Dairy Farming

Scope for dairy farming

India is endowed with the largest livestock population in the world. It accounts for about 57.3 per cent of the world’s buffalo population and 14.7 per cent of the cattle population. Thus, there is a tremendous scope/potential for increasing the milk production through profitable dairy farming.

Financial assistance available from banks

For dairy schemes with large outlays, detailed project reports will have to be prepared. The items of finance would include capital asset items such as purchase of milch animals, construction of sheds, purchase of equipment etc. The feeding cost during the initial period of one/two months is capitalised and given as term loan. Cost towards land development, fencing, digging of well, commissioning of diesel engine/pump set, electricity connections, essential servants' quarters, godown, transport vehicle, milk processing facilities etc. can be considered for loan. For high value projects, the borrowers can utilise the services of NABARD Consultancy Services (NABCONS) who are having wide experience in preparation of Detailed Project Reports.

Project formulation for bank loan

Project can be prepared by a beneficiary after consulting local technical persons of State Animal Husbandry Department, DRDA, Dairy Co-operative Society / Union / Federation / commercial dairy farmers. If possible, the beneficiaries should also visit progressive dairy farms and government / military / agricultural university dairy farms in the vicinity and discuss the profitability of dairy farming. A good practical training and experience in dairy farming will be highly desirable. The dairy co-operative societies, if existing in the villages would provide all supporting facilities particularly for marketing of fluid milk. Nearness of dairy farm to such a society, veterinary aid centre, artificial insemination centre should be ensured.

The project should include the following information on technical, financial and managerial aspects in detail based on type of unit and capacity.

Technical

• Land and land development (Location, area, suitability, proximity to road, site map etc.)
• Proposed capacity / No. of milch animals
• Civil structures (Sheds, store room, milk room, office quarters, staff room etc.)
• Equipment and Plant and Machinery (Chaff cutter, Silo pit, Milking machine, Feed grinder and mixer, Milking pails/milk cans, Biogas plant, Bulk coolers, Equipment for manufacture of products, Truck/van)
• Housing Type of housing (Area requirement – Adults, Heifers (1-3 years), Calves (less than 1 year)
• Animals (Proposed species, Proposed breed, Source of purchase, Place of purchase, Distance, Cost of animal)
• Production parameters (Order of lactation, Milk yield (ltrs. per day), Lactation days, Dry days, Conception rate, Mortality(%) – Adults, Young stock)
• Feeding (Source of fodder and feed - Green fodder, Dry fodder, Concentrates. Fodder croprotations- Kharif, Rabi, Summer. Fodder cultivation expenses, Requirement and costs)
• Breeding Facilities (Source, Location-Distance (km.), Availability of semen, Availability of staff, Expenditure per animal/year )
• Veterinary Aid Source (Location-Distance (km.), Availability of labour and other staff, Types of facilities available, If own arrangements are made-Employed a veterinary doctor/stockman/consultant, Periodicity of visit, Amount paid/visit (Rs.), Expenditure per animal per year)
• Electricity (Source, Approval from SEB, Connected load, Problems of power failure, Arrangements for generator)
• Water (Source, Quality of water, Availability of sufficient quantity for drinking, cleaning and fodder production, If investment has to be made, type of structure, design and cost)
• Marketing of milk (Source of sales, Place of disposal, Distance (km.), Price realised - (Rs. per liter of milk), Basis of payment, Periodicity of payment
• Marketing of other products (Animal – age, place of sale, price expected, Manure Qty./animal, Price/unit (Rs.), Empty gunny bags- Number, Cost/bag (Rs.)

Financial

• Financial viability (Internal Rate of Return, Benefit Cost Ratio, Net Present Worth)
• Financial position of the borrowers (Profitability Ratios, Debt Equity Ratio, Whether Income Tax & other tax obligations are paid upto date, Whether audit is up to date)
• Lending Terms (Rate of Interest, Grace Period, Repayment Period, Nature of Security)

Managerial

Borrower’s profile

• Individual/Partnership /Company / Corporation/ Co-operative Society /Others
• Capability in managing the proposed business
• Experience in proposed activity or others
• Financial soundness
• Technical and other special qualifications
• Technical/ Managerial staff and adequacy there of

Others

• Name of the financing bank
• Training facilities
• Assistance available from State/ Central Government
• Regulatory clearances, if any etc.

Appraisal of the project

The scheme so formulated should be submitted to the nearest branch of the bank. The bank's officer can assist in preparation of the scheme or filling in the prescribed application form. The bank will then examine the scheme for its technical feasibility and economic viability

Sanction of bank loan and its disbursement

After ensuring technical feasibility and economic viability, the scheme is sanctioned by the bank. The loan is disbursed in kind in 2 to 3 stages against creation of specific assets such as construction of sheds, purchase of equipment and machinery, purchase of animals and recurring cost on purchase of feeds/fodders for the initial period of one/two months. The end use of the funds is verified and constant follow-up is done by the bank.

Lending terms - General

Outlay

Outlay of the project depends on the local conditions, unit size and the components included in the project. Prevailing market prices may be considered to arrive at the outlay.

Margin Money

Margin depends on the category of the borrowers and range from 10 to 25%.

Interest Rate for ultimate borrower

Banks are free to decide the rates of interest within the overall guidelines. However, for working out the financial viability and bankability of the model projects we have assumed the rate of interest as 12 % p.a.

Security

Security will be as per NABARD/RBI guidelines issued from time to time.

Repayment period of loan

Repayment period depends upon the gross surplus in the scheme. The loan will be repaid in suitable monthly/quarterly instalments usually within a period of five to seven years.

Insurance

The animals and capital assets may be insured annually or on long term master policy, where ever it is applicable.

Economics of Dairy Farming

A model project with 10 buffaloes is given below. This is indicative and the applicable input and output costs as also the parameters observed at the field level may be incorporated.

Capital Cost

Techno economic parameters

Feeding Schedule

Total Concentrate Feed Consumed (Kgs.)

Lactation Chart Per animal

Economics

BCR & IRR

PW Costs @ 15% = 1719259.92, PW Benefits @ 15% =  1853258.04, NPW = 133998.11, B.C.Ratio = 1.08, I.R.R. (%) = 30%

Loan Repayment Schedule

Source: NABARD