Livestock Research for Rural Development 23 (10) 2011 Guide for preparation of papers LRRD Newsletter

Citation of this paper

Indigenous chickens of the Kamuli Plains in Uganda: II. Factors affecting their marketing and profitability

K Natukunda, D R Kugonza* and C C Kyarisiima*

Department of Agribusiness and Natural Resource Economics, College of Agricultural and Environmental Sciences, Makerere University
P.0 Box 7062 Kampala - Uganda
natukunda2007@gmail.com
* Department of Agricultural Production, College of Agricultural and Environmental Sciences, Makerere University, P.0 Box 7062 Kampala - Uganda

Abstract

A study was conducted to determine the factors affecting marketing and profitability of indigenous chickens of Kamuli District in Eastern Uganda. A total of 100 indigenous chicken farmer households were purposively and randomly selected to respond to a standard questionnaire.

Chicken and egg marketing was affected by low output of marketable chicken products due to disease outbreak, predation and low productivity, presence of a few market outlets, lack of appropriate chicken and egg marketing information to producers and inadequate capital to expand chicken production and marketing activities. On average, a farmer gets a profit of Uganda Shillings (UShs.) 5000 per bird sold. Profit was found to be affected by total average costs (Ush.), distance to the nearest market (km), access to extension services, education level and experience. However, total average costs (UShs.), access to extension services, education level and experience were significant at 1% while distance to the nearest market (km) was significant at 5%.

The study revealed that there is great potential for development of the indigenous chicken sector by transforming the existing extensive production system to semi-intensive, focusing on market-led production. In addition, the farmers should be empowered through training and credit interventions.

Key words: costs, egg marketing, gross margin, market distance


Introduction

The poultry industry in Uganda is mainly based on free-range (scavenging) indigenous chickens which are kept at the subsistence level and are found in almost all households (Mukiibi-Muka1992).Uganda's chicken population has in the mean time increased from 23.5 million in 2005 to 37.4 million in 2008. Of the current chicken population over 80% are indigenous to Uganda (MAAIF 2008). Despite the introduction of exotic chicken breeds, the indigenous chickens still dominate in Uganda. Elsewhere, Guye (1998) and Sonaiya et al (1999) observed that village poultry represent an important component of rural household livelihood as a source of income, nutrition and as gifts to strengthen social relationships.

Traditionally, indigenous chickens are mainly sold when there is a need for money by a farmer. In some places, the chickens are sold in indigenous markets to hawkers or middlemen who subsequently assemble and transport them to urban traders (Okot 1990). Middlemen take advantage of the situation and pay far lower prices to the poultry farmers. Organized marketing of free-range rural poultry is difficult because of small numbers kept (Chandraschka 1998). Marketing of indigenous chickens in Uganda is not well streamlined although few studies have tried to trace out gross margins and to determine the parties that benefit in the marketing chains of indigenous chickens (Mukiibi-Muka 1992).

To improve the marketing systems of indigenous chickens, a thorough knowledge of marketing is needed. This involves a number of aspects such as knowledge of methods of production, proper handling, mode of selling and quantities needed to give to a consumer to find usefulness of the commodity (Abbott and Mekeham 1988). Marketing helps in linking producers and consumers since it makes commodities available to consumers at the right time, place, quantity, form and at prices at which these consumers can pay for the produce (Mwalusanya et al 2001). Marketing creates utility through processing, and through storage. Through marketing, goods are transported from the place of plenty to the place of scarcity as a result place utility is created or added in that commodity (Kohl and Uhl 1985).

