Case Study: Sanchez Farm

Which came first, the chicken or the egg?

Sanchez Farm Company History

How it all began

Dra. Ofelia Sanchez, a dentist in Orion Bataan by profession, entered the agribusiness sometime in the 1980s. She wanted to find a convenient way to supplement her income as a dentist, so she decided to look into backyard farming. Dra. Sanchez initially invested about P3840 into 200 heads of chicken and a pig. In less than 45 days, Dra. Shanchez was able to re-coup her initial investment on her chickens by selling them to local distributor who supplied chickens to the local wet market. She was also able to sell her single pig after 4 months. Because of the fast return on investment (ROI) and relatively simple upkeep, Dra. Sanchez decided to become a commercial backyard raiser of chickens.

Farm A and growing pains

With the help of her husband Engr. Ernesto Sanchez, who passed away in 2002, Dra. Sanchez setup her first chicken farm in Pilar, Bataan in 1992 with an initial capacity of 500 heads. This farm is currently referred to as Farm A. Both husband and wife divided the work of running the farm between them, Engr. Sanchez took care of supervising the farm during the day while Dra. Sanchez was working as a dentist. In the evenings, Dra. Sanchez would come and visit the farm as well as take care of the accounting and other paperwork.

Eventually, Farm A grew to having a capacity of 5000 heads of chicken. This took a lot of hard work and perseverance for both husband and wife. By increasing their chicken capacity, they also had to increase their manpower to help them run the farm. They had to closely supervise their workers in order to ensure that the chickens were being well fed and taken cared of. Dra. Sanchez and her husband took turns in supervising the farms daily operations and trained their workers on how to properly feed and take care of the chickens. One of the problems that they noticed was that some workers thinking that they can save money, did not give all the feeds to the chickens. They had to inform their workers that by cutting back on feeds, the chickens will not be able to reach their full weight in less than 45 days and that the longer it took for the chickens to reach the desired weight increased the mortality rate of the chickens. They also discovered that although the chickens are relatively easy to take care of, they are still susceptible to getting sick from colds which they can contract from humans. Also, proper temperature has to be maintained so that the chickens will grow quickly this is why proper lighting and ventilation must be maintained in the area where the chickens are being raised.

From backyard raiser to contract grower

In 1993 Dra. Sanchez put up a bigger poultry building with a capacity of 12,000 heads and in order to finance this expense they had to borrow capital from the bank.

Sometime in 1996, Dra. Sanchez realized that although they were doing well as a backyard raiser the market prices of chicken are quite susceptible to change and change depending on the season. Usually during Christmas and New Year, the prices of chicken per kilo go up and during lean months the prices go down considerably. Also, with the entry of big companies like Swift in the Bataan area, who work with contract growers to produce their chickens, these companies can easily dictate the market prices of chicken and if they wished can lower it to a point which will make it unprofitable for backyard raisers to continue with their business. This is when Dra. Sanchez decided to become a contract grower for Swift, so that regardless of the season she will always have a fixed price for her chickens thru the year.

In 1996, she increased the capacity of the farm to 20,000 heads by building another poultry building to meet the minimum requirement of Swift Foods Inc.s breeding facility. By entering into a contract grower agreement with Swift Foods Inc., she was able to pay off her debts in the bank.

Dra. Sanchez entered into the contract grower agreement with Swift Foods, Inc. in 1996. The contract grower agreement with Swift Foods, Inc. requires that once the same batch of chickens reached its 40th day, the batch should weigh an average of 1.68 kilos/chicken. Swift pays P5.50/chicken as growers fee. Under this agreement, the farm has a mortality rate of 5%. If the farm has a mortality rate of less than 5%, Swift pays P2.00/chicken. Swift provides the chicks to be fed and taken cared of by the farm as well as the feeds. All the 3 farms provide chickens to Swift.

Farm B and Farm C

In 1999, Dra. Sanchezs sister offered the use of her farm in Porac Pampanga since she wanted to concentrate on her business of distribution of chickens in the Pampanga area. The agreement between the sisters was that Dra. Sanchez will utse the farm and its facilities for free. Dra. Sanchez will take care of providing the chicks, feeds and any operation expenses incurred. If any profit is made from the sale of the chickens, this will be divided between the two sisters. This farm, referred to as Farm B, has a capacity of 30,000 heads.

At first, it was supervised by one of her brothers but it did not work out. Production was good in the first 2 cycles but broke even afterwards. Thinking that the farm supervisor was not well-trained, in 2000, the supervision of the farm was transferred to one of her closest goddaughter/godson. Farm B still broke-even after 2 production cycles. Up to the present, the farm often breaks-even out of 6 cycles a year. Dr. Sanchez opted to maintain this farm because it is own by her sister and she does not really pay high rent. Aside from that, her sister is in the business of distributorship of chickens in Pampanga.

