Determinants of cost of production of milk an empirical analysis

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Milk production is the biggest segment within India Agriculture. In the Indian context of poverty and malnutrition, milk has a special role to play for its many nutritional advantages as well as income generation for millions of farmers.

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International Journal of Management (IJM) Volume 8, Issue 5, Sep–Oct 2017, pp. 53–60, Article ID: IJM_08_05_006 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=5 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication DETERMINANTS OF COST OF PRODUCTION OF MILK AN EMPIRICAL ANALYSIS Dr. P. Nixon Dhas Assistant Professor in Commerce, St. Jude’s College Thoothoor, Kanyakumari, Tamilnadu, India Dr. S. Nadarajan Associate Professor in Commerce, St. Jude’s College Thoothoor, Kanyakumari, Tamilnadu, India ABSTRACT Milk production is the biggest segment within India Agriculture. In the Indian context of poverty and malnutrition, milk has a special role to play for its many nutritional advantages as well as income generation for millions of farmers. Unlike other countries, India’s dairy industry is facing the problems of low milk prices, prohibition of all the export benefits given to milk and value added milk producers exports as well as loss of indigenous cattle breeds due to cross breeding many factors are responsible for the cost of milk production. If usually depends upon, the cost of fodder, labour, maintenance and health care. The region wise average cost of milk production were studied. Key words: Cost of production of milk, comparative cost of production - variable cost - fixed cost - Determinants of cost of production. Cite this Article: Dr. P. Nixon Dhas, Dr. S. Nadarajan, Determinants of Cost of Production of Milk an Empirical Analysis. International Journal of Management, 8 (5), 2017, pp. 53–60. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=8&IType=5 1. INTRODUCTION Agriculture sector is regarded as the backbone of Indian Economy. Nearly 70 percent of the people live in 5,87,000 villages and their main occupation is agriculture. Agriculture is closely interwoven with animal husbandry and plays an important complementary role. The role of animal husbandry in providing main and subsidiary occupation or the main occupation to the rural population is well recognized. Animal husbandry has secured an important place in the Indian agricultural leading to the diary development in India. Dairy development in India is being recognized as an effective and essential instrument for ameliorating the poor economic conditions of rural families, particularly those of the small and marginal farmers and the landless agricultural labourers. http://www.iaeme.com/IJM/index.asp 53 editor@iaeme.com
Dr. P. Nixon Dhas, Dr. S. Nadarajan The diary industry not only provides employment opportunities, to a sizeable population, but it also enables the downtrodden to earn a reasonable income. The output is milk and various types of people almost all in different forms consume the milk products. The co-operative Societies rendered various kinds of services to their members for increasing the milk production and for fetching better prices for their milk sold. But in the recent years, due to the effects of LPG (i.e. Liberalization, Privatization and Globalization), the private competitors raced ahead. In this context it is imperative to analyze the position of the Animal Husbandry in the occupation category the average milk production the determinants of cost of production of milk. As India enters in to an era of economic reforms, agriculture, particularly the livestock sector, is positioned to be a major growth area. The fact that dairying could play a more constructive role in promoting rural welfare and reducing poverty is increasingly being recognized. For example, milk production alone involves more than 70 million producers, each raising one or two cows / buffaloes. Cow dung is an important input as organic fertilizer for crop production and is also widely used as fuel in rural areas. Cattle also serve as financial cover for the poor households, being sold during time of distress. The production of milk is from the cattle population, particularly from the cows and buffaloes. This also supports to the weaker sections as subsidiary occupation and also helps to earn an additional income. The importance for its increased production has gained momentum now-a-days. The production of milk depends upon various factors like breed of cattle, level of health care etc.. The climate also evidently seems to affect the quantity of production at times. 