Analysing financial pace of Pakistani buffalo dairy farms

Farm data recording has always been a myth in Pakistan and analysis system is obsolete and cannot provide any reliable picture of gains and expenses incurred on dairy farms. Present study was conducted to know the financial pace of Pakistani buffalo dairy farms. A cost of production analysis questionnaire developed by European Dairy Farmers (EDF) was used for data collection in 2009, and analyzed at Johann Heinrich Von Thünen Institute (vTI), Germany. Study was conducted on 26 buffalo dairy farms across the Punjab where the herd size was found between 5 -32. The farms production averaged 50 tons of Energy Corrected Milk (tECM)/farm. Marketable milk production was found to be 46 tECM /farm. The total costs of dairy farms averaged 28.7 Euro (€)/100kg ECM. Decoupled payments were zero; hence entrepreneurs profit (I) and (II) showed no difference and averaged at 3.0 €/100 kg ECM. The direct costs covered almost 47.7% of total enterprise costs. Participating farms were using low cost buildings, so building costs could only reach 0.4 €/100 kg ECM. Labor related costs climbed up to 22.5 €/100 kg ECM. Total returns averaged to 31.8 €/100 kg ECM. Out of total returns 68% were milk returns only. However, the profit margins were found to be only 3.1 €/100 kg ECM. Best 25% and least successful 25% farms (selected on the basis of breakeven point II) showed profit margins of 7.9 €/100 kg ECM and -2.9 €/100 kg ECM. The negative profit margins of later category were due to higher input costs that remained 34.2 €/100 kg ECM in compassion with 23.8 €/100 kg ECM of best 25% farms.

Keywords: Cost of Production, Dairy, Buffalo, Pakistan

Introduction

Pakistan is an agro-livestock based economy. Agriculture is the second largest sector of the country which contributes nearly 21% to the GDP and absorbs almost 45% of entire labor force. Livestock is the major shareholder within the agriculture sector having 159 million heads of population. It contributes 53.2% to the agriculture value-added and is growing at 4% annually. Among all livestock products milk is most important as it provides relatively cheaper and easily available animal protein and vital minerals to the human beings (1). Gross milk production in Pakistan has reached to 44,978 (000 tons.) annually. In spite of emerging trends of cow farming, buffaloes still contribute almost 61% to total milk production and are ranked as chief dairy animals in Pakistan (2). World population of buffalo has touched 188.3 million heads. According to an estimate 97% of total buffalo population is found in Asia. After India, Pakistan with 30.8 million heads has the highest buffalo population in the world (3). Pakistan, like India has the low-input/low-yield production systems, animals are mostly fed crop residues and straw based diets; whereas, occasionally supplemented with some concentrate feeds (4)(5). According to one study (6), majority of the Pakistani dairy were blindly following the outdated practices and totally ignorant about the improved technologies of farming. Because of high butterfat constituents in milk, buffaloes are consumer’s choice all over the Country (7). Punjab enjoys well developed canal system and five rivers passing through, make it natural habitat of buffaloes. Almost 60.8% of Pakistan’s buffalo population resides in Punjab province (8). Typical farms in Punjab comprise of 2-6 hectare of land having a herd of 2-10 animals (7). According to Pro-Poor Livestock Policy Initiative, the rural farms with 10 animals are becoming more common in Punjab, and these medium type farms have the capacity to transform into commercial entities (9) In-spite of all these projections still the farming system in Pakistan is being run on orthodox practices and its major problems like poor genetic potential, low quality feeds, high risk of diseases, volatile markets, burden of non-productive animals, lack of technical expertise etc.(10); are not well documented in terms of economic parameters. The farm data recording and analysis system is poor enough to provide any reliable picture of the system to the stakeholders. Hence, one could neither know nor predict the economic situation of buffalo farming system. Present study targets medium sized dairy buffalo farms operating across the Punjab to give the true economic picture for better understanding of as these farms have the potential to convert into viable business units in near future.

