Japfa’s Poultry Division is one
of the most vertically integrated poultry operations in Indonesia.
Its proven business strategy has become what is today a blueprint
of success which the Company is using in diversifying into
other food businesses and expanding into new markets overseas.
The Poultry division is Japfa’s
largest revenue contributor accounting for approximately 83%
of annual net sales. It is involved in three principal stages
of the production chain: feed production, DOC breeding and
The domestic poultry industry continues to offer one of the
brightest growth prospects in Indonesia. The country’s
per capita consumption of chicken is currently among the lowest
in Asia. For a predominantly Moslem population, poultry forms
the major meat diet.
Historically, poultry production
in Indonesia has risen at an average rate of 15% per annum
in the period from 1989 to the start of the economic crisis
in 1997. Post crisis the growth trend has recommenced, underpinned
by an increasing population and increased preference for poultry
For a company to truly succeed
in the poultry business, it needs to fully integrate its upstream
and downstream operations.
This comprises six production activities: raw materials procurement,
feed production, DOC breeding, chicken farming, chicken dressing
and processing, and distribution.
In Indonesia, altough there
are more than 15 feed companies, two top players (including
Japfa) control more than 70% of the total supply.
In a typical poultry feed
operation, raw materials account for 90% of the production
cost. In 1 kg of poultry feed, half is made up of corn. The
remaining ingredients are soybean, rice bran and fish meal.
The price of corn thus has a significant effect on the business
cost of a feed manufacturer. In addition, only with economies
of scale can a feed miller secure raw materials at competitive
prices in the international and local grain markets. Furthermore,
the transportation cost per unit of raw materials is reduced
by volume purchases.
The economic crisis resulted
in a rationalization of the key players in the DOC market.
Japfa has emerged from the crisis with a larger share of the
market. Because of the strong underlying demand for DOCs,
there is ample room for growth in both Broiler DOCs and Layer
DOCs into the future.
Downstream poultry production
involve the processing and distribution of slaughtered chicken.
Almost 85% of poultry in Indonesia are sold as live birds
and fresh meat at the traditional wet markets, some of which
also act as slaugther yards.
The distribution trend is
however fast changing. In recent years, Indonesia’s
rapidly growing consumer market has fostered the emergence
of fast-food restaurants all over the country. In line with
this development, there is also increased demand for poultry
processed foods, like chicken nuggets.
Production & Milling
With a total production capacity of about 1.6 million tons
per annum, Japfa is one of the leading feed manufacturers
in the country commanding over one third of the total market.
Of the total feed produced by Japfa today, 10% is used for
internal breeding opeations while the rest is sold to local
farmers and independent distributors.
The Company attributes its success in feed production to five
critical factors: a sophisticated feed technology system,
an excellent feed formulation strategy, a strong raw materials
procurement capability, a high capacity utilization rate,
and unrivalled distribution network.
Japfa places equal emphasis
on producing high quality feed and maintaining quality consistency
of its feed. The Company boasts of an advanced feed technology
system which enables it to implement a stringent quality assurance
program. By conducting regular bench-marking activities such
as laboratory tests, Japfa stays assured that the quality
of its feed is constantly higher than that of its major competitor.
In feed formulation, the
Company has a team of qualified nutritionists who are capable
of tailoring to a particular set of feed specifications. This
capability is a major benefit to customers as a precisely
formulated feed produces the best results and is also cost
As a major player, Japfa
is in an advantageous position to secure a stable supply of
raw materials at competitive prices from both overseas and
local suppliers. It buys corn from the USA, China, South Africa,
Brazil, and Argentina through forward contracts, and from
local corn producers in East Java and Lampung. The Company’s
strong procurement clout has enable it to constanly reduce
the level of inventories, thus ensuring customers of
fresher products and uninterrupted supplies.
In farming, Japfa enjoys a high level of integration with
its subsidiary, PT Multibreeder Adirama Indonesia Tbk. Established
in 1985 and publicly listed on the Jakarta and Surabaya Stock
Exchanges in 1994, Multibreeder currently operates a number
of poultry breeding farms to produce DOCs located throughtout
Indonesia. Its annual production capacity is one of the largest
in the country, and represents about 20% of the domestic market
share. Most of Multibreeder’s DOCs are sold to local
One of Multibreeder’s
major competitive advantage is the provision of specific types
of DOCs to best suit customer needs. Closely related to this
is the use of strain-specific feed made by Japfa’s feed
production plants. To ensure a consistenly high quality output,
Multibreeder imports the finest grandparent stock from the
world’s leading suppliers such as Aviagen and Lohmann
Tierzucht, through which it produces parent stock and final
stock, both for layers and broilers.
In staying ahead of the competition,
Multibreeder has achieved a high level of operational efficiency.
Two particular initiatives implemented in its breeding farms
are indeed praiseworthy. The first is a biosecurity system
which has dramatically improved sanitation standards. As a
result, the farms now enjoyed higher productivity of the parent
stock, low mortality rate, reduced loss through mishandling,
as well as consistency in DOC size and weight.
The second system aimed at
improving its breeding operations, is a performance benchmarking
program. This involves defining quality parameters by which
Multibreeder’s DOCs are compared farm-to-farm locally,
and also against farms in other countries.