For the farmers to take up commercial indigenous chicken rearing there is need for them to understand the concept of profitability; how it is measured and factors affecting it. Profitability refers to the ability of an investment to make profit over head costs. This means that the expenses are less than revenue (Chandia 2008). According to Kohls and Uhl (1990), profits vary depending on riskiness of business and the competitive nature of its markets. Profits are a reward for efficient behaviour and profit seeking is a vital force that encourages lower costs and improved products. The basic criterion applied in economics for selecting the level of output that maximizes profit is that marginal cost should be equal to the marginal revenue (Alders 2004). Profitability is a fundamental factor contributing to the successful operation of a farm business (Rhodes 1983). Most of the researches on indigenous chickens targeted technical and managerial aspects of the chickens, hoping that these constitute the principal constraints. However, there is very little information regarding the factors affecting marketing and profitability of indigenous chickens. The insufficient market information that is available is only informal and may not yield concrete facts for farmers to rely on. It is from this research gap that prompted the curiosity of the present study. 


Materials and methodology

Study area

The study was conducted in Kamuli Town Council and Namasagali sub-county located in Kamuli District in Eastern Uganda. The town council is the main administrative and commercial centre of Kamuli District. Namasagali is along the eastern bank of the Victoria Nile and northwest of the district headquarters. The population density of the study area is estimated to be 236 persons/km. The study area is categorized as one of the regions in Uganda with the highest potential for crop and livestock production.

Selection of the study farms and sampling technique

A sampling procedure (purposive and random) was applied to the study; hence the farmers in the study area were purposively selected. Rural Development Extensionists (RDEs) actively participated in the selection of representative farmers in the study area. Chicken production potential and accessibility were the main criteria considered in the selection of farmers in the study area. Simple random sampling technique was applied to choose 50 indigenous chicken farmers from each sub-county by giving equal chance for those farmers who had sold indigenous chickens in the last 12 months. Hence, 100 indigenous chicken farmers were interviewed using a pre-tested structured questionnaire. 

Data Collection 

Data were collected intensively through personal house to house interviews using an organized and pre-tested structured questionnaire. Direct observation was also used to assess available indigenous chickens, chicken feeding and housing practices. A closer visit in and around the residential quarters of the selected households was made in order to obtain first hand observation on all aspects of indigenous chickens. Appropriate data such as indigenous chicken production systems, flock dynamics and production and marketing constraints affecting profitability was gathered from individual indigenous chicken farmers and RDEs. Errors in data collection were minimized by making use of carefully trained enumerators who were retained throughout the course of the field data collection.

Data management and statistical analysis 

The qualitative and quantitative data-sets were analyzed using SPSS statistical analysis software (SPSS, 2007). Descriptive statistics and a Multiple Linear Regression Model were used for this study. Tables and figures were used to present summary statistics such as mean and percentages. 

Model specification of the factors affecting profitability of indigenous chickens

In order to estimate the significance of the factors affecting profitability, a Multiple Linear Regressing Model was run using the method of Ordinary Least Squares (OLS). The level of significance of the variables was tested using a t-test at 5% level of significance. Gross margin per bird was the dependent variable. A constant, α indicates the profit or loss a farmer would make per bird holding all other factors constant. The error term, μ was included in the model to account for other factors that were not included in the model but yet affect the level of profits.

 

A multiple Linear Regression Model of the factors affecting profitability was specified as below:

GM = α + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + β6X6 + β7X7 + μ

Where:

GM = Gross margin per bird (Uganda Shillings)

α = Constant (intercept)

X1 = Total average costs (Uganda Shillings)

X2 = Distance to the nearest market (Km)

X3 = Household size

X4 = Access to extension services

X5 = Belonging to a farmers' group

X6 = Education level

X7 = Experience in indigenous chicken rearing (years)

μ = Random error term

Gross margin is expected to change by a certain factor, β (coefficient) if any of the above variables increase by one unit.


Results and discussion

Chicken marketing structure

All the indigenous chicken farmers (100%) were involved in marketing of live chicken since sale of birds as source of income was among the major reasons for keeping indigenous chickens (Table 1). The most common groups of indigenous chickens sold more frequently were; surplus cocks, old and non-productive hens and sometimes sick birds. Productive and young indigenous chickens were often sold just before the onset of high risk period of Newcastle disease, occurred mostly during the start of the rainy season. However, there were no any formal chicken marketing operations in the study area. Indigenous chicken producers, consumers, middlemen and indigenous restaurants/hotels were some of the main players involved in the system. Marketing of indigenous chicken in the study area was done at farm gates and in markets. Thus, there is great need for establishing formal marketing systems in the study area for farmers to be encouraged to take up the indigenous chicken enterprise as a business. 

