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Role of institutional finance in poultry development

National Bank for Agriculture & Rural Development ,AP-RO, Hyderabad
Email: [email protected]



Poultry industry provides employment to two million persons with a turnover of about Rs.22000 crore. India ranks fourth in the world with an annual egg production of 40000 million eggs and nineth in broiler production with an annual output of 1200 million broilers. Poultry is one of the fastest growing sectors in the country with an annual growth rate of 12 to 15% in broilers and 5 to 7% in egg production. India has adequate parent stock, hatcheries, equipment manufacturers, etc. required for our poultry industry. For all these achievements, institutional finance from banks also played a major role along with other factors like enterprising farmers, favourable policies of the Government, availability of quality inputs and ever increasing domestic demand for poultry products. During the last three decades poultry production has transformed itself from production by the masses to production for the masses because of high investment cost and inability to withstand wild fluctuation in feed and product prices by small farmers. Many small layer units have closed down or gone for expansion. Today layer units of 100000 birds and above under cage system are common. Poultry units for exclusive export oriented production, complete automatic feeding and watering system and cold storage with grading and packing facilities are getting more and more attention from the farmers because of export advantage, the country enjoys. The cost of egg production in our country is very low which gives a competitive edge in international market.

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The current poultry meat production of India is about 1.6 million tons amounting to Rs.8000 crore but export is negligible. Recent bird flu crisis has provided opportunity for our poultry industry to accelerate exports of poultry meat especially in view of clean chit given by World Health Organization and the Office Internationale Des Epizootics(OIE) to Indian industry. To exploit this opportunity we may require more investments in processing, preservation and marketing with cold chain facilities and other infrastructure. We may have to improve quality of our products by adoption of better technology and reduce cost of production. Better veterinary inspection, disease screening and certification facilities are required at major airports. Export is also an option to stabilize the domestic price for poultry products especially in view of wild swings in domestic demand and price. According to a study of Rabo India Finance Pvt.ltd. further growth in poultry industry hinges on consolidation, boosting poultry demand, integration with global markets and direct procurement of maize from farmers. Already broiler production under contract with integrators is gaining more and more acceptances of farmers because of its inherent advantage of risk minimization by way of assured market / income and reduced cost of production. As a result of improvement in competitiveness of poultry meat, today India has made a beginning in dressed chicken exports to Gulf countries besides normal exports of table eggs, hatching eggs, frozen eggs, egg powder, live poultry (one day old chicks), poultry equipments and machinery. As of 2002-03, poultry exports from the country has touched Rs.1,565 million although there is a potential to increase it to Rs.3 to 4 billion.

2. Institutional finance for poultry development

The credit provided by banks along with refinance support extended by National Bank for Agriculture and Rural Development (NABARD) has played a pivotal role for the poultry development in the country. Out of total credit of Rs.2928 crore disbursed for animal husbandry sector in 2003-04, about 20% is for poultry sector. Banks invariably have financed for all segments of poultry industry viz., commercial broiler / layer farms, associate hatcheries with parent stock farms, pure line breeding farms, grand parent farms with hatcheries, SPF egg production units, processing plants, feed plants etc. The refinance support extended by NABARD for poultry sector in the country during last 5 years is given below.


Refinance flow (Rs. crore)











 As an apex institution for all matters pertaining to policy, planning and operation in the field of agricultural credit, NABARD provides not only refinance assistance to banks for their lending to poultry sector but also involved in credit planning, co-financing, capacity building of officers of financial institutions, transfer of technology, conduct of studies and support to research projects of relevance. Co-financing, the new direct lending arm of NABARD is specifically meant for projects in sunrise technologies as well as in thrust areas where credit is not flowing. NABARD through its subsidiary, NABCONS, is providing consultancy services to farmers, banks and Government on payment of fees. From its Rural Infrastructure Development Fund, NABARD is also assisting State Governments to strengthen rural infrastructure including infrastructure required for animal husbandry sector.

 3. Credit opportunities

The per capita egg consumption in the country is 42 against 180 recommended by National Institute of Nutrition. Similarly per capita poultry meat consumption is only 1.5 Kg per year, which is one of the lowest in the world. The above factors along with increasing population under middle income group and increasing amount spent by them on new economy products like milk, eggs, meat, fruits and vegetables indicate huge potential for development of the sector. Besides export opportunities are also opening up for all poultry products. Hence the credit demand from this sector is expected to increase continuously in the coming years. However the demand for credit in future will be more for those investments which ensure production in line with global standards, reduction in cost of production and improve production efficiency. Some such areas requiring specific attention of credit institutions are given below.

