Poultry Compensation - Food and Agriculture Organization€¦ · AppraisalAppraisal-Indemnity Indemnity-Compensation SpecialistCompensation Specialist ... Poultry Compensation Plan

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Poultry CompensationPoultry Compensation

Stephen L. Ott, Ph.D.Stephen L. Ott, Ph.D.Agricultural EconomistAgricultural Economist

&&AppraisalAppraisal--IndemnityIndemnity--Compensation SpecialistCompensation Specialist

Presentation OutlinePresentation Outline

Part I: Compensation Theory: Part I: Compensation Theory: Disease Prevention vs. Disease Disease Prevention vs. Disease ControlControl��QuestionsQuestions

Part II: Developing a Country’s Part II: Developing a Country’s Poultry Compensation PlanPoultry Compensation Plan��QuestionsQuestions

Part III: Poultry AppraisalPart III: Poultry Appraisal��QuestionsQuestions

Part IV: A Commercial Poultry Part IV: A Commercial Poultry Example from TrinidadExample from Trinidad——TobagoTobago��Questions Questions

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Part IPart ICompensation Theory:Compensation Theory:

Disease Prevention Disease Prevention vs. vs.

Disease Control Disease Control

Generic Goal of Any Generic Goal of Any Veterinary ServiceVeterinary Service

Protect or safeguard Protect or safeguard the country’s livestockthe country’s livestock

��Disease PreventionDisease Prevention

��Disease ControlDisease Control

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Disease PreventionDisease PreventionDisease Control Disease Control

Which is most import in protecting / Which is most import in protecting / safeguarding animal agriculture?safeguarding animal agriculture?

��Disease PreventionDisease Prevention

��Reducing the environment for disease to enter or spreadReducing the environment for disease to enter or spread

��Disease ControlDisease Control

��Elimination of disease once it is establishedElimination of disease once it is established

In terms of compensation there is tension In terms of compensation there is tension between the twobetween the two

Disease ControlDisease Control

Surveillance Surveillance

ReportingReporting

EradicationEradication

Clean UpClean Up

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Disease ReportingDisease ReportingIndividual PerspectiveIndividual Perspective

Individual Perspective to Suspicion of a highly Individual Perspective to Suspicion of a highly contagious diseasecontagious disease

��Hoped for responseHoped for response

��Call veterinarian or animal health officialCall veterinarian or animal health official

��Consequences if disease positiveConsequences if disease positive

�� Herd / flock depopulatedHerd / flock depopulated

�� Surrounding herds / flocks depopulatedSurrounding herds / flocks depopulated

�� Economic lossesEconomic losses

�� Genetic lossesGenetic losses

�� Reduction in available meat proteinReduction in available meat protein

�� Media SpotlightMedia Spotlight

•• Not well liked by family, friends & neighborsNot well liked by family, friends & neighbors

Disease ReportingDisease ReportingIndividual PerspectiveIndividual Perspective

Individual Perspective to Suspicion of Individual Perspective to Suspicion of a highly contagious disease a highly contagious disease (continued)(continued)

��Because of previous listed consequences Because of previous listed consequences possible likely responses arepossible likely responses are

��Keep quiet, hope animals get betterKeep quiet, hope animals get better

��Try to market sick animals before they dieTry to market sick animals before they die

��Both lead to greater spread of the diseaseBoth lead to greater spread of the disease

��North American saying about individual North American saying about individual disease responsedisease response

��ShootShoot

��ShovelShovel

��ShutShut--upup

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Disease ReportingDisease ReportingIndustry / Government PerspectiveIndustry / Government Perspective

Industry Perspective: Industry Perspective:

�� Individuals should report diseaseIndividuals should report disease

��However, not necessarily in their best However, not necessarily in their best private interestprivate interest

ExternalityExternality

��Pay individuals to act in the public Pay individuals to act in the public goodgood

��Economic justification for paying Economic justification for paying producers compensationproducers compensation

Compensation Through the Lens of Compensation Through the Lens of Disease Prevention Disease Prevention

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Disease PreventionDisease Prevention

Border SecurityBorder Security OnOn--farm Biosecurityfarm Biosecurity

Does OnDoes On--Farm Biosecurity Farm Biosecurity Increase or Decrease Profits?Increase or Decrease Profits?

