain charteliminates the detail of this function and starts with DOC cost. This again shows that feed andassociated transport is the major cost item, making up 91 percent of egg production costs

15 There is an additional margin if yields can be increased further by retention of moisture via spinchilling etc. However this is difficult to achieve in a market that fries chicken, but very achievable
when products are roasted or boiled.

20

INDONESIA’S POULTRY VALUE CHAIN(including DOC feed cost) and 77 percent of the retail price of eggs. Cull hen income is taken
as a credit in the cost structure. Details are provided in Appendix A.
Figure 3-8

Commercial Egg Costs to Consumer (Rp/kg)

Margins (as defined) show that the DOC cost and margin is insignificant for egg production.
Feed margin is around 4.5 percent of market price for eggs, while farm margin (as defined) is
12.0 percent and post farm margin is 12.9 percent of market price for eggs.
Figure 3-9

Margins in Layer Chain
Rp/kg egg and as percentage of total margin
2500
40.6%
2000
1500
21.8%
1000
500

19.8%

15.2%

2.6%

0
DOC margin

Feed margin

Farm margin

Trader margin

Market margin

As with broilers, the value of the sale increases from left to right (e.g., ex farm eggs are lessthan retail eggs). The margin on sales for each subsector is feed 7.8 percent, farm 14 percent,trader 7 percent, and retail 6 percent. Again, margins reflect the investment and risk in eachsector.

21

COSTS AND MARGINSCONCLUSION ON MARGINS
Margins for broilers and commercial eggs are spread across the industry and represent a fairreturn for investment and risk for each activity in both sectors.

TRANSPORT COSTS
Transport costs (in Indonesia) are estimated to be 4.7 percent of the retail price for broilers. A
breakdown of transport components in the broiler value chain shows that the highest cost isfor imported raw materials from port to mill. This cost is elevated because of•

The high import component of Indonesian poultry feed (75 percent of broiler feed
raw materials are imported).

•

Inefficient port handling facilities (insufficient berths in Jakarta).

•

Excess demurrage due to slow turnaround of vessels.

•

Slow time for transport from port to mill requiring 2-4 times as many trucks to
execute the process (with associated over capitalization of the trucking sector).

Figure 3-10

All Indonesia Transport Costs for Broilers to Consumer (Rp/kg chicken) and Percentage
Breakdown of Transport Costs by Activity
450

35.2%

400
350
300
20.1%

250
200
150

15.7%

15.7%

Birds to SH

Birds SH to market

9.1%

100

4.2%

50
0
RM ex port to mill RM ex local to mill

DOC to farm

Feedmill to farm

Other significant transport costs are for moving feed to the farm and for moving birds fromthe farm to market/slaughterhouse. Both are moved in relatively small vehicles (1MT loads
for live birds) and would be difficult to influence this given the poor infrastructure for farmaccess.
Transport is 5.1 percent of the cost of the retail price for eggs. Similar to the broiler costprofile, the highest transport cost is for imported raw materials from the port to the feed mill.

22

INDONESIA’S POULTRY VALUE CHAIN

Figure 3-11

Transport Cost for Egg Production (Rp/kg egg) and Percentage Breakdown of Transport
Costs by Activity
37.1%

350
300

25.3%

250
200

22.5%

14.8%

150
100
50
0

0.3%
DOC transport

Trans port to millTrans local to millFeed trans to farm

Trader transport

Reducing transport costs would entail massive investment in infrastructure.

CONCLUSION ON TRANSPORT COSTS
Transport costs in the broiler and commercial egg sectors are 4.7 percent and 5.1 percent ofselling price, respectively. The biggest cost is for raw materials transported from port to thefeed mill, reflecting inefficiencies in port and road infrastructure.

NATIVE CHICKENS
No attempt has been made to quantify costs and margins in this sector, as so much of this
sector is not capable of being quantified easily.

4. Prices
DAY OLD CHICKEN PRICES
Broiler DOC prices can be volatile, while layer DOC prices are more stable. The latter is due
to having fewer PS farms with more control on GP/PS numbers, and with larger layer farms(with an eighteen month production cycle) having a more stable demand for DOCs. The
broiler sector is less stable in DOC production (despite government control of GP imports)and supply fluctuates. Transfers of DOCs and hatching eggs between provinces when prices
vary between them exacerbates this. Prices and volumes for broilers and layer DOCs areshown in Table 4-1.
Table 4-1

Prices and Volumes for Broilers and Layer DOCs, 2011-2012
2011

2012

Broiler DOC production (m)

1661

1946

Layer DOC production (m)

83.9

84.9

Broiler DOC price (Rp)

3200

3757

Layer DOC price (Rp)

5000

9000

SOURCE: GPPU.

Industry sources state that the current high layer DOC prices are due to a temporary shortageof layer PS, while demand is in fact increasing (above the supply level). DOC price increases
reflect a return to acceptable margins (above the temporary low Rp3000/DOC of late 2012 asused in the study).

BROILER PRICESThe DGLS collates the price of broilers in each province daily as the price per kilogram ofdressed bird in the market (head on, feet on) and monitors egg prices at price per kilogram.
Average monthly prices since 2008 are shown in Figure 4-1.
One would expect that as feed prices increase so too would broiler and egg prices. This isexactly what happens. Figure 4-1 shows broiler and egg prices versus a corn: SBM index 16 ofcorn No2 FOB prices ex Gulf and SBM ex Chicago, to reflect diet inclusion levels. Broiler
and egg prices increase as feed prices increase.

16 Used in the absence of five-year data for Indonesia feed prices (with two-year prices being highly correlated
to the index – as would be expected).

24

INDONESIA’S POULTRY VALUE CHAIN

Figure 4-1

Relationship between Broiler, Egg, and Corn/SBM Index Prices (Index US$/MT, Broiler/Egg
Rp/kg/100)
450.00400.00350.00300.00250.00200.00

Sep-12

Jul-12

May-12

Jan-12Mar-12

Jul-11

Sep-11

May-11

Jan-11Mar-11

Nov-10Jul-10

Sep-10May-10Jan-10Mar-10

Nov-09Jul-09Sep-09

May-09

Jan-09Mar-09

Nov-08

Jul-08Eggs/100
Sep-080.00
May-08

Brolier/100
Jan-08Index 2 Corn:1 SBM

50.00
Mar-08100.00Nov-11150.00SOURCE: Ministry of Trade

REGIONAL AND SEASONAL PRICE ISSUES–BROILERS
Figure 4-2 shows broiler prices for selected provinces (major population based) for six-monthintervals from January 2008 to November 2012.
Figure 4-2

Broiler Price (Rp/kg) by Time by Province, January 2008-November 2012
40,00035,00030,00025,00020,00015,000Medan
JakartaSurabaya

10,0005,000

PadangBandung
Denpasar

Palembang
Semarang
BantenBandar Lampung
Yogyakarta
Makassar

Jan-08Jun-08Jan-09Jun-09Dec-09Jun-10Jan-11

Jul-11

Jan-12

Jul-12No 12

AVE

SOURCE: Ministry of Trade

While it is difficult to trace prices by province in Figure 4-2, it shows that there is somevariability in price by province. Figure 4-3 presents a closer look at average prices for five
years. Low population and isolated provinces are excluded as supply/demand dynamics arelikely to be more complex (high transport costs) and require a more detailed study to fully
explain price variance. For the selected provinces, the highest prices are in Padang and thelowest prices are in Makassar. While the value chain in each region has not been quantified,possible explanations for price differences between provinces, 17 with the greatest variancefrom the average, are presented in Table 4-2.

