MEASURING COMPETITION ALONG THE SUPPLY CHAIN
OF THE MALAYSIAN POULTRY INDUSTRY
Zainalabidin Mohamed, Mad Nasir Shamsudin & Ismail Abdu Latif
Department of Agribusiness and Information Systems
Faculty of Agriculture, Universiti Putra Malaysia
43400 Serdang, Selangor Darul Ehsan, Malaysia
zainal.mohamed@gmail.com, mns@agri.upm.edu.my, ismaill@econ.upm.edu.my
Abdulrazak Umar Mu’azu
Department of Agric. Education, School of Vocational Education
Federal College of Education (T), Gusau, Zamfara State, Nigeria
aumuazu67@gmail.com
2
ABSTRACT
Analysis of the competitive market describes the environment within which firms in a particular market
operates. This can be done by considering several factors such as the analysis of the market structure i.e
number and size distribution of buyers and sellers (market concentration), the degree of product
differentiation, how easy it is for new firms to enter the market (barriers to entry), the shape of cost
curves, the extent to which firms are vertically integrated or diversified and the price and information
transmission process among vertically or spatially integrated markets. This paper considers the structure
conduct performance model to evaluate competition indicators along the supply chain of the Malaysian
poultry market. Malaysian Poultry industry Firm’s financial data for period 2005-2011 was obtained from
Company Commission of Malaysia (SSM) for analysis. Results of the analysis could not prove any
allegation of anticompetitive behavior and or exercise of market power by the integrators along the
supply chain. However, the Farm level market is moderately concentrated over the study period indicated
by the CR4 61.9% and HHI 2179. The overall performance of the industry based on results of the
profitability ratio suggests the industry is doing quite well over the study period.
Field of Research:
competition, structure-conduct-performance, vertical coordination, poultry.
-----------------------------------------------------------------------------------------------------------------------------------------1. Introduction
Present day business environment are characterized by intense competitive forces along the supply
chain. Shifting competition from business rivals to competition along the supply chain between supply
partners has exerted pressure to companies to devise means of enhancing their performance and
competitive advantage. In this regard, firms have recognized the significance of enhancing their supply
chain performance (Knowles, Whicker, Femat, & Canales, 2005). Firms in the business environment are
aware that they can no longer effectively compete in isolation of their suppliers and other entities in the
supply chain, they have shifted their attention from competition between firms to competition between
the entire supply chains (Hult et al; 2007;; Miguel et al; 2010). This situation has forced firms to become
more focused on their supply chain management capability as a means to improve or sustain their
competitiveness (Tukamuhabwa, et al; 2011).
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In order to meet up with the current nature of competitive business environment, Firms in the
Malaysian poultry industry search for strategies to create an agile and lean flexible supply chain for
competitive advantage. With this competition has been shifted between supply chain partners in the
Malaysian poultry industry due to integration and contracting, consequently, the structure of the
industry undergone tremendous changes that have made it different from the one that existed in the
nineties. Independent and self-operated activities that once dominated the production system have
been replaced by contracts and outright ownership and operation of the production by integrators. By
this many individual poultry processing companies own almost all aspects of production- breeding
farms, multiplication farms, hatcheries, feed mills, some broiler growing farms, and processing plants.
The structure therefore, involve an aspect of integrated production-marketing systems which involves a
single firm owning and operating every aspect of production from importing parent stock to marketing
packaged meats in company owned outlets. The integrating production system allows the firm to
achieve economies of scale, decrease transactions costs, as well as the ability to closely monitor product
quality at every stage of production by controlling all inputs and processes at every level.