Function of costs and benefitsFunction of costs and benefits

Optimal biosecurity occurs where costs Optimal biosecurity occurs where costs equals benefitsequals benefits

Benefits function ofBenefits function of

�� Effectiveness of biosecurity measuresEffectiveness of biosecurity measures

�� Value of animals / Amount of potential lossesValue of animals / Amount of potential losses

Q. What is impact of CompensationQ. What is impact of Compensation

A. Reduces losses realized which in A. Reduces losses realized which in turn reduces benefit of biosecurity turn reduces benefit of biosecurity

Conclusion: compensation reduces Conclusion: compensation reduces private incentive to practice good private incentive to practice good biosecuritybiosecurity

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Moral HazardMoral Hazard(Risks & Returns)(Risks & Returns)

RisksRisks

ReturnsReturns

Do the returns justify the Do the returns justify the risks?risks?

Activities / Programs that Activities / Programs that reduce the consequences reduce the consequences of a risky choice gone of a risky choice gone “bad”, encourages people “bad”, encourages people to engage in such to engage in such behaviorbehavior

Moral HazardMoral Hazard

“Moral hazard is the prospect that a “Moral hazard is the prospect that a party insulated from risk may party insulated from risk may behave differently from the way it behave differently from the way it would behave if it were fully would behave if it were fully exposed to the risk.” (Wikipedia)exposed to the risk.” (Wikipedia)

If others are willing to “pay” for our If others are willing to “pay” for our mistakes or “rescue” us, then we mistakes or “rescue” us, then we are more likely to engage in risky are more likely to engage in risky behaviorbehavior

ExampleExample

�� How much more money would you How much more money would you spend at a casino if you were spend at a casino if you were guaranteed to leave with 90% of the guaranteed to leave with 90% of the money you walked in with?money you walked in with?

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Moral HazardMoral Hazard

Moral Hazard combined with Moral Hazard combined with Economic Law of Supply Economic Law of Supply

�� (the higher the price, the greater (the higher the price, the greater the quantity supplied)the quantity supplied)

More you pay for diseased More you pay for diseased animals, the more diseased animals, the more diseased animals will be presented to animals will be presented to government (Kuchler & government (Kuchler & Hamm, 2000)Hamm, 2000)

Critical Question: Is this a Critical Question: Is this a good thing?good thing?

Compensation BalanceCompensation BalanceEncourage

Disease ReportingDisease Control

Encourage BiosecurityDisease Prevention

High CompensationHigh CompensationLow CompensationLow Compensation

Producer Incentive

Pit of Moral Hazard

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Compensation BalanceCompensation Balance

Deliberate Disease Contact&

Disease Spread

Producer Incentive

Economic Theory of Indemnity As Related to Economic Theory of Indemnity As Related to Disease Prevention & Disease ControlDisease Prevention & Disease Control

(Gramig, Horan & Wolf, 2008)(Gramig, Horan & Wolf, 2008)

Indemnity plans that pay full value for diseased animals Indemnity plans that pay full value for diseased animals may create incentives for disease infectionmay create incentives for disease infectionNeed negative consequences for not reporting diseaseNeed negative consequences for not reporting disease�� Reduced indemnity if discovered through surveillance activitiesReduced indemnity if discovered through surveillance activities

Need negative consequences for not practicing good Need negative consequences for not practicing good biosecuritybiosecurity�� Marginal indemnity decreases as flock prevalence increasesMarginal indemnity decreases as flock prevalence increases

