Feasibility Study on SmartFarm management control system PDF

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Summary

SmartFarm is a management control system for broiler farms which use the tunnel-ventilated housing types or are more commonly called Climate-Controlled System (CCS) farms. It is programmed to gather information about several factors deemed to be highly crucial in farm production such as temperature,...

Description

I The Business Concept

Farm Watchers aims to be the best farm solutions provider by offering services and by manufacturing locally-made relatively cheap but innovative equipment and systems that perfectly suits the management style of Filipino farmers. The company positions itself as a pioneer Filipino in envisioning a more efficient way of farm management in the Philippines, through the use of the latest and most innovative technology invented and manufactured by Filipinos. Conceptualized by a group of engineering students in a UP Diliman Technopreneurship class under the mentorship of instructors from Massachussetts Institute of Technology and Institute of Electrical and Electronics Engineering Professor Dr. Luis Sison, the business idea started from the students’ passion of dealing with problems experienced in broiler farms. Such problems include high mortality, which in turn result to big losses, due to the high variability of environmental conditions further worsened by the effects of climate change. Hence, the group set up the company’s flagship product, SmartFarm which is a broiler farm management control system . In its most basic form, the product is a monitoring-warning system for broiler farms which use the tunnel-ventilated housing type; such farms are more commonly called as Climate-Controlled System (CCS) farms. SmartFarm can be integrated with other equipment systems essential in managing a farm, such as feeds control, water control, etc. – the reason that it is, as a whole, a management control system. This capability of SmartFarm to be integrated with existing systems of equipment make it all the more suitable for CCS farms as these use a wide array of technology necessary in managing and operating the aforementioned type of farm. Smart Farm is programmed to gather information on factors essential in the management of the farm. It also lets the people concerned to monitor the gathered information. It also reports to people concerned on the readings and activities conducted by the controller. The main components of the control system are the Smart Farm Controller, the Smart Farm Base Station, and the Smart Farm Sensor Nodes/Probes/Meters which are all necessary in an operational Smart Farm Management Control System . It also has peripheral products such as power adaptors, power cables, sensor cables, and back-up power supplies. Assistance in setting-up the system, integrating it to the farm’s existing equipment, and equipment management training along with its regular maintenance, inspection and repair, and calibration will be provided. Some of these services are free within the warranty period and the customers 1

will be charged accordingly for these after the warranty period expires. Farm Watchers has their own website which serves as the general user interface to our system. The customers can access it for free. They log in to view the status of their farm, past data logs, farm history, and more.

Input Features The Smart Farm Sensors/Meters gathers data on factors that are relevant and essential in managing a poultry farm. 

Temperature and humidity monitoring (three sensors)

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Static pressure monitoring (one sensor)

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Wind speed and direction monitoring (one wind meter)

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Bird weighing (three weight scales)

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Feed consumption monitoring (three dump scales)

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Water consumption monitoring (one water meter)

Customer may opt to add some optional sensors. 

Ammonia level monitoring

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Carbon dioxide level monitoring

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Oxygen level monitoring

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Carbon monoxide level monitoring

Output Features The Smart Farm Base Station has warning capabilities informing attendants, managers, and owners of the farm if there are any problems detected regarding the factors being monitored. But these problems will be solved and regulated by the appropriate equipment of systems integrated with the control system. 

Climate Control System (ventilation fans, cooling pads, cooling pumps, exhaust fans)

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Heating System (Radiant/infrared heaters or space heater)

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Lighting Program

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Pan Feeding System (Automatic pan feeders)

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Drinking System (Water valves)

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Medication System

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Remote Communication Features Readings from the sensors and meters will be reported to and monitored by the people concerned through the Farm Watchers website.

Network Connection Data from the sensors up to website as well as storage of the information in the cloud travel through the following: 

Ultra High Frequency 433.98 MHz

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GSM connection

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Internet connection

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II Business Strategy

A. Macro-environment Analysis: The STEP Analysis Social Together with rice as Filipinos’ staple food, chicken is one of the food necessities in the Philippines; one contributing factor is also the country’s relatively large Muslim population as their culture limits their choice of meat products to non-pork. The self-sufficiency ratio (SSR = production x 100/(production + imports - exports)) for dressed chicken in the Philippines dropped to 90% by 2011 from 93.56% in 2009 (Source: BAS.gov.ph). The growth rate of poultry production in volume from 1990-2010 is at 3-4%. But among the meat product consumption in the country, poultry consumption has been the fastest with growth in poultry consumption has averaging 3.7% from 1990-2010 and accelerated to 6% over the last five years due to high costs of beef and pork. It is unlikely however that the future consumption growth will be as high as in the past five years because of the effects of animal diseases such as highly pathogenic avian flu. It is concluded in one study that the annual increase in poultry consumption will be at 4% at the highest. (Source: ASEAN Dynamism: Agricultural Transformation and Food Security 2014 – Philippine Country Study, January 2013). Despite the last statement, figures still show that demand increases faster than the supply of chickens. Increasing production of broiler to meet the increasing demand may mean an increase in the number of broiler farms in the country. Besides this social factor, there is also a notion that most Filipinos patronize imported products more and consider locally made products inferior.