17 Price differences of Rp 2000/kg were observed between three markets visited in Bogor. So suchvariation between provinces is expected due to supply and demand dynamics

25

PRICES

Figure 4-3

Average Broiler Price by Province, 2009-2012 (Rp/kg)
30,00027,636

26,252
24,00025,00023,90923,50023,22822,90922,073

21,95821,182

20,264

19,873

Surabaya

Makassar

20,00015,00010,0005,000

PadangJakarta

Denpasar

Palembang

Bandung

BantenLampung

Semarang Yogyakarta

Medan

SOURCE: Ministry of Trade.

Table 4-2

Possible Causes of Provincial Price Variation
Province

Variance from
National AverageOver Last 5 Years (%)

Padang20

Jakarta

13

Causes of Price Variation from Mean
Local supply is limited so birds are transported in at a high transport
cost.
Higher incomes driving demand and placing more pressure on supply.
Sourced locally but higher logistics and labor costs and possible higher
margin expectations.

Denpasar

4

Higher transport costs for feed.
Strong demand based on tourism.

Medan

-8

Data ex industry shows that for 2011-12 the post-farm markup (retailprice minus live bird cost) was Rp 10,826, compared to the averageIndonesian markup of Rp10,700 in this study.
Ex-farm price dropped as low as Rp 10,400 in Nov 2011 and Rp
12,300/kg in Nov 2012. Industry’s explanation for this was an influx of
HE and DOCs into Medan, increasing supply. This caused average
price reduction.

Surabaya-12

Lower feed costs based on local corn price.

Makassar-14

Lower feed costs based on local corn price.

An attempt to correlate production per capita with population in various areas and provincial
GDP per capita failed to show strong correlation; production statistics are suspect andprovincial GDP is not necessarily a measure of purchasing power. There is only weakevidence that there is more variability in demand per capita (and therefore price) in areas
where the population is lower. Muzayyanah and Maharjan 18 have shown that expenditureelasticity for meat is positive, which implies that increases in income will result in increased
consumption. The same study found that expenditure elasticity for eggs is negative, meaning

18 Muzayyanah M.A.U. and Maharjan K.L. Socioeconomic Determinant of Livestock Products
Consumption in Urban and Rural Java, Indonesia. Journal of International Development andCooperation. Vol 17, No 1, 2011, pp. 89-102

26

INDONESIA’S POULTRY VALUE CHAIN

income changes have little impact on egg consumption. This would mean that provinces withhigher per capita incomes will consume more poultry meat and this may be a partial
explanation of higher prices. What it also shows is that as Indonesia develops and incomesrise, the demand for poultry meat will rise.
Prices of poultry in supermarkets are significantly higher, reflecting the increased quality,
processing, marketing, distribution, and retail costs. Whole bird prices in Jakarta/Bogor range
from Rp 40-Rp 49,000/kg DWt (50-90 percent higher). There is a much higher pricedifference between cuts in supermarkets than in traditional markets, with cuts being priced
significantly higher than whole chicken; in traditional markets cuts are priced similar to wholebirds. Native chicken prices are 150-200 percent those of broilers.

EGG PRICES
Figure 4-4 shows that egg prices have been increasing and that there is variation in prices andprovinces, but this was eliminated in 2010-12, suggesting stable supply.
Figure 4-4

Egg Price by Province, January 2008-November 2012 (Rp/kg)
20,00018,00016,00014,00012,00010,000
8,000
6,000
4,000
2,000

Medan

PadangPalembang

Lampung

JakartaBandung

Semarang

Yogyakarta

SurabayaDenpasar

BantenMakassar

Jan-08Jun-08Jan-09Jun-09Dec-09Jun-10Jan-11

Jul-11

Jan-12

Jul-12

No 12

While Figure 4-4 show that it is difficult to trace egg prices by province it also shows that forthe past three years there has been less variability in price by province, than for broilers,suggesting a more stable supply/demand scenario.
Figure 4-5 presents a closer look at average prices for five years. As with broilers, lowpopulation and isolated provinces are excluded as supply/demand dynamics are likely to be
more complex and require more detailed study to fully explain price variances. Still the datasuggest that egg prices in these regions are not as depressed as broiler prices, likely
demonstrating the demand inelasticity of eggs. Makassar egg prices are high, while Makassar
broiler prices are relatively low. The reason for this is that Makassar has introduced biosecure production (at a cost) that is producing higher prices (via food safety premiums)
suggesting marketing initiatives 19 for other regions.

19 Globally free range organic eggs sell for double the price of caged eggs.

27

PRICES

Figure 4-5

Average Egg Price by Province, 2008-2012 (Rp/kg)
18,00016,00014,00012,00010,000
8,000
6,000
4,000
2,000
-

15,345

15,273

14,773

14,671

14,436

14,273

14,057

13,95813,727

13,307

13,22913,091

SOURCE MOTSurabaya, Semarang, and Yogyakarta eggs prices reflect lower feed prices and the use ofhome mixed feeds in these regions. In summary, there is an explanation for regional pricevariation due to feed and transport costs.

CONCLUSION
Prices in the broiler and egg sectors vary by region because of regional differences in feed,
transport, and cost structures and all prices are explainable. The co-efficient of variation ofprices between provinces shows only that there is variability (explainable) and does notsuggest that there is instability in the market, as has been suggested.

5. Industry Efficiency Issues
Production efficiency in Indonesia’s broiler production system can be monitored and costs
and margins quantified as above. All of these can be benchmarked against international
players (as is done later) but a summary of the differences between the Indonesian broilerindustry (particularly) and international production systems is warranted for a greater
understanding of the issues that face the industry. See Table 5-1.
Table 5-1

Efficiency Issues Facing the Industry and Possible Remedies
Area
DOC supply

Issues and Remedies
Imports of international standard GP and PS stock are housed in modern facilities and supported bymodern hatcheries providing breed-standard production. High feed costs elevate costs. The DOC supply
is more variable than in countries with fully integrated operations as long-term planning is much moredifficult and DOCs are an end product rather than an input as they would be in an integration.
Remedy—none. As integration increases DOC supply/demand will improve.

