Journal
AGRICULTURAL ECONOMICS
Volume 52, Issue 2, Pages 249-264Publisher
WILEY
DOI: 10.1111/agec.12617
Keywords
dynamic programming; food systems; Nigeria; poultry production
Categories
Funding
- United States Agency for International Development (USAID) under the Feed the Future initiative through the Nigeria Agricultural Policy Project [AJD-620-LA-15-00001]
- US Department of Agriculture, Economic Research Service
- US Department of AgricultureNational Institute of Food and Agriculture (NIFA)
- Michigan AgBioResearch
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The optimal strategy for medium-sized farms facing rising input costs in the poultry industry in Nigeria is to sell and exit the industry, while it remains profitable for large firms to stay in the sector. Broiler farms need larger batch sizes to withstand input price increases and rising energy costs.
We explore the decision-making process of commercial poultry enterprises facing rising input costs in Nigeria. Using a cross-sectional dataset and a 1-year weekly panel of farm inputs and prices, we employ a discrete time, discrete control and state space dynamic programming (DP) model, disaggregated by farm size, to determine optimal decisions. In the presence of high feed costs and increased energy use, the optimal strategy for medium-sized farms is to sell and exit the industry. However, it remains profitable for large firms to stay in the sector. The findings indicate that broiler farms need larger batch sizes to withstand input price increases and rising energy costs. While Nigeria has seen a rapid growth of commercial livestock enterprises, the sensitivity of the poultry industry to changes in feed prices is a major threat to the sector and highlights the importance of acquiring higher batch sizes and employing other risk management tools, such as contracts to forward price input.
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