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6.4 Profile of Dairy Cow Survey[104]

6.4.1 Farm Size and Contractual Arrangement

There are two regions for the dairy cow survey. One is a relatively new area of eastern region of Thailand, while the other is older dairy area in central region. The original number of planned samples size were 85 samples to be drawn from 5 provinces in the following proportion: 10 farms in Chonburi, 19 farms in Sakaew, 15 farms in Lopburi, 2 farms in Saraburi and 27 farms in Nakhon Ratchasima (Table 6.54). All of these provinces have connecting borders with each other. The survey was carried out during December 2002 to January 2003 and we managed to survey 92 dairy farms in total. The largest sample farms came from Saraburi and NakhonRatchsima (Korat) provinces as these two provinces are also the largest dairy and the oldest dairy area in Thailand (based on Yearly Statistics Report by DLD). The distribution of the samples by province and farm size is shown in Table 6.54. About 38 percent of our samples are of small size (with 20 cows or less) while about one-fifth of the sample has more than 50 cows per farm. A large proportion of the small farms are from Korat and Sakaew, while the majority of the large-farm samples is from Saraburi.

Tables 6.55 and 6.56 show the distribution of the size of farm land. About a half of the dairy farms are greater than 20 Rais[105] (3.2 hectares). The distribution is not evenly across province, however. Farms in older areas tend to have more land per cow. This is partly because a large amount of land per farm in this Korat and Sara Buri was given away to dairy farmers in the 1960's as part of Royal Project with support from Danish government.

6.4.2 Farm Structure

Cows could be categorized by their development into 9 stages. The stage that would generate most farm income is the milking cow (dairy cow). Table 6.57 shows the distribution of cows in various stages. Notably, most farms try not to keep the male oxen in their farms.

6.4.3 Contractual Arrangement

The most common contractual arrangement in dairy farming in Thailand is to have contract farming with a cooperative. This structure differs greatly from the contractual arrangement in the poultry industry. In dairy, the farmers do have all the decision making power in their farms and are fairly independent from the cooperative. The roles of cooperatives are to provide services for their members such as loans, consultation, and buying milk at guaranteed prices. The requirements for joining the cooperative are fairly simple,[106] and therefore are not barrier to entry for smaller farms. Therefore, out of 92 sampled farms, 81 belong to some kind of cooperatives whereas the rest are independent farms. Distribution of farm size among cooperative farms and independent farms are not very different. The independent farms sell their milk to private companies at their collection points. The private companies buy milk at the guarantee price, but they usually do not provide other services like the cooperatives.

6.4.4 Employment and Capital Investment

Eighty-six out of 92 farms employ family labors[107], indicating that majorities of dairy farms are still family enterprise. Most of these farms use only their own family workers. Only 29 farms (31 percent) hired outside laborers for their farms. Twenty-five of these 29 farms are of medium and large sizes. Out of total hired laborers, 75 percent (52 out of 69 persons) have primary education, 13 have secondary education, and only one person have higher education.

All of workers hired by the small farm (4 person) have only primary education. Some large and medium farms do hire workers with some secondary education (5 and 3 farms, respectively), but the majority of hired laborers in the farms still has only primary education. Only one medium sized farm hired an animal husbandry (in Chonburi province). The average numbers of hired employees are still relatively small ranging from one worker for the small farms to five workers for larger farms, since most of these farms depended on their family workers (Table 6.58).

Compared to other livestock industries, the dairy farm is relative low in technology. All of the housings for cows are still open air, i.e. no evaporative cooling system, no auto feed machines nor other kinds of mechanization. Overall, the fixed investments (exclude land and cows) are rather low. Over half of these investments, 55 percent are not more than 80000 or (US$1900)[108]. Only 22 farms invested more than 200,000 Baht into their farms and only 3 farms invested more than one million Baht (US$23,809) (Table 6.59). Although capital investments in dairy farms are relative low compared with other livestock industries, it does not generate much employment either, averaging only 2.6 persons per farm (including family labor). Therefore, the capital-labour ratio in dairy is high, but it is due to low employment rather than high capital intensity.

The majority of dairy farmers did not borrow from any sources in the past year (Table 6.60). Only 27 percent (25 farms) borrowed short-term loans, the majority of whom were small farmers. Most of the loan's providers are given out by 3 major sources namely farmer's cooperatives, commercial banks and the BAAC. Slightly more farmers had long-term loans (41 percent). Notably, while more small farms relied on short-term than long-term credit, more medium size farms and specifically large farms relied on long-term than short-term loans. For the long-term credit, about two-thirds (24 cases out of 38 cases) were given out by BAAC.

