Determination of Cost of Milk Production in Dairy Farming

 

Determination of Cost of Milk Production in Dairy Farming

Compiled & shared by- DR RK SINGH, JAMSHEDPUR

 

NOTE-( THE COST PRICE OF THE DIFFERENT COMPONENTS MENTIONED IN THIS ARTICLE ARE VERY OLD, IT SHOULD BE ADJUSTED AS PER THE CURENT TRENDS)

Cost of milk production means all the expenses incurred in production of milk. It is beneficial to all those in milk production enterprise and an essential information for consumers as well. USDA was probably the first to study the cost of milk production.

Purpose of Determining Cost of Milk Production:

Following are the advantages:

1. Milk producer can compare the total expenditure with other milk producers and may take judicious measures to curtail the expenditure in production of milk.
2. Milk producer will try to implement such principles of management that would help in reducing cost of milk production.
3. It helps in fixing a reasonable optimum price of milk suitable to both milk producers and consumers.
4. Creates a competitive spirit among producers which encourage them to produce milk at low cost.
5. It helps the government to fix the price per litre of milk to protect the interest of producers.

Methods of Determining Cost of Milk Production:

1. Survey method.
2. Direct observation method.
3. Formula method.
4. Survey Method:

In this method investigator goes to individual dairy farmer or dairy farm and collects the information pertaining to cost of milk production from the records maintained at the dairy farm. The data regarding expenses on feeding, labour, care, milk production, income from sale of milk, calf and manure up to 1 year or 2 calvings are collected.

The cost of milk production is determined dividing the total expenses by milk yield. Investigator has an advantage of collecting data from large number of dairy farms from the available records in shorter period of time.

2. Direct Observation Method:

An investigator, in this method, observes all the day-to-day expenses incurred on the different items of milk production and keep on recording. He does not depend on the data available from the records maintained by the farmer or on the dairy farm.

He rather studies himself all the expenses on feeding, building; equipment, care, health, labour, etc. which add to cost of milk production to determine the cost per litre of milk in a similar manner as in survey method.

This method has an advantage over the first method as the data collected by investigator are relatively correct, and actual. The limitation is that the investigator cannot record data from number of dairy farms.

3. Formula Method:

Pense et al. (1953-55) studied the cost of milk production and reported that feeding alone constitutes about 65-70 per cent of the cost of milk production. A regression equation was also developed at the Dist. Dairy Demonstration Farm, Mathura which helps to determine expenses on feeding.

X₁ = KO + K₁X2 + K₂X₃ + E

X₁ denotes the expenses incurred on feeds of a cow.

X₂ and X₃ denote the error in the equation due to effects of other factors not mentioned in the equation.

K₁ and K₂—the partial regression coefficients and KO is the constant of hypothetical population square to determine the estimated value of X₁.

These were estimated by method of least of X₁.

Sharma et al. (1987) made a study on economic evaluation of dairy units and concluded that feed and fodder was the important factor, influencing economics of milk production in different seasons. Among the inputs concentrate was the principal factor, affecting milk production in summer season, whereas dry fodder and concentrate in winter season and dry fodder and greens in rainy seasons play important role in economics of dairy units.

Factors Affecting Cost of Milk Production:

1. Milk yield per animal and breed.
2. Feeding policy-pasturing, proportion of green to dry fodder per animal.
3. Fodders and concentrates-quantity and their quality.
4. Number of milking animals on dairy farm.
5. Water, medicine etc., expenses.
6. Manage mental factors—care and supervision.
7. Labour etc.

Milk production depends on breeding, feeding and management of animals. Several other factors, e.g. calving season, age at first calving, service period, stage of lactation, number of lactation, dry period, frequency of milking, age of animals, body size, etc., have considerable influence on milk yield of animals. From economical point of view, various inputs given for managing dairy animals are chiefly responsible for the cost of milk production.

Reasons of Higher Cost of Milk Production in Urban Area:

1. High cost of feeds and non-availability of agricultural by-products.
2. High labour expenses.
3. High capital cost on buildings, equipment, etc.
4. Taxes, etc.

