ESTIMATION OF OUTPUT SUPPLY AND FACTOR DEMAND ELASTICITIES FOR MILK PRODUCTION IN SOUTHERN INDIA
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Date
2023
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Dr.RPCAU, Pusa
Abstract
Milk is extremely important because it is the second largest contribution of world agricultural output. In addition, it is an essential part of the vegetarian diet in countries like India. However, dairy producers are not compensated fairly for their milk production. Farmers that want to improve milk output need financial incentives, which can only be provided by a system that rewards them for doing so. One needs a solid empirical understanding of how sensitive factor demand and product supply are to changes in relative prices and technological developments in order to develop an effective pricing strategy. With these factors in mind, the current study was conducted in Southern India to analyze the costs and returns from milk production, to determine the profit efficiency of dairy farms and the factors affecting it, estimate the output supply and factor demand elasticities for milk production, find the cost elasticities and net income elasticities, and assess the constraints faced by dairy farmers in milk production. An interview schedule was used to obtain primary data from 240 respondents of Andhra Pradesh, Karnataka, and Tamil Nadu to achieve the objectives of the study. For the years 2019–20 and 2020–21, secondary data on milk production and livestock population from a wide variety of sources, including websites, research journals, government publications,
the Basic Animal Husbandry Statistics, the Department of Animal Husbandry and Dairying in the states of Andhra Pradesh, Karnataka, and Tamil Nadu, and milk unions like BAMUL (KN) and Aavin (TN), etc. Selected respondents were post stratified into three herd-size categories using the Cumulative Square Root Frequency Method: Small (1-3 milch animals), Medium (4-6 milch animals), and Large (7 or more milch animals). The statistical tools included the use of tabular analysis, the Capital Recovery Cost (CRC) approach, the normalized translog profit function, cost and price determination models, the Stochastic Cobb-Douglas profit function, and the Garrets Ranking Technique. According to the results, daily average gross maintenance cost for milk production was highest for crossbred cows (₹ 234.12), followed by buffalo (₹ 163.82), and finally local cows (₹ 143.54). Crossbred cows had the highest net cost of ₹ 227.94 per milch animal per day, followed by buffalo at ₹ 159.67, and local cows at ₹ 139.93. Local cows had the highest cost per litre of milk produced (₹ 33.13), followed by buffalo (₹ 31.84) and crossbred cows (₹ 20.99). While the net return per litre of milk was positive for crossbred cows (₹ 5.67) and buffalo (₹ 3.30) across all herd size categories but it was negative for local cows (₹ -3.93) due to the high cost of feed and fodder and the poor milk yield. Perhaps the rejection of the test of symmetry can be rationalised by the farmers' goal to maximise the utility of agricultural by-products rather than profit maximisation. The magnitude of own price elasticities was negative for all the variable inputs. That milk farmers are more concerned with their own prices than the price of other inputs was made very evident. Overall, a majority of the estimated cross-price elasticity values had a negative sign, showing that the variable inputs are complementary to one another, with the exception of the values for dry fodder and concentrate to veterinarian services, which showed a positive sign and are substitutes for one another. There was a positive relationship between milk price and demand of all the variable inputs for milk production and a negative relationship between milk supply and the variable input prices. It was determined that the cost elasticities were positive in relation to the prices of variable inputs, whereas the net income elasticities were found to be negative. Milk prices would need to increase by 10.77 per cent for small herds, 11.24 per cent for medium herds, 11.82 per cent for large herds, and 11.02 per cent for the overall herd to maintain a constant net income (i=0), according to the growth of cost of production and net income models. To maintain consistent returns to the production cost, the milk price would need to be adjusted by 9.73, 10.32, 10.75, and 10.25 per cent for small, medium, large, and overall herd size categories, respectively. For the year 2029-30, small herd size categories
were assessed to have an estimated cost of production per litre of milk of ₹ 67.51, while the medium, large and overall herd size categories have ₹ 69.09, ₹ 71.92, and ₹ 68.98, respectively. Comparatively, in the year 2029-30, the predicted price for milk at constant monetary net income and at constant return to production cost was observed to be ₹ 75.25 and ₹ 69.13 for small herd size categories; ₹ 79.61 and ₹ 73.93 for medium; ₹ 84.28 and ₹ 77.27 for large; and ₹ 77.65 and ₹ 72.97 for overall herd size categories, respectively. Using maximum likelihood estimates, it was found that overall, prices of green fodder (0.1873), prices of concentrate (0.1072), veterinary service rate (0.0569) and herd size (0.7545) all have a positive and statistically significant effect on normalized profits, while the prices of dry fodder (-0.0277) and labour wages (-0.1652) both have a negative and statistically significant effect. A total of 41.35 per cent of profit efficiency was lost due to technical and allocative inefficiencies in milk production, with the overall milk producers' mean profit efficiency of 58.65 per cent that ranging from 32.50 to 89.61 per cent, respectively. Overall, the profit inefficiency model found that a farmer's level of education, herd size, herd composition, and their level of dairy farming experience had a negative and statistically significant effect on profit inefficiency. Therefore, increasing the number of crossbred cows, enhancing dairy farm experience through educating farmers towards balanced feeding techniques, and adopting new technologies would assist in overcoming the inefficiency and subsequently raising the profit efficiency. Major constraints faced by milk producers were a shortage of green fodder round the year, poor conception rate through AI, high cost of medicines, high cost of construction of shed, lack of insurance facility, low price of crossbred cow milk and non-remunerative price for milk. For dairy farming to be profitable, extension institutions need to focus on services to include mobile veterinary clinics and training for farmers in areas like as feeding, breeding, disease control, heat detection, and marketing strategies. The study revealed that the majority of respondents in the study region are not happy with the procurement price offered by the milk collection centres. Therefore, rather than providing price incentives, farmers would benefit more from a rise in the price they are paid for milk that is at least proportionate to the cost of the feed fed to animals which helps farmers to improve productivity of animals and subsequently increasing the profits.