Investigating the Profitability of Government-Funded Small-Scale Broiler Projects in Northern KwaZulu-Natal, South Africa

Abstract

The frequent failures of government-funded broiler enterprises raise concerns about the viability and wisdom of government funding for smallholders. This study therefore investigates the scope for the profitability of the small-scale broiler production and the range of socio-demographic and production issues that are implicated. The study area was the Northern KwaZulu-Natal (KZN) Province of South Africa, where smallholder broiler production is popular. A total of 75 randomly selected, small-scale broiler producers from three districts in Northern KZN, namely, King Cetshwayo, uMkhanyakude, and Zululand, participated in the survey out of the 134 small-scale broiler producers supported by the government. The analyses employed diverse descriptive analysis and included the calculation of the gross margin to proxy broiler chicken profitability. Three models were fitted for the empirical analysis, namely, the OLS, the Two-Stage Least Squares, and the Stochastic Frontier models, to determine the factors influencing profitability, correcting for endogeneity, and computing the technical efficiency and inefficiency of the small-scale broiler production system. The results show that the primary production and marketing challenges were the lack of infrastructure (abattoirs and refrigeration) and the lack of formal markets, including the lack of market information and high transport costs. On average, the sampled government-funded small-scale broiler enterprises achieved a positive gross profit margin of 31 percent, which is relatively low when compared to the small-scale farmers that work for a large-scale enterprise—the Commercial Chicken Farm, near Pietermaritzburg. It was revealed that the profits are significantly influenced by gender, farmgate price, access to market information, and access to extension services. The production system was also shown to be operating at a reasonably high technical efficiency, which is strongly influenced by flock size, feeds, and labour input, while age, gender, and educational level contributed to technical inefficiency. The recent crisis that was experienced by the poultry industry in South Africa linked to the outbreak of the Avian Flu and its devastating consequences point up the urgency for more investment in infrastructure to enhance bird safety at affordable costs. Although the government-funded small-scale broiler enterprises in Northern KZN were found to be viable, it is evident that they can be better, possibly through more capacity building and collective action to take full advantage of the economies of scale.