Commercialization of Dairy Farming in Nepal

Heramba B Rajbhandary Laxman Sherchand

Why Commercialization Needed?

Because of subsistence farming system where livestock is one of the essential components especially for milk, meat, manure and ploughing, most rural farmers take livestock unit as the living bank for their livelihood. Grown-up children of farming community do not follow their parental occupation which is traditional and low income producing. Rather they prefer to work as laborers in gulf and other countries for hard cash earnings. The statistics reveal that young adults exit the country by around 500 a day for work. At present, livestock are being raised mostly by older generation. Outflow of active population resulted in a shortage of labors in the rural farming system. The resultant effect is that there is acute shortage of milk around 500 thousand liter a day and 300 thousand castrated goat a year.

In order to retain these active population in the country, one of the viable solution is to commercialize the dairy farming and thereby establishing small dairy enterprise in main marketing hub throughout the country. Such commercialization would generate employment and at the same time help import substitution of SMP through substantially increasing the low cost of milk production.

The present paper focuses on dairy commercialization since the dairy sector contributes more than 60% livestock GDP. Objectives of this paper are to a) meet the shortage of 500 thousand liter milk a day 14% of total production deficit, b) substitute the import of fluid milk, skim milk powder (SMP), and dairy animals, c) make dairy production as economically viable dairy enterprise providing attractive employment opportunities for younger generation, e) generate small dairy enterprises and its product diversification by substantially increasing the green coverage of land through forage production in personal and community land.

Present Status and Challenges of Dairy Production

Share of dairy production is more than 60% of livestock Production in Nepal. Milk is produced by the farmer in a subsistence manner i.e. farmers keep only 1-3 dairy cows or buffaloes just for generating some money required for household chores except few commercial farmers in the country. The country faces the challenge of milk deficit. The mega SMP plants at Chitawan and Pokhara could not meet their requirement of 2.5 million milk a day alone resulting milk deficit. The daily milk requirement of SMP plants and small to medium dairy industries could only be met by commercialization of dairy farming at large.

The second challenge is high cost of milk production as compared to neighboring country, India that provides subsidies to dairy farmers. Here in Nepal, dairy animals are mostly reared on grain concentrate and rice straw feeding resulting low milk production with high cost of production. Forage based dairy farming is the only solution to lower the high cost of milk production provided dairy animals are of high genetic protential.

The third challenge is low producing dairy animals. Main hurdle of dairy commercialization is inadequate availability of high milk producing dairy animals. Until this challenge is met, real commercialization of dairy farming is not possible at the present level of genetic improvement program.

Gradual transformation of subsistence dairy farming into commercial dairy enterprises is way out for meeting the existing challenges. Dairy farming and enterprise friendly policy and its sound implementation is the key to achieve full commercialization of dairy production within 5-year period.

Present Solution
1. First priority is to launch Artificial Insemination (AI) Mission: First step to meet the commercialization challenge is to initiate the AI Mission in potential dairy pocket area massively such that at the end of fourth year of the Mission, sizable number of high yielding dairy cows will start producing milk. Within five year period of AI Mission, required number of high producing dairy animals will be in the commercial dairy farms. The Mission has to be launched effectively under public-private partnership program.

2. Parallel to first priority, Forage Mission has to be launched in public and private land in dairy pocket area so that by the time high yielding cows are produced, genetic potentiality of dairy animals is being harnessed through green forage feeding. At the same time, cost of milk production will be significantly reduced to maximize the profit margin from commercial dairy farming. As the result, more and more entrepreneurship oriented farmers will be attracted to establish commercial dairy enterprise.

3. For immediate solution to meet the milk deficit, the government should request to Indian government for allowing required number of high yielding dairy animals to Nepal. The importation of dairy animals from India should be begun after one year. Within the first year, forage Mission has to be implemented so that the imported dairy animals will be reared on green forage..

4. The milk collection center has to be equipped with chilling vat and milk analyzer. Every center has to be tiled and sanitized.

5. Transformation of conventional dairy production to commercial production at least in minimum economic size is to offer attractive return. The economic size of dairy farm model is given below.

What is Economic Size for a Farm Family?

Buffalo- A model of 6 milking buffalo giving a monthly income of Rs 21,000/ Cow - A model of 6 milking cow giving a monthly income of Rs 31,000/

What is Milk Pocket Area?

Conventional milk Collection Area to be upgraded to a minimum level of 1000 liter per day Minimum of 10 professional farm families each to be upgraded with 1 buffalo model to be giving in total 400 liters of milk Minimum of 10 professional farm families each to be upgraded with 1 cow model to be giving in total 600 liters of milk

Pre-requisite for commercialization of Dairy Pocket Area

Establishment of AI Center with improved service facilities Animal health care unit Forage base for necessary for forage production and feed supplement Credit Institution Animal insurance Cooperative Milk Chilling Center networking with dairy milk collection center Coordinating body for above services

Dairy Production commercialization through

Massive importation of milking cattle and buffalo (who does this job? Govt ?, Coordinating body ? Private sector ? Who else? Confirmation of flow chart of import Intensive animal health program including quarantine Forage area development in advance of recommended forage species in dairy pocket area Marketing Extension Networking of milk collections Encouraging small dairy enterprises into various dairy products Networking the dairy products with value chain system with national Dairies

