An Economic Analysis of Milk Production Across Different Herd Sizes of Buffaloes and Crossbred Cows in Middle Gujarat

This study is based on primary data collected from the dairy farmers during the agricultural year 2018-19 by interviewing the respondents through a pre-tested structured schedule.  A multi stage random sampling design procedure was adopted for the study to select the ultimate sampling units. In the first stage, among the nine districts of Middle Gujarat, three districts namely Anand, Kheda and Panchmahal were selected as they constituted highest milk production (Table 1). At the second stage, two talukas were randomly selected from each selected district. In the third stage, four villages were selected purposively ensuring that these villages have buffaloes as well as crossbred cows in the selected talukas. In the fourth stage, from a set of four villages chosen, falling under each taluka, 40 household, 20 each having buffaloes and 20 crossbred cows, were selected in such a way that from each selected category of marginal (1-2), small (3-5), medium (6-10) and large (above 10 milch animals) farmers, 05 households with buffaloes only and 05 households with crossbred cows only were ensured (Lal and Chandel 2016). The classification of categories was done according to possession of milch animals. Thus, in all, 240 respondents (59 marginal, 60 small, 59 medium and 62 large) spread over 24 villages of three districts comprised as the ultimate sample size.
 

 
Mathodology
 
Budgetary technique was used to estimate cost and returns of milk production. The total cost was divided into fixed and variable costs.
       
The values of inputs were recorded as reported by the farmers after its verification and the procedures used for the computation of the values are indicated below:
(a) Family labour was valued at the rate of casual labour prevailing for different operations in the sample villages.
(b) The value of farm produced green fodder, dry fodder and concentrates were imputed on prevailing market prices, whereas purchased green fodder, dry fodder and concentrates were valued at the actual price paid for it.
(c) Depreciation charges for animals were worked out according to the straight line method.
(1) Depriciation rate on milch animals was calculated as follows:

(i) Crossbred cows-8 per cent (productive life 12.5 years),
(ii) Buffaloes-10 per cent (productive life 10 years).
(d) Depreciation on cattle shed was calculated at the rate of 5 per cent per annum on kachcha shed and 2 per cent per annum on pakka shed.
(e) Depriciation rate on the dairy equipments were calculated as follows:
(i) Manual chaff cutter-16 per cent (productive life 6 years)
(ii) Power driven/pperated chaff cutter - 10 per cent (productive life 10 years).
(iii) Buckets - 20 per cent (productive life 5 years).
(iv) Milk cans - 20 per cent (productive life 5 years).
(v) Ropes - 100 per cent (productive life 1 year).
(vi) Milking machine - 10 per cent (productive life 10 years)
(f)  Interest on working capital was charged at the rate of 12 per cent per annum for the duration of the dry period of animal. During the milking period, the interest on working capital was not taken into account, as
that was the period when there was a current cash flow of income to the dairy farmers.
(g) Interest on owned fixed capital was calculated at the rate of 10 per cent per annum.
(h) The joint cost was apportioned on the basis of the Standard Animal Units (Sirohi et al., 2015).
Other cost concepts used:     

(1) Gross cost = Total variable cost + Total fixed cost
(2) Net cost = Gross cost - Value of dung
(3) Gross returns = Quantity of milk ´ Market price of milk
(4) Net returns = Gross returns - Net cost
 
Per litre cost of milk production:  
Estimation of break-even output:

Cost structure
 
The details about component wise costs for milk production of milch animals on different size of farms are studied and the results are furnished in Table 2 and Table 3 for buffaloes and crossbred cows, respectively.
 

 

       
A perusal of Table 2 indicates that the overall gross maintenance cost for milch buffaloes was Rs 1348.03 per farm per day which was Rs 267.39, Rs 727.54, Rs 1389.06 and Rs 3060.87 for marginal, small, medium and large categories, respectively. Thus, contrary to the hypothesis H₁, (i.e., there was no difference between cost of maintenance for different types of milch animals and across different types of herd size categories) this was mainly on account of more investment made by large farmers on human labour and inputs like fodder and concentrates.
       
The overall total fixed cost was Rs 164.11 (12.17 per cent) and total variable cost was Rs 1183.92 (87.83 per cent) per farm per day. On an overall basis among the different items of cash expenditure, the cost of feed and fodder ranked first with 69.53 per cent of the total variable cost followed by labour cost (15.82 per cent). Among the marginal and small categories of farms, the labour cost included only the cost of family labour as there was no hired labour due to smaller holding size of milch animals. The highest expenditure was observed on concentrate mixture (42.95 per cent) due to its high cost compared to dry and green fodder. These findings are in line with Vishnoi et al., (2014), href="#lal_2016"> Lal and Chandel (2016), P. Anbukkani (2016), Sunil et al., (2016) and Makadia et al., (2018). The other items of cash expenditure included electricity charges (0.73 per cent), veterinary cost (0.68 per cent), interest on working capital (0.14 per cent) and miscellaneous cost (0.92 per cent) per farm per day.
       
