2.8. Integration of the poultry industry

Poultry production is a risky operation, dependent on supply and demand.

Demand is determined by the number of potential consumers, their purchasing power and their propensity to purchase the products of the poultry industry rather than fish or other animal products.

Supply has to cover production, transport and distribution costs. In comparison with the producer's margin, those of the wholesaler and retailer are sometimes double. Nevertheless, the price paid by consumers must be sufficiently attractive to encourage them to consume this product rather than another and stimulate them to consume more and, on the other hand, be sufficiently lucrative for producers to encourage them to produce.

Price fluctuations, which are often seasonal but sometimes unpredictable, resulting from the imbalance of supply and demand, can cause the market to collapse which is potentially fatal for small producers. On the other hand, the converse can happen: if demand is very strong (religious festivals, New Year, holiday periods, etc), prices can go up to the detriment of the consumer.

The partial or total vertical integration of the industry is an effective way of modulating the effects of considerable fluctuations in the market for poultry products, providing the producer and consumer with constant prices.

The most classic type of vertical integration brings together the farmer, feed producer and hatchery owner. The latter two guarantee to the first a contractually-determined price for chicks and feed. The farmer brings into the balance his knowhow and buildings and establishes his operating costs in advance. On the basis of this data, the contracting parties share the profits or losses after the sale of the birds or eggs.

This type of integration is not appreciated by all farmers. Many of them, often the best, prefer to retain a degree of freedom of action in relation to their suppliers, accepting the drawbacks of autonomy.

The poultry industry lends itself perfectly to total integration from the breeding of parent stock to the distribution of fresh or deep-frozen products and sometimes beyond (fast food outlets, restaurants, hotel chains, etc) through poultry and egg by-products (delicatessen products, soups, ready-prepared meals, etc). Overall control is usually exercised by a company which hold all decision-making power at each stage of the production and marketing process. Such integrated operations have production, marketing and advertising capacity (branded products, seal of quality) commensurate with the market share they covet.

Grouping poultry farmers together in a co-operative is a form of horizontal integration which makes it possible to influence the main production costs by exerting pressure on the feed manufacturer, hatchery owner and abattoir. Downstream, the co-operative can conclude important deals, at prices set in advance, in poultry and eggs with supermarkets, local authorities, restaurants, etc. thus short-circuiting the traditional distribution network (wholesaler/retailer).

There are some co-operatives which have achieved almost total vertical integration of all stages of production, selling their products under their own label.