PRICING FOR COW AND BUFFALO MILK IN MILK-SHED AREA OF AJMER DISTRICT COOPERATIVE MILK PRODUCERS UNION LIMITED

Transcription

1 PRICING FOR COW AND BUFFALO MILK IN MILK-SHED AREA OF AJMER DISTRICT COOPERATIVE MILK PRODUCERS UNION LIMITED THESIS SUBMITTED TO THE NATIONAL DAIRY RESEARCH INSTITUTE (DEEMED UNIVERSITY) IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF SCIENCE IN DAIRYING (DAIRY ECONOMICS) BY SHIV RAJ SINGH B. Sc. (Agrl.) DIVISION OF DAIRY ECONOMICS, STATISTICS & MANAGEMENT NATIONAL DAIRY RESEARCH INSTITUTE (I.C.A.R.) KARNAL (HARYANA) INDIA 2009 Regn. No

2 Dedicated to Mother and Father

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5 ACKNOWLEDGEMENT It gives me immense pleasure to express my heartfelt gratitude to my Guide and Major Advisor, Dr. K. K. Kalra, Principal Scientist, Dairy Economics Statistics & Management Division, National Dairy Research Institute, Karnal for his timely suggestions, continuous encouragement and moral support during the entire period of this study. I feel honored to be researcher under his inspiring guidance. I sincerely thank my Advisory Committee members, Dr.S. B. Agarwal, Retired Principal Scientist DES&M Division, Dr. Ravinder Malhotra, Sr. Scientist, DESM Division, Dr. S. S. Kundu (Head) DCN Division, Dr. Gopal Sankhala Sr. Scientist Dairy Extension Division, for their guidance, valuable suggestions and cooperation throughout my research work. It s my great pleasure to thank Dr. K. K. Datta (Head) DES&M Division, NDRI Karnal for his kind cooperation during the course of this study. I express my respect to the Scientists of the Dairy Economics, Statistics and Management Division, Dr. J.P.Dhaka, Dr. D.K.Jain, Dr. N.K.Verma, Dr. B.S.Chandel, Dr. A.K. Chauhan, Dr (Mrs.) Smita Sirohi. for their guidance whenever I approached them. I express my gratitude to the Dr. A. K. Shrivastava, Director, NDRI, Karnal for providing financial assistance in the form of Institute, NDRI Fellowship. I am very much thankful to my seniors Shree Sarves, Girdhari Lal Meena, K.B. Vedmurthy, Feroz, Premchand, Raj Kumar Yogi, Babu D., Ganga Devi, Kh. Rishikanta Singh, Sunil Kumar Singh Goutam Das, for their brotherly guidance and timely help in my need.

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7 CONTENTS Chapter Title Page No. 1 Introduction Review of literature Cost of Milk Production Milk Pricing Policy Bulk-line cost 14 Methodology Description of the Study Area Geographical location Climate and Rainfall Soil Agriculture Animal Husbandry Demographic Features Co-operative Movement Sampling Plan Selection of Zones Selection of Dairy Cooperative Societies Selection of Households Collection of Data Primary Data Secondary Data Analytical Framework Estimation the Cost of Milk Production Existing Milk Pricing Policy Estimation of Bulk Line Cost and Proposed 26 Pricing for cow and buffalo milk Result and Discussion Socio-Economic Profile of Sample Households Operational Land Holding Family Size 28

8 Chapter Title Page No Herd Size Occupation Educational level Investment Pattern Cost and Returns from Milk Production Maintenance Cost of Milch Animals Maintenance Cost of Per Milch Buffalo Maintenance Cost of Per Milch 32 Crossbred Cow Maintenance Cost of Per Milch Local 32 Cow Cost per litre of Milk Production Cost per litre of Milk Production from 33 Milch Buffalo Cost per litre of Milk Production from 34 Milch Crossbred Cow Cost per litre of Milk Production from 34 Milch Local Cow Average Milk Yield Per Milch Animal Milk Yield of Milch Buffalo Milk Yield of Milch Crossbred Cow Milk Yield of Milch Local Cow Return from Dairying Returns per Day per Milch Buffalo Returns per Day per Milch Crossbred 37 Cow Returns per Day per Milch Local Cow Cost and Returns per Litre of Milk 38 from Milch Buffalo Cost and Returns per Litre of Milk 39 from Milch Crossbred Cow Cost and Returns per Litre of Milk 40 from Milch Local Cow Maintenance Cost and Return per 41 Milking Animals Cost and Return per litre from Milking 41 Animals Maintenance Cost Per Dry Animals Existing Milk Pricing Policy and Costing of Milk Existing Mixed Milk Pricing System Existing Cow Milk Pricing System 43

9 Existing Milk Union Pricing System Bulk Line Costing and Suitable Pricing for Buffalo and Cow Milk Bulk Line Costing and Pricing of Mixed 45 Milk Bulk Line Costing and Suitable 46 Procurement Price for Buffalo and Cow Milk Bulk Line Costing and Proposed 46 Pricing for Buffalo Milk Cow Milk Pricing using Different Fat : 47 SNF Weights under Proposed Pricing System 5 Summary and Conclusion Bibliography i v Appendices 1-11