Feed supply

Feed is manufactured in modern mills with international economies of size, quality and efficiency
standards—but all feed is bagged, which results in higher costs for production and transport.
Remedy—modernization of road infrastructure (hugely expensive) and development of larger farms
using bulk feeds. Long term only.

Feed cost

76 percent of the volume and 69 percent of the value of feed raw materials are imported so Indonesia isvery dependent on commodity prices and foreign exchange rates.
Corn is imported and will continue to be unless local production increases dramatically. This results incorn cost/price being at import parity plus 5 percent duty, resulting in high raw material costs.
High raw material costs, bagging costs, and transport costs all raise production costs.
Remedy—Increase corn production to the point that corn prices are at export (not import) parity. At thatpoint, the drop in corn prices would greatly affect supply and corn farmers’ profits – so it may not be a
viable solution.

Farm
infrastructure

Farms are small and often located in areas with poor access. This results in
•
•
•
•
•

Inability to take advantage of economies of size/scale
Lower capital costs but with poorer livestock performance
The need to use bagged feed at a higher cost
Inconsistent and suboptimal operating procedures
Higher production costs

Remedy—Develop larger farms with better bio-security and more efficient livestock performance,
ideally producing larger birds to reduce production costs and improve yields—and enabling the use ofbulk feeds.
Bio-security

Inadequate bio-security has severely compromised the poultry industry and resulted in the HPAI
epidemic of the last decade. While the threat of additional zoonotic diseases exists, inadequate biosecurity will affect ongoing livestock performance. In addition, action on the HPAI front and on
traceability in the broiler production system will be required to support exports.
Remedy—Vastly improved bio-security procedures

Farm
management

Live bird performance on broiler farms is below international standards. FCR in Indonesia is quoted at
1.6:1 (and more likely to be above that) on a 1.5kg bird. The Cobb 500 standard is 1.48:1. Thus feed
cost is at least 8 percent above genetic potential, thus increasing live bird costs.
Remedy—Address bio-security, health, housing, water, feed, management issues, staff training, and
SOPs.

30

INDONESIA’S POULTRY VALUE CHAIN

Area

Issues and Remedies

Port and roadinfrastructure

Because 76 percent of raw materials are imported, feed mills are ideally located close to ports. Industry
sources say that lack of efficient port facilities is raising transport and port costs.
Lack of road infrastructure is a prime determinate of how farms have developed and the inability to takeadvantage of economies at the farm, feed mill, and transport level.
Remedy—Long-term development of port and road infrastructure.

Bird Size

The average live weight of broilers is 1.4-1.5kg with many birds being lighter than this due to market
demand (U.S. size is 2.6kg LWt). This results in poorer livestock performance, poorer use of housing,and higher processing costs—the latter being particularly relevant as supermarket demand increases.
Remedy—Improvements in the environment (at a cost), production of larger birds (but only as themarket develops), and a move to processed chicken where cutups dominate would lower production
costs at the farm level. This is the route being taken by CPI/JCI et al but the change will take time as
traditional market birds are preferred.

Post Farm

Most birds pass through a myriad of traders and associated slaughter operations before they reach themarket. Margins are taken at all levels but, given that there are thousands of operators, the system isworking as well as can be expected. Replacing the system by delivering birds directly to processing
plants will result in higher cost structures that will not reduce costs (but will produce a higher quality
product).
Remedy—None required as there will be a market-led move to modern processing.

Industry
Geography

The industry is spread across Indonesia, with fresh birds produced locally for a fresh/live bird market.
Processing for a shelf life of more than one day and placement in cold chain distribution forinterprovincial transport is very limited. Supply/demand relationships, therefore, are totally controlled ina region because product can only be transported very short distances.
Remedy—Develop processed birds with a shelf life, along with a cold chain, to enable transport overlonger distances, thereby reducing price variability between provinces. Doing so would require asignificant improvement in infrastructure to reduce transport costs (and develop the cold chain) and thecost of birds in the cold chain would be significantly higher, so it is likely that provincial pricedifferences will remain.

Bird
Specification

Indonesian broilers are sold in local markets and the government monitors prices. Birds average 1.41.5kg LWt, with the carcass being head on/feet on but the sales price being for head off/feet off. This isa different bird than is quoted in international trade–where average bird weight would be in the range
2.2-2.5kg (U.S. average is 2.6kg). The yield difference between the Indonesian product and that quoted
internationally is significantly different and per kilogram price comparisons need to be on standardized
products.
Remedy—Any comparison of Indonesia’s traditional market prices and prices of international players
must be based on standardized products.

Food Safety

Most birds are slaughtered in backyard facilities with no attention to food safety.
Remedy—Improve slaughter facilities and impose standards.

Industry
Statistics

The government must better predict industry development. There is evidence that baseline statistics forthe broiler and layer industry show a variance of 40 percent versus actual.
Remedy—Develop a robust data collection method that links all sectors in the industry.

Sustainability

Industry sustainability depends on many things, the impact of which varies between countries.
Environment and disease are key in Indonesia, but even animal welfare could have a significant impact
on the industry.
Remedy—Take a proactive stance in addressing emerging issues.

These inefficiencies result from poor infrastructure and the resultant industry structure (small
farms, etc.). While more integration would improve things, it would be difficult to
revolutionize the industry overnight and the abolition of small farms would have hugesocioeconomic implications so any change will come at a cost.

6. Feed Issues
Feed prices have been increasing because of the rise in commodity prices, notably corn andsoybean meal (SBM). The price of broiler finisher feed increased 27 percent in the 2010-2012
period (see Figure 6-1).
Figure 6-1

Broiler Finisher Feeds Price Jakarta (Rp/kg)
6500
6000
5500
5000
4500

Jan-10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan-11
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan-12
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

4000

Most feed is from imported raw material (Table 6-1). Rising prices and exchange rates also
affect feed cost. Corn and soybean meal are the major costs of imports. Some amino acids, allvitamins, and other high-cost ingredients are also imported.
Table 6-1

Import Volumes of Feed Raw Materials, 2011
Imports

000 MT

Imports

000 MT

Corn

3,144

Meat and bone

343

Soybean meal

2,938

Corn gluten

164

Fishmeal

100

Feather meal

196

DDGS

261

Rapeseed143

Note: 2,000,000MT of corn was imported in 2012.
SOURCE GMPT

Indonesia does not have the right climate for large acreages of soybeans and does not have acrushing industry reliant on the import of full fat soybeans that produces SBM. All soybeans
produced in Indonesia are for human consumption and none are used by the feed industry.
Indonesia, however, does produce corn. The feed industry uses 6.1MMT, and 30 percent to 60
percent is produced locally.