In 2001, she rented another farm in Orani, Bataan which they now refer to as Farm C. This farm can house 80,000 heads of chicken. This is the biggest among the 3 farms. This farms owner used to be a contract grower for Swift who later decided to become a commercial grower later on, but this business venture did not pan out so well. Which is why the owner decided to lease this farm to other contract growers.

Dra. Sanchez finds it more practical to rent this farm than putting up a new one because she only gets to spend for rent at P100,000/monthly instead of putting up a new one which would cost her PhP 2M.

All these three farms are under contract growership agreement with Swift Foods, Inc. until recently when they transferred over to Foster Foods Inc.

From Swift to Foster Foods

In December 2002, Dr. Sanchez decided to terminate the agreement with Swift and entered into an agreement with Foster Foods, Inc.

Foster Foods is also an integrator but comparatively smaller than the others such as Swift, San Miguel, etc. Though smaller, Dr. Sanchez finds its incentive scheme much better. Most importantly, Foster provides a much better breed of chicks. It allows them to harvest within 38 to 39 days instead of 45 days. Since the longer the harvest time, the higher the risk of the chicken getting sick.

Nature of the Company

Sanchez Farm is an agribusiness. It is a contract-growing farm contracted by Foster Food Inc. The latter provide dressed chickens to the domestic market.

Vision

The Vision of Sanchez Farm is to be the largest, modernized and most productive contract grower in the country.

Operations

The food distribution is done twice a day by the poultry attendant. He makes sure that the allocated feeds as per the integrators prescription. He also distributes water to the chickens. Water distribution is done at least thrice a day. It is more frequent when the weather is hot. Vitamins, on the other hand, are dissolved in the water. Again, the poultry attendant distributes vitamins according to integrators prescription. Lastly, vaccination is done twice in every cycle on the 10th and 20th day.

At the 45th day or less, the chickens are harvested and delivered to Foster Foods. There is an interval of 10 days before the new batch of chicks are put in the farm. During the interval, the poultry attendant cleans the area of his responsibility.

Manpower and Roles and Responsibility

1. Farm Supervisor

-Checks on the vitamins and medicines, making sure that these are properly distributed by the poultry attendant.

- Checks on the proper distribution of food and water

- Checks on the mortality rate of chickens per day

- Reports to Dr. Sanchez daily

2. Poultry attendant/Flockman

- Assigned to a specific number of chickens

- Feeds the chickens with feeds, water and vitamins and minerals

- Manually records mortality rate to the supervisor

- Each flockman is assigned anywhere from 5000 to 10000 heads of chicken to take care of depending on his capablity

3. Cook

- Cooks food for the employees

4. Guard

- Makes rounds on the farm for security

Liquidation

After the harvest, Foster Foods liquidates all the expenses on the feeds, vitamins, medicines, vaccinations, tax and cash bond. Sanchez Farm receives the net amount.

Farm Expenses

The list of expenses is as follows (this does not include the amount shouldered by Foster Foods):

1. Poultry building maintenance cleaning of the building after the harvest, Renovation if there is any, water supply check-up, power supply check-up

2. Utilities bill

3. Salary and wages

4. Daily food allowance of the employees

Location

1. Farm A - Nagwaling, Pilar, Bataan

2. Farm B Porac, Pampanga

3. Farm C Orani, Bataan

Issues, Risks, Threats

Nuggets knowledge of the chicken business

In order to motivate her employees, Dra. Sanchez has begun using an incentive scheme for her employees. The incentive scheme motivates employees to do better, to take responsibility and to take good care of the chickens assigned to them. The incentive scheme she gives to her employees is similar to the incentive scheme given by the integrator to her that is according to weight, mortality rate per harvest. She also gives incentives to employees for every kilos of chicken droppings they sell.

One of the risks of the poultry business is having a longer harvest time. According to Dra. Sanchez, if the chicken takes too long to reach the desired weight the mortality rates increase. In order to avoid this, she encourages her employees to properly feed and take care of the chickens so that the chickens will reach their desired weight in less time.

Values

The wind beneath ones wings

As would other successful entrepreneur say, it is important to have selfsupervision, dedication, motivated employees and humility. Dr. Sanchez lives continues to live a simple life. She even sleeps at the farm to be able to personally manager and supervise the farms operations.

Acknowledgement: Prof. Robin Velasco