10 LIST OF TABLES Table No. Title After Page No. 3.1 Demographic Features of Ajmer District Information on Operational Land Holding, Family and Herd Size of Sample Households 4.2 Distribution of Sample Household according to Main Occupation 4.3 Distribution of Sample Households according to Education at level of Head of Family 4.4 Investment in Dairying across Different Categories of Households Cost of Milk Production per Milch Buffalo per Day Cost of Milk Production per Milch Crossbred Cow per Day Cost of Milk Production per Milch Cow per Day Cost of Milk Production per litre from Milch Buffalo 4.9 Cost of Milk Production per litre from Milch Crossbred Cow 4.10 Cost of Milk Production per litre from Milch Local Cow 4.11 Returns of Milk Production per Milch Animals per Day 4.12 Returns of Milk Production per litre from Milch Animals 4.13 Cow and Buffalo Milk Pricing under Existing Mixed Milk Pricing System, Jethana Cow and Buffalo Milk Pricing under Existing Cow Milk Pricing System, Bandarsendri Cow and Buffalo Milk Pricing under Existing Milk Union Pricing System Bulk Line Costing and Pricing of Mixed Milk Cost and Return from Milch Buffalo Milk in Milk Union Pricing System per Household 47

11 4.18 Cost and Return from Milch Cow Milk in Milk Union Pricing System per Household 4.19 Cow Milk Pricing using Different Fat:SNF Weights under Proposed Pricing System 47 47

12 ABSTRACT As the cost of milk production is increasing over time, milk producers find that the milk production is a losing enterprise. Prices paid by the union are not enough to cover the cost of milk production. Hence, the present study Pricing for Cow and Buffalo Milk in Milk-Shed Area of Ajmer District Cooperative Milk Producers Union Limited was undertaken with objectives to work out cost of milk production, to study the existing milk pricing policy, to estimate the bulk line cost and suggest milk procurement pricing for buffalo and cow milk. To achieve the above objectives a sample of 104 households for each season (summer, rainy, winter) from two villages of two zones in Ajmer district of Rajasthan was selected randomly. Tabular analysis was used to meet the objective of the study. Per litre cost of milk production worked out to be Rs , Rs and Rs for buffalo, crossbred cow and local cow respectively. The net returns were found to be positive for milch animals. In the mixed milk rate zone-1, average cost of per kg. mixed milk fat was Rs and society offer Rs.280 per kg mixed milk fat rate, but 71% of the farmers could cover their cost. In the cow milk rate zone-2, cost of per kg. mixed milk fat was Rs and society offer Rs per kg. cow milk fat rate. In this zone % farmers covered the cost of per kg. fat. It was found that mixed milk pricing fetched less prices to the farmers. Bulk line cost of 85th percentile of the farmers was Rs for mixed milk. If the union was inclined to pay mixed milk pricing rates it was suggested that it should pay Rs per kg. fat in place of Rs.280 per kg. fat. Bulk line cost of 85th percentile of the farmers was Rs for buffalo milk. The proposed buffalo milk fat rate was also the same i.e. Rs per kg. fat. This buffalo milk fat rate was also considered as a base to determine two axis pricing for cow milk. Out of five different fat:snf weights(i.e.1:2/3, 1:3/4, 1:42/58, 1:45.55 and 1:1) 1:42/58 ratio was selected and proposed for cow milk as it covered cost of milk production of 82% farmers.

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14 CHAPTER 1 Introduction

15 1. INTRODUCTION One of the problems of liberalization in India is that our economic reforms have mainly benefited the 30 percent people who live in urban areas. Much of the rural economy is still awaiting its share of liberalization. One way to remove this imbalance is through co-operatives. Dairy co-operatives account for the major share of processed liquid milk marketed in the country. Milk is processed and marketed by 170 Milk Producers Cooperative Unions, which federate into 15 State Cooperative Milk Marketing Federations. The success story of dairy development in India can be further strengthened if suitable pricing policy is made favorable to the nearly 70 million rural milk producers who are not getting any type of incentives and subsidies. Thus, pricing of milk must prove to be an instrument through which the producer recovers his cost and makes profit. Traditionally, dairying is a subsidiary occupation rearing only few milch animals depending on agricultural by-product. But now a days, dairy sector is commercialised and subsidiary occupation is being the main occupation specially in the and dryland/semi-arid region because crops frequently fail due to the irregular rain. Moreover, the problem is much worse as the majority of milk producers are small, marginal farmer and landless. They have very small acreage of land for grazing and fodder cultivation. They are purchase green fodder and dry fodder in summer season and concentrates almost throughout the year. Cost of milk production is increasing over time. Milk production has never been a lucrative if the cooperative sector offers constant milk prices for cow and buffalo milk on the basis of fat and some incentives throughout the year. In the earlier times, there were inadequate market facilities for milk in the rural areas. Therefore, major share of excess or surplus milk was processed in the form of Ghee and hence, the price of Ghee influenced the pricing policy of milk. Pricing of milk only based on volume/weights led to human manipulation by addition of water. Another dimension in the pricing policy was the price based on Introduction 1