32

INDONESIA’S POULTRY VALUE CHAIN

An analysis of the likely import component of broiler feed shows that 76 percent of thevolume and 70 percent of the value of feed raw materials are imported, with the majority
being for the import of the protein component, where 85 percent of the protein cost in broiler
feed is imported. Since layer (and PS) feeds use lower protein diets (around 16 percent versus
21 percent in broilers) then raw material imports represent 57 percent of layer raw material
costs. About 70 percent of the protein import cost is attributable to soybean meal imports inlayer feeds, with meat and bone meal (MBM) and distillers dried solubles (DDS) also
contributing.
Table 6-2

Volumes and Values of Imports for Broiler and Layer Feeds
Volume of Imports

Value of Imports

Protein Import Value

Broiler feeds

76%

69%

85%

Layer feeds

73%

57%

60%

In addition to having to import protein, Indonesia imports
46 percent of the cost of energy in broiler feeds via
soybean and corn imports (roughly 50/50 in the cost ofenergy imports). About 40 percent of the cost of energy inlayer feed is imported. Corn imports have varied over theyears as the result of growing demand and variable local
production. Not only does this affect foreign exchangedemand, but it is also relevant in any discussion ofIndonesia’s competitive advantage in broiler production.

There is a widespread belief inIndonesia that increased production ofcorn will reduce feed prices. While
Indonesia imports corn, the price of allcorn (import and local) will be pegged
to the import price (“import parity”)
and increased corn production will notdecrease feed price.

Because all imported products are priced at import parity (and corn at +5 percent duty), thecost structure of the industry is extremely vulnerable to commodity pricing. In addition, sincecorn is imported, the local price of corn is pegged to the “import parity” price.
The poultry industry must have corn. Projections for corn imports suggest that if the industry
is to develop then corn will need to be imported for some time. Various scenarios can be
simply evaluated. For example, if feed industry demand increases 5 percent per annum (say,layer 3 percent and broilers 7 percent) and human demand increases at the same rate, and if
local corn production increases at 5 percent (average 3 percent per annum last 10 years) thencorn will still need to be imported. If the poultry industry grows at a pace faster than 5 percent
then imports will need to increase more. A possible scenario is shown in Figure 6-2 (seeAppendix C for details).
Dramatically increasing corn production seems necessary to avoid the need to import. The
fact that production has increased at less than 5 percent pa might suggest that increasing corn
imports is more likely. However, the government has good reasons (e.g., import substitution,
regional development) to provide incentives—such as credit access, hybrid seed, andfertilizer—to raise yields. 20

20 In a technical assistance program run by IFC (World Bank) and CP in Makassar, assisted farmers

who received farm input credit achieved productivity of 7.5 tons/hectare while those without credit
achieved 6.6 tons/hectare. Control groups not receiving any assistance (credit, seeds or fertilizer),

33

FEED

Figure 6-2

Corn Supply and Demand Scenario for Indonesia ('000MT)
18000
16000
14000

Corn imports
Local prod
Feed corn

12000
10000
8000
6000
4000
2000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
SOURCE: USDA and GMPT

Higher corn yields resulting in higher production and increased farm profit must be the prime
goal of agricultural development, especially as it is a key driver in reducing poverty. Farm
productivity is low and it seems that there is a high cost structure post-farm (consolidation
through multiple trading layers, inefficient drying, and inefficient transport). From theperspective of the poultry industry and consumers, the ideal scenario would be to turnIndonesia into a sustainable corn producer with a production surplus that would turn thepricing base for corn to export parity.
Alternate supply/demand scenarios can be easily calculated to understand the most likely
scenario for corn production, demand, and the resultant need to import.

CONCLUSION
Because Indonesia imports so much of its raw material, 95 percent of feed costs are based on
import parity. Estimates of corn production shortfalls suggest that this will continue and corn
will need to be imported for a long time, if not forever. That means that even if corn
production increases, feed prices will not decrease as corn price will set at import parity. It is
recommended that the government and industry cooperate in a study so that both are aligned
to common development objectives and that the government more fully understand the impactof any development plan on corn supply.

achieved only 5.7 tons/ha. Industry pointed out that incentives (hybrid seed and fertilizer) had variableuptake, as small desperate farmers often sold them for cash. So the development of sustainable
incentives for corn production should be carefully formulated if the objectives are to be met.

7. International
CompetitivenessThe cost efficiency of Indonesia’s poultry industry can be assessed using international
benchmarking. Benchmarking can also further understanding of how competitive Indonesia
might be in an export environment. This discussion of competitiveness is confined to broilers
because international trade in eggs is very limited.

EXPORTING COUNTRIESThe United States and Brazil dominate poultry exports because of their favorable raw material
costs. Indonesia imports so much of its feed ingredients, priced at import parity, that it has avery high feed cost structure relative to net exporters of corn and soybeans like the UnitedStates, Brazil, Argentina, and Ukraine.
In Indonesia, farm production costs inclusive of farm margin are 8-12 percent of live bird
costs (with margins varying considerably). International figures are closer to 12-15 percent
because of the higher cost of shedding (with environmental controls resulting in improved
livestock performance). Independent or sister company contractor funding of production inIndonesia adds a layer of margin that would be in the integrators’ margin in countries where
integrators fund livestock growing. Post-farm processing costs are low in the traditional
market scenario but those products do not meet international standards. Products processed inmodern poultry plants in Indonesia that do meet quality standards will have costs similar to
those in other Asian countries (based on investment and wage structures), and further
processed products will have cost structures related to material mix and labor depending on
the specification.
The major exporters of broiler meat are also major producers whose large domestic markets
act as a cushion if and when tariff or phytosanitary issues reduce exports. 21

21 This was critical to Thailand when HPAI significantly affected exports

36

INDONESIA’S POULTRY VALUE CHAIN

Figure 7-1

Major Broiler Producers and Exporters, 2012 ('000MT)
18,00016,341

16,00014,10014,00013,00512,0009,580

10,000PRODUCTION '000MT

8,000

EXPORT '000MT

6,000
4,000

3,582

3,152

2,000

3,420

9

12

India

Mexico

0
China

2,850

2,022

1,120

400

USA

2,950

Brazil

EU-27

1,700

285

55

1,550

260

1,450

580

0

Russia Argentina Turkey Indonesia Thailand

SOURCE: http://www.indexmundi.com

Poultry exports are dominated by Brazil and the United States. While the EU exports
1.1MMT (mainly to Middle East and Asia) it also imports 0.7MMT (so net exports are only
0.4MMT). So, effectively, Thailand is the third largest exporter.
Figure 7-2

Exports of Poultry, Corn, and Soybean Mean, 2012 ('000MT)
35000
29,21130000

29,76025000

Poultry exports
18,50020000

Corn exports

16,00014,50015000

12,500

10000
5000

SBM exports

7,166
3582

580

0
BrazilUnited States
SOURCE: http://www.indexmundi.com

4,250

3,600

3152

1

1

Thailand

285

Argentina

50

Ukraine (+ SFL)

3,000
9

India

Major exporters are net exporters of corn and soybean meal. Their cost structure at point of
production is at export parity minus transport to port and port handling costs, versus Indonesia
whose cost for corn and soybean meal is at import parity, which includes exporting country
transport costs, plus shipping and Indonesian port handling and trucking costs. Given the costof feed (and the cost of the corn and soybean meal component being some 70 percent of feedcost) this places Indonesia at a significant competitive disadvantage.
The United States exports a significant quantity of dark meat, a co-product of the highdemand for white meat (breast) in the United States. Brazil’s exports are more of a whole bird
nature while Thailand’s are all processed and cooked products.

