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. Thoughit is scientifically rational, it ignores the input prices, technology and government policies. For sustainingthe growth momentum and achieving an annual average growth of 7-8 per cent in the next five yearsand considering that dairying is practised as a component of mixed farming systems, it becomesimperative to take into account the interrelationship among the enterprises and general economicfactors while fixing the milk price. In this study, development of a price determination model hasbeen 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 studyundertaken in the Tamil Nadu state, is based on primary data collected for the year 2002-03 and hasused normalized restricted quadratic profit function analysis and price determination models. It hasbeen found that to maintain constant returns to the production cost of milk, the milk price would needan upward adjustment of 9.97 per cent, whereas to provide constant net monetary income, the milkprice would need an upward adjustment by 10.30 per cent for buffalo milk. Considering 2002-03 asthe base year, the estimated price for milk per litre is expected to be Rs 23.64 at constant monetaryincome and Rs 23.15 at constant return to production cost in the year 2009-10. The results of thepaper are illustrative of the utility approach in generating consistent price sets for milk in response toalternative policy interventions.