Andhra Pradesh is one of the agriculturally most
advanced states in India but still has high levels of rural
poverty. Mixed crop-livestock farming is the predominant farming
system practiced by over 80 percent of rural households in
the state. Bovines account for about 40 percent of the livestock
population and milk is one of the most important products
of cattle and buffalo enterprises, contributing over half
of the value of total livestock output of the state. Andhra
Pradesh’s milk is produced by 5 million dairy farmers,
most of which own less than 2 hectares and 1 to 4 dairy animals.
Although milk production has shown remarkable growth in Andhra
Pradesh over the past decade, the potential role of dairy
farming as a means to improve household incomes and create
rural employment is far from being fully exploited. For the
dairy sector to play a more prominent role in rural development,
there is an urgent need to devise dairy development programs
that are affordable for and have significant impacts on the
key production and financial parameters of the predominantly
small farms that are typical for the region.
Current Situation of Dairy Farmers in Andhra Pradesh
Incomes of dairy households range from 1,000 to 4,000 US$
per year. The share of off-farm income is relatively high
for small farms (80 percent) and decreases with increasing
size of farm holding. This clearly indicates that poor, often
landless farm households are mostly part-time farmers.
Total returns (cash and quantifiable non-cash benefits) per
100 kg milk range from 18 to 27 US$. Farmers however incur
total costs of 16 to 38 US$ per 100 kg milk, when family labour
(imputed at local wage rates), land and capital are included.
This means that only a minority of farms make an entrepreneurial
profit. On the other hand, if family labour is excluded from
the calculation, all farms achieve a net dairy income of 5
to 10 US$ per 100 kg milk. Due to the lack of better alternative
uses of their production factors, these returns to dairy production
are sufficient for these small farms to keep operating.
Returns to labour are inversely correlated to the cost of
milk production. While large farms (10 to 15 animals) achieve
returns to labour that are much higher than the local agricultural
wage rate, on the smaller farms returns to labour are around
half of the local wage rate.
Observed variation in performance of smallholder dairy farms,
however, indicates that there is significant potential to
improve livestock productivity in these production systems
by improving breeding, feeding and herd management, thereby
increasing the economic viability of the dairy enterprise.
At the farm level, initiatives that provide incentives to
farmers to keep more productive animals without compromising
their ability to work off-farm will be a necessary precondition
to enhance dairy development in the region. This will entail
devising dairy development strategies that are labour-saving,
require little investment and are of low risk.
Ex-Ante Assessment of Dairy Development Programs
Although large dairy farms represent a profitable enterprise
in Andhra Pradesh, the vast majority of smaller farms are
economically unattractive and would disappear as soon as farmers
have better alternatives. This critical situation of small-scale
farms persists in spite of numerous dairy development activities
long in existence in the state. Therefore, the farm-level
impact of over 40 potential dairy development interventions
covering feeding, breeding, animal health and milk marketing
on a typical 3-buffalo farm was assessed through an iterative
process that combined detailed household and farm simulation
with expert and farmers’ opinions and feedback. Several
of the most promising interventions were combined to a ‘Dairy
Development Ladder’ to assess whether the dairy competitiveness
of small farms can be brought up to that of the larger farms.
The assessment paid particular attention to the risks associated
with each of the programs by introducing stochastic variables
into the simulations, and thus also provided estimates of
probabilities of the programs leading to specified results.
Likely Program Impacts on Dairy Income
The ex-ante assessments reveal that most interventions
indeed raise dairy income and returns to labour, decrease
the cost of milk production and increase the likelihood of
achieving selected thresholds for the above parameters, thereby
reducing the risk inherent in dairy farming. For example,
improved animal feeding is likely to increase the return to
dairy labour by an impressive 145 percent, lifting it above
the regional wage level for unskilled labour, while reducing
the risk of falling below the current level of returns from
0.45 to around 0.15. This implies that whichever family member
stays on the dairy farm, (s)he is likely to obtain a higher
notional wage than the family members working off-farm. With
such an attractive outcome the question of why not more farmers
are adopting better animal feeding practices arises.
The ex-ante assessment of the ‘Dairy Development
Ladder’ shows that smallholder dairy farms have the
potential to become competitive milk producers, reduce the
risk inherent in farming and substantially improve household
income. As a consequence of the sequence of interventions
the farm develops in a gradual manner, which should present
a realistic development path, as it draws on regional expertise
and builds on local cases of competitive milk producers.
The Importance of Risk and Diversification
Several factors may be the reason for the low adoption of
dairy improvement programs: (a) the low overall impact on
household income; (b) the risk associated with specialization
in dairy and (c) the higher requirement for working capital.
The dairy enterprise contributes 0.13 US$ or 16 percent to
the daily per capita household income. Consequently, even
the most promising dairy interventions are only expected to
increase per capita household income by 27 percent, whilst
they require substantial changes in farm management. Genetic
improvement of their dairy animals was provided by farmers
as an example of how they would have to stop grazing in public
land and replace paddy, their main staple food, with green
fodder, while still producing for a very unreliable market
(milk vendors) or for a non-remunerative milk price (from
the cooperative), a risk they do not consider worth taking.
Farmers participating in this study were not only highly
risk averse but they were also reluctant to make optimistic
assumptions about ‘framework’ conditions for dairying
such as more or better access to water, working capital, health
services and a remunerative and reliable milk price. Smallholder
farmers universally agreed that without the above conditions
in place to diminish or eliminate their risk in adopting new
technologies, they would not subscribe to the main dairy development
programs on offer, in spite of their obvious potential benefits.
Implications for Dairy Development Programs
It is well-known that resource-poor farmers are, by necessity,
risk avoiders. Therefore, dairy development programs must
simultaneously improve the financial performance as well as
the risk profile of the targeted farms.
Dairy development programs are not normally conceived to
comprehensively address a wide range of factors, which however
determine their adoption and success. Undoubtedly, it is questionable
whether it would make practical sense for any one program
to tackle all of the identified issues, but a promising approach
could be to forge strategic partnerships among existing programs
which are likely to have strong complementary effects.
The need for one program to partner and build on another
is evident in the ‘Dairy Development Ladder’.
The results indicate that, gradually effective partnerships,
among various programs and with the farming community, can
effectively lift small dairy producers out of poverty through
a competitive dairy farming business, which provides not only
an excellent wage level under local conditions, but which
is also well-positioned against international competition
in a global economy.