Despite remarkable progress with the supply chain strategy, over the years the number of firms
operating in the industry has declined causing the level of concentration to increase. Many firms
especially farmers at the farm level with capacity of birds below 10,000 have been competed out
because they don’t have the capacity to adopt these strategies and therefore could not have the synergy
to compete with supply chain rivals. The CR4 of the wholesale segment of the market is above 40% since
2004 (Kaur, Arshad, & Tan, 2010). Moreover, the domination of the integrator and control of the
upstream inputs market may suggests exercise of market power in the inputs market of the supply chain
which may cause competition loss. Many studies described the industry as oligopolistic (Zainalabidin,
2007; Zainalabidin et al., 2004 ;). In view of this, the paper attempts to schematically describe the
structure of the Malaysian poultry industry to show level of concentration and supply chain coordination
adopted by the firms in the Malaysian poultry supply chain to create a sustainable competitive
advantage and to explore the integration-performance relationship, by measure of firm performance
both in absolute and relative terms. The discussion of the paper will take the following steps; in section
two we give an overview of the poultry industry in Peninsular Malaysia. In section three, we highlight
the theoretical underpinning of the SCP framework. In section four we present our conceptual
framework and in section five we outlined the methodology adopted in this paper, which will be
followed by the results and discussion of the description of the structure of the Malaysian poultry
industry supply chain to explore how firms gain competitive advantage by performing strategically to
coordinate as supply chain management (SCM). The final section of the paper will present a concluding
remark.
2. Overview of Malaysian Poultry Industry
2.1 Industry background
Within a relatively short period of time Malaysian poultry industry has been able to transform itself from
backyard subsistence levels to highly modernized, commercialized and efficient production systems. This
development has been facilitated through the development of a safe and stable infrastructure that has
allowed entrepreneurs to enter the poultry industry and develop a vibrant, strong and sustainable
industry. The consistent increase in production output and rapid growth of the industry over the years
when compared with other livestock industries is mainly due to the fact that chicken meat is the most
popular and cheapest source of meat protein among Malaysians, largely because there are no dietary
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prohibitions or religious restrictions against chicken meat consumption, unlike pork and beef which are
unacceptable to Malay and Hindus respectively. The consumption of chicken meats accounts for 78.12%
of the total meat requirements in the country (DVS, 2010). Moreover, the presence of quick service
restaurants (QSR) such as Kentucky Fried Chicken (KFC), McDonald’s, A&W, Nando’s Chicken-land (a
South-African based chain) has propelled the growth of chicken consumption in Malaysia.
In terms of meeting the demand for the poultry products, Malaysia has been self-sufficient in poultry
production since 2002. Since then the total domestic poultry meat output continued to register
increase, growing at an average annual rate of 5.2% over the period between 2001 and 2011. The
growth in the total domestic output of poultry meat between 2001 and 2011 is almost two-fold rising
from 682,000 to 1,214.37 million tons which exceed the total domestic consumption see Table 1. This
has created opportunity for export market of the surplus. The standing self-sufficiency for poultry meat
and egg in 2011 is 132.2% and 120.5% respectively which is the highest when compared to other
livestock products.
Table 1: Production, Consumption and Self-sufficiency of Poultry Products in Peninsular Malaysia (20012011)
Production
Consumption
Self-Sufficiency
Year
(‘000 tons)
(‘000 tons)
(%)
2001
682
557.90
66.10
2002
781.12
696.07
112.22
2003
779.28
703.02
110.85
2004
839.73
762.54
110.12
2005
891.01
679.36
131.14
2006
907.72
685.34
132.45
2007
998.17
778.27
128.25
2008
1,058.97
831.18
127.41
2009
1,096.25
867.57
126.24
2010
1,180.29
893.63
132.08
2011
1,214.37
918.60
132.20
Data Source DVS, (2011)
2.2 Structure of the Industry
To describe the present structure of the industry we give accounts of the entire industry supply chain
see Table 5. The farm level consists of breeding farms (Grandparent and parent Stock), hatcheries and
grower farms for producing chicken meat and eggs. In Malaysia, there are four (4) companies controlling
100% share of the importation of the breeder birds usually from EU countries, US, Canada and Thailand
which are in turn used in producing eggs for hatching to produce parent stock. The four companies are
Ayamas breeder Farm Sdn Bhd a subsidiary of the KFC Holdings Bhd which produces 36 million day-oldchicks per annum, to cater for their poultry farms requirements and their contracts growers. The second
company is CAB Cakaran Corporation breeding Farm Sdn Bhd integrated poultry farming and processing
company, The third company is Charoen Pokphand Farm Sdn Bhd and last but not the least is Leong Hup
Poultry Farm Sdn Bhd, which operates 3 grandparent stock farms in the country producing more than
130 million day-old-chicks per annum accounting for 22.5% of the total day old chicks market
requirements in Malaysia. Eggs produced in the breeder parent stock farms are hatched by hatcheries
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either owned by these breeder farms or by independent hatcheries. There are ninety two (92) Parent
stock (multiplication) farms owned by twenty five (25) separate companies. According to DVS, (2012)
report ten (10) of these multiplication companies are owned and operated by integrators, with annual
day-old chicks (DOC) production capacities ranging from 1.38 to 165.41 million birds. There over 3500
(contracts and company-owned) grower farms producing over 650 million chickens per year in
Peninsular Malaysia in the year 2011 (DVS, 2011), the integrator or the processing companies control
50-60% of the total production through both contract and ownership of farm. The concentration of the
grower farms by states, (MyCC, 2012) report shows that the state of Kedah, Pulau Pinang and Perak all
in the northern region of the country has the highest number of grower farms accounting for 60% of the
total farms producing both meat and eggs in the country.