Chicken prices fluctuated during the year, generally peaking during the festive seasons. Compared to prices, supply and demand of chickens were not similar throughout the year and were also affected by festive seasons. Children and women were mainly involved in marketing of live chickens. Eighty-six of chicken owners sold their indigenous chickens directly to consumers, middlemen and restaurant/hotel managers at the farm gate while the remainder sold their birds in market places.


Table 1: Chicken and egg marketing of the study area

 

Proportion of farmers (%)

 

Variable (n = 100)

Namasagali

Town council

Total

Chicken marketing

 

 

 

Households involved in selling                    

50

50

100

Users of hand carrying as a mean of transport

31

25

56

Number that use bicycles and motorcycles      

20

24

44

Egg marketing

 

 

 

Number of households involved in selling                    

35

35

70

Number that use hand carrying                                      

50

50

100

Regarding means of transportation of chickens to markets, it was identified that the majority (56%) of indigenous chicken farmers used hand carrying of live birds as a means of transportation. Although this means of transportation was believed to cause discomfort and disregarded welfare to birds, only 4% of indigenous chicken owners reported chicken deaths during transportation and this occurred mainly during the rainy and disease outbreak seasons. These results showed that indigenous chicken farmers travelled an average distance of 1.89 km to reach to nearby markets. This distance greatly favoured indigenous chicken farmers.

Egg marketing structure

 

From the preceding observations, sale of eggs for income generation was identified as one of the most important functions of indigenous chicken eggs followed by use in incubation/hatching. In this study, 70% of indigenous chicken farmers were involved in selling of eggs, which takes place in markets and at farm gates. Children and women were also the key members of the family involved in marketing of eggs. This is a sign of continuity of the indigenous chicken rearing due to the involvement of the young generation. Most consumers preferred to buy indigenous eggs as they are believed to be tastier. These results are consistent with Kyarisima et al (2004) who reported a general preference for local chickens and their eggs over their exotic counterparts because of the belief that they are tastier and have no drug residues. 

Unlike the price of indigenous birds, the price of eggs was more stable and remained at 200 UShs. even during the festive season. The results of the study showed that the people involved in egg marketing were similar to those involved in marketing of indigenous birds.  Most chicken farmers (70%) of the study area sold their eggs directly to consumers and/or middle men (Table 1). Although other methods of transport were used for carrying live birds, hand carrying (using plastic containers with straw) was the only mode of transport used to transport eggs and this ensured their safety. 

Chicken and egg marketing constraints

Festive seasons were highly associated with increased consumption/sales of chicken products. Fluctuation in prices of indigenous chickens was the most common marketing constraint in the study area. Other marketing constraints for chickens and eggs reported by the farmers included:

In order to respond to the seasonality of chicken prices, indigenous chicken production could be carefully planned and managed to match the fluctuating market demand. Development of market information system at farmer’s level and strengthening of agricultural extension services, through training and advisory services, to indigenous chicken owners could be of great importance to alleviate the above mentioned chicken marketing constraints.

Gross margin analysis as a measure of profitability

Gross margin was analyzed on per bird basis. The gross margin was obtained by getting the difference between the average total revenue obtained from the sale of one bird and total variable production costs of one bird. Total variable costs associated with feeds, treatment and water were discounted from the total average revenue in order to obtain the gross margin. . The average total revenue was UShs.11500 and average total variable costs were UShs.6500, implying that the gross margin was UShs.5000. This value is quite high and shows that indigenous chicken enterprise is highly profitable.