2. SCOPE OF THE STUDY The study covers all the rural and semi-urban Co-operative Milk Producers' Societies functioning in Agasteeswaram and Thovalai taluks including the Co-operative Milk Producers' Societies, in Agasteeswaram and Thovalai Taluks of Kanyakumari District. 3. OBJECTIVES OF THE STUDY The main objective of the study is to identify and analyze the determinants of cost of production of milk and yield of milk in Agesteeswaram and Thovalai Taluks of Kanyakumari District of Tamil Nadu 4. METHODOLOGY The present study is an empirical analysis based on field survey method and the data are collected from the respondents, the societies from the Primary Co-operative Milk Producers' Societies in the study area. The Kanyakumari District consists of four taluks namely, Agasteeswaram, Thovalai, Vilavancode and Kalkulam. Among the four taluks, Agasteeswaram and Thovalai are selected for the purpose of this study. Two hundred respondents (100 from Agasteeswaram and 100 from Thovalai) were selected from the primary co-operative milk producer's societies by applying stratified random sampling technique. A sample of 200 respondents were selected from the primary co-operative milk producers societies functioning under the control of the Kanyakumari District Milk Producers Union (KDMPU), out of total number of societies under KDMPU, 20 primary co-operative milk http://www.iaeme.com/IJM/index.asp 54 editor@iaeme.com
Determinants of Cost of Production of Milk an Empirical Analysis producers societies were chosen on the basis of the tenure of their establishment with the help of the list supplied by the Registrar of societies Nagercoil. Ten members each from every primary society were selected on the basis of longest period of membership. In order to analyze the determinants of cost of production of milk in the study. The Cobb-Dougluss production function is used. 5. MILKING TIMES The time of milking by the respondents depends upon different factors like the convenience, time of marketing and climatic conditions. It has been observed that the time of milking begins at 4.00 am and is mostly completed before 8.00 am in the morning session, and in the evening it commences from 2.00 pm and end with 7.00 pm. In the morning, mostly between 5 to 6 a.m. milking is more, followed by 6 to 7 am. In the evening 3 to 4 pm is popular, followed by 6 to 7 am, according to 85 percent of respondents. 6. COST OF PRODUCTION Many factors are responsible for the cost of milk production. It usually depends upon the cost of fodder, labour, maintenance and health care. It varies region wise and variety wise. The average cost of production of milk per liter was worked out on the basis of the total recurring cost incurred for milk production in relation to the total quantity of milk with its value. The average cost of milk production is presented in Table -1 Table 1 Average cost of Milk Production (Per animal) Sl.No Cost Items Agasteeswaram Thovalai Average 1 COW Feed and fodder 9.20 9.32 9.26 Labour 1.02 0.60 0.80 Maintenance 0.40 0.36 0.38 Health care 0.38 0.30 0.34 Total 11.00 10.58 10.78 2 CROSS BREAD COW Feed and fodder 9.40 9.26 9.34 Labour 1.20 0.82 1.00 Maintenance 0.54 0.30 0.42 Health care 0.32 0.28 0.30 Total 11.46 10.66 11.06 3 BUFFALO Feed and fodder 11.90 11.20 11.56 Labour 1.56 1.38 1.48 Maintenance 0.72 0.44 0.58 Health care 0.42 0.74 0.58 Total 14.60 13.76 14.20 Source: Primary Data It is evident from Table-1 that the average cost of production of milk in cow is calculated at Rs. 10.78 paise but it was Rs. 14.20 per liter of buffalo’s milk. Comparatively the cost of production was high for the buffaloes followed by the crossbreed (Rs. 11.06) and the indigenous ones. The region wise analysis reveals that the production cost per liter was the lowest in Thovalai. The reasons for this may be attributed to the availability of grazing lands and also green fodder at cheaper cost than that of the others. http://www.iaeme.com/IJM/index.asp 55 editor@iaeme.com