Table 2: Number of Companies at Farm Level of the Malaysian Poultry Market
Company Category
Production
Number of
Segment
Company
Integrator (%)
Independent (%)
Grand Parent Stock
4
4(100)
Nil
Parent Stock
23
10 (59)
13 (31)
Hatcheries
53
31 (58)
12 (22)
Grower Farms
3,170
50-60
40-50
Source: DVS, 2011. Figures in Brackets are Percentages
3. Theoretical Framework
The theoretical framework used in this study is based on structure-conduct-performance paradigm
developed by Mason (1939, 1949) and Bain (1956) which was later elaborated see Scherer and Ross
(1990). The framework is widely used to assess competitive conditions in industries by examining how
the structure of industry relates to the behaviors of the market participants (conduct) and performance.
Market structure is defined as a selected number of agricultural characteristics of a market that
establishes relationship between buyers and sellers of a homogeneous product. Exclusively, it refers to
the number and size distribution of firms and any entry barrier arising from the advancement in
technology on the production process. Market structure describes the nature of competition in the
market. Based on this markets could be either perfectly competitive at one end of the market spectrum
or purely monopoly at the other end extreme. Between the two there are varying degrees of imperfect
competition (Rugaya, 1993).
The paradigm postulates competition loss with concentration of establishments in the hand of few firms
in the industry. A market is said to be concentrated if there are few number of firms in the production or
there are unequal distribution of the market shares. The more the concentration level of the industry,
the higher would be the degree of monopoly and competition loss. Low concentration of an industry
indicates less market power held by the leading firms. Market power is a condition where the providers
of service can consistently charge price above those that would be established by competitive market.
The industrial organization studies prove that market power in the hand of single producer or fewer
numbers of producers, enables a firm to set price above the marginal cost. The behavior of the firm
(conduct) is therefore determined by the structural characteristics of the industry. Lipczynski and Wilson
(2001), reported that policy objectives, pricing objectives, research and development and marketing
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strategies such as advertising and product differentiations are some of the firm conducts in a market
set-up that are influenced by the structure of the market. The performance component of the
framework is an appraisal of the economic results of an industry’s conduct that may or may not make
best possible contribution to achieve the goals. It consists of efficiency, progress, equitability etc. The
causal link between market structure and performance can be traced through the effects of
concentration on anticipated rival’s reaction. As firms become fewer, the higher is the likelihood that
the leading firms will recognized their common interest in curtailing price competition in favor of high
price and therefore each firm will anticipate that other firms will respond to price cuts by increasing
their output . Thus, this will cause the demand curve facing each firm to be less elastic resulting from
higher optimal excess of price over marginal costs and profitability.
4. Conceptual Framework
The popular conceptual framework of structure-conduct-performance in the study of industrial
organization economics holds structural conditions determines behavior (conduct) and subsequent
performance of the firm/industry. To examine the Malaysian poultry market structure, conduct and
performance we adopted a model from McGuigan, et al., (2011), the model linked together the three
elements of the paradigm and hypothesized their direct relationship. We hypothesized that with
structural changes in the industry such as vertical coordination (full ownership market integration and
contracts), the concentration of the industry supply chain has increased leading to exercise of market
power by the integrators along the supply chain by creating barriers to new competitors and therefore
causing completion loss.
