by Tola Sunmonu
So before diving into the sector, you need to think about the three C’s; Cost, Cost and Cost. Your objective should be to drive your costs down as much as possible.
This past week, I spoke at the ICAN 43rd annual conference on a panel with the executive governor of Adamawa, Vice-Admiral Murtala Nyako and former governor of Kwara State, Dr. Bukola Saraki. In my speech on optimizing productivity at the farm level, I made the case for the Nigerian middle class representing sufficient demand to stimulate production of key value chains. To drive my point home, I asked the audience “what do people eat the most at Nigerian parties?” The almost unanimous answer was rice and chicken; a few people yelled semo, egusi and bush meat. Maybe I am going to the wrong parties! Anyway, I think we can all agree that chicken is a popular dish in Nigeria and other than it being the meat of choice at your aunty’s birthday party, it also represents a potential investment opportunity. In fact, of late, a number of people have contacted me seeking advice on investing in the poultry industry. So today, instead of a cynical take on agricultural headlines, my goal is to give the aspiring poultry farmers out there some information to guide the decision making process.
In recent years, the demand for poultry (birds) has gone up substantially; between 2000 and 2009, poultry production has grown at an annual rate of 5.4%. This is largely due to the ban on chicken imports in 2000. Since then the market has grown from 132 million birds to 192 million.
However, before you start seeing dollar signs, let me explain some of the challenges that the sector faces. These statistics are not meant to scare or discourage you but rather to inform you. It is only when you are armed with all the facts that you can create a formidable business plan. The truth is, despite the fact that many of us may have eaten chicken at least twice this past week, growth in the sector has slowed over the last 3 years. This is not because people’s taste buds have revolted against chicken but it is because, unlike most countries, poultry in Nigeria is expensive. Between 2003 and 2013, the retail price of a 30 egg crate in Nigeria went up by 110%, similarly the retail price of chicken went up by 114%. As a result, egg consumption in Nigeria is only 30 eggs/year compared to Mexico where the norm is 341. Poultry consumption is also relatively low, at 1.7kg per person compared to Brazil where it is 39.7kg.
Why is chicken expensive? It ties back to the cost of production. In Nigeria it costs approximately $2.4 to produce a kilogram of chicken while in South Africa it costs only $1.7. The cost of day old chicks in Nigeria is 9x the cost in Brazil and the United States. The cost of maize in Nigeria, a key raw input for poultry production is a whopping $437/Mt compared to $276/Mt in SA; in the last 11 years the cost of layer feed in Nigeria has risen from N600/25kg bag to N2200/25kg bag. Given that cheap and illegal imports are flooding the Nigerian market, largely from the shores of our lovely neighbors in Benin Republic, it is no wonder that the sector is finding it hard to remain competitive. As a result, the sector is consolidating and many small and medium sized players have gone out of business.
So before diving into the sector, you need to think about the three C’s; Cost, Cost and Cost. Your objective should be to drive your costs down as much as possible. When buying feed, pay attention to its feed conversion ratio (FCR). FCR measures the ability of an animal to convert feed mass into increased body mass. In Nigeria the feed conversion ratio is typically 3, whereas the world standard is 2; this means that relative to other producers, the Nigerian farmer has to increase the amount of feed s/he uses to get the same result as a farmer elsewhere. To put it in monetary terms, per 100 broilers, a Nigerian farmer has to spend an additional N21,000 to get those birds to the same weight as his/her foreign counterpart. You can run small trials with different brands to assess which has the best FCR. You should also make an investment in keeping your bird mortality rates under control; Nigeria has a 16% bird mortality rate compared to the developing world average which is 5%. A lot of the bird deaths are as a result of poor quality feed which contains high amounts of a harmful substance called Aflatoxins. To reduce the prevalence of Aflatoxins, you can buy feed in which the maize has been treated with toxin binders or better yet, maize that has been treated with Aflasafe.
As you think about going into the poultry sector, given the challenges in production that I have raised, also think about backward integration into the maize and soybean value chains. After all, if you can develop a model that yields competitively priced high quality maize and soybeans, you have an attractive value proposition to offer poultry feed producers.
I am excited that people are thinking seriously about the agricultural sector has a business opportunity. I sincerely wish everyone out there the very best of luck!
Tola Sunmonu is a graduate of Stanford University. Tola has a rich background in the agricultural sector where she started an NGO called Harambe Nigeria, which focused on training young people to enter the sector. Today Tola works for an Agricultural Impact investment firm called Doreo Partners where she leads business development and provides advisory services to various high profile clients. She tweets from @omotolas
Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.