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Dairying is an important component of Pakistan’s mixed crop-livestock farming systems. The national economy engages some 8.8 million small-scale producer households. The country produces more milk than any other except for the United States and India. Yet little is known about small-scale producer microeconomics to inform policy development for improving their welfare. In this paper we aim to identify the whole farm profitability of small agricultural households, with a specific focus on milk production. We compare two contrasting agro-ecological regions within Pakistan’s Punjab (irrigated Okara and rain-fed Bhakkar) using results for a single 2008-09 fiscal year of production for 212 farms. Net farm profits, taking long-run opportunity costs of labour and capital into account, showed only 10 per cent of these farms to be profitable in either district, though short-run profits, accounting for cash costs only, showed positive whole farm gross margins for 90 per cent and 80 per cent of farms in Okara and Bhakkar, respectively. The returns on assets (at 2.78 per cent and 0.53 per cent for the two districts) was lower than the national average return on savings (9 per cent). For dairy enterprises, total costs were higher than incomes; so many farms (70 per cent and 60 per cent, respectively) were assessed as making losses. Given the low opportunity costs of feeds (often crop residues) and of labour (6.2 per cent unemployment) and the high rate of inflation (11.8 per cent), returns on factors of production including labour and capital, may not be lower than international standards. There is a need, however, to raise the dairy industry’s overall productivity to make dairying viable; and to identify an optimal land and livestock combination that is profitable and commercially viable.


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