16 the type of milk (buffalo/cow). In this system a minimum standard for each type of milk was adopted for the acceptance or rejection of milk. The milk that met the minimum fat standard was usually paid a flat price without regard its compositional quality. This system provided no incentives for the production of richer fat milk. It encouraged the adulteration of buffalo milk with water and being is sold as cow or mixed milk. The Dairy Cooperative Societies, earlier in Gujarat started to pay milk only on the basis of fat. This system was considered appropriate in buffalo dominated areas of Gujarat. But it became oppressive to cow milk producers in cow dominated area such as Karnataka, Kerala and Tamil Nadu, where cow milk with 4% fat was payed only half of the prices of buffalo milk with 8% fat. So this emerged as a major impediment to cross breeding programmes that was going in the country. As a result, National Dairy Development Board of India started to canvas two axis pricing policy for cow milk. The first initiative comes in a feasible report prepared by NDDB for the newly planned Bangalore dairy in This system was considered to give fair price to milk by evaluating its fat and SNF. The analysis based on past data revealed that market valuation of SMP in around 2/3 rd of Ghee value and accordingly the SNF valuation was considered to be 2/3 rd of fat under two axis pricing policy. Buffalo milk pricing under the cooperative sector is being done on fat basis. Value of per kg. fat is used further for valuation of Equivalent Fat Units (EFU), the SNF-fat ratio used in general is 2/3 rd. It is now need of the day that what price should be paid to the farmer s milk so as to know whether milk production from buffalo or cow is profitable for majority of the farmers. Buffalo milk pricing should be such that it must cover the cost of production of majority of milk producers. It is also equally of much more importance that what weights to SNF and fat should be given so that cow milk production shall be profitable. With the increasing the cost of milk production over time, milk producerscum-suppliers in the milk shed area of dairy union express their grievances that Introduction 2

17 the prices paid by the union are not enough to cover the cost of milk. It is thus necessary to examine whether the milk prices paid on the basis of fat and some incentive for cow milk are sufficient to cover the cost, or the dairy union shall follow a suitable pricing policy for the valuation of milk solids as an instrument for dairy development in their milk shed area. The improved milk pricing system would help fixation of milk prices separately for buffalo and cow milk, based on bulk line cost and proper valuation of milk solids, as valuation has always remained a tricky matter in the past. Though two axis pricing policy encourages the rearing of cows and also cross breeding programmes, yet it shall still take in to account the bulk line cost of milk production, which is most important for dairy development. After successful initiation of Dairy Cooperative Society, the dairying has become an organized enterprise. Though dairying is a subsidiary unit of agriculture and utilizes mainly its by-products, most of milk producers have begun to purchase input from markets because of advanced dairy practices. So, the producers are now very eager to know whether the returns from dairying are as expected. Cost of milk production is an important tool for the economic evaluation of dairy enterprise at producer s level and fixing the procurement price at District Cooperative Society level. A rational pricing policy should provide an incentive to producers and treat dairying as an economic enterprise like other occupation and not merely a subsidiary occupation. This pricing policy concept is true for the entire world, India and also even for the study area of Ajmer District of Rajasthan under investigation. Keeping all these in view, the present study Pricing for Cow and Buffalo Milk in Milk-Shed Area of Ajmer District Cooperative Milk Producers Union Limited has been undertaken with the following objectives: 1. To work out cost of milk production. 2. To study the existing milk pricing policy. Introduction 3

18 3. To estimate the bulk line cost and suggest milk procurement pricing for buffalo and cow milk. 1.1 Limitations of Study Great care has been taken to meet the objectives of the study but a few limitations could not be avoided, which are: 1. Non availability of record with dairy farmers hence, the reliability of the data totally depended upon the memory of the respondents. 2. Though every effort was made to get the accurate information, the possibility of some respondent giving bared information could not be completely ruled out. 3. The study was conducted in particular situation, system, and sample, thus the results of the study may be applicable only in the similar set-up 4. The study is less reliable for cross breed cows because sample size is small. Introduction 4

19 CHAPTER 2 Review of literature

20 2. REVIEW OF LITERATURE Many authors have conducted research related to cost of milk production, bulk line cost and pricing policy. A glimpse into the past creates an important a priori knowledge about the investigation to be conducted. Thus, the relevant review of literature has been presented in this chapter under the three sub-headings related to three objectives: 2.1. Cost of milk production 2.2. Milk Pricing Policy 2.3. Bulk-line cost 2.1. Cost of Milk Production Milk production is influenced by many factors. Feed and labour are the two principal inputs responsible for milk production. Past studies on cost of milk production revealed that feed cost alone accounted for the largest cost component, which ranged between percent of the total cost of production. The high cost of milk production in India, inspite of its large cattle population is a paradox. Studies conducted in various parts of the country clearly indicated that the cost of milk production under the existing rural conditions is high, providing only marginal gains. In this section, an attempt has been made to review the research work conducted in the past on cost of milk production. Ram (1983) studied economics of dairying in arid zone area of western Rajasthan and observed that feed cost was the major cost component followed by labour in buffalo milk production. The study also revealed that the family labour contributed of total labour cost was as high as 79 percent, total labour cost. Singh (1986) in a study on Comparative economics of local cattle, crossbred cattle and buffaloes in Karnal city reported that per litre cost of milk Review and Literature 5