Technological The biggest poultry integrators in the broiler industry, San Miguel Pure Foods, Inc. and Bounty Fresh Food, Inc., and Foster Foods, Inc., whose production constitutes about 70% of the whole market (wherein SMPF alone accounts for more than 40% broiler production share in the country (source: http://investvine.com/philippines-poultry-with-prospects/)), require all of their contractors to shift to using CCS technology, especially for those who plan to sign a contract with these integrators. According to these poultry integrators as well as the poultry equipment suppliers, all contractor-owned conventional broiler farms will be phased out and will be using CCS technology three to five years from now. Today, some of the conventional type farms are still meeting the integrator’s required output but it is uncertain if until when they will last. 4

On the other hand, the multi-layer CCS housing type for broiler farms is being introduced. However, the output and performance seems to be not as efficient as the east-west orientation of CCS building. Economic For the first time, the Philippines is given an investment grade credit rating by the three important private sector credit rating services – Fitch Ratings, Standard & Poor's Ratings, and Moody’s Ratings. A good credit rating means lower risk. It allows foreign investors to invest in the Philippines causing an influx of money in the country. High supply of money translates to banks giving lower interest rates which give domestic investors more access to loans. Aspiring broiler contractors can borrow the P13M – P15M capital required to build a broiler farm with CCS technology. On the other hand, the Department of Health declared last December 2013 that the Philippines remains bird flu-free (avian flu-free). Because of this, the country is a very attractive place to invest in broiler production for export to satisfy the demand for chicken in neighboring Asian countries. Political The government came up with a set of fiscal and non-fiscal incentives to attract investors, foreign and domestic, to invest capital and technology in the Philippines. In the late 2012, the Board of Investments granted the CP Foods, the local unit of Thailand’s agro-industrial giant Charoen Pokphand Foods Public Company, a “pioneer status” and allowed them to enjoy a four-year income tax holiday for its swine project and a six-year income tax holiday for the poultry farm, on top of duty-free importation of breeding stocks and genetic materials. The company, however, is required to pay the compulsory 12% value-added tax. This declaration is now under hot debate wherein those who are against this protested that this company will pose a threat on the viability of local industry players. CP Foods, being one of the largest producers of poultry in the world, has the ability to afford the most advanced technology to implement in its farms in the country. And with the benefit of the tax incentives granted to them, the company can easily import from its own suppliers of poultry equipment. Most poultry equipment distributed by local suppliers is imported from foreign countries. Some foreign corporations who manufacture this equipment chose to establish their own branch in the country. Of course, both are subject to regulations such as import duty and taxes for imported products and branch profit taxes for resident foreign corporations.

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B. Micro-environment (Industry) Analysis: Porter’s Five Forces As a whole, Farm Watcher will operate in the agriculture sector. It is an agri-business that will be operating in the poultry management equipment manufacturing industry. Let us further analyze the industry where they belong using the Porter’s Five Forces.

Threat of New Entrants Manufacturing innovative equipment for poultry farms needs heavy investment in research and development. This includes the production of prototypes and testing. It is said that rate of change of the poultry technology is almost as fast as the development of cellphones. A new product should be matched or have surpassed the performance of the existing products in the market by the time it is released in the market. Besides research and development of this kind of product will take a long time, it will be very difficult to come up with a product that can match or surpass the performance of the to-bereleased products five years or longer with the state of technology in the country. In other words, the development of a new product must be faster than the rate of change of technology in the industry. Not only in the research and development where the capital required is high but also when mass producing the product. Although there is the advantage of the country’s investment grade and possible incentives that can be granted to them, an investor will be hesitant to borrow large amount of money from banks and use it to invest in putting up a business in an industry where the existing products being sold in the market are manufactured by big and more technologically advanced companies from overseas. Establishing brand identity will also be difficult. Unless the new product is being distributed and sold by the equipment distributors of poultry farm equipment and technology who are known to be reliable and trusted by the farm owners and integrators, it will be hard to sell a new product here in the country. For a new product to be distributed and sold by these distributors, first the new company manufacturing this new product must prove to these equipment distributors that the product has followed the parameters set by the latter and the improvements are advisable for the integration with the other equipment system they sell. These distributors usually sell equipment in packages. Besides the manufacturer has followed the conditions set by the distributor, the quality and performance of the new product must exceed, or at least should be matched with that of the existing product included in distributor’s packages so that the latter product will be replaced with the new one. 6

The manufacturer of this new product can also become a distributor itself and face the risks of going against the existing ones. Furthermore, entering the industry requires a specialized skill and familiarization with how poultry farms operate and how the equipment and system implemented in their farms ’ work. With these reasons, many companies and investors choose not to enter the industry as a local manufacturer. Therefore, it is therefore concluded that the threat of new entrants is VERY LOW.