INTERNATIONAL COMPETITIVENESS

37

A review of the export data reveals two significant anomalies. Thailand is the third largest
exporter yet is also a net importer of corn and soybean meal while India is a net exporter ofcorn and soybean but does not export any significant poultry tonnage.
Thailand’s competitive advantage was established over 20 years. The industry has modern
production systems in a country with relatively efficient infrastructure (i.e., large farms withroads enabling bulk feed delivery) and considerable economies of size and scale. It developed
its export product mix around high labor content dark meat (leg) products for Japan (yakitori
sticks) and high value cooked products from white meat (breast) for the EU market. While
their live birds costs do not match those of United States or Brazil, their competitive
advantage in high quality labor—associated with high quality, safe, traceable production that
addresses EU requirements for animal welfare—gives them a competitive advantage. Thatsaid, a significant component of their exports are fresh products that were banned during the
HPAI outbreak and this ban significantly affected the industry (the bas was recently lifted).
The other anomaly is India, which exports raw material but not poultry products. India’s live
supply chain is the fifth largest in the world but, like Indonesia’s, is based on small growers.
Traceability is not controlled, food safety is a concern, and the processing industry is evenless developed than in Indonesia. India’s advantage in live bird cost (and labor cost) could betransferred to export products, but only after local product volume is significant—otherwise
any export investment would be vulnerable to market changes (i.e., a ban on phytosanitary
grounds). Since the poultry industry is growing rapidly in India, it is likely that its status as a
net exporter of raw materials will soon change and significant exports will not be an option.
In contrast, Ukraine has developed its industry over the past 10 years to be the most modern
and efficient in the world and with a cost of production among the world’s lowest. Significant
investments are being made in processing and this poses a threat to Thailand and otherexporters. This is important because global export markets that may be attractive to Indonesia(i.e., Japan, EU, the Middle East) will have emerging challenges that will affect any ambitions
Indonesia has for significant exports.
If Indonesia is to develop significant export tonnage 22 then i will need to follow the Thailand
model of increasing integration through the development of in-house broiler growing(required to ensure export standards), compartmentalized to suit the constraints of the local
industry structure. However, Indonesia will be able to develop low volume, niche market
sales, as it has in the past.

IMPORTING COUNTRIESJapan is the major importer with much of its product coming from Thailand (labor-intensive
products). Thailand also exports to the EU (mostly cooked product) with the United States
and Brazil being major exporters of frozen product to other countries.

22 Between 1997 and 2004 Indonesia exported up to 3,000MT per annum, mainly to Japan but the country’s AI

status has resulted in a loss in this market. Imports peaked at 14,000MT in 2000 and averaged 5,000MT per annum
during 2005-2009.

38

INDONESIA’S POULTRY VALUE CHAIN

Table 7-1

Imports and Local Production, 2012(‘000MT)2012

Imports

Local Production

Japan

840

1280

EU-27 (with significant exports)

750

9580

Saudi Arabia

750

600

Mexico640

2950

Singapore

145

60

Philippines

145

785

Korea, Republic Of

110

735

Viet Nam

53

785

Malaysia50960

Selected Asian countries

SOURCE. Indexmundi

While the EU is the second largest importer it is a net exporter (in the EU and to the Middle
East). In Asia (excluding Japan), Singapore, Philippines, and Korea are major importers withmuch of Asian imports being for further processing.

INTERNATIONAL BENCHMARKS
Figure 7-3 shows data on the cost of production of broilers in different countries. The
Indonesian figures are taken for a 2.2kg bird with an FCR of 1.8:1, as used in the costing forthe modern Indonesian processing plant (Appendix A).
Figure 7-3

Cost of Live Broiler Production, December 2012 (Rp/kg LWt)
20,000Grower cost/kg LWt

18,000Feed cost/kg LWt

16,00014,000

DOC cost/kg LWt
12,528

14,463

12,00012,00010,00018,432

9,725

8,842

10,166

8,000
6,000
4,000
2,000
RussiaBrazil 1
SOURCE. International Finance Corporation

Kazakhstan

Brazil 2

Belarus

Ivory Coast

Indonesia

This shows that live bird costs (ex-farm) are higher in Indonesia than in other countries,
except for the Ivory Coast (not a renowned broiler producer and clearly a very high cost

INTERNATIONAL COMPETITIVENESS

39

producer whose DOC costs are abnormally high for some reason). The Indonesian live bird
cost is 56 percent higher than the average in Brazil. 23 Sources state that the cost of productionof live broilers in Malaysia is slightly less than in Indonesia (they also import most feeds) andthat Indonesian costs are roughly double those in Ukraine, which has the world’s lowest cost
structure. Worldpoultry.net quoted Thailand’s cost of production mid-2012 at Rp 11,100/kg.

CONCLUSION
The cost of broiler production in Indonesia, relative to other countries, is very high and willremain so, thereby eliminating Indonesia as significant exporter. Any exports will be into
niche Asian markets and be in very small volumes. However, the opportunity for Indonesia to
substantially increase local production through increasing demand is substantial, as we will
now see.

23 Note that production costs vary in Brazil. This is due to different production systems, costs, andaccounting practices. This is why any in-depth comparison needs to be based on standardized data.
However the tabled data serves the point of illustration of live production cost variances between
countries.

8. Likely Industry Development
As stated earlier, poultry consumption increases as incomes rise. Thus, Indonesia’s poultry
industry is set to develop as incomes rise, and this may be accompanied by a shift in productspecification as food safety demands increase. This will have significant impact on raw
material demand, production systems, product development, marketing systems, foreign
currency demands along with the infrastructure and environmental footprint. Knowledge of
how the industry will develop (how big, when and where) is critical to the Government ofIndonesia and the industry.
Consumption of poultry products has increased in recent years as incomes have increased andproductions costs have fallen, largely because of efficiencies in poultry production due toimproved genetics and production systems. In general, demand for poultry increases withincome, especially at the level of lower incomes, until meat consumption reaches maximum
levels. Figure 8-1 shows that Indonesian consumption is very low, with the likely trend being
close to the trend line. One could argue it will track Malaysia’s growth because of thecommon diet. In such relationships, however, there are always anomalies (e.g., Brazil’s
consumption is much higher because of dietary habit but also because Brazilian chicken ismuch cheaper, and China is below the trend line because of the large pork consumption).
Figure 8-1