Materials and Methods

Cost of production (COP) questionnaire, developed by European Dairy Farmers (EDF) was used to compute the economic indicators at medium scale buffalo farming in Punjab. A total of 150 farms were visited randomly in 3 districts of Punjab (Faisalabad, Gujranwala and Jhang). The criteria were to select the medium sized buffalo dairy farms that have proper farm records of at least 1 year. Out of total 150 farms only 26 were designated for data collection and evaluation. Requisite information was collected through face-face interviews with farmers, consultation with farm records and visit to the barns for the period between June 2008 to June 2009. Filled questionnaires were sent to EDF Star coordination center “Johann Heinrich von Thünen-Institute, Braunschweig, Germany” for final analysis. Where, all the data was converted to Euros (€). The data was hereafter multiplied with allocation factors, pre- determined by EDF and values over the COP of dairy enterprise including heifer and forage production were got. The opportunity costs for land, labor were determined and depreciation costs of equipments and structures were calculated on re-purchase base. Total milk production was harmonized as energy corrected milk at 4% fat and 3.4% proteins. Calculated values of dairy enterprise were divided by ECM of milk calculated. Individual profit and loss factors were summarized. Best 25% farms were classified on the basis of lower breakeven point II {total costs (excl. milk quota costs) minus non-milk returns}.Similarly, least successful 25% farms were also calculated and were compared with mean values of total farms participating. Graph IV shows the detailed distribution of breakeven point II for current study. Value Added Tax (VAT) was not calculated as it was not applicable in Pakistan.

Results and Discussion

3.1-Milk Production

Gross milk production showed great variation, on an average 50 tons of energy-corrected milk (tECM) was produced in the accounting period with a range of 16 to 81 tECM / farm. Marketable milk production stood 46 tECM and actual marketed production was recorded as 43 tECM. These findings revealed that about 4 tECM was used at the farm and about 3 tECM was wasted in the pre-marketing processes. The herd size had direct impact on the gross production of the farms under observation and averaged to 19 animals/farm. Milk production /buffalo were observed to be around 2,702 kg ECM; fat and protein were 6.50% and 4.22%, respectively. Similar results were reported in a study conducted by FAO in 2003, rural farms with average 10 buffaloes produced 2,257 kg ECM and sold almost 90% of their milk produced (9). However, some Indian farms having 6 Murrah buffaloes, produced 1,437 kg ECM for the accounting period that was much less as compared to the production records of Pakistani Nili-Ravi buffaloes (11). Production on all farms was round the year and no seasonal trends were observed.

3.2-Land Efficiency

Total farm area averaged 7 hectares; renting trends were not much higher and only touched 3 hectares /farm. However, the being used for forage production was 2 hectares. All the land was arable and no permanent or temporary grasslands were available. Stocking rate was fairly higher (10 buffaloes / hectare) and land productivity averaged 26,265 kg ECM/hectare. Working paper on Pakistan’s small producers showed results were in agreement to our findings, stocking rate remained 9 to 13 units /hectare. But the milk production was reported to be 15495 kg ECM/hectare (9). The higher values in present study might be due to the latest advances in agronomic practices and modern feeding trends. Dairy farms in Bangladesh were found with similar trends of not renting lands for agricultural systems while per farm area ranged between 0.40-1.44 hectares. The stocking rate in Bangla farms was as high as 14 animals / hectare and production in rural dairy production systems was recorded to be 25,454 kg ECM/hectare (12). Indian farms in Orissa showed a trend of using up to 0.23 hectare of land for dairy production with a stocking rate of 6 units /hectare. Milk production was found to be 7,709 kg ECM/hectare (11), this lower production as compared to Pakistan might be due to genetic differences in the dairy animals of respective countries.

3.3- Labor Effectiveness

Indian-subcontinent is blessed with cheaper labor force; according to an estimate 45% of Pakistan’s total labor force in involved in agriculture and almost 60% of rural population is involved directly or indirectly in livestock business (2). Almost 1.5 labor units were found working at the farms and hired labor was double that of family labor. Labor input in terms of labor hours / buffalo in the accounting period averaged 723 hours /day subsequently, resulting in 1.98 hours /day. Farms having 10 buffaloes as average herd size in Pakistan were recorded to have 52% of share from family labor and 686 labor hours /buffalo / year (9). In India decreasing trends in family labor involvement and labor hours / animal were observed with the progress in herd size and commercialization. In the herds of 6 Murrah buffaloes 55.1% of family labor involvement was found (11).