  • Technology upgradation / new technologies - Financing for upgradation of technologies to existing units or proven, new and cost efficient technologies to new units for improving productivity, eg., automatic feeding & watering systems and environment controlled sheds to poultry farms
  • Infrastructure - Establishment of cold storages with washing, grading, labeling and packing facilities for egg exports and dry godowns in production centres need the attention of banks. GoI capital investment subsidy scheme for Rural godowns and cold storages administered by NABARD can be taken advantage of by banks and farmers.
  • Quality adherence - As adherence to international quality standards is essential for exports, banks have to finance for investments like residue testing laboratories, feed analytical laboratories, disease diagnostic laboratories, establishment of cold chain, etc., more in the coming years. While financing for processing activities, it is necessary to encourage the plants to get BIS certification and adopt Hazard Analysis Critical Control Point (HACCP) practices.
  • Value addition - Financing of units for manufacture of market demand driven value added products. Egg and meat processing sector is expected to turn around and expand in the coming years.
  • Contract farming for maize - Encouraging industry - farmers linkage through contract farming for maize with adequate credit support as this will help exporters to get assured supply of pesticide / chemical residue free maize for manufacture of poultry feed and maize farmers, better technology, quality inputs, increased production and assured market. This will also provide scope for banks for channel financing i.e., financing of a group of farmers through large poultry farmers / hatcheries / feed manufacturers who may have a better credit worthiness.
  • Integration of poultry industry - Modern large scale commercial poultry production requires very specialized management skills, large volume of finance and fine tuning amongst supply of timely, quality inputs and methods to dispose the outputs. In vertical integration system, different units / entrepreneurs (such as breeder, hatchery, feed manufacturer, farmer-producer, processing agency and marketing agency) are bound together by mutual contracts and performance guarantees as well as incentives. This system is well established in developed countries and has to be encouraged for taking advantage of the export opportunities. Establishment of such vertical integration requires huge credit support from the banking system for various players such as construction of sheds and purchase of equipments by small farmers for giving it on lease to integrators and working capital for integrators.
  • Working capital - The studies conducted by NABARD on poultry units invariably revealed that the assessment of working capital requirements by banks is conservative. Hence banks should properly assess and provide adequate working capital for poultry units. Export credit should also be extended liberally to exporters.
  • Dairy / Poultry venture capital fund - Recently, GoI has announced centrally sponsored plan scheme “ Dairy / Poultry Venture capital fund” to provide financial assistance to the development of dairy and poultry sectors with an allocation of Rs.25 crore. Under this scheme, interest free loans to the extent of 50% of the project cost will be provided to farmers by banks for projects to boost unorganized poultry sector by way of creating infrastructure facility, establishing breeding farms, setting up of poultry feed plants and marketing of poultry products. The scheme is being implemented through NABARD. For 2004-05, an amount of Rs.7.2 crore has been allocated for implementation of the scheme in selected 20 districts in 8 states. A list of eligible activities under poultry and districts selected for poultry investments are given in Annexure.

 4. Suggestions

For exploiting the credit opportunities indicated above, especially those with focus on exports, the following suggestions are given for consideration by Government.

Policy changes - Extension of freight subsidy for which is available for other meat to poultry meat exports by APEDA.

  • Agri-Export Zones - Notification of poultry belts in Andhra Pradesh, Tamilnadu, Maharashtra, etc., as AEZ and developing infrastructure required for exports
  • Extending concessions available for agriculture to poultry in all the states
  • Exemption of poultry products from market cess, octroi etc.,
  • Enforcing ban on unhygienic slaughter in all municipalities / towns, which is essential for survival of poultry meat processing industry.
  • Establishing accredited disease diagnostic laboratories and quality control laboratories in different parts of the country.
  • Involvement of Self Help Groups in promoting rural poultry and marketing of poultry products
  • Improving linkage between industry and Research institutions / Universities for solving emerging problems in poultry industry on on-going basis.

 5. Conclusion

Often, poultry industry is quoted as example of success of private sector in agriculture with industry friendly policies of Government. NABARD and Banks played yeoman service in development of this sector with credit support. But the coming years are going to be more challenging for the industry. New export market thrown open because of bird flu scare and implementation of WTO agreements should be exploited fully by the industry not only for short term profit but also for long term advantage and stabilizing domestic prices. Banks also will extend all the necessary credit support to the industry for achieving this as in the past.

Note : The views expressed in this paper are that of author only and not necessarily that of the organization, he represents.


Dairy / Poultry Venture capital fund

I. Poultry sector components for financing under Venture capital fund



Maximum total project cost (Rs. Lakh)


Establishing poultry breeding farm with low input technology birds and also for ducks / Turkey / Guinea fowl / Quail / Emu / Ostrich



Establishment of feed godown, feed mill, feed analytical laboratory



Marketing of poultry products ( specialized transport vehicles, cool room storage facilities and retention sheds for birds etc.)



Egg grading, packing and storage for export



Retail poultry dressing unit (300 birds / day)



Egg / Broiler carts for sale of poultry products



Central Grower unit ( 12500 birds / batch and 4 batches / year )


II. Districts selected for poultry investments





Uttar Pradesh

Bareilly, Varanasi



Nainital, Dehra Dun



Kolar, Bangalore Rural



Ganjam, Koraput



Batinda, Ferozpur


Madhya Pradesh

Indore, Bhopal


Andhra Pradesh

Warangal, Mahaboobnagar



Nagpur, Aurangabad, Pune



Bikaner, Ajmer, Jodhpur









Source : IPSACON-2005