Broiler Consumption versus GDP per capita, 2011
50.00
BrazilBroiler consumption per capita (kg)45.00

Hing Kong
Australia
USA

Argentina

40.00

Singapore

Sth Africa
Malaysia
Chile
Mexico

35.00
30.00
25.00

CanadaRussia20.00

Ukraine15.00

TurkeyJapan
Sth Korea

Thailand

10.00

China
Viet
Nam
Philippines
Indonesia

5.00

India

0.00
-

10,00020,00030,00040,00050,00060,00070,000GDP per capita (USD)
SOURCE: Indexmundi

Estimation of the trend line for a given economy is a powerful tool for predicting the growthrate in the industry and assessing its impact. It can be observed from Figure 8-1 thatIndonesian poultry consumption will increase significantly. But at what rate? We can examine

42

INDONESIA’S POULTRY VALUE CHAIN

various scenarios but for the purposes of illustration let’s assume that Indonesia will track theconsumption of Malaysia (with the caveat that the productivity gap between the two issignificant and may affect the rate of GDP growth). The difference between Indonesia andMalaysia in Figure 8-1 is a GDP per capita gap of $11,100 and a consumption gap of 27.5kg
per capita (i.e., consumption will increase 2.47kg per US$1000 increase in GDP per capita).
Figure 8-1 is based on chicken production of 6.7 kg per capita. 24 This figure is in question as
it does not correlate with stated feed consumption or DOC production in Indonesia. Using
broiler feed consumption as the base figure, the total poultry meat consumption could bearound 2.24MMT or 9.3kg per capita.
Table 8-1

Estimates of Broiler Production, 2011
'000MT per annum

Kg per Capita per
Annum

GOI broiler consumption

1,270

5.3

GOI total poultry consumption

1,613

6.7

Broiler consumption based on feed use

1,900

7.9

Total poultry consumption based on feed use

2,243

9.3

SourceNote: Broiler consumption based on feed use: Figures are based on a yield of 67% and an FCR of 1.8:1 with an allowance of
0.4MMT of broiler feed being fed to male layer strain and village poultry
SOURCE: GOI and GMPT.

We can model various scenarios of likely development based on variable assumptions for•••2011 base production (government versus industry)
GDP growth (6 percent versus 7 percent)
The growth curve that Indonesia will follow (Malaysia or 90 percent of it)

The results are presented in Table 8-2.
Table 8-2

Growth Scenarios for Indonesia’s Poultry Meat Sector to 2020
Production Bases

Increase MT

MALAYSIA PRODUCTION TRACK:

Increase %6% GDP GROWTH

2011 GoI production base

1,926,814

1192012 Industry production base

1,744,643

78

MALAYSIA PRODUCTION TRACK:

7% GDP GROWTH

2011 GoI production base2,343,154

145

2012 Industry production base

2,121,619

95

90% OF MALAYSIA PRODUCTION TRACK: 6% GDP GROWTH
2011 GoI production base

1,687,189105

2012 Industry production base

1,505,017

67

24 Assuming 240m population

43

LIKELY INDUSTRY DEVELOPMENT

This shows wide variance in possible growth scenarios, depending on the assumptions made.
If we assume the industry’s 2011 production assumption then we find that the likely growthrate by 2020 will be 70-90 percent (or around 6-7 percent per annum). But if we assume
government figures then growth could be almost double that (due to the low base productionused and the assumption that there would be “catch-up” in volumes). All scenarios will posechallenges that will need to be addressed by the government, not least of which is corn
supply. The corn requirement for broilers is 2.5 times the DWt produced so in the above
scenarios the difference between the lowest and highest growth rates would mean a differenceof 2.1MMT in corn imports, as well as associated soybean meal and other feed imports.
Demand will also be product driven. For example, the development of low-cost shelf-stablechicken sausages has increased demand. How the industry develops vis a vis product mix andproduct quality is another subject given the significant cost differential between traditional
market and supermarket chicken. Traditional market retailers see little threat from processedchicken due to this differential and that their chicken is perceived to be “fresher” than productex modern slaughterhouses. The challenges posed by volume growth will be greater for thegovernment than the challenges posed by shifts in the product mix. Still, both should betracked and forecast.
Per capita egg consumption also increases with income with dietary preferences affecting
ultimate intake (using 2007/2011 data for Asia below). Since 2007 Indonesian egg
consumption has increased to 6.8kg per capita (1.63MMT) but extrapolation of feed sales
suggests consumption may be more like 9kg per capita (2.16MMT), thus posing various
growth scenarios, as for poultry meat. An analysis should be undertaken on the layer industry
to also understand the likely growth rate.
Figure 8-2

Egg Consumption 2007 versus GDP per capita 2011

Egg consumption (kg per capita)

25
20

Japan
China

15
Malaysia
10

ThailandPhilippines
Indonesia

5

Viet Nam
India

0
-

5,000

10,00015,00020,00025,00030,00035,00040,000GDP per capita (USD)

Note that if we assume the above curves, the broiler and egg industries will develop at
different growth rates, suggesting egg production will grow at around 50-60 percent of the
broiler industry.
It is worth noting the value of eggs and broilers vis a vis protein content, independent of any
consideration of dietary preferences. Using current prices of whole dressed chicken (53percent yield of meat at 20 percent protein) and eggs (13 percent protein), the cost per 100gm

44

INDONESIA’S POULTRY VALUE CHAIN

of protein is Rp509 for eggs and Rp1230 for boilers. From a food security standpoint egg
production should be encouraged as the more economic protein source. From a marketing
standpoint this offers an opportunity for the egg industry to develop sales.

REGIONAL DEVELOPMENT
The industry is now spread nationally due to demand for fresh product, inefficient
infrastructure, development of small farms, high transport costs, population base and lack of acold chain, with feed production needing to be close to ports. How the industry develops will
depend on many factors including regional demand (with the fastest growing cities beingoutside Java), local corn supply, development of integration, retail development, cold chain
development, import policy (FTAs et al) and sustainability (land, environment, water, biosecurity, urbanization), and government policies. However a full geographic spread of
production will continue for a long time.

PRODUCT DEVELOPMENT
McKinsey states that 40 million will join the consuming class by 2020 and 85 million by
2030. 25 The product demand profile of these people will be vastly different than the current
average demand profile and will follow the trends seen in supermarket development inIndonesia (increased food safety, added value products etc.) How fast this will develop
requires further evaluation and should be linked to the GDP/volume increase predictions,along with predictions for growth in supermarkets, fast food, cold chain development etc.

CONCLUSIONAs GDP rises, the consumption of poultry products in Indonesia will increase. The rate ofincrease will follow what has happened globally and likely be biased towards what has
happened in Asian countries, particularly Malaysia. Tools exist to predict how the industry
will develop, and government and industry should cooperate to develop accurate industry
production volumes and projections, especially as they relate to the many issues that willaffect both parties.

