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Unprofitable Dairy


The article “Do Producers Gain from Selling Milk? An Economic Assessment of Dairy Farming in Contemporary India” (Nilabja Ghosh et al, EPW, 24 June 2017) asks an apt question with a just answer.

Dairy development initiatives under the Operation Flood programme replicate the Anand pattern of dairy cooperatives across the country, seeking to increase milk production using modern dairy farming practices like cross-breeding desi cows with high-yielding cows through artificial insemination.

Various rural development programmes patronise and implement dairy farming for milk production as a livelihood provision instrument. However, with central poverty alleviation schemes offering loans for dairy farming, income from a two-crossbred-cow dairy unit offers only a meagre surplus over expenditure and loan servicing.

Central loans are availed of by preparing proposals that demonstrate the proposed unit’s viability. Expenditure and income are calculated, and only if the proposal shows a route to profit is a banker convinced that repayment of the loan is possible, after retaining profit margins. In preparing such a proposal, certain realistic assumptions must be made, based on the area where the farm is proposed. In undergraduate courses of veterinary science and animal husbandry, such proposals are made as an exercise. Such exercises have shown that selling milk is not economically viable. With the following assumptions, facts, and computational method, the proposition that “dairy farming is not profitable” can be verified.

A unit’s economic life is five years. Cross-bred cows can only be reared economically through six or seven lactations. Assuming a 360-day year for ease of calculation, the average lactation (milk production) period is 300 days followed by a dry period (no milk production) of 90 days.

We neglect labour cost as farmers and their families typically run small units. Income from sale of calves is also neglected as it compensates the cost of rearing. The shed must enclose at least 40 square feet per animal. Two aluminium buckets, an aluminium milk can and a chaff-cutter are the minimum required purchases. An average animal weighs 350 kg. Feed required depends on whether an animal is milch or dry, on their body weight, stage of lactation, milk yield per day, and the fat percentage of milk.

A bank can sanction a loan of up to 90% of capital expenditure. The principal amount is usually to be repaid in five yearly instalments. Animal insurance premiums are typically 2% of the sum insured per annum.

To calculate profit and surplus after loan service, certain values must be
assumed or specified. The method is as follows. First, capital expenditure includes the cost of two milch animals, the cost of constructing a shed with locally available cheap materials, and the cost of equipment. Feed cost (including cost of green fodder, dry fodder and concentrates) per day per animal, whether milch or dry, is computed separately. The total number of lactating days and dry days for two animals are computed.

Operational expenditure includes the total feed cost (feed cost per day total number of days, with the corresponding values for milch animals and dry animals to be considered), insurance premiums, veterinary aid and depreciation in capital expenditure.

Gross income is computed annually to include revenue from sale of milk (total lactating days daily yield rate per litre), and from sale of manure (total manure produced per year price of manure). Net income, then, is computed annually deducting operational expenditure from gross income.

After interest costs are computed (gradually decreasing due to payment of fixed principal per year) one can arrive at the annual repayment amount (principal plus interest). The surplus, then, is the repayment amount deducted from the net income. Typically, it works out to its lowest points in the first and the fifth years (an average of ₹15,000 annually) and is at a higher level through the interim years (an average of about ₹25,000 annually).

It is surprising that research and development professionals in the livestock sector are not willing to accept this harsh reality. This stems from fear for their standing as dairy development professionals. As a result, research on this issue, negligible as it is, is either biased or not sufficiently credible to consider, leaving one baffled.

Samares Kumar Das

Updated On : 11th Aug, 2017


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