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The Research Questions

The Research Questions. Are smallholder dairy farmers in Northeast Thailand efficient? Has the use of alternative feeding options using low-cost, locally available feed resources affected their cost-efficiency? What are the sources of inefficiency in smallholder dairy farms?.

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The Research Questions

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  1. The Research Questions • Are smallholder dairy farmers in Northeast Thailand efficient? • Has the use of alternative feeding options using low-cost, locally available feed resources affected their cost-efficiency? • What are the sources of inefficiency in smallholder dairy farms?

  2. Smallholder Producers Need to Adjust to Changing Circumstances • Growing competition from trade liberalization in the meat and milk sector driven by desired export opportunities outside the livestock sector. • Rising agricultural input and labor costs driven by the same urban development fueling the increase in demand. • Increasing competition from industrial livestock production based in part on implicit subsidies (uncompensated negative environmental externalities, discounts on feed imports, etc.)

  3. Smallholder Dairy in NE Thailand • Supported by the Royal Thai Government as a livelihood option in mixed farming systems in the Northeast of Thailand. • Small scale: 1-10 milking crossbreed cows (Holstein Friesian and Zebu breeds) • Low productivity levels: 2.5 to 3 metric tons per lactation period of 305 days on average; maximum of 5 metric tons.

  4. Smallholder Dairy in NE Thailand • Nutritional inadequacy (quantity and quality) a major constraint to improving productivity; on-farm protein sources limited, increased use of commercial feed concentrates. • Increasing price of feed ingredients, e.g., soya and corn, squeeze profit margins. • Reduction of tariffs for milk and dairy products from current levels of 5-30% in year 2015-2025 will open up domestic markets to low-cost imports.

  5. Innovations in feed technology for smallholder dairy • Development and use of local feed resources as main ingredient for feed concentrate production. • Twin goals of improving availability of good quality feeds on-farm while reducing cost by replacing expensive commercially processed feed with inexpensive alternatives. • On-station experiments by Khon Kaen University have shown promising results.

  6. Description of Data • Survey of 130 smallholder farms in six dairy producing provinces (Khon Kaen, Udon Thani, Sakon Nakhon, Mahasarakham, Loei, and Nongbualamphoo) conducted in 2004. • Primary data on farmer and farm characteristics, volume and value of dairy production and utilization, cost of production, feed use (type, volume, value), farmer perceptions.

  7. Types of smallholder dairy farmers • Type 1 – used commercial feed concentrate only. • Type 2 – used home-made feed concentrate only • Type 3 – used a combination of commercial and home-made feed concentrate in varying proportions

  8. Measuring Cost Efficiency • Composed error cost frontier Ci = Ci( w, y, ß ) + ( vi + ui) , vi~ N(0, σv2) and ui ~ | N(0, σu2) | (1) • Measure of cost inefficiency CEi = {Ci( w, y, ß ) / Ei} • = E(exp{- ui }| ei) (2) • Estimating ui ûi = ∑ γizi + εi ,(3)

  9. The Stochastic Cost Frontier Ci = βo + βy Yi + βk Ki + ∑ βj Pji + ½ ∑∑ βjs Pji Psi j j s + ½ βyy (Yi)2 + ½ βkk (Ki)2 + ∑ βjy Pji Yi j + ∑ βjk Pji Ki + βyk Yi Ki + vi + ui j j,s = F, R, L (4)

  10. The Stochastic Cost Frontier Where Ci = total annual cost per farm (‘000 Baht) Yi = annual milk production per farm PFi = average price per kg of feed concentrate PRi = average price per kg of roughage PLi = average wage rate per hour Ki = value of capital stock per farm

  11. Estimated Parameters

  12. Main observations from estimates • Cost elasticities w.r.t. output, input prices and capital stock are positive and statistically significant. • No strong empirical support for economies of scale. • There is potential for decreasing cost by combining feed concentrate and roughage (substitutes).

  13. Efficiency estimates

  14. Determinants of cost inefficiency • Inefficiency reducing: • Milking cow – herd size ratio • Milk yield per cow • Age • Mahasarakham • Inefficiency increasing: • Type of feed used (HMC = 1)

  15. Conclusions and Policy Implications • Cost of dairy production among smallholder farms is 26 percent higher than the best practice on average. • More than half of farms surveyed are cost efficient. • Presence of economies of scale not strongly supported by empirical evidence from this study.

  16. Conclusions and Policy Implications • Better herd management to achieve optimal milking cow-herd size ratio can improve cost efficiency. • Cost-efficiency from adoption of cost-reducing feed technology (cassava-based HMC) is not strongly evident from empirical results. • Need to explore innovations for more effective extension delivery to enhance adoption of cost-reducing feed technologies

  17. The Research Questions • Are smallholder dairy farmers in Northeast Thailand efficient? • Has the use of alternative feeding options using low-cost, locally available feed resources affected their cost-efficiency? • What are the sources of inefficiency in smallholder dairy farms?

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