Producers should bear more risks (receive less Producers should bear more risks (receive less indemnity) in situations where their biosecurity efforts are indemnity) in situations where their biosecurity efforts are more likely to prevent infectionmore likely to prevent infectionOptimal indemnity is a function of how contagious the Optimal indemnity is a function of how contagious the diseasedisease�� More contagious the disease, the greater the optimal indemnityMore contagious the disease, the greater the optimal indemnity

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Disease PreventionDisease Prevention——Disease Control Disease Control SummarySummary

Compensation improves disease reporting which Compensation improves disease reporting which is a good thing, but too much compensation can is a good thing, but too much compensation can result in reduced biosecurity and less than result in reduced biosecurity and less than optimal disease preventionoptimal disease prevention“One of the most difficult challenges in designing “One of the most difficult challenges in designing mechanisms that address the risks posed by mechanisms that address the risks posed by contagious livestock disease is the potential contagious livestock disease is the potential conflict between encouraging producer herd conflict between encouraging producer herd health management and biosecurity measures health management and biosecurity measures while maintaining incentives for early disclosure while maintaining incentives for early disclosure of health problems.” of health problems.” –– Gramig, Barnett, Skees & Gramig, Barnett, Skees & Black, 2006Black, 2006

What Compensation is NotWhat Compensation is Not

NotNot to provide income to provide income subsidies to producers.subsidies to producers.

Not to put them back into Not to put them back into businessbusiness�� It is a secondary benefitIt is a secondary benefit

If concerned about If concerned about producers getting back in producers getting back in business, then establish business, then establish programs (low cost loans) programs (low cost loans) designed for that purposedesigned for that purpose

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Questions?Questions?

Part IIPart IIDeveloping a Country’s Developing a Country’s

Poultry Compensation PlanPoultry Compensation Plan

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Step 1: How Will Compensation Be Step 1: How Will Compensation Be FundedFunded

Set aside fundsSet aside funds��Government contributions from Government contributions from

general budgetgeneral budget

��Industry contribution Industry contribution ��Tax on key inputsTax on key inputs

��Tax on outputsTax on outputs

Government deficit spendsGovernment deficit spends

Aid / loans from other countries Aid / loans from other countries and international organizationsand international organizations

Step 2: Determine Indemnity RateStep 2: Determine Indemnity Rate

Compensation paid is function Compensation paid is function of Indemnity Rateof Indemnity Rate�� Compensation Paid = Appraisal Compensation Paid = Appraisal

Value x Indemnity RateValue x Indemnity Rate

What can the country affordWhat can the country affordMultiple RatesMultiple Rates�� Higher rate if participate in Higher rate if participate in

disease prevention programdisease prevention program��US LPAI program: 100% if US LPAI program: 100% if

participate in NPIP, 25% if don’tparticipate in NPIP, 25% if don’t

�� Higher rate for backyard & small Higher rate for backyard & small flocksflocks��Want to encourage such owners Want to encourage such owners

to report diseaseto report disease��Need to set a limit on number of Need to set a limit on number of

birds at the higher indemnity birds at the higher indemnity rate in order to reduce incentive rate in order to reduce incentive to “create” disease birdsto “create” disease birds

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Step 3: Determine What Will Be Step 3: Determine What Will Be CompensatedCompensated

BirdsBirdsOther Items That Maybe Other Items That Maybe CompensatedCompensated��Contract GrowersContract Growers

��Payment to contract growers represents Payment to contract growers represents a redistribution indemnity payment from a redistribution indemnity payment from owner to grower owner to grower

��Total indemnity paid is not increasedTotal indemnity paid is not increased

��Other assets destroyed Other assets destroyed ��Cleaning & DisinfectionCleaning & Disinfection

��Need to set maximums that will be paidNeed to set maximums that will be paid

��Costs Associated with DowntimeCosts Associated with Downtime��Tempting for owners of table egg layersTempting for owners of table egg layers��Not done in the United StatesNot done in the United States