Reddy et al. (1980) reported net daily cost of maintenance of crossbreds, nondescript cows and buffaloes at Rs. 6.43, 2.82 and 4.2 respectively. In the same order was the cost of producing 1 kg milk as 80.07, 135.57 and 109.38 paise. They concluded that maintenance of crossbred cows was more economical due to better performance and high producing capacity compared to buffaloes and nondescript cows.

Reddy & Reddy (1982) reported that milk production was cheaper from cows than with buffaloes.

Sharma et al. (1986) reported that feeding was the major component costing on an average 60 per cent of total cost of milk production. Feeding cost was lower in semi-urban (Rs. 8.27) and rural area (Rs 5.47) compared to urban area Rs 10.8). Cost of milk production was however lower in urban (Rs 2.19) and semi-urban area (Rs 2.11) compared to rural area (Rs 2.87).

This was because of higher milk yield in urban (6.5 kg.) and semi-urban (7.0 kg.) than in rural area (4.3 kg.). Labour cost was reported to be second important component costing on an average 19 per cent of total expenditure. Miscellaneous expenses averaged at 5.63 per cent of total expenses, whereas fixed cost was 15 per cent.

Rao (1986) reported that among the different components of cost of production feeds and fodder alone accounts for 65 per cent of total expenditure in dairy farming.

Rajendran and Prabhakaran (1993) observed that cost of production of milk per litre of buffalo milk was higher as compared to cattle. The net return from crossbred cows was found more compared to Desi mainly due to difference in milk yield.

An Example:

A Murrah buffalo calved in July and producing 15 kg milk was purchased for Rs.80, 000. Calculate the cost of milk production under urban conditions.

(i) Fixed Cost:

1. Herd expenses, (a) Depreciation (b) Interest.
2. Building expenses:

About 70 sq. ft. floor area is required per buffalo. Assuming the cost/sq. ft. construction is Rs 500, therefore the total cost for buffalo shed = 70 x 500 = Rs 35,000. Now assuming the life of this shed is 50 yrs the depreciation/year would be 35,000/ 50 = 700 approx. Interest on building cost @ Rs 12% = 35,000 x 12/100 = Rs 4,200.

3. Equipment’s:

Actual non-Recurring/Fixed Cost:

(ii) Variable Cost/Recurring Expenses:

1. Fodder cost:

Say fodder requirement of buffalo per day is 40 kg and calving interval average is 400 days. Total fodder needed for the lactation period = 40 x 400 = 16,000 kg. Cost of 160 quintals fodder @ Rs. 100 per quintal = Rs. 16,000.

2. Cost of concentrates:

Say maintenance requirement is met fully by fodders. Then production need of 15 kg milk. @ 1 kg conc./2.5 kg milk = 6 kg. Total cost of concentrates required for 10 months lactation period (305 days). = 305 x 6 = 1,830 kg. conc. 400 – 305 = 95 days dry period @ 1.5 kg per day.

143 kg = Total concentrate 1830 + 143 = 1973 kg

Say the cost of conc. @ 1,400/quintal.

So the cost of 1,973 kg conc, say 20 quintals, would be 20.0 x 1,400 = 28,000.

3. Labour cost:

Man hours (labour) per cow per day are 30 minutes

Say wages of a casual labour/day Rs. 160 for 8 hours work. Therefore the cost of 30 minutes man hour work.

=160/8×1/2= Rs.10

Total labour cost for 305 days lactation length days 400 x 10 = Rs.4, 000

4. Light and Water cost:

Light and Water cost @ Rs.50 per month for 10 months

50 X 13 = Rs. 650

5. Medicine cost Rs. 1,000
6. Miscellaneous Rs. 2.000

Total Variable Cost:

Total fixed and variable cost = 25,212 + 51,650 = 76,862

Total milk produced in a lactation of 305 days = 305 x 15 = 4,575 kg.

Therefore cost/kg. milk produced = 76, 862/4,575 Rs 16.80

Rs 16.71 per kg. milk is the cost of milk production.

