Risk Based Milk Pricing Model at Dairy Farmers Level
Abstract
The milk price from a cooperative institution to farmer does not fully cover the production cost. Though, dairy farmers encounter various risks and uncertainties in conducting their business. The highest risk in milk supply lies in the activities at the farm. This study was designed to formulate a model for calculating milk price at farmer’s level based on risk. Risks that occur on farms include the risk of cow breeding, sanitation, health care, cattle feed management, milking and milk sales. This research used the location of the farm in West Java region. There were five main stages in the preparation of this model, (1) identification and analysis of influential factors, (2) development of a conceptual model, (3) structural analysis and the amount of production costs, (4) model calculation of production cost with risk factors, and (5) risk based milk pricing model. This research built a relationship between risks on smallholder dairy farms with the production costs to be incurred by the farmers. It was also obtained the formulation of risk adjustment factor calculation for the variable costs of production in dairy cattle farm. The difference in production costs with risk and the total production cost without risk was about 8% to 10%. It could be concluded that the basic price of milk proposed based on the research was around IDR 4,250-IDR 4,350/L for 3 to 4 cows ownership. Increasing farmer income was expected to be obtained by entering the value of this risk in the calculation of production costs.
Downloads
References
Assefa, H., T. G-Egziabher, E. Sehai, & A. Tegegne. 2011. Agricultural knowledge management in dairy production improvement: the case of Bure Woreda, West Gojjam Zone, Amhara Region. The IUP Journal of Agricultural Economics VIII 4: 30-40.
Bajpai, S., A. Sachdeva, & J. P. Gupta. 2010. Security risk assessment: Applying the concepts of fuzzy logic. J. Hazard. Mater. 173: 258–264. https://doi.org/10.1016/j.jhazmat.2009.08.078
Barrett, C. B. 1996. On price risk and the inverse farm size-productivity relationship. J. Dev. Econ. 51: 193-215. https://doi.org/10.1016/S0304-3878(96)00412-9
Bunn, D. 1999. Strategic Price Risk in Wholesale Power Markets. London (UK), Risk Books.
Colicchia, C. & F. Strozzi. 2012. Supply chain risk management: a new methodology for a systematic literature review. Supply Chain Manag.: An Int. J. 17: 403-418.
Costa, C., F. Antonucci, F. Pallottino, J. Aguzzi, D. Sarriám, & P. Menesatti. 2013. A review on agri-food supply chain traceability by means of RFID technology. Food Bioproc. Tech. 6: 353-366. https://doi.org/10.1007/s11947-012-0958-7
Devendra, C. 2007. Constraint analysis to improve integrated dairy production systems in developing countries: The importance of participatory rural appraisal. Trop. Anim. Health. Prod. 39: 549-556. https://doi.org/10.1007/s11250-007-9060-y
Ehrig, R., F. Behrendt, M. Wörgetter, & C. Strasser. 2014. Economics and Price Risks in International Pellet Supply Chains. Springer, New York. https://doi.org/10.1007/978-3-319-07016-2
Glover, J. L., D. Champion, K. J. Daniels, & A. J. D. Dainty. 2014. An Institutional Theory perspective on sustainable practices across the dairy supply chain. Int. J. Prod. Econ. 152: 102-111. https://doi.org/10.1016/j.ijpe.2013.12.027
Gorton, M., M. Dumitrashko, & J. White. 2006. Overcoming supply chain failure in the agri-food sector: A case study from Moldova. J. Food Policy 31: 90-103. https://doi.org/10.1016/j.foodpol.2005.08.003
Hemme, T., M. M. Uddin, & O. A. Ndambi. 2014. Benchmarking cost of milk production in 46 countries. J. Rev. Global Econ. 3: 254-270. https://doi.org/10.6000/1929-7092.2014.03.20
Horngren, C. T., S. M. Datar, & M. V. Rajan. 2012. Cost Accounting A Managerial Emphasis. New Jersey (US), Pearson Education, Inc.
Ibarra, H. & J. Skees. 2007. Innovation in risk transfer for natural hazards impacting agriculture. Environmental Hazards 7: 62-69. https://doi.org/10.1016/j.envhaz.2007.04.008
Isermeyer, F., T. Hemme, & J. Holzner. 2003. Analysis of international competitiveness of milk production in the framework of the IFCN. Agri. Econ. - Czech 49: 94-100.
Kim, Y., H. Li, & S. Li. 2014. Corporate social responsibility and stock price crash risk. J. Bank. Financ. 43: 1-13. https://doi.org/10.1016/j.jbankfin.2014.02.013
Kumawat, R., N. K. Singh, & C. L. Meena. 2014. Economic analysis of cost and returns of milk production, extent of adoption of recommended management practices on sample dairy farms in bikaner district of Rajasthan. GJSFR: D Agriculture and Veterinary 14.