Market Structure
Concentration ratio
Herfindahl Hirtchman Index (HHI)
Gini Coefficient/Lorenz Curve
Market Conduct
Advertising Salas Ratio
Capital Intensity
Industry Sales Growth
Market Performance
Return on Assets (ROA)
Return on Sales (ROS)
Return on Shareholders’ Equity (ROE)
Figure 1: Structure-Conduct-Performance Model of the Malaysian Poultry Supply Chain
Adopted from Waldman and Jansen, (2001)
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5. Methodology
5.1 The Market Structure Indicators
The measures of absolute market structure are the concentration ratio, Herfindahl Hirtchman Index and
the Gini coefficient in order to determine the relative level of concentration and the inequality
distribution in the industry. The definitions of the measures are as follows;
i.
Concentration ratio (CRm) =
ii. Herfindahl Hirschman Index (HHI) =
iii. Gini Coefficient (GC) =
Where, Xt = the market share of firm I marked in ascending order
N = the number of firms in the
industry and µ = mean size. And the outcome of each measure will be based on Bain, 1956 and
Hirtchman (1964) suggestion, see Table (3)
Table 3: Summary of Concentration ratio and HHI indicators of Market Structur
Market Structure
Concentration ratio
Type of Market structure
HHI Index
Type of Market structure
CR4
75-100
Highly concentrated
HHI<1000
Concentrated
50-75
Moderately concentrated
1000<HHI<1800
Moderately concentrated
25-50
Slightly concentrated
HHI>1800
Highly concentrated
0-25
Atomistic
Source: Joe Bain, (1956) Classification
5.2 Market Conduct Indicators
The proxy measures of conduct were by using advertising to sales ratio (ADV), capital intensity (CAP) and
sales growth (GRW) of the industry. The advertising sales ratio is regarded here as a form of product
differentiation a medium where sellers inform consumers about their product. ADV could also be seen
as form of market barrier as it has relationship to price and also influence consumers demand and
therefore affect the structural and performance of an industry. Oligopolies have large ADV compared to
other market structures, but industries/firms with low ADV experience little market power and less
price-cost margin. ADV is measured by the ratio of advertising expenditures to sales;
i.
Advertising intensity (ADV) =
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Where, ADV is the advertising to sales ratio at time period; A is the firm advertising expenditure
and S is the total sales.
ii.
Capital Intensity (CAP) =
Where, CAP is the capital intensity; TA is the total assets at period t and TS is the firm total sales
at the period.
iii.
Sales growth (GRW) =
Where, GRW is sales growth;
is the total revenue current year, and
-1
, is the total
revenue preceding year.
5.3.1
Market Performance Indicators
The performance measured used to determine the outcomes of the competition among firms within an
industry are the accounting profit. The indicators used in terms of profit rate are the return to sales
(ROA), return to sales (ROS) and return to shareholder’s equity (ROE).
i.
Return on assets (ROA) =
Where, P = net profit; T is the tax on profit; i = interest to debt holders and A is the total assets
at the period.
ii.
Return on Sales (ROS)
Where, P is the net profit T is the tax on profit and S is the total sales
iii.
Return on Shareholder’s Equity (ROE) =
Where, P is the net profit T is the tax on profit and E is the shareholder’s equity
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6. Results and Discussion
The data for this study is based on secondary data over a period of seven years (2005-2011). The firm
financial data for 5-digit code of the MSIC, 2008 for all firms in the poultry industry was obtained from
Company Commission of Malaysia (Suruhanjaya Syarikat Malaysia). The 5-digit code firms in the poultry
industry were sorted based on the SSM business code classification and categorized into farm level
industry, wholesale industry and retail industry. The farm level markets considered include all firms
registered with company commission of Malaysia who are engaged in breeding, raising and production
of broiler birds (01461). Other segments of the market level include firms engaged in the procurement,
construction and provision of any poultry related equipments that are used in the production of poultry
including pharmaceuticals, feed mills, poultry farm letting, construction of poultry feeders, drinkers,
nets, incubators etc, under 5-digit code (01465). Table 4 give summary of the industries business code
based on SSM categorization and description based on MSIC, 2008.
