Economic Modeling Along the Meat Chicken Supply Chain Martin J. Zuidhof Poultry Specialist, Livestock Development Division, Alberta Agriculture, Food and Rural Development

The supply chain is a very complex system. Many variables affect the productivity and profitability of the system. Further, interaction between variables adds a tremendous degree of complexity to broiler supply chain dynamics. Decisions that need to be made are best made when the available information is taken into consideration. A supply chain model is a tool to aid decision makers such as processing personnell, broiler and hatching egg producers, nutritionists, and hatchery personnell to evaluate the implications of decisions at the level of their operation, and at the supply chain level. For many involved in animal production for food, this is a new paradigm which goes beyond the normal decision making process.

INTRODUCTION

The broiler chicken supply chain is a system made up of many parts. Interactions within and between the parts give the system a tremendous complexity that can make decision making an onerous task. Supply chain decisions in our industry tend to be much more difficult than those in a fabrication supply chain because our main building blocks are biological. In addition to market forces and physical laws, performance of our system depends on tremendously variable and often unpredictable processes such as growth and health. The rise of modern computer technology has enabled us to objectively analyze complex systems, and computer models can be used to reduce the background system ìnoiseî, allowing decision makers to focus on the most important variables, and to make better choices.

In complex systems, we often face the challenge of competing objectives. Because of the complexity of a supply chain system, there are often multiple managers who look after their own piece of the larger puzzle. This can lead to decisions that are based on a picture that is too small. For example, a feed mill manager who is rewarded for reducing the cost of feed per ton may inadvertantly cause higher processing costs and increase the processorís frustration in meeting product demand because of poor flock performance and high body weight variability when the birds are shipped to the processing plant. This is a classic problem for US integrators because the old paradigm of the mill managers does not change overnight when the ownership of the mill changes. Although the decision in the smaller context may be a logical decision, it may not be the best decision overall.

PERFORMANCE INDICATORS

The performance indicators we choose as an industry are foundational for our success and survival. The performance indicator of primary importance for the chicken supply chain is maximum profitability of the supply chain.

Management of the supply chain is difficult because the best performance indicator is not easily measured. This is a paradox of sorts: although it is an important indicator, supply chain profitability is abstract and difficult to measure; there are many indicators of performance that can be easily managed on a routine basis, but these do not necessarily lead to the most profitable system. We must avoid having just the right answer to an irrelevant question, just as we must not find ourselves with just the right question and a completely irrelevant answer. In the modeling process we input answers to many relevant questions, and in the process increase the precision with which we answer the right question.

OBJECTIVES

The objectives of the first draft of the model are:

1) To determine the strain choice which would provide maximum profit to the broiler supply chain, and

2) To determine economic implications of strain decisions to participants in the broiler supply chain.

Although knowing the implications of the optimal management strategy is a high priority, maximizing profitability for each unit must become a lower priority, even if it means we change the way we think!

PRECISION AGRICULTURE

More and more, in order to be competitive, we must take a precision approach to raising broiler meat. Precision agriculture in our context can be described as feeding the right bird the right nutrients in the right place at the right time. Market forces will determine what the right product is. Then we must determine the right bird to grow, that is, the one most suited for the target market. In order to be the most successful, we must understand the biological potential of each strain of birds in order to provide it with the most appropriate environment and nutrition in order to achieve the biological objectives.

We have done some work to characterize some of the different types of broiler strains that are available to the Alberta marketplace. The growth potential of six commercial strain crosses has been defined by growing males and females separately in non-limiting conditions (Table 1). Once these are known, constraints due to environment and nutrition can be imposed in order to model growth of broilers in commercial conditions.

The growth of various carcass cuts, and chemical components has also been defined. This data is important for determining optimal slaughter times, and the nutritional requirements to achieve the desired growth.

OPTIMIZING HARVEST DATE

Using growth models that incorporate the growth of parts of commercial significance is critical for the determination of optimal slaughter dates. Table 2 summarizes the economics of slaughtering four commercial strains at four different ages.

An economic analysis using Chickcop (© 1997 AAFRD and ACP) was performed for 35, 42, and 49-d production scenarios using performance data from each strain. All birds in this study were grown on a diet containing 105% of NRC recommended protein levels. A 50,000 quota-unit farm was simulated at 100% quota utilization, with production of 0.370 kg/quota unit per week on an 8 week cycle. This translated to 148,000 kg per cycle. Mortality levels observed in the trial were not significantly different, so mean mortality values of 2.16%, 3.05% and 4.22% were used for all strains in the 35, 42, and 49 day simulations, respectively. Feed intakes were set at 0.6 kg of starter at a cost of $261/T; 1.0 kg of grower at $233/T; 1.0 kg of non-medicated (withdrawal) finisher at $219/T; and the balance of the feed required as finisher at $234/T. A chick price of $0.5325/chick was used.

