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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

Cost of animals 500000
Transportation cost 10000
Construction of animal shed 60000
Construction of calf shed 24000
Cost of Chaff cutter and equipment 60000
Total 654000

Techno economic parameters

Type of Animal Graded Murrah Buffalo
No.of Animals 10
No.of animals/batch 5
Cost of Animal (Rs/.animal) 50000
Cost of culled animal 5000
Transportation Cost/Animal 1000
Average Milk Yield (litre/day) 10
Floor space (sqft) per adult animal 50
Floor space (sqft) per calf 20
Cost of construction per sqft (Rs.) 120
Cost of chaff cutter (power operated) (Rs.) 50000
Cost of equipment per animal (Rs.) 1000
Insurance premium (% per annum) 5
Veterinary aid/animal/ year (Rs.) 1000
Quantity of Concentrate feed in one bag(kgs.) 50
Cost of concentrate feed (Rs./kg) 12
Cost of dry fodder (Rs./kg) 2
Cost of green fodder (Rs./kg) 1
No. of labourers 1
Salary of labourer per month (Rs.) 4500
Cost of electricity and water/animal/year (Rs.) 150
Margin (%) 25
Rate of interest (%) 12
Repayment period (years) 5
Selling price of milk/litre (Rs./litre) 26
Sale price of gunny bags (Rs.per bag) 10
Lactation days 270
Dry days 150

Feeding Schedule

Type of feedLactationDry
Price (Rs.) Qty. (kg) Cost Per Day (Rs.) Qty. (kg) Cost Per Day (Rs.)
Concentrate Feed 12 5 60 2 24
Green Fodder 1 25 25 20 20
Dry Fodder 2 4 8 5 10
Total 93 54

Total Concentrate Feed Consumed (Kgs.)

YearLactationDryTotal No.of Gunny Bags
Year 1 8250 300 8550 171
Year 2 11250 2700 13950 279
Year 3 11250 2700 13950 279
Year 4 12000 2400 14400 288
Year 5 12000 2400 14400 288

Lactation Chart Per animal

YearI BatchII Batch
Lactation days Dry days Lactation days Dry days
I 240 30 90 0
II 240 120 210 150
III 210 150 240 120
IV 210 150 270 90
V 210 150 270 90

Economics

ParticularsYears
1 2 3 4 5
Sale of Milk 429000 585000 585000 585000 624000
Sale of Gunny bags 1710 2790 2790 2880 2880
Total 430710 587790 587790 587880 626880
Cost of feeding during lactation 153450 209250 209250 223200 223200
Cost of feeding during dry period 8100 72900 72900 64800 64800
Veterinary aid and breeding charges 10000 10000 10000 10000 10000
Labour charges 54000 54000 54000 54000 54000
Electricity and misc. charges 1500 54000 54000 54000 54000
Insurance charges 25000 25000 25000 25000 25000
Total 252020 372650 372650 378500 378500
Surplus 178660 215140 215140 209380 248380

BCR & IRR

12345
Capital costs 654000
Recurring Cost 252050 372650 372650 378500 378500
Total Costs 906050 372650 372650 378500 378500
Benefit 430710 587790 587790 587880 626880
Net Benefit -475340 215140 215140 209380 248380

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

YearLoan Outstanding Gross SurplusInterest PrincipalTotal RepaymentSurplus
1 490500 178660 58860 98100 156960 21700
2 392400 215140 47088 98100 145188 69952
3 294300 215140 35316 98100 133416 81724
4 196200 209380 23544 98100 121644 209380
5 98100 248380 11772 98100 109872 138508

Source: NABARD



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