3.5- Herd management

Generally, in Nili-Ravi buffaloes claim maturity at 30 to 36 month of age, similar trends were observed in the current study, as the buffaloes gained maturity at the age of 37 months while, the calving interval observed was 443 days. Culling rate was found to be 6.6% / annum. Lifetime yield of a cull buffalo was projected to be 17,287 kg. Calf loss ratio was 9% and milking frequency was 2 times morning and evening. Buffaloes had a culling rate of almost 10% while the calf loss was 20% at farms of smaller size with 10 buffaloes (9). Indian studies indicated a higher culling rate 10-30% and calf loss up to 20% (11). Bangladesh had culling rate of 15-25% and calf loss rate up to 20%. The reason for differences in culling might be due to the level of study as the present study was conducted on medium sized farms where commercial trends were evident, hence; better care of calves leading to long production life of buffaloes was observed.

3.5- Feeding Trends

Buffaloes all over subcontinent are kept under poor feeding conditions. They are fed roughages and occasionally concentrate. In our study on an average 3.3 kg of concentrate was offered to buffaloes/ day. Production of 2.2 kg ECM / kg of concentrate was recorded. Most of animals were stall fed as our studies also indicate that there was no significant grazing to buffaloes in Punjab. Fodder mixed with wheat straw was offered and as concentrate source, cotton seed cake was commonly used. Similarly in India, grasses with paddy straw were commonly used for fill effect and rice broken, gram kernel and rice bran were commonly being used as concentrate (11). Bangladesh farms showed similar trends to India as paddy and its byproducts were commonly available (12).

3.6- Capital Input, Price and Costs Structure

Capital input in machinery, buildings and livestock was found to be 132, 96 and 915 €/buffalo. Investment in other than above mentioned sectors was recorded as 272 €/buffalo. Total Capital input touched 1,417 €/buffalo and capital productivity was found to be 1,905 kg ECM/1000 €. While the capital input reached to 5291€/cow in European farms (13). Differences in capital input were due to the mechanization and improved farming in European farms versus traditionally maintained low investment farms in Punjab, Pakistan.

Punjab’s livestock market is very volatile and its dependence on season and other associated factors is much higher. Milk price /kg ECM was observed to be 0.21 €. And cull buffalo price /kg was 0.72 €. Male calf price averaged 30 €. Land rent was 585 € / hectare and 0.3 € was paid for every dairy labor hour. Prices for concentrate remained at 150 € /ton. Whereas, milk price was 0.36 €/ kg ECM and cull cow price stood 0.96 €/ kg live weight. Male calf price was also found higher as compared to Pakistan and it mounted to 124 € (13). Surprisingly, the land rents were lower and were recorded to 313 €/hectare. Better price of milk and cull animals are in agreement with the hypothesis that Punjab’s livestock markets are volatile and do not pay back to the farmers. However, higher rent of land in the study area is itself evident that majorly cash crops are being cultivated.

Costs at dairy farms may be divided into 2 distinct groups, direct costs (involving expenses directly on dairy animals) and indirect costs (labor, machinery, building, depreciation and miscellaneous costs). Cost on purchase of animals in terms of milk production was 3.9 €/100 kg ECM as an average. Hoof trimming was not a common practice and health expenses incurred on animals touched 0.5 €/100 kg ECM. Insemination related costs were found 0.1 €/100 kg ECM. Other direct costs, cost of seeds, fertilizer and pesticides remained 2.8, 1.1, 4.1 and 0.8 €/100 kg ECM, respectively. The cost of fertilizer was higher because the trend of compost was not significantly recorded and chemical fertilizer was found selling at higher prices due to huge gap in demand and supply. In +25% farms fertilizer costs remained lower than -25% farms with 3.8 and 4.0 €/100 kg ECM, respectively. The total direct costs accumulated to 13.7 €/100 kg ECM as average while 13.1 and 13.3 €/100 kg ECM in +25% and -25% farms.