The relative cost of feed and chick per kg produced decreased with age of marketing, primarily due to decreased chick cost per kg of production, since more meat was produced by every chick. Larger body weights at marketing translated into larger returns to producers.

The CC strain provided the best return per kg produced at all ages (n.b. the initial body weight of the CC broilers in this trial was approximately 5 g higher, giving them a substantial performance edge). The break-even price spread between the strains decreased by a penny from 35 to 49 d of age. There was an interaction effect with strain and age. The RR strain was the most expensive ($/kg) to raise at 35 d, while at 49 d the HH strain was the most costly. With the increased breast yield of the RH strain, this may be the most beneficial strain to the supply chain, even though it is not the least expensive to grow.

Depending on market objectives, the choice of strain should vary. For a light bird market, the CC strain is an early maturing strain that is efficient to grow, and has good yield characteristics. The RH strain has the best breast meat yield, and depending on the product distribution of the processor, has good potential. The RR strain is a late maturing strain that probably has more potential in a larger bird market. It must be remembered that the CC strain had a huge advantage in initial body weight, which makes it look better than it actually is.

RESPONSE TO NUTRITION

The response of four commercial strain crosses to varying levels of dietary CP has also been investigated. The response to a nutrient can be thought of as a (linear) change in a parameter such as body weight, or growth to changing levels of the nutrient in the diet. When the genetic potential of the bird is reached, there will be no further response to increases in the level of the nutrient in the diet. Using this approach, the response of male and female broilers to dietary protein (amino acid) levels was determined (Table 3).

Using this approach, we can see that the historical requirement table underestimates the level of amino acids required for maximum growth response. This is because modern commercial broilers grow much more rapidly than those broilers for which the tables were developed. In fact when broiler potential growth was characterized, we showed that broiler growth in the first four days post-hatch averages upwards of 17.5% of a chickís body weight every day. This represents a tremendous increase in lean tissue, which has a very high amino acid requirement.

The table of estimated protein input for maximum growth response must be interpreted carefully, however. Since all of the birds were on the same dietary treatment for the duration of the 7-wk study, birds in the low protein treatments may have expressed compensatory growth later in their life. This would lower the recommended amino acid levels. To more appropriately determine the AA levels later in the growing period, experimental birds should be permitted to express their growth potential before being exposed to the subsequent dietary treatments.

SUPPLY CHAIN CONSIDERATIONS

Many decisions that do not have direct implications for a specific sector are nonetheless important for the success of the supply chain as a whole. It is important for us to be able to have a tool to help evaluate the economic impact of such decisions or policies for the supply chain as a whole, as well as the affected sector or unit in the supply chain. Consider the impact of quality assurance programs, for example, on the hatching egg production sector. We can use a supply chain model to calculate the economic consequences of a hatching egg QA program, and consider appropriate distribution of the cost of such a program. This example assumes that the Hatching Egg QA program does not affect the economics of hatching or growing or processing (which is probably not exactly the case). Depending on factors such as the number of saleable chicks per hen, the hatchability, and even the chick price, each additional $1/hen spent at the hatching egg level translates to approximately ?¢ per kg of meat. The missing part of this equation is the value of the program to the industry. Quality assurance programs are, in many respects, invaluable to the industry, as without them there will likely be no future market. Understanding the costs and benefits to the industry is often difficult to do without a model.

CONCLUSIONS

Recently I spent part of a holiday in and around the city of Vancouver. I had been there a few times before, so I had an idea of the relative layout of greater Vancouver. The details, though, were unfamiliar. We got a (free!) tourist map from the local Chamber of Commerce and proceeded to navigate toward our destination via a route less travelled. The roads we ended up on (not entirely the driverís fault!) were not on the map. We tried to get our bearings, but we had no reference point. It was not easy, since we had to try to remember where the last known point of reference was on the map, and then guess at how many turns weíd made, and in which direction. Added to this was the frustration of working with curved roads (B.C. engineers could learn from their prairie counterparts!) and roads of which the name changed more frequently than a political partyís platform. After the first dayís experience, we decided to invest in a more reliable roadmap, and the kids once again dared to breathe audibly in the back seat!

The point of this story is to illustrate the difficulty of making decisions when not all of the information you need is available. If we want to achieve the destination of maximum supply chain profitability, we need to be able to count on the roadmap that will get us there. We need tools that will help us correct wrong turns, and get back on course without spending too much time heading in the wrong direction.