Strategy of Dairy Commercialization

Dairy Commercialization in 3 Phases

1st Year DDC Private Dairy Powder Plant & others Total 50 K 50 K 100K 200K

2nd Year 50 K 50 K 100K 200K

3rd Year 50 K 50 K 100K 200K

We Need Milk from Cows & Buffaloes

1st Yr DDC: From Cows From buffalo Private Dairy: From Cows From Buffalo Powder Plant: From Cows From Buffalo Total 30 K 20 K 30 K 20 K 60K 40K 200K 2nd Yr 30 K 20 K 30 K 20 K 60K 40K 200K 3rd Yr 30 K 20 K 30 K 20 K 60K 40K 200K

Need of No. of Milking Cows & Buffaloes

1st Yr DDC: Dairy Cows Dairy buffalo Private Dairy: Dairy Cows Dairy Buffalo 3000 2000 3000 2000 2nd Yr 3000 2000 3000 2000 3rd Yr 3000 2000 3000 2000

Powder Plant: Dairy Cows DairyBuffalo Total : Dairy Cows Dairy buffallo

6000 4000 12000 8000

6000 4000 12000 8000

6000 4000 12000 8000

Commercial Model 1: Five Milking Animals (Cow)

No of milking cows Milk yield/cow/day Cost of milk production/liter Price of milk/liter A. Total cost of milk prod. (12*5*14) B. Total income from milk sale (5*12*36) Gross Income/day (B-A)/day Investment for 6 cows @50K Interest @ 18% Repayment of principal Investment cost /lit (54K+60K)/(5cow*12lit*365) =114,000/21900 a. Invest.cost/day (5.2*12*5) b. Running cost/day (5*12*14) A. Total Cost (a+b) /day Rs 312 (300K/5yr) 5+1 12 liter Rs Rs 14 36

Rs 840 Rs 2160 Rs 1320

Rs 300K Rs 54K Rs 60K Rs 5.20

Rs 840 Rs 1152 Rs 2160 Rs 1008 Rs 367.920

B. Daily Gross Income (5*12*36) C. Net Income/day(B-A) D. Yearly Net Income (C*365)

Net Income/mon (D/12) care)

Rs 30.660/

(excluding labor, health

Commercial Model 2: Five Milking Animals (Buffalo) No of milking cows Milk yield/cow/day Cost of milk production/liter Price of milk/liter A. Total cost of milk prod. (8*5*14) B. Total income from milk sale (5*8*38) Gross Income/day (B-A)/day Investment for 6 cows @60K Rs 360K Interest @ 18% Repayment of principal(360K/5yr) Investment cost /lit (64.8K+72K)/(5cow*8lit*365) Salvage value/liter Rs 3.29 Rs 64.8K Rs 72K Rs 9.37 Rs Rs 5+1 8 liter 14 38

Rs 560 Rs 1520 Rs 960

Live weight 400 kg* Rs 100*6 =240,000/ Net Investment cost = IC-Salvage = 9.37-3.29 = 6.08 Invest.cost/day (6.08*8*5) b. Running cost/day (5*8*14) A. Total Cost (a+b) /day B. Daily Gross Income (5*8*38) Rs 243 Rs 560 Rs 803 Rs 1520

C. Net Income/day

(B-A)

Rs 717 Rs 261,705 Rs 21,808 (excluding

D. Yearly Income (C*365) Net Income/mon (D/12) labor, health care)

Commercial Model Requirement (For 200K Milk/day in First Year)

60% Cow Model 1 + 40% Buffalo Model 1 No. of Cow Models = No. of Buff. Models = 2000 1333

If required milch cows and buffaloes to be purchased, then Total investment required = Rs. 1080m

How to Make Commercialization Mission A Success? A. Government Role in dairy pocket area Declare five years of Dairy Production Identification of dairy pocket area Flow Chart of dairy animals import Intensive animal health care program Focus on forage production Subsidy to commercial banks interest at least by 10% (Rs. 108 million per year) Government Role in dairy pocket area.. Strengthening the servicing agent of the government: AI Forage Animal health care Quarantine Dairy production and extension Subsidy to milk chilling and transportation

 VAT free for Dairy Processing Enterprises for five years Facilitate marketing network of value chain system for raw or processed milk product Declaration of Tax Free Zone for dairy enterprises in remote hills and mountains at least for 10 years Treat Private Dairies as a partner of dairy development program and facilitate them making provision with soft loan and other facilities Partners of production, processing and marketing Lesson of milk holiday of the past All partners of production should be equally stronger Government Public sector Private sector Cooperative sector Development of strong value chain system Price regulation by competition Role of Academic Institutions Introduction of Livestock Commercialization course (4 credit hour) in University Curriculum in final year Content of the course Economic size of dairy production unit Economic size of milk pocket Necessary forage base for a milk pocket Intensive animal health program for milk pocket

 Recommend feed formulation for dairy animals and quantity requirement for milk pocket Role of Academic Institutions Milk handling and management of milk chilling center Milk payment system Introduction of model dairy enterprise Role of Private Dairy Industry Train the livestock farmers in their respective milk pocket area Upgrading the milk production into economic size Help developing the economic size of milk pocket Help networking the milk pocket for milk collection Help developing small dairy enterprises linking to their value chain system Close coordination and integration among serving agents at the government level Specialization of production at the field level

Thank you for your kind attention