Table 4: Industries in the Malaysian Poultry Market Based on MSIC, 2008 5-digit Code
S/N Market Segment MSIC Code*
Industry description
1
Farm Level
01461
Raising, breeding and production of chicken- broiler
01465
Production of other poultry related products and equipments
01466
Production of chicken eggs-layers
01469
Operation of hatcheries
2
Wholesale
46311
Wholesale of Poultry Meat and Eggs
3
Retail
47214
Retail Sale of Poultry Meat and Eggs
*Based on MSIC, 2008
6.1 Results of the Market Structure Analysis
The concentration ratio and Herfindahl Hirtchman Index (HHI) in cumulative percentage market share of
four, eight and twenty (CR4, CR8 and CR20) largest firms in the three market levels (farm, wholesale and
retail) of the Malaysian poultry industry were presented in Table 4, 5 and 6 respectively. The average
CR4 and CR8 at farm level markets period between 2005 and 2011 is 64% and 74% respectively. The CR4
value indicates a moderately concentrated market. The average HHI over the study period is greater
than 1000 suggesting a highly concentrated industry. The HHI values of the market level over the entire
period of study have been above 1000 with very high index recorded in 2009. The reason might be
attributed to increased supply chain coordination by the processing firms in the industry causing many
independent poultry farmers to quit the business because they cannot compete.
Table 5: Concentration Ratio and HHI in Cumulative (%) of Market Share for Farm Level Industry in the
Malaysian Poultry Sector 2005-2011
Year
No of Firms
CR4
CR8
CR20
HHI
2005
2006
2007
2008
2009
2010
2011
249
281
283
298
256
255
227
55.3200
56.0041
58.5775
61.0588
69.8337
62.7387
69.6449
72.3900
71.4989
73.4109
64.1906
79.8309
76.7427
81.9723
82.7967
79.0972
71.3777
82.7426
76.6358
84.9575
86.4207
1454
1268
1661
2230
4177
1820
2646
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Average
264
61.8825
74.2909
Calculated from Firm’s Financial Data, (SSM Malaysia)
80.5754
2179
The analysis of the percentage market share of the largest firms at the wholesale market level of the
Malaysian poultry industry shows that on average, over the period of study, the CR4 and CR8 has been
within the quartile of slightly concentrated. The HHI values over the period remain below the critical
level, with the highest index (671) in 2011. The results suggest a competitive market level meaning that
market share has not been in the hand of few firms over the period. The total number of firms in the
industry has been increasing from 2005 until 2010 when the number drop by more than 25% causing the
both the CR4 and CR8 recording the highest value within the study period. The total number of firms
operating in the industry is more than one hundred throughout the study period and the entire market
level is dominated by large twenty firms, results In Table 5 shows the average CR20 is above sixty.
Table 6: Concentration Ratio and HHI in Cumulative (%) of Market Share for Wholesale Level Industry in
the Malaysian Poultry Sector 2005-2011
Year
No of Firms
CR4
CR8
2005
97
37.8800
53.5100
2006
124
29.1311
46.4656
2007
133
34.0983
46.2985
2008
139
27.9839
41.5357
2009
174
31.8546
44.0280
2010
200
30.3667
41.4960
2011
137
40.5552
50.4210
Average
143
33.1243
46.2507
Calculated from Firm Financial Data, (SSM, Malaysia)
CR20
HHI
76.8800
68.2567
65.9310
62.1798
62.9285
58.3851
68.9403
66.2145
495
396
460
392
393
360
671
452
Results of the analysis of concentration ratio and HHI at retail market level of the poultry industry in
Malaysia reveals that on average the industry remain at low concentration over the study period. Both
CR4 and CR8 remain low until 2011 when the total number of firms in the industry declined by more
than 15% therefore causing the market share of the largest firms rise to the quartile of moderately
concentrated. The HHI value recorded a high value in the same year and leading towards highly
concentrated industry.
The Gini coefficient to describe inequality in the distribution of the firms in the industry was statistically
derived from Lorenz curve. The range of the inequality measures is [0, 1], with zero (one) for perfect
equality (inequality). We estimate for the three market levels and the overall industry as well to quantify
the degree of equality (inequality) distribution of firms market with financial data for 2011. The results
as shown in appendix; 1, 2, and 3 revealed that the overall industry is heading toward perfect inequality
with GC ± 0.8193 which is very close to 1. The GC for all the three market levels also exhibit similar
trend; wholesale ±0.8042 and retail ± 0.8504. The GC values therefore, revealed an unequal distribution
of market share among the competing firms in the industry and consequently more concentrated
industry.