6.4.5 Variable Inputs

Table 6.61 indicates that, on average, feed cost account for 73 percents of total variable cost. This feed cost includes both of concentrate feed and roughage, which made up about 60 and 14 percents of total variable cost respectively. Drug cost is the second largest item on the variable cost, it accounted for about 6 percent of the variable costs. Interest payment and labor costs account for 5.6 and 5.1 percents of total variable cost. Other significant variable costs include cost of breeding (3.4 percent), utilities (electricity & water) (2.3 percent). The variable cost does not include the cost of buying new cows as the life cycle of dairy cows are rather long (around 7-9 years) and, therefore, are considered as fixed investment. Should this cost were included it would be among one of the highest cost for dairy farming.

For the roughages, most of the farmers find the supply by themselves by cutting it from a grassland, letting the cows graze freely in the field, or even investing in grass farming. For the concentrated feeds, about 71 percent of farms bought from cooperatives, while 20 percent bought it from other sources (Table 6.62). This shows how crucial the cooperatives are to the dairy farmers.

One significant problem that farmers face is that the lack of roughage during the summer period, this is accounted for about 30 percent of farms (27 farms out of 92, see Table 6.63). This problem depends largely on the size of grassland in the farm. The older region-where farms have relatively small land-accounted for most of this problem (20 out 27 farms come from this region).

6.4.6 Output and Prices

The average milk production for the total samples is about 278 kgs per month. The average level of production in Korat and Saraburi are the highest in our sample 329 and 301 kgs per month (Table 6.64) respectively. Overall, average milk production per milking cow in the older region (Lopburi, Saraburi and Korat) is significantly higher than that of the new region. This may due to having more suitable weather condition and better farm management. Also, medium sized farms produce less milk per cow than both the large and small farms.

Most of the farms sell milk to their dairy cooperatives. While the sale price is derived from the national guaranteed price (12.50 baht/kg ), the net prices varies from cooperative to cooperative (Table 6.64), as each cooperative charge different fees from its members. From our survey, the average price of milk is 11.15 baht/kg, with small variations between provinces. Notably, the average price paid by the Sakaew cooperative was about one-baht lower than those of other cooperatives. The cooperative manager explained that the cooperative provide free services like artificial insemination and veternarian services to the members.

Under the cooperative system, individual farmers do not face price risk, as the price and marketing risks are shifted to the cooperatives (which in turn shift it to the private buyers[109]). In theory, the farmers only need to make sure that their milk would meet the standards.[110] A fine would be imposed for the milk that does not meet the standard, or the buyer might refuse to buy it if the quality is unacceptable. In reality, during the low-demand period (e.g., when schools were out), many farmers have found that the private buyers become stricter on milk quality or even used this reason to refuse to buy the milk from them.

In our samples, 23 out of 92 farms had at least one experience of being penalized for failing to meet the standard. Most of them are small or medium-sized farms. Farmers in the older dairy areas appeared to have less of this problem than those in the newer areas. It is not clear, however, whether these older areas were more suitable or because these farmers have more negotiation power than those in newer areas.

6.4.7 Environmental Issue

There are two main types of waste created by dairy farm, namely cow manure and wastewater created by dairy farms.

For the wastewater, most dairy farms do not have any of water treatment facilities, only 23 farms have some kinds of holding ponds. 60 farms discharge their wastewater in the grass fields. Nonetheless, the environmental effect in discharge the wastewater into the grass field is minimal because the wastewater could become natural fertilizer for the pasture. Only 9 farms discharge wastewater into the public canal. Surprisingly, 4 out of these 9 farms are large farms and other five are small farms.

As for the manure, over half (52 percent or 48 farms) could sell their manure for extra income. Larger farms seem to sell less of their manure than other size of farms as they may have larger or more grass fields to discharge them. As the dairy cow manure is a good fertilizer for the grasses, 52 percent of the dairy farms release the manure into the grass fields. Larger farms (68 percent) are more likely to release the manure into the grass fields.

6.4.8 Subsidies

Dairy farmers are probably the only livestock farmers in Thailand that receive subsidies from the government. Subsidies come at two levels: farm and policy levels. At the farm level, farmers receive government subsidies in form of free service from Department of Livestock (or via their cooperatives). The services range from artificial insemination, free vaccination and training courses. For examples, 43 farms receive free artificial insemination, 33 farms receive free vaccination programs and 15 farms receive some kind of training programs from DLD.

At the policy level, the Thai government does provide a great deal of protection and support for dairy industry. Import quota is allocated under the condition that the importers have to buy 20 kilograms of raw milk domestically at the guaranteed price[111] for every kilogram of powder milk they import. The price guarantee is effective where the farmers or cooperatives sell their milk to the private buyer, not at the stage of farmers sell their milk to cooperative. The government also created an extra market for the domestic milk by implementing the school-milk program where the government allocate a considerable amount of budget to buy milk for students when schools are in session. However, most cooperatives do not participate in the program as the procurement is centralized at the national level.

