Transcript FACTORS AFFECTING FORWARD PRICING DECISIONS: …

FACTORS AFFECTING FORWARD PRICING DECISIONS:
EVIDENCE FROM INDIAN POULTRY SECTOR
Research Concept Note
D. Bardhan
Asstt. Professor (Vety. Economics)
Department of Veterinary & A.H. Extension
College of Veterinary and Animal Sciences
G.B.P.U.A & T, Pantnagar
Poultry Sector in India

Poultry occupies a unique position in the livestock
economy of India

India ranks fourth in the world in egg production and
eight in poultry meat production.

Production and exports of poultry meat have
experienced the highest growth rate in the last two
decades among meat of all food animal species
Production growth rates of meat of food animal species
Commodities
1982-94
1995-2003
1982-2003
Buffalo meat
2.99
0.90
2.51
Beef and Veal
3.70
1.13
2.49
Mutton and lamb
0.70
1.10
1.57
Goat meat
2.91
0.60
1.73
Pig meat
4.28
2.98
3.97
Poultry meat
14.76
68.68
20.59
Export growth rates of meat of food animal species
Commodities
1982-94
1995-2003
1982-2003
Buffalo meat
4.89
16.10
12.89
Beef and Veal
96.29
-27.42
62.67
Mutton and lamb
-3.14
-6.81
-6.25
Goat meat
12.66
-23.04
20.65
-
-22.16
-
20.76
6.96
20.36
Pig meat
Poultry meat
Changes in food consumption patterns

Boost in demand of poultry products:

Sustained increase in per capita income and household
purchasing power and urbanization
Increase in consciousness of health related attributes of
poultry meat as compared to red meat


The distinct increase in the demand for poultry food
products not only contributes to nutritional security, but
also provides income growth opportunities for millions of
small-scale poultry producers
Per capita consumption of different food commodities
(Kg/capita/year) and their annual compound growth rates
India
Developed Countries
Developing Countries
Commodities
1970
2003
Growth
rate
1970
2003
Growth
rate
1970
2003
Growth
rate
Bovine meat
2.3
2.4
0.48
26.1
22.3
-0.7
4.3
6.2
1.38
Mutton and
goat meat
0.7
0.6
0.20
3.3
2.1
-1.15
1.2
1.8
1.55
Pig meat
0.3
0.5
1.40
23.3
29.1
0.35
3.7
12.0
3.93
Poultry meat
0.2
1.6
7.50
10.2
25.5
2.75
1.5
8.3
5.69
Meat
3.6
5.2
1.27
64.6
80.3
0.45
11.2
29
3.23
Eggs
0.5
1.8
4.03
12.8
12.8
-0.26
1.8
7.5
4.85
Milk
32.0
68.0
2.38
188.3
201.7
0.13
28.4
48.4
1.56
Rice
67.8
71.1
0.62
11.6
11.5
-0.14
65.1
65.7
0.25
Wheat
35.7
63.6
1.68
101.6
98.4
-0.01
38.5
58.6
1.38
Total cereals
151.2
159.0
0.35
136.9
131.2
-0.07
146.9
156.1
0.35
Total pulses
17.6
11.7
-0.86
3.5
2.9
-0.31
9.4
7.0
-0.94
Vegetables
43.0
68.6
1.24
97.8
115.2
0.42
44.2
118.7
3.04
Fruits
25.1
37.7
1.50
69.1
87.0
0.62
33.6
55.4
1.69
New Challenges and Opportunities

The liberalization and globalization era brought about
new challenges and opportunities for the poultry sector
•
large-scale private players in processing and marketing
of poultry products
Quality consciousness
Value added poultry products
Supply chain management
•
•
•
Critical Issues

Lack of remunerative prices and vulnerability to price
risks

Recent interest in promoting use of institutional markets,
such as futures and forward contract markets

Although, forward contracting in poultry marketing has
been prevalent in some areas of the country, scant
attention has been paid till now to assess the scope and
feasibility of futures market
RESEARCH PROBLEM

Forward pricing in poultry sector will be effective only if:
•
its institutional mechanism assures price stability and
•
the poultry producers are willing to participate in it.

The proposed research study addresses the second
issue as acceptance of forward pricing by producers is
critical and constitutes an important area of research
inquiry as regards to its potential implications

The finding of the study would provide valuable insights
for policy designing in regard to poultry marketing.
OBJECTIVES OF THE STUDY
The study aims to investigate:

the present marketing behaviour of the poultry
producers

the factors that influence the producers’ choice of
forward pricing methods, viz. forward contracts and
futures markets.
RESEARCH METHODOLOGY
Study Area

U.S. Nagar and Nainital districts which lie in the Tarai
and Bhavar regions, respectively of Uttarakhand
(account more than 60 per cent of the state’s poultry
population )

The poultry farmers will be classified on the basis of
production systems and scale of operation and then
appropriate number of farmers will be selected from
each category on proportionate basis.
Contingent Valuation

The proposed study aims to evaluate the contingent
behaviour of the poultry producers in regard to their
willingness to participate in futures market

Contingent rather than actual behaviour is to be estimated, as
different methods of forward pricing (forward contracting and
futures) is either prevalent in small scale or has not been
introduced

Contingent scenario places respondents in a hypothetical
market situation and most researchers agree that contingent
valuation studies give an approximation of true behaviour
Modeling producers’ choice for forward pricing methods




The study would examine producer marketing behaviour as
producers’ choice of a preferred marketing alternative, which
is based upon a set of producer characteristics (discrete
choice model )
The choice parameter is 0 if the producer prefers cash sale, is
1 if the producer markets through forward contract and is 2 if
the producer markets through futures.
Explanatory variables: Socio-economic characteristics, risk
attitude and perception towards risk, Institutional factors, Noneconomic variables
An Ordered Probit model will be used for estimation of the
influence of the explanatory variables on choice of marketing
option