Step 4: Poultry Appraisal Step 4: Poultry Appraisal

Bird ValuationBird Valuation��Each flock independentlyEach flock independently

��Use standardized values Use standardized values ��Table of valuesTable of values

��Developed before an outbreakDeveloped before an outbreak�� Tied to some observable price seriesTied to some observable price series

��Poultry / farmer organizations support their usePoultry / farmer organizations support their use�� Had opportunity to comment on valuesHad opportunity to comment on values

Trained AppraisersTrained Appraisers�� In bird identificationIn bird identification

�� In people skillsIn people skills

�� In appraisal methodology if don’t use standardized In appraisal methodology if don’t use standardized valuesvalues

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Step 5: Pay IndemnityStep 5: Pay Indemnity

Payment = appraisal value x Payment = appraisal value x indemnity rateindemnity rate

Pay owners of small flocks at Pay owners of small flocks at time of destructiontime of destruction

Payment can include inPayment can include in--kind kind products, i.e. provide flour or products, i.e. provide flour or other food stuff to replace other food stuff to replace some of the food value that some of the food value that was destroyedwas destroyed


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Part IIIPart IIIPoultry AppraisalPoultry Appraisal

Commercial PoultryCommercial PoultryAppraisal Valuation MethodsAppraisal Valuation Methods

Two Basic Appraisal MethodsTwo Basic Appraisal Methods��Market ValueMarket Value

��Appraisal value is based upon observed market pricesAppraisal value is based upon observed market prices

��Cost of ProductionCost of Production��Appraisal value is equal to cost of productionAppraisal value is equal to cost of production

Value is age basedValue is age based

Linear interpolation for ages between initial and Linear interpolation for ages between initial and final valuefinal value��Value = Initial value + Value = Initial value +

(age at depopulation (age at depopulation --1) / (market age 1) / (market age --1) x 1) x

(final value (final value –– initial value)initial value)

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Broilers: Market ValueBroilers: Market Value

Method 1: (Canadian Style)Method 1: (Canadian Style)

��Initial value: dayInitial value: day--old chick costold chick cost

��Final value: reported prices paid by live bird Final value: reported prices paid by live bird markets to poultry producersmarkets to poultry producers

Method 2: (US Style)Method 2: (US Style)

��Initial value: dayInitial value: day--old chick cost + (live bird old chick cost + (live bird price price –– final production cost) x livability %final production cost) x livability %

��Final value: reported prices paid by live bird Final value: reported prices paid by live bird markets to poultry producersmarkets to poultry producers

Market ValueMarket ValueBreeders & Table Egg LayersBreeders & Table Egg Layers

Three valuation pointsThree valuation points

��Maximum ValueMaximum Value

��Canadian Style: capitalization cost + % bonus based on Canadian Style: capitalization cost + % bonus based on capitalization costscapitalization costs

�� Recommended range: 5% Recommended range: 5% -- 15%, Canada 5%15%, Canada 5%

��US Style: capitalization cost + retained earningsUS Style: capitalization cost + retained earnings

�� Retained earnings = operating margin (gross revenue Retained earnings = operating margin (gross revenue ––operating expenses operating expenses –– depreciation) depreciation) –– income taxes income taxes –– return to return to stockholders/capitalstockholders/capital

•• Assume retained earnings is oneAssume retained earnings is one--third of operating margin third of operating margin

�� Initial ValueInitial Value

��Canadian Style: dayCanadian Style: day--old chick costold chick cost

��US Style: dayUS Style: day--old chick cost + retained earnings x livability % old chick cost + retained earnings x livability %

��Final Value = Spent hen priceFinal Value = Spent hen price

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Cost of Production ValuationCost of Production Valuation

BroilersBroilers��Initial: dayInitial: day--old chick costold chick cost

��Final: total cost of productionFinal: total cost of production

Broiler Breeders & Table Broiler Breeders & Table Egg LayersEgg Layers��Maximum Value: Maximum Value:

capitalization costcapitalization cost

��Initial Value: dayInitial Value: day--old chick old chick costcost

��Final Value: spent hen priceFinal Value: spent hen price

Valuation Methods ComparedValuation Methods ComparedCost vs. Market ValueCost vs. Market Value