25 McKinsey, “The new Indonesian consumer,” 2012.

9. Monitoring the Industry
The interest of the Ministry of Trade, and no doubt other ministries, in the poultry industry isbased on a desire (1) to understand the “real” or “normal” cost/price of broilers, and (2) toknow what data should be collected in order to understand industry price structure, issues, anddevelopment.

THE “REAL” OR “NORMAL” PRICE OF BROILERS
The price of broilers in Indonesia can be analyzed to demonstrate costs and margins in thevalue chain. Both of these can then be benchmarked against international players, as detailed
above.
There are two main areas of costs. By far the major cost is feed, dominated by raw material
costs. As shown in the report, Indonesia relies heavily on raw material imports resulting inmost raw material costs being at import parity. This makes Indonesia a high poultry feed cost
country. A high proportion of raw materials are imported, so costs can be monitored from
FOB prices quoted internationally and by adding freight and associated costs. Variation due
to volume discounts, actual countries of origin, negotiated shipping costs, etc., must be
acknowledged.
It can be assumed that Indonesian feed companies have the capability and size/scale to beefficient acquirers of raw materials. Likewise, their feed mills are capable of being efficient
feed producers. As noted, costs will be higher because all feed must be bagged and because
local transport costs are high. Feed mill margins can be monitored indirectly via the four
listed companies; doing so shows that margins are normal because the number of players inthe sector results in significant competition.
Farm costs are relatively low because production systems are simple, if inefficient in theirlack of bio-security and substandard housing and management. But, given the large number offarms competition is significant. The cost of funding broiler production (via batch credit for
DOCs and feed) is significant and usually done by contractors. There seems to be sufficientcompetition in this sector to ensure that margins reflect the product and risk involved.
Post-farm margins are taken by traders and market retailers. Competition in these sectors ishuge so there is no scope for margin mining. As the market develops there will be increasing
margins taken by processors and supermarkets but given the price pressures that will exist in
the market (versus traditional market broiler prices) competition will be significant.
Given the reliance on imported raw materials, the level of margin in each component of thevalue chain, and the fact that no sector (DOC, feed, farm, contractor, trader or retailer)
dominates margins, we can state that the cost structure of broiler production in Indonesia is

46

INDONESIA’S POULTRY VALUE CHAIN“real.” That said, improving efficiencies can reduce cost, but achieving those efficiencies willpose challenges for government and industry alike.

DATA COLLECTION
Significant data can be obtained from the industry to assess efficiency and for use in planning.
The MOT may want to monitor the data described in Table 9-1.
Table 9-1

Industry Data Worth Monitoring
Subject
PricesIssues and Recommendations
The MOT monitors poultry industry prices and uses the co-efficient of variation in price as ameasure of price stability. Regional price differences can be explained so this method is not ameasure of price “stability.”
Recommendation. Continue to monitor prices. Modify statistical analysis to exclude real costvariances between regions if the co-efficient of variation is used as a measure of price stability.

Production andconsumption

DGLS measure production statistics for broilers and eggs by region. Their methodology is based on
GP/PS volumes in each region. A review of industry data suggests DGLS is underestimatingproduction for both sectors by some 40 percent. A fuller review would be required to confirm thisbut suffice it to say that if these data are important enough to collect then the results of doing soshould be correct. Interprovincial trade of poultry products is significant so it would be useful tounderstand consumption levels by province.
Recommendation. Establish what data are required and how they are to be used. Evaluate howdata are collected and projected and undertake a circular review using all available data (industry
and GoI) in order to establish a robust method for future data collection. Inputs into this will be
GP/PS, DOC production, feed production etc. Cooperation between government and industry will
be required. Collection of consumption data at the provincial level may be useful for regional
authorities as a guide to future supply/demand dynamics and how they influence interprovincial
trade.

Demand elasticity

There is evidence that the poultry industry, particularly the broiler industry, will grow rapidly. This
will pose challenges for Indonesia with regard to raw material supply, location of the expansion,
environmental issues, etc. The report outlines how knowledge of demand elasticity can be used inplanning industry development. Possible determinants of demand for broilers are GDP,
broiler/beef/fish price and consumption etc. – all of which would need to be measured.
Recommendation. Capability exists in Indonesia to undertake such studies and this is encouraged(e.g., a PhD subject could be “Demand elasticity for broilers and eggs as a determinant of poultry
industry growth issues in Indonesia over the next 10 years”).

Gross Domestic Product

The key determinant of demand for poultry products is GDP and related data (PPP). This ismeasured at a country level and its projection is critical for industry planning. Provincial GDP isalso measured but this does not seem to be a measure of provincial per capita spending power.
Recommendation. If analysis of regional development of the industry is required, robust data are
required on per capita purchasing power. This may exist.

Corn production

Corn production is measured by province. The large variance between stated production volumes
and use of corn by the poultry industry seems to be related to moisture content (with statedproduction being ex farm before drying and possibly categorizing forage corn area/yield asfeed/human corn). This variance seems to be frustrating for industry when reconciling production
and import requirements.
Recommendation. Standardize production statistics to also include “as used” volumes (13-15
percent moisture).

Listed company healthand strategy

The poultry industry is dependent on the investment and technology of large integrated companies.
Their financial strength is critical for industry maintenance and development. Four of these arelisted companies (representing 75 percent of feed output) so their financial strength is easily
monitored. Their future investments—size, scope, and location—will be critical to industry
development; and the impact of this development on infrastructure, environment etc. is of interest
to industry and the government.
Recommendation. Develop and maintain a strong and trusting relationship with industry leaders.

A-47

MONITORING THE INDUSTRY

Subject
International
benchmarking

Issues and Recommendations
Livestock performance, costs, and prices can be benchmarked against international players. Raw
material prices are the easiest to benchmark as commodity specifications are likely to be standard
across products (corn, SBM). Livestock performance and costs are a little harder to benchmark as it
is more difficult to standardize systems. Likewise, extreme care must be taken to standardize any
comparison between Indonesian market prices for broilers versus import parity prices because
Indonesian broilers are small (lower yields) and yields are further reduced by them being head on,feet on. This could result in a variance in yield between Indonesian broilers and imported productof up to 20 percent.
Recommendation. Do not undertake any benchmarking unless products are standardized and any
comparisons made are fully understood.

Price/feed cost ratios

A common determinant of industry costs and strength is the price/feed or price/corn ratio. The
relevance of any ratio needs to be fully understood as corn alone does not account for the impact ofsoybean meal, or full feed costs.
Recommendation. If deemed useful, then a standardized chicken price/feed price could be easily
developed for Indonesia and would be useful aid to understanding why prices may be affected byvariance in feed costs (e.g., in Makassar).

Retail and food service
development

As more supermarkets and fast food outlets using chicken (KFC, McDonalds) are established,modern processing for fresh and frozen broiler products will increase. This could lead to more
supply in traditional markets coming from better processing (food safety); this, in turn, would
enable the government to impose changes on how broilers are processed and sold to ensure foodsafety.
Recommendation. Track retail development in supermarkets and fast food.

