Wednesday, September 26, 2007

The Economics of Cattle

It is estimated that nearly three-fourths of the actual financial spending on self employment schemes of both the Federal and State Governments in India is spent on financing animal husbandry related activities. But is cattle rearing so profitable as to command our scarce resoruces in such an overwhelming manner, as to the exclusion of all other sectors? Figures would seem to give a different story.

Let me give you the economics of animal husbandry. We will calculate the monthly returns from a cow and a buffalo, assuming the regular Government of India's NABARD norms. The cost of a cow yielding an average 10 litres of milk or a buffalo giving an average of 8 litres is about Rs 22000. These animals require good quality green fodder and feed concentrate to maintain their high milk yields. The average monthly expenditure on a cow is about Rs 1200, whereas the income is about Rs 2750, asssuming 25 days yielding milk fetching Rs 11 for a litre. This translates into a net monthly income of Rs 1550, if the farmer purchased the cow with his own money. Now this cow is purchased by a subsidy and soft loan from a bank, which would require a monthly repayment of about Rs 700 per month, over 3 years. The net return for the farmer is now only Rs 900 per month or Rs 10,800 annually.

If we replace the cow with buffalo, the figures look even more depressing. The monthly expenditure will be about Rs 1350, and the loan repayment Rs 650. Now the buffalo requires more care, and will give milk on an average for only 20 days, though its milk fetches atleast Rs 16 per litre due to the high fat content. This amounts to a monthly income of Rs 2650 from the milk sales. The net profit now falls to just Rs 650 per month or Rs 7800 every year.

Further, there are considerable uncertainties associated with cattle rearing. In most rural areas, during summers there is severe shortage of water and green fodder, which adversely affects the milk yield. In reality, the milk yield is much less than 10 litres and 8 litres, which means the incomes are proportionately lower. The farmer and his family spends considerable time and effort, sourcing green fodder and tending to the the cattle.

It has also been found from many studies that high cattle ownership coincides with lower school enrollment ratios. Cattle rearing is a low skill, but labor intensive activity. Therefore parents find it convenient to let their children take care of the cattle rearing task, while they can concentrate on their regular livelihoods. This dis-incentivizes parents from sending their children to schools.

However, cattle ownership has another more important dimension. A cow or a buffalo is a good storage of value. The cattle can be disposed off at short notice and money raised easily. The market for cattle is very liquid, thereby making it very easy to dispose them off and raise money in case of any emergency.

Cattle is therefore a good investment, not so much for generating regular income, but as a fungible store of value for the farmer. It is at best only a supplementary economic activity for poor households. But do Government poverty alleviation policies provide cattle as a source of income or as an insurance against calamities and misfortunes.

In this context, an interesting area of study could be that relating to the economics of Government's poverty alleviation programs. A detailed opportunity cost analysis of cattle rearing as an economic activity could throw up interesting conclusions. It will also quantify the aforementioned observations regarding cattle rearing as an income generating activity.

It has been variously estimated that about one-half a man-day is spent in looking after cattle. This translates into Rs 35 per day, at a minimum wage of Rs 70, or Rs 1050 per month. But even the most optimistic income forecasts are Rs 900 for cow and Rs 650 for buffalo. We therefore appear to have an economic activity with a higher opportunity cost than its returns!


Anonymous said...

thanx for this very informative article. i happened across it while searching for an answer to a question in Animal husbandry and extension subject for BVSc and AH first yr course. it was quite perfect

Anonymous said...

parttly correct, the figures are certainly misleading.

Anonymous said...

Thanks for such a collective informatio, but some datas are not updated. According to the latest price of milk, curd and ghee are on high, so if we see the value of a cow in a present contest....itsm more and more profitable.
Thank you.