Meat Birds

0

40

Initial Final

Bird Age

Ap

pra

isal V

alu

e Market Value(Canadian)

Market Value(US)

Cost ofProduction

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Valuation Methods ComparedValuation Methods ComparedCost vs. Market ValueCost vs. Market Value

Breeder Birds & Table Egg Layers

0

40

Initi

al

Max

imum

Final

Bird Age

Ap

pra

isa

l V

alu

e

Market Value(Canadian)

Market Value(US)

Cost ofProduction

Bird Values at Live Bird Markets Bird Values at Live Bird Markets (Pluck Shops)(Pluck Shops)

Cost of Production ValuationCost of Production ValuationBased on either national average of Based on either national average of prices paid producers or actual prices paid producers or actual prices paid based on invoices prices paid based on invoices (receipts) (receipts)

US method for live bird marketsUS method for live bird markets

Market Value ValuationMarket Value ValuationCost of Production Value + % of Cost of Production Value + % of Gross MarginGross Margin��Gross Margin = Selling price Gross Margin = Selling price ––

purchase pricepurchase price��Percentage: recommend range 5% Percentage: recommend range 5% --

50%50%

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Table Egg LayersTable Egg Layers(Also Broiler Breeders)(Also Broiler Breeders)

Assume data might be limitedAssume data might be limited

Have economist work with producers of Have economist work with producers of some better managed flocks and develop some better managed flocks and develop enterprise budgets for growing of pullets enterprise budgets for growing of pullets and egg production.and egg production.


Step 1. Determine dayStep 1. Determine day--old pullet cost old pullet cost ($/bird)($/bird)

��[Imported hatching eggs (updated monthly) + [Imported hatching eggs (updated monthly) + per egg hatchery cost] / hatch rate / 50% hensper egg hatchery cost] / hatch rate / 50% hens

Step 2. Determine pullet feed cost ($/bird)Step 2. Determine pullet feed cost ($/bird)

��Feed input based upon breeder company Feed input based upon breeder company performance guidesperformance guides

��Multiplied by local feed price (updated Multiplied by local feed price (updated monthly)monthly)

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Step 3. Determine capitalization cost ($/bird)Step 3. Determine capitalization cost ($/bird)

��= Day= Day--old pullet cost + feed cost + other costs (as old pullet cost + feed cost + other costs (as determined from enterprise budget). Note: other determined from enterprise budget). Note: other costs should include equipment and facility costs should include equipment and facility depreciation.depreciation.

Step 4. Determined gross egg revenue ($/bird)Step 4. Determined gross egg revenue ($/bird)

��= market price (updated monthly) x eggs laid per hen = market price (updated monthly) x eggs laid per hen (from breeder company performance guide)(from breeder company performance guide)

��Hatching egg price = (dayHatching egg price = (day--old chick value old chick value –– hatchery hatchery cost) x hatch ratecost) x hatch rate


Step 5. Determine egg production feed cost Step 5. Determine egg production feed cost ($/bird)($/bird)

��Feed input based upon breeder company Feed input based upon breeder company performance guidesperformance guides

��Multiplied by local feed price (updated monthly)Multiplied by local feed price (updated monthly)

Step 6. Determine total egg production costStep 6. Determine total egg production cost

��= feed cost + other costs (as determined from = feed cost + other costs (as determined from enterprise budget) + capitalization costenterprise budget) + capitalization cost

Step 7. Determine net egg margin ($/bird)Step 7. Determine net egg margin ($/bird)

��= gross egg revenue = gross egg revenue –– total egg production costtotal egg production cost

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Step 7. Determine net egg margin Step 7. Determine net egg margin

��$/bird= gross egg revenue $/bird= gross egg revenue –– total egg total egg production costproduction cost