Livestock performance

While it does not affect the MOT directly, a key determinant of broiler costs is the efficiency oflivestock performance, particularly mortality and FCR rates. Accurate diagnostics of livestock
performance with appropriate corrective action plans are critical if the industry is to ensure lowest
cost production and this should be a priority for any poultry producer.
The MOT /MOA may be interested in the impact of gross changes in livestock performance due to,say, a disease outbreak (as would have occurred with the HPAI outbreak). But this could beassessed via discussion with the industry.

Websites for prices andindustry information

Many websites provide industry statistics and information and quote international prices for raw
materials and chicken. In using these for comparative purposes it is critical to ensure that
information is standardized. Sites that may be used include the following:
http://www.brazilintl.com/agsectors/soya/soybeans-charts/chart_01.htm#.UP0zW-jRyYU
http://www.brazilintl.com/agsectors/soya/soja.htm#.UP0zO-jRyYU
http://www.indexmundi.com/commodities/?commodity=chicken
http://www.indexmundi.com/agriculture/
http://www.thepoultrysite.com/
http://gain.fas.usda.gov/Lists/Advanced%20Search/AllItems.aspx
http://www.agricommodityprices.com/
http://www.worldpoultry.net/
http://www.wattagnet.com/

This list of potential data for monitoring is extensive (but not exhaustive) so care needs to betaken in establishing what the MOT needs to know to manage its role and then to populate a
database accordingly, ensuring that the necessary standardization is present and the output of
any analysis understood.

Appendix A. Costs of
Production
Table A-1

Cost of Production for Broilers, including Parent Stock Farm Costs
Sold in the Market(Rp/kg DWt)

Cumulative(Rp/kg)Cost of PS DOC

243

243

PS rearing feed

361

604

Other PS rearing costs

95

699

PS laying feed

1640

2339

Other PS laying costs

365

2704

Hatchery costs

198

2902

DOC margin

75

2977

DOC transport

50

3027

Feed raw material costs

11343

14370

Raw material transport costs of imported
materials ex port

418

14788

Raw material transport costs ex local
supply107

14895

Feed mill production and bag costs

597

15492

SG&A, financial and tax costs

860

16352

Feed mill net margin

1003

17355

Feed transport costs to farm

239

17594

Broiler farm costs (energy, water,
animal health etc.)

933

18527

Farmer margin

1866

20392

Contractor margin

2443

22836

Trader transport birds to consolidationand slaughter

187

23022

Trader margin

1604

24627

Slaughter costs

1399

26026

Transport from slaughter to market

187

26213

Offal recovery value

-1866

24347

Market margin

1653

26000

SOURCE: Industry interviews and production assumptions.

A-2

INDONESIA’S POULTRY VALUE CHAIN

Table A-2

Cost of Production for Market Broilers versus Modern Processed Broilers
Sold inMarket(Rp/kg DWt)

Cumulative(Rp/kg)Sold ex Modern
Processing(Rp/kg DWt)

Cumulative(Rp/kg)

DOC cost

3027

3027

1961

1961

Feed raw material costs

11343

14370

11438

13399

Raw material transport costs of imported
materials ex port

418

14788

421

13820

Raw material transport costs ex local
supply

107

14895

108

13929

Feed mill production and bag costs

597

15492

602

14531

SG&A, financial and tax costs

860

16352

867

15398

Feed mill net margin

1003

17355

1011

16409

Feed transport costs to farm

239

17594

237

16646

Broiler farm costs (energy, water, animal
health etc.)

933

18527

1196

17842

Farmer margin

1866

20392

2093

19935

Contractor margin

2443

22836

2600

22536

Trader transport birds to consolidationand slaughter

187

23022

150

22685

Trader margin

1604

24627

508

23194

Slaughter costs

1399

26026

4007

27201

Transport from slaughter to market

187

26213

359

27560

Offal recovery value

-1866

24347

-419

27141

6000

33141

11859

45000

Processor margin
Supermarket margin

1653

26000

A-3

MONITORING THE INDUSTRY

Table A-3

Cost of Production for Eggs
Sold in the Market (Rp/kg)(Per kg egg)

Cumulative(Rp/kg)

DOC cost

263

263

Rearing feed

1,840

2103

Rearing costs

500

2603

Layer feed RMs

7,678

10281

Trans port to mill

330

10611

Trans local to mill

132

10743

Feed production

440

11183

Feed SG&A fin tax

770

11953

Feed margin

770

12723

Feed trans to farm

225

12948

Layer farm costs

1,000

13948

Cull income

-800

13148

Farm margin

2,052

15200

Trader transport

200

15400

Trader margin

1,100

16500

Appendix B. Population and
Production, 2011
Population (‘000s)

Broiler (MT)N. Sumatera

Province

12982

56516

Eggs (MT)76902

Lampung

7608

27313

48586

Aceh

4494

5140

1980

W. Sum

4847

17064

60247

Riau

5538

38518

1169

Jambi

3092

15395

3925

S. Sum

7450

27

48569

Bengkulu

1716

2352

469

Babel

1223

17872

928

Riau IS

1679

6054

7476

Rest Sumatera

30039

102422124763

West Java

43053

423126110820Central Java

32383

105839175059

East Java

37477

160360216889West, Central , East Java

112913689325502768Banten

10632

88069

42537

Jakarta

9608

1086420

Yogyakarta

3457

25634

24031

Rest Java

23697

222345

66568

Bali

3891

21136

30061

W. Nusa Tenggara

4500

15266

10359

E. Nusa Tenggara

4684

239

705

Total Nusa Tenggara

9184

15505

11064

W. Kalimantan

4396

27234

16582

C. Kalimantan

2212

6849

549

S. Kalimantan

3627

36367

30798

E. Kalimantan

3553

32813

9473

Total Kalimantan

13788

10326357402

N. Sulawesi

2271

5329

7838

C. Sulawesi

2635

8132

4877

S. Sulawesi

8035

10976

49860

ES. Sulawesi

2233

997

1782

Gorontalo

1040

1520

2316

W. Sulawesi

1159

245

151

Total Sulawesi

17373

27199

66824

Maluku

1534

125

304

N. Maluku

1038

353

143

W. Papua

760

454

349

Maluku Papua

2833

4479

1062

SOURCE. GoI.

Appendix C. Estimate of Corn
Production and Imports, 20062012
Year

Corn
Imports

Local
Production

Feed
Corn

Human

Total
Consumption

2006

1069

7031

4200

3900

8100

2007

294

8206

4500

4000

8500

2008

317

8583

4800

4100

8900

2009

1321

7479

4600

4200

8800

2010

3041

6759

5500

4300

9800

2011

1500???

8500

5600

4400

10000

2012

2000

8600

6100

4500

10600

SOURCE: USDA.