Economics of Vertical Integration in the Poultry Industry

Vertical integration can be defined as the combination of two or more stages of a production marketing chain under single ownership. It could be backward or forward integration. Conversely, vertical disintegration involves a decision to buy rather than make an input or to sell rather than use an input.The study was based on primary data obtained by survey method from 211 poultry farms consisting of 100 non-integrated farms, 71 partially integrated farms and 40 fully integrated farms in the study area. The data were analysed by descriptive and budgetary techniques. Data analyses also involved the estimation of a stochastic frontier production function and a technical inefficiency equation. Furthermore, estimation of a system of cost share equations provided additional evidence on the influence of vertical integration on cost behaviour. Budgetary analyses show that profitability increases with the extent of vertical integration. Adoption of vertical integration reduces technical inefficiency while the cost share analysis revealed that vertical integration is feed and veterinary service using, labor saving and output augmenting.