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Table 7: Concentration Ratio and HHI in Cumulative (%) of Market Share for Retail Level Industry in the
Malaysian Poultry Sector 2005-2011
Year
No of Firms
CR4
CR8
2005
123
35.6900
45.3000
2006
89
49.6031
59.0759
2007
93
48.8309
59.1176
2008
105
24.3366
37.5047
2009
129
17.3094
29.2901
2010
113
40.8815
51.6111
2011
81
56.2160
66.6463
Average
105
38.9811
49.7922
Calculated from Firm Financial Data from (SSM, Malaysia)
CR20
HHI
61.8300
76.1356
76.8007
65.7612
54.9610
71.7572
84.6391
70.2692
596
939
874
305
205
980
1395
756
6.2 Results of the Measures Market Conduct
The results of the measures of poultry industry market conduct are presented in Table 7. Three
indicators are measured; the capital intensity, industry sales growth and the advertising to sales
expenditure. On average overall CAP of the industry is 0.76. The CAP over the entire study period
remains below one as well. The ratio below one is an indication that firms in the poultry industry in
Peninsular Malaysia are generating good returns of their investments over the period. The CAP is seen
as a form of barriers to entry because new entrant finds it difficult at initial stage to compete favorably
with the established firms for the market.
The revenue growth of the industry as presented in Table 7, shows that over the entire period of study
on average the industry’s growth rate increased by 20.91%. If we look at the trend of the sales growth
rate, the highest growth was recorded in 2008 and falls down with retrogressive in the next two years
after then. The revenue growth picks up in 2011 with sales growth up to 19.79%. Growth in the revenue
by the established firms would be used re-invest and so have resource control in the industry by the
incumbent firms making difficult for other firms in the industry to compete. The evidence of this could
be viewed in the context of practicing vertical integration by the firms given them an opportunity of
covering more than one level of production, which might favor its operations at each level and protect
them. This is termed as barriers to entry which could lessen competition in the market and contributing
to distortionary prices.
Results of the Advertising to sales ratio in Table 7 also revealed more heavy advertising in the early years
of the study period by the overall industry. On average the advertising to sales ratio gradually declined
over the study periods. By heavy advertising the incumbent firms create a consumer perceived
difference for their brand product until when the consumer can see slight difference of their product to
other products there-by making the potential competitors unable to be perfectly substituted in place of
the established firm's brand. This makes it hard for new competitors to gain consumer acceptance.
Table 8: Results of the Market Conduct Measures
Year
Market Level
Farm Level
Wholesale
CAP GRW ADV
CAP GRW
ADV
Overall Industry
Retail
CAP
GRW
ADV
CAP
GRW
ADV
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2005
0.76 nil
0.96
0.45 nil
3.03
2006
0.83 0.16
1.94
0.5
0.24
2.45
2007
0.68 40.30 2.74
0.43 26.5
0.64
2008
0.6
53.5
2.81
0.43 6.5
1.27
2009
0.62 16.35 0.75
0.42 -25.64 0.26
2010
0.62 0.93
2.55
0.41 15.92
0.60
2011
0.62 19.79 2.46
0.37 -26.47 0.94
AVR
0.68 21.84 2.03
0.43 -0.49
1.31
Calculated from Firm’s Financial Data, (SSM Malaysia)
0.36
0.35
0.43
0.36
0.34
0.37
0.42
0.38
Nil
0.08
12.4
28.3
-18.52
39.81
-9.33
7.53
2.50
2.44
1.32
0.25
1.45
1.24
2.45
1.66
0.52
0.56
0.51
0.46
0.46
0.16
0.47
0.76
Nil
48
40
54
-14.5
-0.92
19.79
20.91
2.16
2.28
1.57
1.45
0.82
0.65
1.95
1.55
6.3 Results of the Market Performance Analysis
We consider profitability ratio analysis to determine efficiency, progress and fairness of the Malaysian
poultry industry. Results in Table 8 reveal the overall performance of the industry over a period 20052011. Based on the capital investment in poultry business, the average accounting rate of return for all
the markets are quite fair with positive return for all the indicators. The return on assets (ROA) which
measures the ability of the firm’s efficiency to utilize their assets indicates that firms in the wholesale
market level have the highest increasing in their profit over their total assets value. The low ROA
recorded for farm level over the study period may be attributed to the fact that, the relative ROA for 5digit code 01469 (operation of the hatcheries) is negative throughout the period. Very high capital
investment is involved in the hatchery operation and couple with the fact that major raw materials
utilized in the industry have to be imported. The owners of the hatcheries about 58% are the integrators
and the returns from the hatcheries remain in its ability to supply their breeder farms as well as their
grower and contract farmers the feed for their growing birds.