Overall average milk production and marketable surplus per farm per day were found to be 40.60 litres and 38.72 litres, respectively. Overall price of milk was found to be Rs 45.04 per litre which was Rs 44.80, Rs 45.25, Rs 45.45 and Rs 44.68 for marginal, small, medium and large categories, respectively. A positive association was observed between price of milk Rs per litre and farm sizes due to variations in fat content in milk.
       
Overall average net return per farm per day was Rs 414.77. Category wise net return was Rs 34.01, Rs 147.73, Rs 282.44 and Rs 1206.98 for marginal, small, medium and large categories, respectively. It indicated that net returns were maximum on large category and minimum on marginal category of farms. Reasons attributed to these finding may include rearing better quality animals, higher milk production per animal per lactation, adoption of better management practices, selling of milk at remunerative price and input supplied by dairy co-operative at subsidized rate. These findings are in consonance with Lal and Chandel (2016), Sunil et al., (2016) and Makadia et al., (2018).
       
Overall cost of milk production was worked out to be Rs 34.14 per litre per farm per day. It was highest for small herd size category (Rs 36.80) and lowest for large herd size category (Rs 31.44). Therefore, hypothesis H₂ (i.e., there was no difference between cost of production per litre of milk for different types of milch animals within and across different types of herd size categories) is rejected. This is in conformity with the earlier study carried out by Makadia et al., (2018).
       
A perusal of Table 3 indicates that the overall gross maintenance cost for crossbred cows was Rs 1973.95 per farm per day which was Rs 281.87, Rs 750.30, Rs 1446.82 and Rs 5081.23 for marginal, small, medium and large categories, respectively, leading to rejection of the H₁ hypothesis that there was no difference between cost of maintenance for different types of milch animals and across different types of herd size categories.
       
The overall total fixed cost was Rs 242.97 (12.31 per cent) and total variable cost was Rs 1730.98 (87.69 per cent) per farm per day. On an overall basis among the different items of cash expenditure, the cost of feed and fodder ranked first with 66.10 per cent of the total variable cost followed by labour cost (17.85 per cent). Similarly to buffaloes, in case of crossbred cows, among the marginal and small categories of farms, the labour cost included only the cost of family labour as there was no hired labour due to smaller holding size of milch animals. The per cent share of feed cost increased with increase in herd size while labour cost decreased with increase in herd size. These findings are in line with Vishnoi et al., (2014), Lal and Chandel (2016), P. Anbukkani (2016) and Sunil et al., (2016).
       
Overall average milk production and marketable surplus per farm per day were found to be 117.09 litres and 115.14 litres, respectively. Overall price of milk was found to be Rs 27.54 per litre which was Rs 27.36, Rs 26.82, Rs 27.31 and Rs 28.59 for marginal, small, medium and large categories, respectively. A positive association was also observed in case of crossbred cows between price of milk and farm sizes due to varying fat percentage in milk.
       
Overall average net return per farm per day was Rs 1374.20. Category wise net return was Rs 150.87, Rs 381.30, Rs 820.31 and Rs 3887.54 for marginal, small, medium and large categories, respectively. It indicated that net returns were maximum on large category and minimum on marginal category of farms. Reasons behind these could be attributed to rearing better quality animals, higher milk production per animal per lactation, adoption of better management practices, selling of milk at remunerative price and input supplied by dairy co-operative at subsidized rate. These findings are in line with Lal and Chandel (2016) and Sunil et al., (2016).
       
Overall cost of milk production was worked out to be Rs 17.32 per litre per farm per day which was Rs 15.15, Rs 17.78, Rs 18.25 and Rs 17.84 for marginal, small, medium and large categories, respectively. The analysis leads to rejection of the H₂ hypothesis that there was no difference between cost of production per litre of milk for different types of milch animals within and across different types of herd size categories.
       
 
As far as the productivity of milch animals is concerned, the average productivity of milch animal was more for crossbred cows as compared to buffaloes. Per day maintenance cost was found to be high in case of crossbred cows as compared to buffaloes. The net returns from crossbred cows were more than that from buffaloes indicating higher profitability in rearing of crossbred cows in the study area.
 
Per litre cost of milk production and price of milk
 
It is the cost price relationship (the cost price ratio) that generally decides the economic prosperity and degree of commercialization on the farms. Given the price, offered by the market mechanism to a unit of output, the farmer’s prosperity depends upon his capacity to produce output at a lesser cost than the market price. The estimated costs of milk production per litre is given in Table 4 for buffaloes and Table 6 for crossbred cows.
 