Step 8. Value at beginning of lay ($/bird)Step 8. Value at beginning of lay ($/bird)

��=capitalization cost + net egg margin * =capitalization cost + net egg margin * percentage to birdspercentage to birds

��Percentage to birdsPercentage to birds

��In US use 33% (i.e. retained earnings percentage)In US use 33% (i.e. retained earnings percentage)


Step 9. DayStep 9. Day--old pullet value ($/bird)old pullet value ($/bird)

��DayDay--old pullet cost + (value at beginning of lay old pullet cost + (value at beginning of lay ––capitalization cost) x pullet raising livability capitalization cost) x pullet raising livability percentagepercentage

Step 10. Spent hen value ($/bird)Step 10. Spent hen value ($/bird)

��Based upon price received at pluck shops (updated Based upon price received at pluck shops (updated monthly) monthly)

Step 11. Value for day (or week) of age is linear Step 11. Value for day (or week) of age is linear interpolation between dayinterpolation between day--old pullet value & old pullet value & value at beginning of lay & spent hen value value at beginning of lay & spent hen value

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Monthly ParametersMonthly Parameters

Summary of monthly parameters that need Summary of monthly parameters that need to be collectedto be collected��Feed pricesFeed prices

��Live Bird Market PriceLive Bird Market Price��Purchase pricePurchase price

��Selling priceSelling price

��Imported Hatching Egg PricesImported Hatching Egg Prices��BroilersBroilers

��Table Egg LayersTable Egg Layers

��Farmer received prices for table eggsFarmer received prices for table eggs

Other BirdsOther Birds

Other BirdsOther Birds��Ducks & other water fowlDucks & other water fowl

��Sport hunting birds, farm raisedSport hunting birds, farm raised

��Game birds (fighting cocks)Game birds (fighting cocks)

��Pet birdsPet birds

��Zoo birdsZoo birds

Appraisal value equals cost of replacementAppraisal value equals cost of replacement��May want to have some upper limitMay want to have some upper limit

��Conduct periodic surveys of bird valuesConduct periodic surveys of bird values

Develop list of appraisal valuesDevelop list of appraisal values�� Include quality differencesInclude quality differences

��Flocks will have a range of qualityFlocks will have a range of quality

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Other Items for Potential Other Items for Potential CompensationCompensation

Contract GrowersContract Growers

Recommend that they be compensatedRecommend that they be compensated�� Have dayHave day--toto--day contact with birdsday contact with birds

“Appraisal” amount equals expected pay x percentage of “Appraisal” amount equals expected pay x percentage of excepted time birds were in the house minus any payment excepted time birds were in the house minus any payment already received from the poultry companyalready received from the poultry company�� Subject to same indemnity percentage rate as for birdsSubject to same indemnity percentage rate as for birds

Payment for contract growers comes from bird value: Payment for contract growers comes from bird value: �� i.e. paying contract growers results in redistribution of indemnity i.e. paying contract growers results in redistribution of indemnity

payment and does not affect total indemnity paid payment and does not affect total indemnity paid

�� total indemnity total indemnity –– grower indemnity = company indemnitygrower indemnity = company indemnity

�� Payment by either government or poultry companyPayment by either government or poultry company�� In US payment by government (amount generally based upon In US payment by government (amount generally based upon

information provided by poultry company)information provided by poultry company)

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Other Assets DestroyedOther Assets Destroyed

EggsEggs

Supplies and feed that can’t Supplies and feed that can’t be cleaned and disinfectedbe cleaned and disinfected

Facilities that can’t be easily Facilities that can’t be easily cleaned and disinfectedcleaned and disinfected

US: compensates for items US: compensates for items ordered destroyedordered destroyed

Canada: compensates things Canada: compensates things ordered destroyedordered destroyed