The ROS analysis which measures the industries operational efficiency revealed that the trend of the
ROS is inconsistent for the three market levels. But on average the operational efficiency is quite well.
The wholesale market level show high efficiency in terms of profit being produced per ringgit of sales.
The ROS at the retail market level where the ratio is more significant in comparing competitive
performance of an industry, is lower than all other market levels this indicating that the firms in the
market level may be able to respond to difficulties like sales downturn, increasing costs or a fall in
prices. A higher ROS indicates that an industry is likely to cope well with such circumstances, and may be
able to hold out against cutting its prices or entering into a price war.
Table 9: Results of the Profitability Ratio Analysis
Year
Market Levels
2005
2006
2007
2008
2009
2010
2011
Average
Farm
ROA
5.9
0.42
0.01
0.08
3.87
4.2
6.49
3.00
ROS
4.49
0.34
0
0.05
2.42
2.55
4.03
2.00
ROE
12.68
43.01
0.01
0.17
8.19
9.17
14.38
13.00
Wholesale
ROA ROS
5.15 2.3
2.29 1.14
3.48 1.49
2.97 4.72
4.32 1.83
4.35 1.77
3.49 1.3
4.00 2.00
Overall Industry
ROE
8.92
3.94
5.68
1.35
6.75
6.79
5.29
6.00
Retail
ROA
0.88
8.13
2.27
1.53
2.17
3.47
4.73
3.31
ROS
0.32
2.83
1.03
2.36
0.75
1.28
1.99
1.51
ROE
1.41
12.35
3.28
0.56
3.22
4.93
7.77
4.79
ROA
3.97
3.61
1.92
1.53
3.45
4.01
4.90
3.34
ROS
2.37
1.44
0.84
0.65
1.67
1.87
2.44
2.70
ROE
7.67
19.77
2.99
2.42
6.06
6.96
9.15
7.86
Proceeding of the International Conference on Social Science Research, ICSSR 2013 (e-ISBN 978-96711768-1-8). 4-5 June 2013, Penang, MALAYSIA. Organized by WorldConferences.net
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Calculated from Firm Financial Data from (SSM, Malaysia)
Conclusion
We used structure-conduct-performance paradigm to assess competition in the supply chain of the
Malaysian poultry industry. The approach is widely used to analyze competitive conditions in industries
by examining how the structure of the industry relates to the market conduct and performance. We
examined the level of concentration in each market level of the value chain, using the CR4, CR8, CR20
and the HHI. We used Lorenz curve to statistically derive the Gini coefficient to measure inequality
(equality) distribution of the firms in the market. Overall, the values of CR4 and HHI suggest a
moderately concentrated industry, meaning that a form of oligopolistic market structure exists. The
values of the Gini Coefficient for each market level and average for the entire industry (+ 0.8193),
established an unequal market share distribution among the firms operating in the market. The study
used CAP, ADV and GRW as proxy market conduct; the pattern of behavior the firms in the industry
adopt to create barrier to new entrants. The overall results clearly suggests barrier to entry at farm level
due largely to the domination and activities of the integrators in the market level. The integrators are
well established with economies of scale and governance structure and make it difficult due to need for
large capital investment for the new entrants into the market. The mass exit and drop in the number of
the firms in the industry over the years suggest an oligopolistic market structure. The results of the
profitability ratio of the firms in the industry upheld the efficiency hypothesis of the industrial
organization theory. Meaning that over the time because of specialization, firms in the industry have
increased their allocation efficiency based on the accounting sales profit. The findings of this study are
significant for agricultural policy and market liberalization as well.
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