Comparative investment analysis for small scale broiler and layer enterprises in Zambia

Abstract

Small scale broiler and layer production constitutes a significant part of the poultry industry in Zambia. However, the contribution of small scale enterprises to broiler production is more pronounced than layers with statistics showing 60 and 30 percent for broilers and layers, respectively. This study was carried out for the purpose of determining the economic profitability of both broiler and layer enterprises and also to evaluate their degree of attractiveness for investment. The thesis used the Net Present Value and Internal Rate of Return methods to determine the economic profitability for both broiler and layer enterprises. The data used in the analyses were obtained direct from the market and additional data were extracted from the Cost of Doing Business Manual 2012, a publication of the Zambian Development Agency. Additionally, the study used a capital investment of US $50,000 for each enterprise, 25 percent opportunity cost of capital and an economic life of five years. The data were used in estimating the enterprise budgets for both broiler and layer enterprises from which income statements were generated. The enterprise budget for broiler production estimated revenue from the sale of live broiler chickens at a wholesale price while the layer enterprise budget estimated its revenue from the sale of eggs and culled hens. The sale prices used were US $5 per broiler chicken, US $3.60 per tray of eggs and US $2 per culled hen as obtaining on the market at the time. In addition, production was estimated at 60,000 broilers and 30,000 trays of eggs from 3,000 layers annually. The cost of constructing brooder houses and purchase of production equipment were the major cost components for the two enterprise budget estimates. The estimates indicated that these two cost components amounted to US $27,090 and US $21,095 for boiler and layer enterprises respectively. The other cost component was production cost and it includes the cost of labor, feed, day old chicks, marketing, vaccines, transportation, electricity, debeakers, heaters, stationery, etc. The cost of feed constituted about 65 percent of total production cost for layer enterprises and about 60 percent for broiler enterprises. The total production cost as a percentage of revenue was estimated at 80 percent and 70 percent for broiler and layer enterprises, respectively. The analyses were completed under three alternative scenarios that included optimistic, expected and pessimistic scenarios. The analyses across all scenarios show that both broiler and layer enterprises are economically viable for investment though the broiler enterprise is more economically profitable than the layer enterprise. They both show positive NPVs and IRRs in excess of the 25 percent opportunity cost of capital used in the analysis. The analysis for broiler enterprise showed a NPV of US $178,242 for the optimistic scenario, US $122,742 for the expected scenario and US $30,550 for the pessimistic scenario. Results obtained from layer enterprise analysis showed NPVs of US $72,388, US $49,260 and US $11,186 for the optimistic, expected and pessimistic scenarios, respectively. Consistent with the decision rules of the NPV and IRR methods, both enterprises were found to be economically viable for investment. On a comparative basis though, the small scale broiler enterprise was found to be more attractive for investment than the small scale layer enterprise as indicated by the results of the NPVs and IRRs. The lucrative nature of the broiler enterprise and easy of management could be used as possible explanation to the current investment trends seen in the Zambian poultry industry.