Cleaning & DisinfectionCleaning & DisinfectionIn US must be done before compensation is paid and In US must be done before compensation is paid and repopulation permittedrepopulation permittedIn US movement towards paying C&D, e.g. LPAI In US movement towards paying C&D, e.g. LPAI programprogramRecent experience C&D has been very expensive when Recent experience C&D has been very expensive when government paysgovernment paysPaying C&D expenses reduces moral hazard faced by Paying C&D expenses reduces moral hazard faced by producers, i.e. reduces incentive to practice good producers, i.e. reduces incentive to practice good biosecuritybiosecurityIn Canada it is an expense considered by income In Canada it is an expense considered by income stabilization programstabilization program�� Program that guarantees minimum percentage of historic income Program that guarantees minimum percentage of historic income

marginmargin

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Costs Associated with DowntimeCosts Associated with Downtime

More important for breeders and table egg layersMore important for breeders and table egg layers�� Takes 24 weeks to go from purchase of hatching eggs to lay for Takes 24 weeks to go from purchase of hatching eggs to lay for

a single age flocka single age flock

�� Could be longer if area wide quarantinesCould be longer if area wide quarantines

Costs that may continue during downtime and before Costs that may continue during downtime and before revenue starts up againrevenue starts up again�� Debt payments & other contractual obligationsDebt payments & other contractual obligations

�� Owner living expensesOwner living expenses

�� Wages of key employeesWages of key employees

�� Costs associated with raising replacement pulletsCosts associated with raising replacement pullets

Downtime compensation in other countriesDowntime compensation in other countries�� US: noUS: no

�� Canada: considered under income stabilization programCanada: considered under income stabilization program

Other ConsiderationsOther Considerations

Low (No) Cost LoansLow (No) Cost Loans

��Can be used to make up any amount of Can be used to make up any amount of appraisal value not covered by indemnity, i.e. appraisal value not covered by indemnity, i.e. if indemnity rate is less than 100%if indemnity rate is less than 100%

��Can help with losses not compensatedCan help with losses not compensated

��Cleaning and disinfection costsCleaning and disinfection costs

��Costs and lost revenue associated with downtimeCosts and lost revenue associated with downtime

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Part IVPart IVA Poultry Appraisal Example A Poultry Appraisal Example

from Trinidadfrom Trinidad——Tobago Tobago

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Broiler Market Value CalculationBroiler Market Value Calculation(Canadian Style)(Canadian Style)

Model ParametersModel Parameters UpdatedUpdated ValuesValues

pluck shop price paid ($/lb)pluck shop price paid ($/lb) MonthlyMonthly $5.68$5.68

-- transportation cost ($/lb)transportation cost ($/lb) AnnuallyAnnually $0.25$0.25

= net farm live price ($/lb)= net farm live price ($/lb) $5.43$5.43

x market live weight (lbs)x market live weight (lbs) AnnuallyAnnually 5.05.0

= farm gate value ($/bird)= farm gate value ($/bird) $27.15$27.15

dayday--old chick cost ($/bird)old chick cost ($/bird) AnnuallyAnnually $5.50$5.50

market age (days)market age (days) AnnuallyAnnually 5050

Broiler CalculationsBroiler CalculationsMarket Value (US Style) & Market Value (US Style) &

CostCost--ofof--ProductionProduction

VariablesVariables UpdatedUpdated ValuesValues

live bird weight (lbs)live bird weight (lbs) AnnuallyAnnually 4.84.8

age at live weight (days)age at live weight (days) AnnuallyAnnually 4848

feed price ($/lb)feed price ($/lb) MonthlyMonthly $1.46$1.46

x feed conversionx feed conversion AnnuallyAnnually 2.22.2

= feed cost ($/lb)= feed cost ($/lb) $3.21$3.21

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[imported hatching eggs [imported hatching eggs ($/egg)($/egg)

