K&N's Leads Industry Growth in Pakistan

13 August 2011

The growth of Cobb distributor K&N's in Pakistan has provided a model for the development of the country's poultry industry, which rates among the top ten producers in the world. A prifle of the company is features in the latest issue of Cobb Focus. More than 45 years ago, Khalil Sattar recognised the potential to move from domestic to industry scale production and his company has triumphed through many ups and downs in the market. Today K&Ns is the epitome of a fully vertically integrated poultry business from the production of Cobb parent stock to the chain of highly rated K&Ns Chicken Stores selling chicken and value-added chicken products in 15 of the largest cities in Pakistan. It was all so different when the founder, Khalil Sattar, a college student, began a small broiler farm with 1000 chicks in 1964. At that time, there was no commercial poultry production in Pakistan. All chickens were backyard poultry known as Desi, grown mainly by families in small numbers around their own homes in the villages.

Adil Sattar (second left) and his father Khalil (second right) with Duncan Granshaw and Mohammad Ismail of Cobb at one of K&Ns stores in Lahore.

Possibly the worlds largest chick billboards - 18 x 6m (60 x 20ft) - as displayed in Karachi, Lahore and Islamabad

Pakistan was a young independent nation, and malnutrition was a major problem, with one out of four children dying before the age of five. Poultry would provide the quickest and least expensive source of the protein needed to improve nutrition and Khalil Sattar had the vision to see this potential. His first flock was reared in a spare shed at his familys edible oil business. His success in selling these broilers to local hotels encouraged him to expand his farming activities, confounding the perception at the time that farm-grown chickens were inferior to backyard poultry or birds bought at the roadside and slaughtered under Halal rules in front of the customer. However, this was very much a start-up venture for Khalil. With availability of day-old chicks limiting industry growth, he decided in 1974 to move into breeding and, regarding eggs as the best form of protein, he began supplying commercial egg producers with day-old pullet chicks. His aim was also to put the industry on a sound footing, making it commercially viable. His initial venture with layers took him to the Babcock Corporation located in Ithaca, upstate New York. Since 1974, through an exclusive franchise agreement, K&Ns is the sole producer and distributor of Babcock pullet chicks for Pakistans market. Broiler breeding began in 1981 to increase the supply of day-old broiler chicks to commercial broiler farmers. At that time K&Ns was selling broiler chicks to farmers who grew them for five to six weeks. The business focus then was on increasing volume important commercially for K&Ns but also developing a strong backbone for the industry.

In 2001, K&Ns returned to broiler growing with larger scale, controlled-environment facilities, which laid the foundation for this type of production in Pakistan. Up to then, most producers had less than 5,000 broilers per shed, fed them manually and usually housed birds in thatchedroof sheds. Currently K&Ns has six broiler growing facilities, each with a capacity for 250,000 to 300,000 birds. The Cobb 500 broilers are grown to 36 days, averaging 1.87kg with a 1.75 to 1.85 feed conversion ratio. For all the farms and other operations, back-up generators are essential as power breakdowns occur regularly, can be unpredictable and last six to eight hours at times. K&Ns strong commitment to cooperation and industry development encouraged new entrepreneurs, pushing up demand for day-old broiler chicks. This lead to increased placement of parent stock, so that in 2007 Pakistan was one of the top 10 poultry producers in the world with over eight million broiler parent stock producing more than 800 million birds a year. The expansion had also been triggered by high prices following the drastic drop in production in 2004/05 when Pakistan suffered badly from bird flu.

K&Ns processing plant

K&N's grandparent farm near Abbottabad

With over production in 2007/8 and a reported bird flu case in a remote area, poultry prices crashed once again. Add to this a 68 per cent increase in feed cost and heavy losses were made with a 40 per cent reduction in production in 2008/09. Day-old chick price at the end of 2008 dropped to between one and four Pakistani rupees (PKR; 2008: PKR80 = US$1) with some breeding companies even giving away day-old broiler chicks against a production cost of over PKR20 per chick. Consequently, almost 40 per cent of producers closed, reducing the supply of day-old chicks and increasing their price. As demand recovered, there was a shortage of parent stock. This led in 2008 to K&Ns reaching an agreement to become a Cobb grandparent franchise producing Cobb 500 parent stock for their own breeding programme and supplying other breeding companies to help rebuild the industry. "The decision was made after splithouse trials with both Cobb and competitor breeds, assessing parent stock performance, broiler feed conversion and growth rates," says Khalil Sattar, chairman and chief executive of K&Ns. "We discovered the closest international competitor of Cobb required superior quality pellets and high density feed, which could not be readily and extensively made available in the country with the marginal nature of nutrition," says Adil Sattar, executive director of K&Ns. "Broilers of other breeds did not compete well as we found the Cobb 500 broiler to be the most cost-effective. On the breeding

side, Cobb parent stock performed as well as any other and consequently, we chose Cobb. "We feel that with Cobb 500 in Pakistan, we can contribute positively towards enabling farmers to produce a live kilo of chicken at least cost and in the most efficient manner." In 2011/12 K&Ns expects to produce 80 million layer and broiler chicks. In the 1960s and 1970s, obtaining safe, reliable sources of poultry feed was an insurmountable challenge in Pakistan. This led Khalil to set up his own feed mill to produce feed for K&Ns operations at Karachi in 1971. With the growing need of feed for the integrated production operations in Central Punjab province and Northern areas of the country, a feed mill established by a multi-national company at Lahore, was acquired by K&Ns to take advantage of low-cost feed ingredients available in the Central part of Pakistan. The growth of commercial poultry production through the decades changed the mindset of consumers towards farm raised broilers and eggs, helped by lower prices and greater availability. Today, Desi chicken and eggs are produced in lower volumes and considered more of a delicacy. Yet the strength of the live/wet chicken market culture, the negligible overheads of roadside sales a butchers knife costs less than US$1 and the reassurance of Halal slaughter remain significant influences slowing the uptake of processing, says Adil Sattar. Practical problems, particularly the limited availability of cool chain facilities and frequent power breakdowns, have to be overcome with production and distribution of processed products inevitably involving high overheads. "Earlier, within our industry, poultry processing was considered a non-viable poultry business activity as many firms had tried but ended up closing down their operations," says Adil. "At K&Ns, we endeavoured to develop the market, and other companies are now looking to start processing operations." Today, chicken is the most popular protein source in Pakistan, primarily through the industrys growth and success leading to lower cost and widespread availability, with per-capita consumption about 7kg (15.4lb) per year. The tradition is to eat chicken at home, always skinless cooked in curries, with rice or barbecued. Restaurants offer local cuisine including a variety of curries, barbecue dishes and different types of rice, with a number of upmarket cafes and restaurants serving western cuisine and many of the international fast food caterers such as McDonalds, KFC, Pizza Hut, Nandos, Hardees and Subway also present.