21 production was found Rs.1.41, Rs.2.25 and Rs.2.25, for crossbred cow, Local cow and buffalo respectively. The green fodder was the major component of feed cost and contributed about 38 per cent of total feed cost. Tripathi et al. (1986) studied economic analysis of dairy enterprise in Bundelkhand region of Uttar Pradesh during and found that cost of milk production was Rs.1.17 and Rs.1.53 per litre for cows and buffaloes, respectively and farm business income was Rs and Rs Gill and Singh (1986) in a study on An economic analysis of milk production system in different agro- climatic regions of Punjab, observed that per litre cost of milk production was Rs.2.31, Rs.2.55 and Rs.2.46, respectively in sub-mountainous, central and southern zones of Punjab. The study also reported that cost of milk production for crossbred cows in three zones were Rs.1.62, Rs and Rs.1.60 per litres respectively. In all the three zones, the cows were found to be more profitable than buffaloes. Acharya et al. (1987) studied the comparative advantage of cow and buffalo dairy enterprises in irrigated and unirrigated areas in Ganganagar district of Rajasthan.The study reported that annual maintenance cost of a cow was Rs.2175 and Rs and that of buffalo was Rs.2662 and Rs 2544 in irrigated and unirrigated areas respectively. The study also found that gross income from buffalo was twice than that of cow in both areas. Vashist and Katiha (1988) in a study on comparative economics of milk production from different breeds of dairy animals in Kangra district of Himachal Pradesh reported that the profit margins (Rs. per kg milk) from local cow, pure bred cows, buffaloes and pure bred buffaloes were Re. 0.35, Re.0.45, Re.0.45 and Re.0.26 respectively on small farms. The corresponding figures for large farms were Re.0.57, Re.0.49, Re.0.48 and Re.0.80 respectively. They also reported that crossbred cows produce higher returns due to their higher milk yield and feed conversion efficiency. Review and Literature 6

22 Gangwar et al. (1989) in a study on 280 farms in the three agro climatic regions, viz. (i) arid south-western region (ii) semi-arid region and (iii) wet and irrigated region of Haryana and found that average cost of milk production was the highest (Rs.2.62, Rs.2.60 and Rs.2.70) for large farms in all the three zones respectively. Overall net return per litres of milk was hardly Rs Goswami and Rao (1992) conducted a study on economics of milk production in the East Khasi hill district of Meghalaya, and found that the expenditure on fodder and concentrate form the major part of the cost of milk production in all the categories of dairy farms. The total cost of milk production and lactation yield per cow increased with size of holding whereas it decreased with increased in size of holding. The net income per lactation showed a direct relationship with the size of holding. Siwach et al. (1993) studied economics of buffalo in Rohtak district of Haryana and concluded that the average cost of milk production was Rs.3.08 per litre. The average annual maintenance cost per buffalo was about Rs of which variable cost alone accounted for 77 percent. It was also found that feed cost alone accounted for 55 percent of the total cost. The study suggested that buffalo rearing was economical only if the milk yield per buffalo was greater than 1208 litres per year. Badal (1994) in a study on Economics of milk production and its disposal pattern in Gopalganj district of Bihar, reported that per litre cost of milk production was found Rs.5.67, Rs.7.18 and Rs.5.88, for crossbred cow, local cow and buffalo respectively. The net return from milk production was highest in buffalo (Rs.3.40) followed by crossbred cow (Rs.2.33) and local cow (Rs.1.28). Devraj and Gupta (1994) in a study on economics of milk production in Churu district of Rajasthan observed that the cost of milk production of lactating buffaloes and local cows were Rs 3.96 and Rs per liter respectively. Review and Literature 7

23 Sharma and Singh (1994) conducted a study on economic analysis of milk production by different breeds of milch animals in humid temperate zone of Himachal Pradesh and found that the average cost of maintenance per annum per milch animal for crossbred cows, local cows, graded murrah buffaloes and local buffaloes were Rs , Rs , Rs and Rs respectively. Net return per annum per milch animal was highest for graded murrah buffaloes (Rs. 2073) followed by crossbred cows (Rs. 1614), local buffaloes (Rs. 926) and local cows (Rs. 128). The study also revealed that the feed cost and labour cost accounted for about 85 percent of the total maintenance cost. Roy (1994) studied economic analysis of milk production in Midnapore district of West Bengal and reported that feed cost was the major cost component. The study also revealed that the cost of milk production was found highest (Rs.10.01) in local cow while the net return was highest (Rs.1.46) from crossbred cow. Kalra et al. (1995) conducted a study on economic analysis of milk production and its disposal pattern in rural areas of Haryana and reported that the maintenance cost of buffaloes, crossbred cows and local cows were Rs.19.11, Rs and Rs per day per animal, respectively. The cost of milk production was Rs. 4.95, Rs and Rs per litre for buffalo, crossbred and local cows, respectively. The local cows resulted in a net loss of Rs per day. Shiyani and Singh (1995) conducted a study on economic aspects of milk production in Saurashtra region of Gujarat during and reported that the average daily maintenance cost of buffaloes and cows was Rs and Rs for dairy co-operative members and Rs and Rs for nonmembers, respectively. The feed cost accounted for nearly two third of total cost of milk production. Review and Literature 8