 

       
It can be observed from Table 4 that the overall gross cost per litre per farm per day of buffalo milk was Rs 34.14 which was Rs 33.35, Rs 36.80, Rs 35.14 and Rs 31.44 for marginal, small, medium and large categories, respectively.  The overall net returns per litre per farm per day of buffalo milk observed was Rs 5.12 which was Rs 0.11, Rs 3.06, Rs 6.49 and Rs 11.12 for marginal, small, medium and large categories, respectively.
       
It can be observed from Table 5 that the overall gross cost per litre per farm per day of crossbred cow milk was Rs 17.32 which was Rs 15.15, Rs 17.78, Rs 18.25 and Rs 17.84 for marginal, small, medium and large categories, respectively. The overall net returns per litre per farm per day of crossbred cow milk was Rs 8.07 which was Rs 7.33, Rs 7.29, Rs 7.69 and Rs 9.79 for marginal, small, medium and large categories, respectively. The foregoing analysis leads to rejection of the hypothesis H3 that there was no difference between net returns per litre of milk production for different types of milch animals within and across different types of herd size categories.        
 

 
The overall market price of milk per litre per farm per day for buffaloes and crossbred cows were Rs. 45.04 and Rs. 27.54, respectively, which was higher than the overall per litre cost of milk production. Therefore, buffalo and crossbred cow milk production were remunerative in the study area. This is in conformity with the earlier study carried out by Patel et al., (2015).
 
Input-output ratio
 
The input-output ratio reflects the criteria for economic viability of the milk based on return per rupee invested. Input-output ratio indicates the relation between the quantity of inputs used in the production and the quantity of final output, i.e., return per rupee invested. Input-output ratios for buffaloes and crossbred cows were worked out from the cost and returns analysis for different herd size categories given in Table 6.
 
A perusal of Table 6 indicates that on an average the overall input-output ratio for buffalo milk was 1:1.26 while in case of crossbred cow milk, it was 1:1.53 on the basis of total cost. It indicated that an investment worth Rs 1 on all the inputs used in the production of buffaloes and crossbred cows milk yielded an output worth Rs 1.26 and Rs 1.53, respectively, suggesting that crossbred cows were more profitable than buffaloes in the study area. Similar results were reported by Parmar et al., (2010). A positive association was observed between farm size categories and input-output ratios for both buffaloes and crossbred cows, because as herd size increased, returns over investment also increased. This trend is in line with Makadia et al., (2018).
 
Break-even output levels
The break-even analysis was done to estimate the minimum production level required to cover the total cost. In other words, it is that point of production where the farmers neither gain profit nor incur loss. The break-even analysis was carried out for different herd size groups and the results are presented in Table 7 for buffaloes and Table 8 for crossbred cows.
 

 

 
A perusal of Table 7 indicates that total milk produced by buffaloes per farm per day was 7.93, 20.51, 38.17, 97.23 and 40.60 litres on marginal, small, medium, large and overall farm size category, respectively, which were higher than the required break-even output levels at 2.31, 6.30, 12.62, 21.74 and 10.33 litres, respectively. The table further indicated that the break-even level of output estimated was about 29.14, 30.72, 33.06, 22.36 and 25.46 per cent of the total output on marginal, small, medium, large and overall farm size category, respectively.
 
A perusal of Table 8 indicates that total milk produced by crossbred cows per farm per day was 16.90, 42.78, 82.89, 305.68 and 117.09 litres on marginal, small, medium, large and overall farm size category, respectively, which were higher than the required break-even output levels at 2.87, 8.20, 16.24, 43.21 and 19.05 litres, respectively. The table further indicated that the break-even level of output estimated was about 17.00, 19.16, 19.59, 14.13 and 16.27 per cent of the total output on marginal, small, medium, large and overall farm size category, respectively.
 
Crossbred cow owners were able to cover their total expenditure at a lower point than the buffalo owners due to the fact that the crossbred owners realized higher milk production as compared to buffalo owners.

The present study will facilitate in knowing the characteristics of the milk producers and will serve as guidance for the policy planners and extension professionals for planning and implementing programme related to peasantry modernization. There is an ample potentiality of raising milk production on the sample farms through optimum utilization of resources like human labour, fodder and concentrates and with better management practices. Fodder and concentrates were the three major cost components which constituted about 70 per cent of the total maintenance cost both for buffaloes and crossbred cows. Hence, these inputs should be made available to the dairy farmers at reasonable prices. For increasing farmer’s income and eventually livelihood, crossbreds cows should be encouraged in the study area as they have edge over buffaloes in net returns. Regular studies on economics of milk production should be carried out which will help in rational pricing policy.