ESTIMATION OF OUTPUT SUPPLY AND FACTOR DEMAND ELASTICITIES OF MILK PRODUCTION IN EASTERN REGION OF INDIA
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Date
2019
Authors
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Journal ISSN
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Publisher
ICAR-NDRI, KARNAL
Abstract
Dairy farmers have an important role to play in determining the level of milk
production in the country. In order to lure the farmers into dairy farming the suitable
policies related to prices are important as they act as instrument for policy
implementation. The present study was carried out in the eastern region of India with
the objectives to estimate the factor demand, output supply, cost and net income
elasticities of milk production as well as to determine the level of profit efficiency
among the dairy farmers in the region and the factors effecting it.
The states of Bihar, Jharkhand and West Bengal were chosen and one district
was selected from each state. One tehsil was chosen from each district from which
two villages were selected. Complete enumeration of the villages was done and
three strata (small (1-3 milch animals); medium (4&5 milch animals); large (>5 milch
animals) were formed using cumulative square root frequency method. Further, a
sample of 300 respondents was selected according to probability proportional to
size. In order to fulfil the objectives, the tools of normalised translog profit function
approach, cost and net income models and stochastic profit frontier were used.
The average milk productivity of crossbred cow (13.15 litres / day) was about
eight times higher than that of the local cow (1.65 litres / day) and about two times
higher than that of the buffalo (6.21 litres / day) which clearly indicate superiority of
crossbred cow in milk productivity. The average profit per household per day from
milk production was ` 332 over variable costs. Among the milch animals, the returns
over total cost were ` 5.36 and ` 1.46 per litre of milk production from crossbred and
buffalo, respectively. The net return per litre of milk production which was negative (`
-32.72) for local cow over total cost, turned out to be positive (` 8.54) when only cash
costs were taken into consideration.
Overall, supply elasticity of milk with respect to own price was estimated to be
0.7154 showing positive, yet comparatively inelastic effect on milk supply. The milk
supply elasticities with respect to input prices were negative and with respect to fixed
factors it was positive. The milk supply elasticity was the highest negative with
respect to wage rates (-0.3682). All the own price elasticities of demand were
negative, thereby, revealing that all the inputs are normal goods whose demand
increases as their prices fall. The own price elasticity of demand for concentrate (-
0.0006) was almost perfectly inelastic revealing that irrespective of the change in
prices, required quantity of concentrate was demanded. Almost all the cross price
elasticities were negative, indicating that the inputs were complements to each other.
All the factor demand elasticities with respect to milk prices were positive.
Overall, net income elasticity (12.3435) of milk with respect to its own price
was four times higher as compared to cost elasticity (3.0709) which demonstrates
that raising the milk price may be right approach towards increasing the income of
the farmer. The magnitude of cost (0.2335) and net income elasticity (-2.4646) with
respect to labour wages was the highest.
The mean profit efficiency of the dairy farmers in the study area was 0.7215
which increased with increase in the herd size. Profit efficiencies in the area can be
increased by having older, more educated and experienced farmer take decisions
related to dairy activities and by increasing amount of family labour, herd size,
number of crossbred cows in the herd and exposure to information and trainings and
by improving infrastructure facilities like proper roads, veterinary hospitals, cooperatives
etc.