24 Baruah et al. (1996) studied economics of milk production in Assam and reported that the variable cost accounted for 87.4 percent of total cost and feed cost was found the major component of variable cost. The fixed cost increased as the number of milch animals per household increased. The overall total fixed cost per milch animal was Rs , wherein the investments on cattle sheds, diary equipments and the animals were 4.7, 2.7 and 92.6 percent of the total investment, respectively. Gupta and Agarwal (1996) in their study on economics of milk production in Himachal Pradesh observed that the cost of milk production was lowest (Rs per litre) for crossbred cows among all types of milch animals. The study also reported that the net income from dairying was quite meager, although it was economically viable enterprise in the state. The landless labourers were found to have highest net returns per litre of milk from crossbred cows and the upper medium farmers from buffaloes. Kumar and Balishter (1996) conducted a study on economics of milk production in Firozabad District of Uttar Pradesh and observed that the cost of maintenance for milch animals was Rs and Rs per annum for crossbred cows and murrah buffaloes, respectively, of which nearly 40 per cent was variable cost in both the cases. Average net income was Rs and Rs per annum for crossbred cows and murrah buffaloes respectively. The cost of milk production per litre was Rs for crossbred cows and Rs for murrah buffaloes. The study concluded that dairy farming with crossbred cows was highly remunerative, subject to risk factors like infertility and disease incidence. Panghal et al. (1997) conducted a study on milk production in different agro-climatic region of Haryana and concluded that total milk production was less in dry region as compared to irrigated region. Among cost components, variable cost was found to be per cent. The labour cost decreased with the increased in the farm size in all the regions. The study reported that the cost of Review and Literature 9

25 green and dry fodder was almost equal in irrigated region, which may be due to more availability of green fodder throughout the year. Sinha (1997) conducted a study on economic analysis of dairy enterprises in Nalanda district of Bihar state and observed that the average net cost of milk production was Rs and Rs per litre from buffaloes and crossbred cows, respectively. The highest cost of milk production in buffalo could be mainly attributed to their lower milk production in comparison to crossbred cow during the year. The study also revealed that the feed cost was the major cost component followed by labour in all the categories of households and for different types of milch animals. Saha, K.P. (1998) conducted a study on An economic analysis of production and marketed surplus of milk in rural Murshidabad (W. Bengal) and found that concentrate was the major component of feed cost followed by green fodder and dry fodder. It was found that maintenance cost of local cow was highest (Rs.8.41) among all milch animals while the net return was highest (Rs.2.19) in case of crossbred cow. Chandra (1998) in a study on economics of milk production in Farrukhabad district of Uttar Pradesh reported that the gross cost per day per milch animal was highest (Rs ) for large farmers and lowest (Rs ) for landless labourers in case of crossbred cows. However, the net return was highest (Rs ) for medium farmers and lowest (Rs. 3.90) for small farmers, whereas it was negative for landless labourers. In case of buffaloes he reported that the gross cost was highest (Rs ) for large farmers and lowest (Rs ) for small farmers. Dixit (1999) conducted a study on bovine economy in Mandya district of Karnataka state and observed that the net return and family labour incomes from local cows were negative in all herd size categories while in buffalo it was negative for all herd size categories. He reported positive net return only for Review and Literature 10

26 crossbred cows, whereas for total bovine, the net income was found to be negative. Kumar and Dhaka (1999) in a study conducted in the tribal areas of East Singhbhoom district of Bihar revealed that the average investment per milch animal was of the order of Rs. 929 in tribal households and Rs in nontribal households. The net income per animal during the year was Rs. 402, when imputed value of family labour was excluded from the total cost. The study concluded that the animal rearing could become viable and would generate reasonably good income only with higher productivity. Singh (2001) in a study on economic analysis of technological change in milk production in Karnal district of Haryana found that the average per day maintenance cost was highest (Rs per litre) for crossbred cows as the average milk yield per milch animal. Hence, the cost of milk production per litre was lowest for crossbreds. Durai, R. (2002) in a study on economics of milk production in Madurai district of Tamil Nadu reported that the total feed cost was more than two third of the gross cost for all the households. It was further reported that labour cost per day per milch animal was highest for small category of households. The cost of milk production per litre was highest for local cow attributable to its low productivity. Further, the net returns per day per animal were highest for crossbred cow. Kumar (2003) conducted a study on economics of milk in Vellore district of Tamil Nadu and observed that the feed cost was about 68 per cent of the gross cost for overall category, whereas the total variable cost accounted for more than 90 per cent of the gross cost. The study reported that the cost of milk production per litre, in general was lowest for crossbred cows as compared to buffaloes and local cows. Review and Literature 11

27 Kumar and Pandian (2003) studied cost of milk production in a milk-shed area of Tamil Nadu during the year The total maintenance cost per indigenous cow, buffalo and crossbred cow per day was found to be Rs.33.03, Rs and Rs.72.80, respectively. The variable cost accounted for 96.18, and percent of the total cost respectively. Category wise analysis revealed the total cost decreased with the increase in farm size. It was further reported that the cost of milk production was lower in crossbred cows followed by buffaloes and indigenous cows. Das (2004) in a study on economic efficiency of milk production and marketed surplus in rural areas of Burdwan district of West Bengal reported that the per day maintenance cost of buffalo, crossbred and local cow was Rs.35.20, Rs and Rs.32.28, respectively. He also observed that the overall net return per litre of milk for crossbred cow was the highest (Rs.1.28 per litre) followed by buffalo (Re per litre). But the producers incurred a net loss of Rs.4.95 per litre for local cow milk. Desai (2005) studied An economic analysis of milk production and disposal pattern of milk in rural area of Bidar district (Karnataka) and observed that feed cost was the major cost followed by labour cost in all the species. The study also revealed that the net return was highest (Rs.3.72) from the local cow followed by buffalo while in crossbred cow it was negative. Singh (2005) studied Economic analysis of milk production in tribal area of Udaipur (Rajasthan) and found that cost of milk production was Rs and Rs per litre for local cow and buffaloes, respectively and the net return was Rs.2.84 from buffalo milk while it was negative from local cow milk production. Singh (2006) in a study on Economics of milk production and marketed surplus in Imphal district of Manipur reported that per litre cost of milk production was found to be Rs.13.09, and Rs.16.70, for crossbred cow and Local cow respectively. Total variable costs accounted for about 82 per cent of gross Review and Literature 12

