How profitable is contract farming for poulterers? Not much, say some

A system called contract farming has developed in Bangladesh’s poultry industry, where corporate firms supply chicks, feed and medicines while smallholders get a growing charge. 

The marginal poulterers, however, have alleged companies unfairly reap all the benefits from the contracts. In some cases, the farmers reportedly went bankrupt or closed business due to losses in this arrangement. 

An agro-economist said such a system is not good for the economy as the farmers do not get an opportunity to expand their businesses. 

Several statistics show that around 150,000 poultry farms in Bangladesh supply chickens to the markets. About 30 corporate companies are also operating in this sector, but none of them agreed to reveal the number of contracts they have with the smallholders. 

Sumon Howlader, president of the Bangladesh Poultry Association, said the contract farming system developed around five years ago. Currently, an estimated 5,000 farms are operating under such contracts with corporate companies. 

“These farms never shut down, but the common farmers cannot continue the business,” he said. 

The opinion is divided as to whether the system benefits the farmers or creates undue pressure on them. 

Mahmudul Hasan Akash, a poulterer of Jhenaidah, said rising chick, feed and medicine prices forced many farmers to sign contracts with the companies that supply these materials and share the profits with the farmers. 

Asked if contract farming was more profitable than buying chicks, feed and medicines to grow chickens, a farmer in Rangpur said he signed a contract with Kazi Farms and received Tk 40,000 as profit. 

The amount gradually dwindled to Tk 22,000 for the same number of chickens, citing a rise in the cost of chicks and feed. 

“They are passing the losses to us. One day, most of my chickens died in a road accident on the way to the company. I got nothing from that consignment and closed the farm. I was on the verge of losing everything,” the farmer said, requesting anonymity because he feared reprisal by the company may affect his family as one of his relatives still had a contract with the firm. 

THE CONTRACT 

bdnews24.com has obtained a copy of a contract between a company and a poultry producer, according to which the farmer has to build the shed and ensure electricity, water, a place to keep feed and enough space to move to and from the shed. 

The company will supply chicks, feed, medicines and sanitisers. 

The part for sharing profit mentions the costs the companies bear, but not the electricity, husk and labour that the farmers provide. 

The contract has ideal rates for chicks, consumption and even operational cost of the company. 

The farmer will get Tk 12 per kilogram of chicken as the growing charge if the production cost remains at Tk 88. 

If there is an extra cost, the company and the farmer will equally bear it.   

Company representatives receive land ownership documents or signed blank cheques for contract security. 

“A farmer never gets 12-14 percent [of the production cost as a growing charge] following the contract. They fall in trouble by giving away blank cheques and land documents,” said Akash, the farmer based in Jhenaidah. 

Then why does a farmer agree to the conditions of the contract? 

They do it for survival, according to Alauddin Al Azad, a poultry farmer in Tangail’s Kalihati. 

“For instance, a farmer has a shed but not the funds to buy chicks and feed. Maybe he is in debt after collecting feeds from the dealers with a promise to pay later.” 

“The farmer will then sign the contract to save himself from bankruptcy with the idea that it is better to work than to sit idle.” 

‘NOT GOOD FOR ECONOMY’ 

Khandaker Md Mostafizur Rahman, the dean of the agricultural economics and rural sociology faculty at Bangladesh Agricultural University, said the marginal price mentioned in the contracts allows the companies, not the farmers, to make a profit. 

“This is not how the economy works. The growers don’t have the powers anymore in the contract farming system. The companies control the market while the farmers are just producing,” he said. 

“The economy won’t work if the around 28 large companies control the markets of chicks, feed and chickens. It’s not good for the poultry industry. It doesn’t leave any possibilities for the farmers to change their fate.” 

Mohammad Mizanul Haque Kazal, secretary general of the Bangladesh Agricultural Economists Association, advised flexibility in the value of the chickens in the contracts. 

“If the rate at which the company will take the chickens is fixed in the contract, it may harm the farmers. For example, a company has fixed the price at Tk 100 in the contract, but the market price rose to Tk 120 during the delivery. The farmer would have made more profits had he sold the chickens to the traders.” 

WHAT THE COMPANIES SAY 

When contacted for comments on contract farming, Kazi Zahin Hasan, president of the Breeders Association and managing director of Kazi Farms, said the association was making a statement. 

bdnews24.com failed to get the statement despite attempts. 

Abu Kaosar Md Saleh, general manager of sales at Kazi Farms, dismissed as baseless the allegation that the growing charge they offer gradually decreases. 

“Every business has its rules. Everyone has to be in a win-win situation. It can’t continue if the company or the farmer suffers losses.” 

“And why would they take chicks if there was no profit? We don’t force anyone. They might get less money if the chickens weigh less. We don’t compromise with feed quality. Regardless of the feed price, the farmer will get his growing charge.” 

Mohammad Nazrul Islam, general secretary of the Feed Industries Association of Bangladesh, claimed no one spoke for them when they suffered losses to supply feed at lower rates and helped the industry grow. 

“We had to raise the prices because fuel and power costs have increased. We all are suffering losses. No one is in comfort.” 

He said more than half of the 200 registered feed mills closed due to the losses. 

Pradeep Ranjan Chakraborty, the chairperson of the Competition Commission, said they were aware of the situation in the poultry industry. 

“We’re trying to hold discussions before taking steps.” 

Fisheries and Livestock Secretary Nahid Rashid said they sat with the stakeholders to discuss the problems in the poultry sector. “The solutions will come through discussions.”