Dr. P. Nixon Dhas, Dr. S. Nadarajan 7. ANALYSIS OF COST AND COST COMPONENTS The average costs of milk production per animal for members of Agasteeswaram and Thovalai for both location period and the period including dry period are analyzed. Cost Components The costs are classified into variable cost and fixed cost for facilitating comprehension. Variable cost includes the expenses on green fodder, dry fodder, concentrates, family labour, hired labour and miscellaneous expenses. The items considered for fixed expenses are depreciation on animals, depreciation on cattle shed, dairy assets and equipment and interest on fixed capital. The following procedure was adopted for evaluating the various costs. Feed Cost For evaluating the value of dry and green fodder from farm resources, the prevailing prices of purchased feed were used. When the feed is purchased, actual prices paid for feed and concentrates were also taken into account. Labour Charges The actual amount paid to the hired labour was considered in this item of cost. The value of family labour was calculated at the prevailing wage rate in the villages for casual hired labour for males, females and children. Miscellaneous Expenses Miscellaneous expenses include the expenses on veterinary services, ropes, chain, electricity, water and repairs on cattle shed and equipment. Depreciation, Interest on Fixed Capital Depreciation on milch cattle: For depreciation purpose, the life of a buffalo or a cow was fixed at 13 years. The value of these cattle was assumed to appreciate in the ratio 10% for the first three years, constant for the fourth and Fifth year and depreciate thereafter at the rate of 12.5 percent per annum computed by the straight line method. No depreciation was allowed beyond 13 years of age. Buffaloes and cows above the age of three years only were considered as milk yielding. Depreciation on the value of sheds: The depreciation on cattle shed was computed by the Straight line method at two per cent and five per cent per annum in the case of pucca and thatched shed respectively. Interest on Fixed Capital: Owned fixed capital was considered to comprise the value of cattle sheds of buffaloes / cows. Interest on owned fixed capital was worked out at a fixed rate of 12.5 per cent per annum. The interest on capital borrowed for purchase of these fixed assets was taken as actual payments made by the respondents. Interest on Working Capital: No interest on working capital was considered as there was a regular flow of income from milk, which was utilized for the working expenses. The total cost was computed by adding total variable and fixed costs. F net cost was worked out as total cost minus income from dung (Value of dung and the value of calves or heifer). Average cost of milk production per liter was arrived at, dividing the net cost of production by average quantity of milk produced. The average cost of production for Agasteeswaram and Thovalai per animal was separately worked out. The costs were calculated for both the lactation period and the period http://www.iaeme.com/IJM/index.asp 56 editor@iaeme.com
Determinants of Cost of Production of Milk an Empirical Analysis including the dry period. The average cost of production of milk incurred in lactation period per animal is given in Table-2. Table 2 Average cost of milk production per animal in lactation period Items of Cast Agasteeswaram Thovalai (in Rs) (in Rs) A. VARIABLE COST Human Labour Charges 8136.38 (27.53) 7933.20 (28.25) Green Fodder 2801.20 (9.48) 2577.28 (9.18) Dry Fodder 5561.82 (18.82) 5240.72 (18.66) Concentrates 5641.28 (19.08) 4978.80 (17.73) Miscellaneous Expenses 1604. 50 (5.43) 1678 .38 (5.97) Total Variable Cost 23745.18 (80.34) 22408.38 (79.79) B. FIXED COST Depreciation on cattle shed, dairy, assets 920.32 (3.11) 944.72 (3.36) and equipment Depreciation on animal 1812.68 (6.13) 1870.68 (6.66) Interest on fixed capital 3079.20 (10.42) 2861.20 (10.19) Total fixed cost 5812.20 (19.66) 5676.60 (20.21) Total Cost (A+B) 29557.38 (100) 28084.98 (100) Income from dung 1872.58 1792.60 Net cost of production 27684.80 26292.38 Average milk production (in liter) 1535 1535 Cost of milk production (per liter) 18.04 17.13 Source: Primary Data Figures in brackets are percentage to total cost It could be seen that the variable cost per animal constitute 80.34 percent and 79.79 percent of total cost for Agasteeswaram and Thovalai respectively for the lactation period. The total fixed cost constitutes 19.66 per cent and 20.21 percent respectively for Agasteeswaram and Thovalai. Within the fixed costs, interest on fixed capital constitutes more for both Agasteeswaram and Thovalai. The total costs are Rs29,557.38 and Rs.28084.98 per animal for Agasteeswaram and Thovalai. The income earned from