If the milk is sold @ Rs. 20 per kg. the profit per kg. milk will be = Rs 20 – 16.80 = 3.20.

Sangu (1995) reported that total cost incurred on crossbred cows was more than that of buffaloes and desi cows. Total cost of maintaining the animals was higher in towns than villages for all type of milk animals.

The Economics of Dairy Farming:

The parameters adopted for working out- the economics of dairy farming comprising ten animals buffalo/crossbred cow separately had been worked out on the following techno-economic basis:

1. The unit is managed by own family members with the help of one labour.
2. The average cost of milk buffalo has been taken as Rs. 60,000 and of a crossbred cow at Rs. 50.000 each.
3. The milk animals will be purchased during their 2nd lactation and in first month of lactation period.
4. Average lactation period has been taken as 300 days in case of buffaloes and crossbred cow, followed by a dry period of 100 days in buffaloes and 80 days in crossbred cow.
5. The average milk production per lactation has been taken as 3,000 litres in case of buffalo and 3,600 litres in case of crossbred cow.
6. The average sale price of milk per litre has been taken as Rs. 25.00 for buffalo milk and Rs. 20.00 for cow milk.
7. At the time of purchase, as also during the period of rearing the probability of producing male and female progeny in taken as 50: 50.
8. Insurance charges is calculated at the rate of 4 per cent per animal per year.
9. The cost of green fodder, dry fodder and concentrates has been taken as Rs. 100.00, Rs. 350.00 and Rs. 1500 per quintal respectively.
10. The cost of rearing call has been taken as Rs. 3,500.00 in the first year in case of buffalo and Rs. 4,500.00 in the first year for cross bred cow.
11. Generally the mortality of calf has been taken at 15-20 per cent during the first year, and an adult mortality 2-3 per cent.
12. Depreciation on milk animals (Livestock), buildings and equipments are calculated at the rate of 10 per cent.
13. Expenses on veterinary aids have been taken as Rs. 500.00 per animal per year in case of buffalo and Rs. 500.00 per animal per year for crossbred cow.
14. Male calves will be disposed off for making them as bullocks.
15. Dispose off milk buffalo after 6-7 lactation and crossbred cow after 7-8 lactations and replacing them with younger sock of known pedigree or from the heifers reared at the farm.
16. Labour charges have been taken as Rs. 6,000 per labour per month along with other facilities such as residential accommodation etc.
17. 1.50 hectares of irrigated cultivated land for fodder requirement will be sufficient for 10 animals.
18. One animal produces 12 quintals of farm yard nature (F.Y.M.) which will be sold as Rs. 100 per quintal.
19. Regular supply of dry and green fodder and concentrates is a pre-requisite for a successful dairy farming.

Feed and fodder requirement per day per buffalo/crossbred cow are given below:

20. To overcome gynecological problems, vaccinations and to improve overall management at the farm help will be taken from veterinary services. To reduce the calf mortality preventive deworming and to reduce age at first calving. Summer management including water bath and allowing may be practiced.

Investment:

The economics of rearing of buffaloes and crossbred cows are given in Table 14.1 keeping in view the conditions prevailing in most villages. The average investment on fixed and working capital, average milk yields, their value, value of inputs, net profit, cost of production per litre of milk buffalo and crossbred cow and input-output ratio for 10 milk buffaloes/crossbred cows separately are given below (Table 14.1).

Table. 14.1. Total Investment On Fixed And Working Capital, Average Milk Yields, Their Value, Net Profit Per Year, Cost Of Pro­duction Per Litre Of Milk Of Buffalo/Crossbred Cow And Input-Output Ratio For 10 Milk Animals Buffalo/Crossbred Cow:

1. Net profit can vary depending on the mode of marketing.
2. The input-output ratio of buffalo/crossbred cow including operating fixed cost come to 1 : 1.29 and 1: 1.27 respectively.
3. Dairy farming can be more profitable if good feed and fodder and also pastures are made available.
4. The cost of production per litre of milk of buffalo/crossbred cow including operating fixed cost come to Rs.19.68 and Rs. 16.40 Respectively.