28 maintenance cost. The net return from milk production was as low as Re. 1.0 for crossbred cow while in local cow it was negative Milk Pricing Policy Aneja (1974) suggested two axis pricing for milk and recommended that milk plant should provide price for milk on the basis of compositional quality. He also observed that cost of milk production was not taken into consideration for pricing of milk, mainly because of the absence of reliable data. Patel (1975) suggested that milk pricing policy should give good incentives to producers for producing more milk. The absence of worthwhile policy of milk pricing led to the negligence of the interest on both produces and consumers. He also suggested that cost of milk production, seasonal variation and general market trend should be taken into account for pricing of milk. Bhatt (1977) suggested that suitable pricing policy was very important for the successful implementation of crossbred animals. No farmer would be willing to rear crossbred animals unless he was convinced for economic feasibility of fair return from crossbred animals. Ray (1978) in a study on pricing of milk suggested that pricing should be based on quality and composition of milk. Pricing on the basis of fat is a simple technique but is gives zero weightage to SNF. Pricing on the basis of total solids puts equal weightage to fat and SNF i.e. same market value for both fat and SNF which seldom happens in practice. He identified two axis pricing policy as a suitable one in pricing the milk which is based on the value of butterfat and SMP (skim milk powder) and concluded that crossbred cows would not be affected by this policy. Raut and Singh (1979) found that one of the surest means of enhancing milk production was to provide incentive price to the producers. Finally he concluded that one should consider the cost of milk production while fixing the price of milk. Review and Literature 13

29 Patel (1993) suggested that cost of milk production should be taken into account for milk pricing. Hence the cost study should be conducted on regular basis in different states. He also observed that two axis pricing policy system encouraged the farmers to rear more cows Bulk-line cost Shiyani et al., (1989) conducted a study on economics of buffalo milk production in Kheda district of Gujarat and reported that bulk line cost was Rs per litre. This bulk line cost covered 85% of the total milk production, 79% of total buffaloes and 76% of producers. The average price per litre of milk was Rs. 2.82, which was higher than the bulk line cost. He finally concluded that the dairying was a profitable enterprise in that region. Vasani et al., (1992) in their study on cost and return from buffalo milk production in Rajkot district of Saurashtra region observed that the bulk litre cost was Rs per litre, which was 7 Ps., lower than the average price realised by the milk producers. It indicated that the buffalo milk production in the study area was profitable. This bulk line cost covered 85% of total milk production, 83.25% of buffalo and 82.50% of producers. Raut and Singh (1979) suggested that the bulk line cost of production was the relevant for pricing of milk. He considered only efficient producers of milk i.e. those with lower cost of milk production. He calculated bulk line cost of 91 Ps./Kg., which covered 80% of total milk production and 88 Ps./Kg. covering 70% of total milk production. He suggested that the study on cost of milk production should be revised for every 5-6 years, when the structure of dairy enterprise may be considered to have undergone a change. Gandhi (2002) in their study on Pricing policy and cost of production of milk in Coimbatore dairy co-operatives. He calculated the bulk line cost of milk was Rs.7.96/litre,which covered 83.92%cows and 80%producers.The bulk line cost Review and Literature 14

30 was lower than the average prices realized by both cow and buffalo producers indicating the profitable nature of milk production. Das (2004) in their study on Economic efficiency of milk production and marketed surplus in rural area of Burdwan district of West Bengal. He calculated bulk line cost of milk production was Rs.0.04 and Rs.0.51 lower than average sale price for buffalo and crossbred cow milk respectively. However, it was observed that cost was covered by only 4.3 per cent of local cow milk producers. Kalra,Agarwal and Malhotra (2008) in their study on milk pricing policy for organised dairy sector in northern India observed that bulk line cost per kg. buffalo milk fat production for 85 th percentile farmers was Rs , Rs and Rs for respective seasons of summer, rainy, winter and overall average. These costs were higher than individual seasons rates paid under existing pricing system except in winter (Rs.210 per kg. fat) when there existing competition with private sector for the procurement of milk. Scanning of the literature revealed that no such detailed analysis was done to work out bulk line costs of milk production and its pricing based on milk compositional quality considerations in the study area. Review and Literature 15

