Threshold investment and firm viability: Evidence from commercial poultry farms in Nigeria
April 17, 2020 - Author: Awa Sanou, Lenis S. O. Liverpool‐Tasie, John M. Kerr
Sanou, A., Liverpool‐Tasie, L. S., & Kerr, J. M. (2020). Threshold investment and firm viability: Evidence from commercial poultry farms in Nigeria. Agribusiness.
Rapidly increasing demand for animal protein in many countries in the Global South has generated an expansion of the poultry subsector. This sector is typically diverse, ranging from small backyard farms to commercial farms of varying sizes. As the subsector expands, little is known about the performance or viability of different sizes of operation. Is there a minimum investment required to establish a viable commercial farm? Focusing on Nigeria, Africa's largest economy and most populous country, this study uses nonparametric statistics, transition matrices, and parametric estimations to identify the equilibrium poultry farm size. We find consistent evidence of multiple equilibria, particularly a high‐ and low‐stable equilibrium separated by a threshold between small and large farms. Farms are highly likely to remain in the size category in which they begin; small poultry farms are unlikely to cross the threshold and transition to large ones. We also find that larger farms are better able to withstand a price shock than smaller farms, which are more likely to cease operations in the event of a shock. These underlying dynamics should be given due consideration by governments, donors and private sector as they enter the industry or encourage others to engage in it [EconLit citations: O12‐Microeconomic Analyses of Economic Development, L11‐Production, Pricing, and Market Structure • Size Distribution of Firms, Q12‐Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets].