Uncertainty in the Production Decisions of Smallholder Broiler Producers in Musanze, Rwanda

Uncertainty is a vital component of decision-making for any business. A project in the district of Musanze in Rwanda introduced new income streams and sources of nutrition for households in the form of smallholder, household broiler operations that produce 100 chickens. Prices and poultry production data were gathered from the operations.This information was used to calibrate a stochastic financial analysis model. By incorporating field data into the model, Monte Carlo simulations were performed based on the market price, input, and production data collected over an eight-month period. Historical price index data and Brownian motion were used to simulate twenty years of future prices. The forecasted inflation rates were used to vary prices for prices in the future in the calculation of net present values (NPV) and modified internal rates of return (MIRR), producing a distribution of potential outcomes that allowed for analysis of six production scenarios.The analysis found that selling manure produced by the broiler operations provided the greatest improvement to NPV and MIRR and was found to be first degree stochastic dominant (FDSD) over the baseline scenario and is risk efficient when compared by MIRR. Additionally, purchasing additional day-old chicks (DOC) to safeguard against chick mortality and selling the manure produced by the smallholder broiler operations are FDSD when compared to the baseline strategy by NPV and MIRR and are risk efficient strategies when compared by MIRR. The analysis also found that extending the grace period before paying for technical services was FDSD over the baseline scenario, but that gains did not justify altering the production strategy. Contract pricing of broilers was found to be risk efficient when compared to market price, or a mix of market and contract pricing by MIRR, but mean NPV for contract pricing was lower than the other two scenarios.