Regression analysis of the factors affecting profitability

A regression model was used to evaluate the factors affecting profitability of indigenous chicken in Kamuli Town Council and Namasagali sub counties. The dependent variable was gross margin which was regressed against independent variables. The independent (explanatory) variables were total average costs (UShs), distance to the nearest market (Km), household size, access to extension services, belonging to farmers' group, education level and experience. These were regressed using OLS regression which yielded the results presented in Table 2.


Table 2: Results of the Multiple Regression Model

Variable

     β

Std. Error

T-statistic

Sig.

Constant

   845

250

   3.38

0.001*

Total average costs

-0.935

0.019

-49.5

0.000*

Distance to the nearest market

-80.2

32.0

-2.51

0.023**

Household size

   24.6

31.8

  0.773

0.444

Access to extension services

   36.1

10.2

  3.54

0.002*

Belonging to a farmers’ group

   129

128

  1.006

0.320

Education level

   52.8

13.6

  3.87

0.001*

Experience in indigenous chicken rearing

   40.3

10.5

  3.86

0.001*

Dependent Variable: Gross margin per bird; * Significant at 1%, ** Significant at 5%, R2 = 0.98


Given the above results, the profit function is as shown below:

GM = 845 - 0.935X1 – 80.2X2 + 24.6X3 + 36.1X4 + 129X5 + 52.8X6 + 40.3X7 +

 

Where:

GM = Gross margin per bird (Ugandan Shillings)

X1 = Total average costs (Uganda Shillings)

X2 = Distance to the nearest market (Km)

X3 = Household size

X4 = Access to extension services

X5 = Belonging to a farmers' group

X6 = Education level

X7 = Experience in indigenous chicken farming (years)

μ = random error term

 

According to Table 2, the total average costs were significant at 1% but negatively related to gross margin. A one shilling increase in total average costs in Uganda Shillings leads to a 0.935 decrease on gross margin per bird in UShs. This is true because the farmers reported that the prices of the indigenous chicken were low compared to the costs of production.

 

The distance to the nearest market was significant at 5% and was also negatively related to profits obtained per bird (Table 2). A one kilometre increase in distance to the nearest market leads to UShs. 80.2 decrease on gross margin. This may be due to the prices of indigenous chicken being constant though the transport charges are increasing because of increase in distance to the nearest market.

 

Access to extension services was found to be significant at 1% and was positively related to profits. A unit increase in access to extension services leads to UShs.36.1 increase in gross margin. This is agreeable because the more the farmer accesses the extension services, the more knowledge he acquires regarding better methods of production.  Thus, fewer errors are made in production compared to a farmer who does not get extension services.

 

According to the results of the model, education level was significant at 1% and was also positively related to gross margin. A unit increase in the level of education leads to 52.8 UShs. increase in gross margin. This is plausible because an educated farmer is more organized and understands better the production practices in use. They are capable of minimizing costs and increasing levels of production, thus more profits. Experience in years was also positively related to gross margin and was significant at 1%. A one year increase in experience leads to 40.3 increase in gross margin per bird. This can be explained by the increase in experience leading to better performance as a result of knowing what went wrong and what needs improvement.

 

The adjusted R2 was 0.98, implying that the linear regression model explains 98% of the extent to which the selected factors affect profitability of indigenous chicken production in Kamuli town Council and Namasagali Sub-County. The value of adjusted R square is close to one, meaning that the regression model fits the data well. Thus, the model gives a sufficient explanation for the factors affecting profitability of indigenous chicken production. More so, from the constant value (without the variable entered), the indigenous chicken farmer is able to get a gross margin of UShs. 845.

 

In this study, profit is affected by total average costs (UShs.), distance to the nearest market, access to extension services, education level and experience. As would be expected, a unit increase in any of the independent variables has an effect on gross margin. However, total average costs (UShs.), access to extension services, education level and experience were significant at 1% while distance to the nearest market was significant at 5%.


Conclusion


Recommendations

Based on the result of the study, the following recommendations are suggested:


References

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Received 15 August 2011; Accepted 13 September 2011; Published 10 October 2011

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