31 CHAPTER 3 Methodology

32 3. METHODOLOGY This chapter mainly deals with a brief description of the study area, sampling plan, collection of data, specification of variables along with analytical framework presented in the following sections. 1. Description of the study area 2. Sampling plan 3. Collection of data 4. Analytical framework 3.1 Description of the Study Area Rajasthan is second largest milk producing state in the country and total milk production is 9375 thousand tonnes (NDDB, 2007). The total bovine population is lacs comprising lacs cows and lacs buffaloes (17 th Livestock Census, 2003). Per capita milk availability in the state is about 408 gms./day (NDDB, 2007). Animal Husbandry contributes over 19 percent to the net state domestic product. Rajasthan consists of 35 districts. Ajmer district has been selected purposively for the study entitled Pricing for Cow and Buffalo Milk in Milk-Shed Area of Ajmer District Cooperative Milk Producers Union Limited. The selection of this district was mainly due to having a large numbers (597) Milk Produces Cooperative Societies (MPCS) and also good infrastructural facilities for veterinary and animal husbandry services. Secondly, no such study has so far been found to be conducted in this district. In addition to this, the researcher was familiar with the local language, prevailing socio-economic condition and customs of the area to collect the required information for the study. Methodology 16

33 The overall economic development of any region depends on its physical endowment, human resources and technological progress. Therefore, an objective description of the study area is useful to understand the scope and limitation for its economic development. A brief description of geographical location, climate and rainfall, soil, agriculture, animal husbandry and demographic features of the study area is given below Geographical location Ajmer district is located in the center of Rajasthan state between and north latitudes and and east longitudes. It is bounded on the north by Nagaur district, on the south by Bhilwara district, on the east by Jaipur and Tonk districts and on the west by Pali district. The district is triangular in shape. Total area of the district is 8481 sq. kms. It is generally a level plain interspersed with low hills that run in the northwesterly direction. The range of hills between Ajmer and Nasirabad marks the dividing watershed of the continent of India. The rain, which falls on the southern Nassirabad side, finds its way through the Chambal river into the Bay of Bengal; that which falls on the other side is discharged by the Loni river into the Gulf of Kutch. Around 4.17% of total area is covered under forest. Fog is common in the winters, while hot dry winds, called loo, blow in the summers Climate and rainfall Ajmer weather is a typical desert type. In the summer time, the climate of Ajmer is very hot and in winters, it is quite cool. Both in summers as well as in winters, there is a wide difference in the day and night temperature. Regarding the average temperature in summers (from April to June), the maximum is around 45 C. Methodology 17

34 Ajmer district is one of the prominent district of state having total geographic area 8481 sq. km., mainly rainfed. The average annual rainfall is 55 cm. The area under irrigated agriculture is only sq. km. The irrigated area (14.71%) is unevenly spread all over the district, while some tehsils are more fortunate to have proportionately large area under assure irrigation and others have a little of it Soil The Ajmer district of Rajasthan is watered by river Banas and its tributaries and thus the fertile soil sustains mixed xerophytic and mesophytic vegetation. The soil type of Ajmer has wide range from gray brown to alluvial soils Agriculture The major Kharif crops are bajra, jowar, pulses, maize and groundnut. Main Rabi crops are wheat, barley, gram and oilseeds. Cotton is an important cash crop that is grown in the district Animal Husbandry Cattle, buffaloes, sheep and goats constitute main livestock population of the district. Donkeys and mules, horses and ponies, camels, and pigs are also reared in the district in small numbers. There are 16 veterinary hospitals, 12 veterinary dispensaries, seven sheep extension centers, three sheep artificial insemination centers and a mobile veterinary unit in the district Demographic Features Total population of the district according to 1991 census was 1.72 million, comprising of 0.9 million males and 0.8 million females. Rural population in the district was 1.0 million and urban population was 0.70 millions. The scheduled caste and scheduled tribe population of the district Methodology 18

35 as per 1991 census was 0.3 million (18%) and 0.04 millions (2.4%) respectively. The decennial growth rate of population between 1981 and 1991 was 19.63%, which was slightly less than that of the state of Rajasthan (28.07%). Hindi, Rajasthani, Urdu, and Sindhi are the main languages spoken in the district. The important demographic features of Ajmer district are presented in Table 3.1. Table: 3.1 Demographic Features of Ajmer District Area (Sq. Kms) 8481 Population (1991 census) 1.72 Million Population density (per Sq. Kms.) 203 Sex ratio (Females per 1000 males) Literacy rate (percent) (68.7 Males, 34.5 Females) Co-operative Movement The major breakthrough in the dairy development came in 1972, when the Dairy Development Corporation was formed under companies act of 1956 for implementation massive dairy development programme called Operation Flood- I. The corporation gave technical guidelines on total package of milk production, procurement, processing and marketing to various districts included Ajmer. Dairying was improved much better during this period, thanks to NDDB for its technical assistance and guidance through operation flood programme. Subsequently in 1978 the government has adopted a three tier system in the form of milk producers co-operative society at the village level, union of producer s societies at the District level and federation at the state level to take the responsibility in implementing Operation Flood programmes. Methodology 19

36 3.2. Sampling Plan The milk shed area of the selected milk union is that of Ajmer district. This area is homogenous in nature with respect to its agro climatic conditions Selection of Zones The milk shed area was classified into the two zones based upon the milk procurement pricing policy adopted by the milk union. In one zone, the milk (whether mixed, buffalo or cow milk) was purchased at mixed milk fat rate and in another zone at cow milk fat rate plus incentives. There were 597 Dairy Cooperative Societies (MPCS) in the Ajmer District Co-operative Milk Producers Union Selection of Dairy Cooperative Societies Out of these zones one Milk Producers Cooperative Society (MPCS) namely Jethana and Bandarsendri was selected randomly Selection of Households The complete enumeration of all the milk producers cum suppliers of these two societies was done to collect information on their milch animals herd size, etc. Using cumulative frequency square root method, the milk producers cum suppliers were classified in three categories based milch animals herd size, viz. small (1-4 animals), medium (5-8 animals), large ( 9 animals). Altogether 312 households spread over three seasons were randomly selected from almost all categories of households based on proportional random sampling. 3.3 Collection of Data The data for investigation were collected from primary and secondary sources. Methodology 20

