Poultry farming

How is a broiler flock valued at the year end?

A broiler flock is a consumable biological asset: the birds are raised to be slaughtered. There is no market for half-grown broilers, so fair value is estimated from the value the birds will have at slaughter, less the feed and other costs needed to get them there and a margin for mortality and other risks a buyer would demand. For chicks placed only days before the year end, little transformation has happened and cost approximates fair value. See biological assets at fair value.

Poultry farming: a broiler flock at the year end

At the year end, a farm has 100,000 broilers three weeks into a six-week cycle. At slaughter, each bird is expected to weigh 2.5 kg, and the processor pays US$ 1.20 a kg live weight. The remaining feed, heating and catching costs are 1.10 a bird, and a buyer would deduct 0.20 a bird for mortality and margin.

The flock is recognised at 170 thousand. Because chick, feed and other costs have been expensed as incurred, the difference between those costs and the fair value is a gain in profit or loss. Many poultry companies find that, for short cycles, the result is close to accumulated cost and disclose the method and assumptions.

How are laying hens accounted for?

Laying hens are bearer animals: they are kept to produce eggs, from about 18 weeks of age, when they come into lay, to about 80 weeks, when they are sold as spent hens. Unlike bearer plants, bearer animals stay in IAS 41, so the flock is measured at fair value less costs to sell throughout. A hen's value is highest when it comes into lay and falls as its remaining laying life shortens, so the flock shows a fair value loss each period, offsetting part of the egg revenue.

Pullets being reared before lay are measured at fair value too, typically based on the price of point-of-lay pullets adjusted for age. Eggs are agricultural produce: each egg is measured at fair value less costs to sell when laid and becomes inventory, sold within days under IFRS 15.

How are breeder flocks and hatcheries treated?

Integrated poultry groups keep breeder flocks that lay fertilised eggs, which are incubated in hatcheries to produce day-old chicks. Breeder birds are bearer animals measured like layers. Fertilised eggs in incubators are undergoing biological transformation, so they are generally treated as biological assets, and day-old chicks transferred to the group's own farms are biological assets from the moment they hatch. Chicks sold to outside growers are revenue for the hatchery.

Who accounts for birds in contract growing?

Much poultry is raised under contract: an integrator supplies chicks, feed and veterinary care and owns the birds, while the grower provides the sheds, labour and utilities and is paid per bird or per kilogram, often with performance adjustments. The integrator controls the birds, so it recognises them as biological assets; the grower recognises service revenue under IFRS 15 as it raises the birds, with performance bonuses as variable consideration. If the grower bears the risks of the birds and buys the inputs, the analysis may reverse.

How is avian influenza accounted for?

An outbreak of avian influenza can force a farm to cull whole flocks and leave sheds empty for weeks. The loss in value of the birds is recognised as it happens, through fair value, and the costs of culling and disinfection are expensed. Government compensation for culled birds is recognised when it becomes receivable, separately from the loss. See grants for agriculture. Insurance recoveries for business interruption are recognised when virtually certain.

How does US GAAP differ?

Under ASC 905, broilers and other animals raised for sale are inventory at cost, and laying and breeder flocks are carried at cost and amortised over their productive lives, so US poultry companies show no fair value gains on their birds. See dairy and livestock and agriculture accounting.

This guide is general information. It is not tax or legal advice for your situation.