Personal expenses were recorded to 6.1 €/100 kg ECM as average while these were much higher in -25% farms (8.7 €/100 kg ECM) as compared to +25% farms (3.6 €/100 kg ECM). Calculated family labor cost was found 2.3 and 1.9 €/100 kg ECM in +25% farms. Fuel and lubricants, energy, depreciation of machinery /vehicles and opportunity costs for machinery / vehicles averaged 1.0, 0.1, 0.3 and 0.2 €/100 kg ECM respectively; Hence, total labor related costs collected to 11.2 €/100 kg ECM, While, it was 8.4 €/100 kg ECM in +25% farms and more than double in -25% farms with 15.3 €/100 kg ECM. No quota system was applicable in Punjab subsequently no figures could be found for this factor. All the farms were using very low cost housing material usually made of mud wood. So the building cost could only reach up to 0.4 €/100 kg ECM. Renting cost for land was 0.2 €/100 kg ECM and no renting trends were found in +25% farms. Opportunity cost for land and improvement expenses were not calculated due to unavailability of data. Total land related costs 1.8 €/100 kg ECM in +25% farms and 5.3 €/100 kg ECM in -25% farms with an overall average of 3.4 €/100 kg ECM.

Total costs of the medium sized dairy buffalo enterprise remained 28.7 €/100 kg ECM on average (Graph-I). +25% farms showed the cost index to 23.8 €/100 kg ECM that was significantly lower as compared to 34.2 €/100 kg ECM of -25% farms and the overall average itself. On an average 72.82% of total costs were the cash costs 1.7% as depreciation and 25.43% as opportunity costs. Similarly, total costs in European farms remained 41.5 €/100 kg ECM (13) and was higher in all cost components due to advanced farming systems.

3.7- Entrepreneur Returns

Milk returns contributed the major part of total returns, as the average milk returns were 21.4 €/100 kg ECM. Animal returns remained found 8.8 €/100 kg ECM and other payments including the rental income of farm equipments gathered up to 1.6 €/100 kg ECM totaling all returns up to 31.8 €/100 kg ECM (Graph-II).

Entrepreneurs Profit I {returns (incl. non-milk returns, excl. decoupled payments} minus total costs (incl. cost for coupled products) and Entrepreneurs Profit II {entrepreneur’s profit I plus decoupled payments (pro-rata by forage area} remained same in present study as data on decoupled payments was not available. The both profit types averaged 3.0 €/100 kg ECM (Graph III), However, profit margins remained positive in +25% farms with 7.9 €/100 kg ECM as compared to -2.9 €/100 kg ECM in -25% farms that failed to succeed. Break-even-point 2 (total costs (excl. milk quota costs) minus non-milk returns) was 13.5 €/100 kg ECM in +25% farms and 24.2 €/100 kg ECM in -25% farms. Subsequently, family farm income was found 13.9 €/100 kg ECM in +25% farms whereas, it was recorded 6.7 €/100 kg ECM in -25% farms. Dairy farms in Europe showed a family income of 10.3 €/100 kg ECM and a negative trend of Entrepreneurs Profit I & II was observed in -25% farms. The situation got graver in 2010, and European farms made a loss of -7.9 €/100 kg ECM. Higher direct costs and lower milk prices were found responsible for this circumstance.

Conclusions

Present study suggests that medium sized buffalo dairy farms in Punjab are vulnerable. Returns from -25% and +25% farms stand similar; while, the input costs are very high especially labor related expenses, , reducing profit margins to a great extent. Punjab’s markets are very volatile in nature and demand-supply interactions have direct effect on commodity price. Cooperative farming for improving herd size to a viable number, using alternate and cheaper inputs, applying “whole farm” approach, revising the breeding plans to reduce calving interval and using balanced diets for optimal milk yield and early puberty in herd animals are the right tools to take into account for the survival of small and medium sized buffalo farming in Punjab, Pakistan.