37 3.3.1 Primary Data The primary data were collected from the sample households by survey method using well structured schedule through personal interview. Primary data were collected for three seasons i.e. summer, rainy, winter. The data was collected on various aspects of dairy enterprises like, composition of household, occupation, sex, family size, education, operational holding, herd size, type of milch animals and their value, dairy equipment, cattle shed along with their present value and expected life, quantity of feeds and fodders along with their monetary values, family and hired labour used along with prevailing wage rate, veterinary and miscellaneous expenditure. The information on milk production and its quality composition were also be collected Secondary Data Secondary data regarding total geographical area of the district, agro climatic features, cropping pattern, bovine population, and infrastructural facilities for Dairying and Animal Husbandry, Milk supply/dairying societies, etc. were collected from various sources viz., State Veterinary Department, State Statistical Abstract, District Cooperative Milk Producers Union Ltd., and respective Milk producers Cooperative Society etc. Data on the milk pricing based on the existing pricing policy was collected from the Milk Cooperative Societies and Union. 3.4 Analytical Framework In this section, the methodology for estimating the cost of milk production, bulk line costing and valuation of milk based on different SNF-Fat weights have been described. Methodology 21

38 MAP 1: RAJASTHAN

39 MAP 2: AJMER DISTRICT

40 3.4.1 Estimation the Cost of Milk Production The cost items were broadly classified into two types, namely fixed cost and variable cost for estimation the total cost of milk production. Cost components a) Fixed Cost (FC) Fixed cost is the expenditure which is incurred whether or not the production is carried out. It includes interest on fixed capital and depreciation. The fixed cost was apportioned on the basis of standard Animal Units (Patel 1981). The conversion co-efficient used for apportioning the fixed costs are as follows: Adult Cross bred cattle (milch) 1.4 Milch Buffalo 1.25 Local cattle (milch) 1.00 Heifer 0.75 Working bovine 1.00 Young stock above 1 year 0.50 Young stock below 1 year 0.33 The components of fixed cost are as follows i) Interest on fixed capital investment The interest on fixed capital will be worked out at the prevailing rate. Methodology 22

41 ii) Depreciation on fixed capital It is the loss in the value of an asset as a result of the use, wear and tear, accidental damage and time obsolete. It will be worked out for milch animals, cattle shed, machinery and equipments keeping in view the present value and life time. iii) Depreciation on milch animals The depreciation on milch animals will be calculated by straight line method. The rates of depreciation are as follows: Straight-line method will be followed for calculating depreciation on milch animal. CB Cows - 8 percent (productive life12.5 years) Local cows - 10 percent (productive life10 years) Buffalos - 10 percent (productive life10years) iv) Depreciation on cattle shed and dairy equipments Depreciation on cattle shed, stores and dairy equipments will be calculated by using straight line method. Particulars Appro. Percent (%) Pucca building 2 Kutcha building 5 Bullock cart 10 Chaff cutter (manual) 10 Milk can 20 Feed manger 20 Methodology 23

42 b). Variable Cost Variable costs are those costs which are incurred on the variable factors of production and can be altered in the short run. It includes feed cost, labour cost, veterinary cost and miscellaneous cost. i) Feed and fodder cost: Cost on green fodder, dry fodder and concentrate will be worked out by multiplying quantities of feeds and fodders with their respective prevailing prices in the study area. ii) Labour cost: It included cost of family as well as paid labour (hired labour). The cost of hired labour will be calculated considering type of work allotted and wages paid. In case of family labour, the imputed value obtained depends upon the time spend in dairying and prevailing wage rate of casual labour in the study area. iii) Veterinary cost: It included the cost of breeding for Artificial Insemination (A.I) or service charge of bull as well as cost of vaccination and medicines. iv) Miscellaneous Cost: Miscellaneous Cost included the cost of repair, electricity, water charges, purchase of milk can, bucket, rope, etc. They will be calculated on the basis of per milch animals per day for different types of milch animals kept by the sample households. Interest on working capital will not be calculated as there is regular flow of income from sale of milk. Methodology 24

43 v) Gross Cost: It can be obtained by adding all the cost components including fixed and variable costs, ie. Gross Cost = Total Variable Cost + Total Fixed Cost vi) Net Cost: The net cost can be reckoned by deducting the imputed income earned through dung, from the gross cost, ie. Net Cost = Gross Cost - Value of dung vii) Gross Returns: Gross returns can be obtained by multiplying milk yield of an individual milch animal with respective prevailing prices in the study area, ie, Gross Returns = Quantity of milk X Society price of milk viii) Net Returns: Net return can be calculated by subtracting net cost from gross returns, ie, Net Returns = Gross Returns - Net Cost ix) Cost per litre of milk production In order to estimate the cost per litre of milk, the average net maintenance cost per household per day will be divided by average milk production per household per day i.e. Net cost per household Cost per litre (Rs.) = Total milk produced per household Methodology 25