dung is greater for Agasteeswaram (Rs1872.58) than for Thovalai (Rs. 1792.60) The average cost of milk production per liter per animal is Rs18.04 and Rs.17.13 for Agasteeswaram and Thovalai respectively. It is inferred that the total cost of milk production is more for Agasteeswaram than Thovalai and hence the cost of milk production per liter is more for Agasteeswaram. Table 3 Average Cost Milk production per animal including dry period Items of Cost Agasteeswaram Thovalai (in Rs) (in Rs) A. VARIABLE COST Human Labour Charges 8537.68 (26.96) 8038.12 (27.11) Green Fodder 2944.80 (9.30) 2778.38 (9.37) Dry Fodder 5681.28 (17.94) 5767.18 (19.45) Concentrates 5879.20 (18.56) 4691.44(15.82) Miscellaneous Expenses 2212.38 (6.98) 1769.98 (5.97) Total Variable Cost 25255.34 (79.74) 23045.10 (77.72) B. FIXED COST http://www.iaeme.com/IJM/index.asp 57 editor@iaeme.com
Dr. P. Nixon Dhas, Dr. S. Nadarajan Depreciation on cattle shed, dairy assets 325.12 (1.03) 399.20 (1.35) and equipment Depreciation on animal 2339.62 (7.39) 3278.64 (11.05) Interest on fixed capital 3752.78 (11.84) 2928.60 (9.88) Total fixed cost 6417.52 (20.26) 6606.44 (22.28) Total Cost (A+B) 31672.86 (100) 29651.54 (100) Income from dung 2006.50 1938.78 Net cost of production 29666.36 27712.76 Average milk production (in liter) 1490 1492 Cost of milk production (per liter) 19.91 18.57 Source: Primary Data Figures in brackets are percentage to total cost It is evident from the above table that the variable cost per animal constitutes 79.74 per cent and Thovalai taluks of Kanyakumari district. The percentage of green fodder cost is 9.30 percent and 9. 37 percent respectively for Agasteeswaram and Thovalai Taluk per animal. The labour cost for Thovalai taluk is greater (27.11%) than that for Agasteeswaram (26.96%) in total cost. The miscellaneous expenses are greater for Agasteeswaram than Thovalai. The total fixed cost for Thovalai is (22.28%) greater than that for Agasteeswaram (20.26%) The total costs are Rs.31672.86 and Rs. 29651.54 per animal for Agasteeswaram and Thovalai respectively. The average cost of milk production per liter per animal is Rs. 19.91and Rs. 18.57 for Agasteeswaram and Thovalai respectively. It is inferred that the cost of milk production and cost per liter is more for Agasteeswaram than Thovalai. 8. DETERMINANTS OF YIELD OF MILK The factors influencing the yield and cost of production of milk includes the value of milk yield per animal per day, the human labour cost per animal per day, the value of green fodder fed per animal per day, the value of dry fodder fed per animal per day, the value of concentrates fed per animal per day, lactation period and the miscellaneous expenditure. In order to identify and understand the significance of the determinants causing variation in yield of milk in Agasteeswaram and Thovalai, Cobb-Douglass type production function is used. Log Y = B0 + Bi log X1 + B2 log X2 + B3 log X3 + B4 log X4 + B5 log X5 + B6logX6 + U Where Y = Value of milk yield per animal, per day in the lactation period in rupees. Xi = Human labour cost per animal per day in the lactation period in rupees. X2 = Value of green-fodder fed per animal per day in the lactation period in rupees. X3 = Value of dry-fodder' fed per animal per day in the lactation period in rupees. X4 = Value of concentrates fed per animal per day in the lactation period in rupees. X5 = Lactation periods (days) X6 = Miscellaneous expenditure per animal per day in the lactation period in rupees, U = Disturbance term. Bo, Bi . . . . B6 are the parameters to estimated. The above model was estimated by the method of least squares. The estimated Regression Results in Milk Yield in Agasteeswaram and Thovalai are depicted in Table 4. http://www.iaeme.com/IJM/index.asp 58 editor@iaeme.com
Determinants of Cost of Production of Milk an Empirical Analysis Table 4 Estimated Regression Results in Milk Yield in Agasteeswaram and Thovalai SI. Variable Notation Agasteeswaram Thovalai No. 1. Milk Yield per day per animal (in Rs.) Y - - 2. Intercept 60 2.4325 2.1052 3. Human labour cost per animal per day (in Rs.) Xi 0.2017* 0.2067 (2.3125) (3.5231) 4. Green fodder per animal per day (in Rs.) x2 0.3138** 0.00778NS (2.925) (0.1478) 5. Dry Fodder per animal per day (in Rs.) x3 0.00927NS 0.2015* (1.3218) (2.3725) 6. Concentrates fed per animal per day (in Rs.) x4 0.1358** 0.1172* (3.1257) (2.0071) 7. Lactation period (in days) x5 0.2631* (2.2817) 0.1572* (2.1727) 8. Miscellaneous Expenditure