6.4.9 Animal Welfare

In theory, it is of the dairy farmers to maintain very high standard of welfare for their cows, since the cows are indeed the most valuable assets on the farms. Also, there is a positive correlation between the stress level in the cows and the amount of milk produce. Therefore, in general, dairy cows' welfare should be relatively good compared to other animals. Furthermore, one common characteristic of the sample farm is that they allowed their cows to graze freely in the open grassland during the daytime and only restrict their movement during night and milking time.

The average size of farmland is about 29 rais (4.6 hectares) for the total samples), the average size of farmland for the older region is higher than the new region. For example the size of the farm land for Saraburi, Korat, Lopburi are 33.5, 32.6 and 31.2 rais respectively, while the average farm land for Chonburi (24.1 rais) and Sakaew (22.5 rais) are relatively smaller than the older region. In this connection, Saraburi and Korat have the lowest cow density per area. From Table 6.4.3, the cow density ratio for 65 farms (70 percent) range between 0-1 cow/rai, which could account for the relatively high yield per cow in this area.

6.4.11 Profit, Yield, and Transaction Costs

Among the three farm sizes, medium sized farms make more profit per kilogram of milk than farms of other sizes. However, farms of this size also has the lowest average yield per cow. When both factors together are combined, it become clear that the large farms-which had the highest average yield-made the highest profit per farm, i.e., about 2.2 and 6.2 times of the average farm profit of the medium and small farms, respectively (Table 6.65).

Table 6.65 suggests that an important part of differences in farm profit could be attributed to milk yield, which in turn reflects technological and managerial differences. It is plausible, however, that having different bargaining power or different transaction costs could also explain the profit differences. Since transaction costs are difficult to measure, this section examines prices and other variables that should be related to transaction costs and negotiation power.

From Table 6.66, output prices received by farms of different sizes are similar, although the largest farms tend to receive slightly higher prices (averaging 3-4 percent greater than those of small and medium-sized farms, respectively), but the difference comes from sample sites rather than sizes. Medium and large farms could buy concentrate feeds at a lower price than the smaller farms. Price of roughage appeared to be similar among farms of different sizes. The key factor that explains per-kilogram profit difference is the farms' ability to use the right mix between concentrate feed and roughage. Medium sized farms gained the highest profit per kilogram of milk because they had the lowest feed cost per kilogram. However, the large farms tended to make more profit per cow than medium sized farms by using the feed mix that resulted in much higher yield per cow.

Table 6.67 lists other variables that could affect farms' transaction costs (and, in some cases, production costs). Average ages of farm operators for large and medium sized farms are greater than that of small farms-which appear to be consistent with those of broiler farms. Farm operator's year of education increases with size. However, most of them did not have college education. The operator's experience in dairy also increases with size. This is plausible that most farms began as a small farm and expanded their farms on their success.[112] As for farm location, most of them locate not very far from the nearest community (about three kilometers) and the public waterway (about one kilometer).

In terms of investment, the medium-size farm (with 21-50 cows) had the highest average annualized fixed cost per output (kilogram of milk). For farm land--including pasture, which would be an important source of fresh roughage, the large and small farms appear to have higher land per cow (or lower cow density) than medium-sized farms.

[104] This chapter is drafted by Viroj NaRanong and Paisit Goolchai. Nipa Srianant helps with data processing in section 10.1.
[105] One rai = 0.16 hectare
[106] These conditions are: 1) Farmers have to have some dairy cows and their farm have to be in same area as cooperative. 2)Farmers are required to pay some small application fee (about 500-1000 baht) and some cooperative required their member to hold shares in the cooperative. The cooperatives will charge a service fee around 1-2% of their monthly sale income.
[107] The family labour includes family member over 15 years old and under 15 years old (we consider 2 under 15 years old laborer as 1 adult equivalence).
[108] Based on the exchange rate 42 Baht per one US Dollar.
[109] Except for a few cooperatives that have their own dairy product factories.
[110] The standards of the quality of milk are as followed:-

1. No more than 3.5% fat from the raw milks and the milks have to be delivery to the collection central within 24 hours.
2. The test of the Resazurin Test (within 1 hour) is no more than 4.5 points
3. The Methylene Blue Test have to be more than 4 hours
4. The percents of non-fat solid have to be lower than 8.30 according to AOAC.
5. No added color or test into the raw milk.
6. The Lactic acid has to be between 0.12-0.16
7. The Temperature of the milk can not be higher than 8C.
8. No clot form when the raw milks are boiled.

[111] The guarantee prices for raw milk have been:

  • 7.5 Baht per kg in 1990
  • 8 Baht per kg in 1991
  • 9.25 Baht per kg in 1992
  • 10.5 Baht per kg in 1996
  • 12.5 Baht per kg in 1998

[112] It is possible that some other small farms went out of the business along the way. However, our survey was not designed to cover these cases.

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