Thesis Abstract of AGS Students

Dairy Farmers’ Productivity and Capital Need in Chiang Mai Province

Tanya Limkhumduang (1998)

To operate dairy farming, farmers need high capital for investment during the establishment period and also for expansion of their farms. For many dairy farmers, credit is one of the constraints for efficient production. Some farmers have too big a size of loan to be manageable. This leads to late repayment and sometimes misutilization of loan. On the other hand, some farmers have inadequate credit due to certain administrative obstacles.

The objectives of this study were 1) to describe the biophysical and socio-economic circumstances of dairy farming in San Kamphaeng and Mae-On districts in Chiang Mai province 2) to assess productivity among dairy farmers who have borrowed money from the Bank of Agriculture and Agricultural Cooperatives (BAAC) in the study area and 3) to determine the optimum level of capital need for different dairy farming groups by using farm size and loan repayment performance to classify the different groups of dairy farming. Semi-structured interview and formal survey were used to gather the data. A total of 100 dairy farmers were selected for this study. Production function analysis was used as the principal method to achieve the objectives.

The experienced dairy farmers (>10 years) in the study area were found to borrow the lower amount of money and had better repayment performance than less experienced dairy farmers. This was because of their small initial herd size as compared to new dairy farmers. Most of new dairy farmers in the study area had the highest outstanding loan. However, in general, dairy farmers in the study area have good repayment performance.

A Cobb-Douglas production function for milk output was estimated by using LIMDEP program to examine the efficiency of farm inputs and to determine the optimum level of capital need. The result of the analysis showed that labor, building and equipment, operational costs, experience in dairy farming, farm size (number of cows) and level of breed (%HF) were significant variables to determine milk output but fodder feed and land (farm land and pasture land) were not significant variables to explain milk output. Milk output was found to be higher among farmers with better loan repayment performance.

Milk production function estimation at the current level of input showed that dairy farmers have not used inputs optimally. Dairy farmers in good and average repayment performance groups used less labor and operational costs than the optimum level. On the other hand, all of the dairy farmers in three different loan repayment performance groups used more fixed costs (building and equipment) than the optimum level.

Dairy farmers had different capital needs depending on their farm size and loan repayment performance. Dairy farmers in good and average repayment performance groups can be lumped together as one group as the difference of their optimum level of capital need is minimal. It was found that total capital need (at an interest rate 12.25%) for the dairy farmers in good repayment group, who owned 5, 10 and 20 cows was about 70,402, 106,265 and 160,313 baht respectively, 70 percent of which was required as fixed cost (building and equipment but excluding value of cows) to initiate farms and about 30 percent as operational costs (i.e. purchasing seed and concentrate feed etc.). While the dairy farmers in poor repayment group who owned 5, 10 and 20 cows required capital (at an interest rate 12.25%) about 41,778, 63,086 and 95,225 baht respectively, 70 percent of which was required as fixed costs and 30 percent as operational costs. These levels of optimal capital exclude the amount required for cow purchase which need to be added.

However, BAAC should consider the existing dairy farmers who already have some part of capital such as existing dairy barn and equipment i.e. mowers, milk tanks etc. and should deduct this amount of capital from the total requirement of fixed cost to obtain the loan level required from BAAC.

With regard to new dairy farmers who have limited capital to invest during establishment phase in dairy enterprises, value of cows should be added in the optimum level of capital need. Thus, total capital need (at an interest rate 12.25%) by including value of cows for new dairy farmers who start their farm with dairy cow 5 and 10 is about 166,778 and 313,086 respectively, 92-94% of which was required as fixed cost (including value of cows). However, these levels of optimal capital need change as price of output and input change.

This study suggests that besides the income and assets criteria for credit disbursement, the credit institution should consider farmer’s experience in dairy farming, loan repayment ability and overall productivity of the farm. The results of this study will provide a better guide for credit institution and policy makers in determining the appropriate level of loan required by different dairy farmer groups.

Back to Thesis Topics