per animal per day (in X6 0.0413NS 0.0821NS Rs.) (0.1027) (0.3927) R2 0.759 0.823 F – test 77.845 41.3792 Number of observations 100 100 Source : Primary data Figures in parenthesis represent 't’ value **significant one per cent level * significant at five per cent level NS - Not significant Table 4 shows that in the case of members of Agasteeswaram Taluk, among the six explanatory variables like human labour cost, green fodder, concentrates and lactation period were found to be positively related to their milk yield, whereas the others were found to be not significant.' The value of R2 indicated that all the six explanatory variables jointly explained about 76 per cent of variations in yield of milk. Variables like human labour and lactation period emerged statistically significant at 5 per cent level and green fodder and concentrates have emerged satisfactory significant at 1 per cent level. By one per cent increase in these variables, the yield of milk could be increased by 0.2017 percent, 0.3138 percent, 0.1358 per cent and 0.2631 per cent respectively. Green fodder had a greater influence on yield followed by lactation period. As per F- value, the fitted regression model was statistically significant at 5 percent level. In the case of members of Thovalai Taluk, the R2 value indicates that all the explanatory variables included in the model jointly accounted for 82.3 percent variation in the yield of milk. The co-efficient of variables namely human labour, dry fodder, concentrates and lactation period were statistically significant at 5 percent level. One percent increase in these variables was capable of increasing the yield by 0.2067 percent, 0.2015 percent, 0.1172 percent and http://www.iaeme.com/IJM/index.asp 59 editor@iaeme.com
Dr. P. Nixon Dhas, Dr. S. Nadarajan 0.1572 percent respectively. Human labour had a greater influence on yield followed by lactation period. As per F-value, the fitted regression model was statistically significant at 5 percent level. The result of Cobb Douglas production Function which exhibited all six explanatory variables such as labour, green fodder, dry fodder, concentrates, lactation period (days) and miscellaneous expenses jointly explained about 76 percent of variation in yield of milk. With one percent increase in significant variables such as human labour, greed fodder, concentrates and lactation period (days), the yield of milk could be increased by 0.2017 percent, 0.3138 percent, 0.1358 percent and 0.2631 percent respectively among which green fodder had a greater influence in the case of members of Agasteeswaram dairy co-operative societies. One percent increase in variables such as human labour, dry fodder, concentrates and lactation period was capable of increasing the yield by 0.2061 percent, 0.1172 percent, 0.2015 percent and 0.1572 percent respectively among which human labour had a greater influence on yield in the case of members of Thovalai region. 9. CONCLUSIONS The six variable includes labour, cost value of green fodder, value of dry fodder, value concentrates fed, length of lactation period and miscellaneous expenditure significantly influence the milk yield. Of the six variables greatest influence is made by value of green fodder followed by length of lactation period. REFERENCES [1] N. Gunasegari, Dr. N. Periyasami, Perception Of The Member Societies Towards Working Of The Pondicherry Co-Operative Milk Producers' Union Limited. International Journal of Marketing and Human Resour ce Management (IJMHRM), 4(2), 2013, pp. 13– 18 [2] Eng. Mihaela–Adriana Tiţa and Eng. Cosmina-Andreea Blaga, The Role Of Computer Assisted Instruction In Teaching The Topic: Milk And Milk Products In Public Alimentation. International Journal of Marketing and Human Resour ce Management (IJMHRM), 4(3), 2013, pp. 6–9 [3] Yadav S.N, Mrs.Kulkarni V.A., Design Of Milk Analysis Embedded System For Dairy Farmers. International Journal of Electronics and Communication Engineering & Technology (IJECET), 3 (2), 2012, pp. 286-293. [4] Geetha P, Arivazhagan R and Palaniswamy P T, Optimization Of Production Process And Preservation Of Jalebi By Using Heat-Acid Coagulum Of Milk. International Journal of Management, 4(4), 2013, pp. 230–241. [5] Amarja Satish Nargunde, (2013) Role of Dairy Industry in Rural Development, International Journal of advanced research in Engineering and technology (IJARET), Volume 4, Issue 2 March – April 2013, pp. 08-16 http://www.iaeme.com/IJM/index.asp 60 editor@iaeme.com