Question

Farmer Uris is currently a grain farmer producing maize. The farmer wants to use 100 hectares of the total land available for maize production to plant pastures. These 100 hectares of pastures will then be used keep 20 dairy cattle to be bought at N$ 7 000 each. Each dairy cow is expected to produce 10 litres of milk per day. The price of milk is N$ 8/litre. Opportunity cost of this investment is estimated at 18% of the cost of the dairy animals.

The average yield of maize in the area is 2.5t/ha and the maize price is N$ 950 per ton. The costs involved in keeping dairy animals on the 100 ha of pasture are the following:

• Labour. N$ 4, 500.00

• Vet and medicine. N$ 1, 800.00

• Pasture seed and fertilizer. N$ 5, 100.00

The costs involved to produce maize on the 100 hectares of land are the following:

• Grain seed and fertilizer. N$ 60, 000

• Labour. N$ 22, 000

• Machinery. N$ 62, 000

• Pesticides. N$ 38, 000

Required: Use the information provided above to compile a partial budget for farmer Uris to test the feasibility of switching from grain production to dairy production on the 100 hectares of pasture. What will be your recommendations to Mr Uris?

Answer 1

Budget for Maize Production
Particulars		Amount
Revenue
2.5 Ton p/h @ N$ 950 per ton*100 Hectare		237500
Cost
Grain seed & fertilizer	60000
Labour	22000
Machinery	62000
Pesticides	38000
Total Cost		182000
Operating Profit		55500

Budget for Dairy Production
Particulars		Amount
Revenue
20 Cows*10 Litres per day @ N$ 8 per litre*365 Days		584000
Cost
Labour	4500
Vet & Medicine	1800
Pasture Seed & Fertilizer	5100
Total Cost		11400
Operating Profit		572600
Opportunity Cost @ 18%
(N$ 7,000 per cow*20 cows)*18%		25200
Net Profit		547400

Hence, as we notice, the revenue & operating profit is much higher for dairy production as compared to maize production.

Payback period for dairy production investment = (N$ 7,000 per cow*20 cows) / 20 Cows*10 Litres per day @ N$ 8 per litre*365 Days

140,000 / 584,000 = 0.24 Year

It's highly recommended for dairy production with a very short payback period of 0.24 years.

The socio-economic factors to be considered are as follows:

• Dairy production provides stable cash-flows throught-out the year.
• Dairy production is not dependent on other factors like weather, water, soil & crop cultivation making it more sustainable.