Evolving Milk Pricing Model for Agribusiness Centres: An Econometric Approach

The two-axes pricing policy is followed normally in the dairy business centres of Tamil Nadu. Though it is scientifically rational, it ignores the input prices, technology and government policies. For sustaining the growth momentum and achieving an annual average growth of 7-8 per cent in the next five years and considering that dairying is practised as a component of mixed farming systems, it becomes imperative to take into account the interrelationship among the enterprises and general economic factors while fixing the milk price. In this study, development of a price determination model has been reported. It is based on the cost of production and takes into account price and non-price factors, viz. technology, and projected different price scenarios of milk for the coming years. The study undertaken in the Tamil Nadu state, is based on primary data collected for the year 2002-03 and has used normalized restricted quadratic profit function analysis and price determination models. It has been found that to maintain constant returns to the production cost of milk, the milk price would need an upward adjustment of 9.97 per cent, whereas to provide constant net monetary income, the milk price would need an upward adjustment by 10.30 per cent for buffalo milk. Considering 2002-03 as the base year, the estimated price for milk per litre is expected to be Rs 23.64 at constant monetary income and Rs 23.15 at constant return to production cost in the year 2009-10. The results of the paper are illustrative of the utility approach in generating consistent price sets for milk in response to alternative policy interventions.