Dairy production and products
 

Economics

Milk is produced daily and therefore can provide a regular cash income. The farmgate milk price can be based on the milk’s compositional quality, its hygienic quality, and the time of year. However, the price paid by small-scale processors in developing countries is often based on only the fat content of the milk. In addition to income from milk sales, dairy producers’ sources of income include sales of culled animals and young stock, and other dairy farming returns, such as sales of manure and direct payments.

Dairy production provides many non-marketed economic benefits, including manure for use on-farm as fuel or organic fertilizer (in several farming systems manure is the sole source of nutrients for crop production). Dairy animals are considered a means of safeguarding savings for sale in times of need (e.g., injury or disease of a household member), and a form of capital investment. However, there is the risk that dairy animals are stolen or die.

Dairy production has lower economies of scale than other livestock systems because it requires high labour input. The milk production costs (per unit of milk produced) of small-scale producers are often similar to those of large-scale dairies, as small-scale producers generally use family labour. On the other hand, dairy processing – like most post-harvest sectors – has high potential for economies for scale.

Economic facts

  • A dairy farm with nine cows in India has similar labour costs (per litre of milk) to those of a farm with 350 cows in the United States of America.
  • The cost of feed greatly influences the price of milk. It directly affects milk production costs and indirectly leads to higher land values.
  • In developing countries, dairy animals are often the sole asset of the landless.
  • Milk production can involve many fixed costs, including fodder for animal maintenance.