Cost analysis and economic optimization of small-scale dairy production systems in Mexico

• Published in: Livestock science 2020-07, Vol.237, p.104028, Article 104028
• Main Authors: Salinas-Martínez, Jesús Armando, Posadas-Domínguez, Rodolfo Rogelio, Morales-Díaz, Leydi Diana, Rebollar-Rebollar, Samuel, Rojo-Rubio, Rolando
• Format: Article
• Language: English
• Subjects: Dairy sector; Linear programming; Net income; Production costs
• ISSN: 1871-1413; 1878-0490
• DOI: 10.1016/j.livsci.2020.104028

•Family labor and feed production represent the greatest economic cost in small-scale dairy production system.•Increasing the purchase of feed to 100% makes production economically inviable.•The largest production systems are the most financially efficient.•Family labor is an important economic and social component of small-scale dairy production systems. Accounting and mathematical modeling methods were combined to analyze the cost structure and economic optimization of small-scale dairy production systems in the present study. Information on the technical, economic, and production characteristics of 72 farms was obtained over a two-year period. Four strata of farms were defined using a random stratified sampling design with proportional allocation. To evaluate production costs, two accounting methods were used: (1) the activity-based budgeting (AB) method, which counted the actual cost of feed cultivation and family labor (FL) as a percentage of total feed and labor costs for each stratum, and (2) the standard accounting (SA) method, which estimated production costs according to the cost of purchasing 100% of feed and hiring 100% of labor. Based on the results of the AB method, four scenarios were developed and adapted to a mixed integer linear programming model to predict the percentage of feed cultivation and FL that maximizes economic benefits. The base scenario evaluated the actual percentages of feed cultivation and FL employed by each farm category, and scenarios I, II, and III simulated the purchase of feed and hire of labor at 20%, 50%, and 100%, respectively. The results showed that 100% dependence on the purchase of feed and hire of labor increases the daily production cost by 20% compared to the base scenario in the four evaluated strata. The mathematical model indicated that the production of less than 90% of feed and use of less than 80% family labor significantly decrease the income in each analyzed stratum. Accordingly, production under the simulated conditions of scenarios I, II, and III is economically and financially non-viable.