MonthlyMonthly $1.88$1.88

+ hatchery cost ($/egg)]+ hatchery cost ($/egg)] AnnuallyAnnually $0.35$0.35

÷÷ hatch rate (%)hatch rate (%) AnnuallyAnnually 80%80%

= chick cost ($/bird)= chick cost ($/bird) $2.78$2.78

÷÷ livability (%)livability (%) AnnuallyAnnually 92%92%

÷÷ live weight (lbs)live weight (lbs) AnnuallyAnnually 4.84.8

= chick cost ($/lbs) = chick cost ($/lbs) $0.63$0.63




feed cost ($/lb)feed cost ($/lb) MonthlyMonthly $3.21$3.21

+ chick cost ($/lb) + chick cost ($/lb) $0.63$0.63

+ other costs ($/lb)+ other costs ($/lb) AnnuallyAnnually $0.75$0.75

= bird production cost ($/lb)= bird production cost ($/lb) $4.59$4.59

x live weight (lbs)x live weight (lbs) AnnuallyAnnually 4.84.8

= bird production cost ($/bird)= bird production cost ($/bird) $22.04$22.04

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farm gate value ($/bird)farm gate value ($/bird) $27.15$27.15

-- bird production cost ($/bird)bird production cost ($/bird) $22.04$22.04

= value/cost difference ($/bird)= value/cost difference ($/bird) $5.11$5.11

x livability (%)x livability (%) AnnuallyAnnually 92%92%

= increase chick value ($/bird)= increase chick value ($/bird) $4.70$4.70

+ day+ day--old chick cost ($/bird)old chick cost ($/bird) $5.50$5.50

= day= day--old chick value ($/bird)old chick value ($/bird) $10.20$10.20

Broiler CalculationsBroiler Calculations

DayDay--ofof--age Valuesage Values

= initial value + (day= initial value + (day--ofof--age age --1) / (market age 1) / (market age -- 1) * 1) * (final value (final value –– initial value)initial value)

Market Market Value 1Value 1

MarketMarketValue 2Value 2


Initial ValueInitial Value $5.50$5.50 $10.20$10.20 $5.50$5.50

Final ValueFinal Value $27.15$27.15 $27.15$27.15 $22.04$22.04

Market Age (days)Market Age (days) 5050 5050 4848

DayDay--ofof--Age (days)Age (days) 2020 2020 2020

DayDay--ofof--Age ValueAge Value $13.89$13.89 $16.77$16.77 $12.19$12.19

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Broiler Bird ValuesBroiler Bird Values

Trinidad Broiler Bird Value, March 2008

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49

Age (Days)

$ /

bir

d

Market Value 1 Market Value 2 Cost


31

ReferencesReferences

Gramig, B.M., B.J. Barnett, J.R. Skees, and J. Roy Black. Gramig, B.M., B.J. Barnett, J.R. Skees, and J. Roy Black. 2006. Incentive compatibility in livestock disease risk 2006. Incentive compatibility in livestock disease risk management. In The Economics of Livestock Disease management. In The Economics of Livestock Disease Insurance: Concepts, Issues and International Case Insurance: Concepts, Issues and International Case Studies. D. Hoag, S. Koontz, and D. Thilmany, eds. CABI Studies. D. Hoag, S. Koontz, and D. Thilmany, eds. CABI press, Cambridge, MA.press, Cambridge, MA.

Gramig, B.M., R.D. Horan, C.A. Wolf. 2008. Livestock Gramig, B.M., R.D. Horan, C.A. Wolf. 2008. Livestock disease indemnity design when moral hazard is followed disease indemnity design when moral hazard is followed by adverse selection. selected paper annual meeting by adverse selection. selected paper annual meeting American Agricultural Economics Association, Orlando, American Agricultural Economics Association, Orlando, FL, July 27FL, July 27--29.29.

Kuchler, F., S. Hamm. 2000. Animal disease incidence and Kuchler, F., S. Hamm. 2000. Animal disease incidence and indemnity Eradication Programs. Agricultural Economics indemnity Eradication Programs. Agricultural Economics 22:29922:299--308. 308.

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