The effects of feed and energy costs on broiler farm decisions: A dynamic programming approach

Abstract

AbstractWe 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.