Bargaining Power of Suppliers In the Philippines, there are more than 30 manufacturing and services providers of integrated circuits (ICs), transistors, diodes, resistors, capacitors, coils, transformers, PCBs and other component in the Metro Manila alone. To name some of these are the subsidiaries of some of the world’s biggest semiconductor companies such as Texas Instruments, Philips, Amkor, and Fairchild Semiconductor but these only manufacture for export. They do not sell their products directly here in the country to buyers since these companies are registered as manufacturers only in the country. The products they manufactured are first shipped to the mother company for packaging before they are brought to their distributors to sell. There are also companies who are local manufacturers and retailers these products such as Alexan Commercial and E-Gizmo Mechatronix Center. Some of these companies can also be outsourced to manufacture specialized equipment. However, some of the products distributed by these local companies are also imported from countries like China. With these, thus, we can say that the components for the poultry management equipment manufacturing industry are readily available and easily accessible. All components of the same type from different manufacturers have the same function. However, components should be tested for compatibility with the equipment being manufactured. Some components might not be incompatible the other components of the new product. Switching to another component will prone to high switching cost because new components should go under tests due to uncertainty of compatibility. We therefore conclude that the bargaining power of suppliers is LOW despite the easy accessibility and availability of the components.

Bargaining Power of Buyers The top buyers of poultry management equipment are the biggest poultry integrators in 7

the country namely San Miguel Pure Foods, Inc. (San Miguel Foods, Inc.), Bounty Agro Ventures, Inc. (Bounty Fresh Food, Inc.) and Foster Foods, Inc. and their respective contract farmers. These integrators now only accept contractors who are willing to build a CCS farm. A few commercial farm owners can also buy these kinds of products since some of them can afford building and operating a CCS farm. For farm owners using conventional type of housing, either commercial farm owner or a contractor whose farm is performing well even without using CCS technology, they only buy monitoring-warning system products instead of control systems since most of them do not have automated systems or equipment that will be integrated with the controller. Moreover, these integrators buy their farm equipment from registered poultry farm equipment distributors such as Belmont Agri Corporation, Inoza Industries Inc., Bitrade Inc., and Val Co. Based on the average capacity of a farm and the population of broiler chicken by October 2013 (source: BAS), there are about 500-600 broiler farms in both Central Luzon and CALABARZON regions alone which produces 56% of the broiler population in 2011. About 70% of these are under the three integrators mentioned earlier. The remaining 30% are composed of commercial farm growers and contract growers under integrators operating in provincial/regional level such as Quezon Poultry and Livestock Corporation, Rizal Poultry and Livestock Corporation, Sustamina (all in CALABARZON), Vitarich (Bulacan), and Glocal Agraq Ventures, Inc. (GAVI, exclusive supplier of KFC). According to our interviewees, about 80% to 85% of all the farms in these regions are already using CCS technology. Some of the main reason why integrators are now only accepting contractors who are willing to operate CCS farms is the big difference in the production between CCS and a conventional farm. A CCS farm has average capacity of 36,000 birds per building wherein each farm has one to two buildings sized 52ft by 450ft, compared to a conventional farm which only has an average capacity of 10,000 to 20,000 birds and the number of buildings in each conventional farm varies. A CCS farm can grow an average of 6.5 to 7.5 batches a year while a conventional farm can grow 5.5 to 6.5 batches. Moreover, a CCS farm can suffer mortality rate only from 2%-4% compared with a conventional farm that can suffer 5%-7% morality rate which may exceed 10% due to climate changes and poor management. Despite higher investment costs for CCS farms amounting up to P15 Million per building, it can generate up to P18 per bird profit for farm owners. According to integrators, their contractors who invested in CCS farms can earn back their initial investment costs in about five years assuming that the contractors performed according to the integrator’s standards. Also, contractors who operate CCS farms are more likely to receive incentives from the integrators such as medicine rebates and feed 8

conversion ratio incentives. A CCS farm has better production performance compared with a conventional one because of the controlled climate inside a CCS building. A CCS building is a closed building to prevent outside environmental factors from affecting the climate inside the building. Moreover, a CCS farm uses advanced technology to monitor and regulate major factors relevant in the production such as the climate. An integrator mentioned that an investor shouldn’t think about signing a contract with them and build his own CCS farm if he is not willing to spend money for the technology essential in operating the farm. Usually, buyers of the advanced poultry equipment are serious farmers or businessmen who farm to produce at a large scale. As for the farms owned by contractors of smaller integrators and by non-integrators, only a few of them can afford building a CCS farm since they have to buy day-old chicks and feeds (though some own feed mills), unlike the bigger integrators who own Grand Parent breeder farms and feed mills. (Source: Gonzales et al.) When investors decide to invest in CCS farms and become farm owners, they usually purchase farm equipment and systems in packages together with the installation amounting up to P4Million. It is bought at the start together with the erection of the building. They do not easily substitute their controller/control system with a new product since the products they bought usually stays operational on the long term and the suppliers of these products offer repair and maintenance services. Unless the product they are currently using are already dysfunctional and there is a new product offered that can replace their old one, then that is the time that they buy a new one to integrate with their poultry system. With the things mentioned above, we could say that buyers have HIGH bargaining power.

Threat of Substitute Products or Services The only substitute for a control system is manual operation of the equipment and the systems installed in a CCS farm . However, this is prone to human error since all judgment and decisions on operating the various syste...