Leppälä, J., E. Manninen, & T. Pohjola. 2011. Farm risk management applied to sustainability of the food supply chain: a case study of sustainability risks in dairy farming. Eco. Efficien. Ind. Sci. 27: 111-128. https://doi.org/10.1007/978-94-007-1390-1_5
Marra, M., W. Ho, & J. S. Edwards. 2012. Supply chain knowledge management: A literature review. Expert Syst. Appl. 39: 6103-6110. https://doi.org/10.1016/j.eswa.2011.11.035
Melyukhina, O. 2011. Risk management in agriculture in New Zealand. OECD Food, Agriculture and Fisheries Working Papers 42.
Mishra, P. K. & B. R. Shekhar. 2011. Impact of risks and uncertainties on supply chain: a dairy industry perspective. Journal of Management Research 3: 1-18. https://doi.org/10.5296/jmr.v3i2.651
Moeinzadeh, P. & A. Hajfathaliha. 2009. A combined fuzzy decision making approach to supply chain risk assessment. World Acad. Sci. Eng. Technol. 3: 835-851.
Morley, E., S. P. Bryant, & H. P. Hatry. 2001. Comparative Performance Measurement. The Urban Institute Press,Washington.
Nguyen, N. C., M. Wegener, I. Russell, D. Cameron, D. Coventry, & I. Cooper. 2007. Risk management strategies by Australian farmers: two case studies. AFBM Journal 4 1&2: 23-30.
Ramirez, O. A. 2000. Parametric modeling and simulation of joint price-production distributions under non-normality, autocorrelation and heteroscedasticity: a tool for assessing risk in agriculture. J. Agr. Appl. Econ. 32: 283-297. https://doi.org/10.1017/S1074070800020368
Rusdiana, S. & W. K. Sejati. 2009. Upaya pengembangan agribisnis sapi perah dan peningkatan produksi susu melalui pemberdayaan koperasi susu. Forum Penelitian Agro Ekonomi 27: 43-51. https://doi.org/10.21082/fae.v27n1.2009.43-51
Salvatore, D. 2004. Managerial Economics in a Global Economy with Economic Applications Card. 5th ed. South-Western, Copenhagen.
Septiani, W. & T. Djatna. 2015. Rancangan model performansi risiko rantai pasok agroindustri susu dengan menggunakan pendekatan logika fuzzy. Agritech 35: 88-97. https://doi.org/10.22146/agritech.9423
Septiani, W., Marimin, Y. Herdiyeni, & L. Haditjaroko. 2014. Framework model of sustainable supply chain risk for dairy agroindustry based on knowledge base. ICACSIS 2014: 255-260.
Septiani, W., Marimin, Y. Herdiyeni, & L. Haditjaroko. 2016a. Method and approach mapping for agri-food supply chain risk management: A literature review. International Journal of Supply Chain Management (IJSCM) 5: 51-64.
Septiani, W., Marimin, Y. Herdiyeni, & L. Haditjaroko. 2016b. Risk dependency chain model of dairy agroindustry supply chain using fuzzy logic approach. Supply Chain Forum: An International Journal 17: 218-230.
Sobczyński, T., A. M. Klepacka, C. Revoredo-Giha, & W. J. Florkowski. 2013. The analysis of subregional differences in cost efficiency of Polish dairy farms using the Fadn database. Annals of Agricultural Economics And Rural Development 100: 103-113.
Thomassen, M. A., K. J. van Calker, M. C. J. Smiths, G. L. Iepema, & I. J. de Boer. 2008. Life cycle assessment of conventional and organic milk production in the Netherlands. Agric. Syst. 96: 95-107. https://doi.org/10.1016/j.agsy.2007.06.001
Travisi, C. M. & P. Nijkamp. 2008. Valuing environmental and health risk in agriculture: A choice experiment approach to pesticides in Italy. Ecol. Econ. 67: 598-607. https://doi.org/10.1016/j.ecolecon.2008.01.011
Tsolakis, N. K., C. A. Keramydas, A. K. Toka, D. A. Aidonis, & E. T. Iakovou. 2014. Agrifood supply chain management: A comprehensive hierarchical decision-making framework and a critical taxonomy. Biosyst. Eng. 120: 47-64. https://doi.org/10.1016/j.biosystemseng.2013.10.014
Williams, J. 2014. Agricultural Supply Chains and the Challenge of Price Risk. 1st ed. Routledge, New York.
Yigrem, S., F. Beyene, A. Tegegne, & B. Gebremedhin. 2008. Dairy production, processing and marketing systems of Shashemene–Dilla area, South Ethiopia. IPMS (Improving Productivity and Market Success) of Ethiopian Farmers Project Working Paper 9.
Copyright (c) 2017 Media Peternakan
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors submitting manuscripts should understand and agree that copyright of manuscripts published are held by Media Peternakan. The statement to release the copyright to Media Peternakan is stated in Form A. This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License (CC BY-SA) where Authors and Readers can copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, but they must give appropriate credit (cite to the article or content), provide a link to the license, and indicate if changes were made. If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original.
