measuring competition along the supply … · analysis of the competitive market describes the...

Proceeding of the International Conference on Social Science Research, ICSSR 2013 (e-ISBN 978-967-

11768-1-8). 4-5 June 2013, Penang, MALAYSIA. Organized by WorldConferences.net 1454

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

[email protected], [email protected], [email protected]

Abdulrazak Umar Mu’azu 2Department of Agric. Education, School of Vocational Education Federal College of Education (T), Gusau, Zamfara State, Nigeria

[email protected]

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.

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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



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 (2001- 2011)

Year Production (‘000 tons)

Consumption (‘000 tons)

Self-Sufficiency (%)

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-old-chicks 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



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

Production Segment

Number of Company

Company Category

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



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.

Figure 1: Structure-Conduct-Performance Model of the Malaysian Poultry Supply Chain

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)

Adopted from Waldman and Jansen, (2001)



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) =



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



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 249 55.3200 72.3900 82.7967 1454

2006 281 56.0041 71.4989 79.0972 1268

2007 283 58.5775 73.4109 71.3777 1661

2008 298 61.0588 64.1906 82.7426 2230

2009 256 69.8337 79.8309 76.6358 4177

2010 255 62.7387 76.7427 84.9575 1820

2011 227 69.6449 81.9723 86.4207 2646



Average 264 61.8825 74.2909 80.5754 2179

Calculated from Firm’s Financial Data, (SSM Malaysia)

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


2005 97 37.8800 53.5100 76.8800 495

2006 124 29.1311 46.4656 68.2567 396

2007 133 34.0983 46.2985 65.9310 460

2008 139 27.9839 41.5357 62.1798 392

2009 174 31.8546 44.0280 62.9285 393

2010 200 30.3667 41.4960 58.3851 360

2011 137 40.5552 50.4210 68.9403 671

Average 143 33.1243 46.2507 66.2145 452

Calculated from Firm Financial Data, (SSM, Malaysia) 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.



Table 7: Concentration Ratio and HHI in Cumulative (%) of Market Share for Retail Level Industry in the Malaysian Poultry Sector 2005-2011


2005 123 35.6900 45.3000 61.8300 596

2006 89 49.6031 59.0759 76.1356 939

2007 93 48.8309 59.1176 76.8007 874

2008 105 24.3366 37.5047 65.7612 305

2009 129 17.3094 29.2901 54.9610 205

2010 113 40.8815 51.6111 71.7572 980

2011 81 56.2160 66.6463 84.6391 1395

Average 105 38.9811 49.7922 70.2692 756

Calculated from Firm Financial Data from (SSM, Malaysia) 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 Overall Industry

Farm Level Wholesale Retail

CAP GRW ADV CAP GRW ADV CAP GRW ADV CAP GRW ADV



2005 0.76 nil 0.96 0.45 nil 3.03 0.36 Nil 2.50 0.52 Nil 2.16

2006 0.83 0.16 1.94 0.5 0.24 2.45 0.35 0.08 2.44 0.56 48 2.28

2007 0.68 40.30 2.74 0.43 26.5 0.64 0.43 12.4 1.32 0.51 40 1.57

2008 0.6 53.5 2.81 0.43 6.5 1.27 0.36 28.3 0.25 0.46 54 1.45

2009 0.62 16.35 0.75 0.42 -25.64 0.26 0.34 -18.52 1.45 0.46 -14.5 0.82

2010 0.62 0.93 2.55 0.41 15.92 0.60 0.37 39.81 1.24 0.16 -0.92 0.65

2011 0.62 19.79 2.46 0.37 -26.47 0.94 0.42 -9.33 2.45 0.47 19.79 1.95

AVR 0.68 21.84 2.03 0.43 -0.49 1.31 0.38 7.53 1.66 0.76 20.91 1.55

Calculated from Firm’s Financial Data, (SSM Malaysia) 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 2005-2011. 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 5-digit 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 Overall Industry

Farm Wholesale Retail

ROA ROS ROE ROA ROS ROE ROA ROS ROE ROA ROS ROE

2005 5.9 4.49 12.68 5.15 2.3 8.92 0.88 0.32 1.41 3.97 2.37 7.67

2006 0.42 0.34 43.01 2.29 1.14 3.94 8.13 2.83 12.35 3.61 1.44 19.77

2007 0.01 0 0.01 3.48 1.49 5.68 2.27 1.03 3.28 1.92 0.84 2.99

2008 0.08 0.05 0.17 2.97 4.72 1.35 1.53 2.36 0.56 1.53 0.65 2.42

2009 3.87 2.42 8.19 4.32 1.83 6.75 2.17 0.75 3.22 3.45 1.67 6.06

2010 4.2 2.55 9.17 4.35 1.77 6.79 3.47 1.28 4.93 4.01 1.87 6.96

2011 6.49 4.03 14.38 3.49 1.3 5.29 4.73 1.99 7.77 4.90 2.44 9.15

Average 3.00 2.00 13.00 4.00 2.00 6.00 3.31 1.51 4.79 3.34 2.70 7.86



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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