Economic analysis of the impact of adopting herd health control programs on smallholder dairy farms in Central Thailand

Abstract

The economic impact of adopting herd health programs for mastitis and reproduction by small-scale dairy producers of Central Thailand was assessed using a policy analysis matrix (PAM). Following a reduction in the incidence of bovine disease on adopter farms, an increase in private net profits is observed. More importantly the social costs of supporting dairy farmers is reduced; the PAM effective protection coefficient was reduced by 35% for mastitis program adopters and by 44% for reproductive program adopters, indicating improved social efficiency of dairy policy. Other indicators of efficiency and policy implications are discussed.

Introduction

Public policy sometimes supports the production of agricultural products at socially inefficient levels for reasons of self-sufficiency, food security, or the improvement of rural welfare. In Thailand, dairy production receives considerable government program support; the price of milk is established by government processes, importation quotas of milk products are set annually with concomitant import tariffs, processors participating in the government-sponsored school milk program are required to purchase set minimum amounts of locally produced milk, and veterinary and artificial insemination services are heavily subsidised. The high level of support through public policy is deemed justifiable by the Thai Ministry of Agriculture as part of a larger effort to promote the sustainability of agriculture by encouraging diversification of crops other than rice, which is seen as too demanding of the nation's water supply, and too dependent on environmentally damaging fertiliser and pesticides (Timmer, 1992). This paper examines the change in the impact of these policy distortions at the farm and social level following the adoption of basic veterinary herd health programs on smallholder dairy farms in Central Thailand.

The Thai dairy industry has grown rapidly in the last 25 years, driven by annual increases in demand for milk products; in the last 10 years, per capita consumption of milk products has risen from 2 to 15 L (Office of Agricultural Economics, 1999). Dairying is a valuable cash-generating enterprise employing slack household labour and providing a source of generational investment. A service sector has built up around dairying communities providing inputs and services, including a national system of dairy co-operatives, subsidised veterinary care, breeding, and vaccination services.

Thailand has approximately 22,000 dairy farms and 140,000 dairy cows producing 400,000 tonnes of milk annually, which account for roughly 35% of the domestic demand for dairy products (Office of Agricultural Economics, 1999). To meet the excess demand of more than 850,000 tonnes of dairy products, powdered milk is imported at a 5% tariff rate; should importers exceed import quotas the tariff jumps to a dissuasive 232.8%. The government-mandated price paid to dairy farmers is 12.5 Thai baht (TB) per litre (1US$ ≈ 40 TB), adjusted by the processor to compensate for the quality of milk and services offered to the farmer.

The typical Thai dairy herd is characterised as a smallholder herd with 10–12 milking cows producing an average of 2000–2400 kg of milk per cow per year. Cattle are often but not exclusively housed in a tie-stall arrangement. Feed consists of seasonal roughage and by-products; grain-based supplement is readily available. The dairy animal of choice, once the indigenous Thai cow, is now the Holstein-Friesian (H-F) crossbred cow. While H-F crossbreds have the potential to produce more than four times as much milk, they also require a higher level of management than the indigenous Thai cow, are less resistant to endemic diseases, require higher feed inputs, and are more sensitive to diseases of intensification (for example, mastitis, reproductive disorders, and lameness). Diseases of intensification are considered to be primary constraints¹ to the Thai dairy sector and are of greater concern than the more traditional diseases of the tropics.

Most dairy farmers in the central province of Ratchaburi, the main dairying area of Thailand, are members of the Nong Pho Dairy Co-operative, which has more than 4000 active dairy farming members and produces about 35% of Thailand's domestic milk production. Although they are aware of diseases of intensification, there is low use of preventive management techniques such as teat dipping to help prevent mastitis, proper record keeping of reproductive events, or extension education efforts such as health management seminars to reduce imperfect information (operators of larger dairy farms are more aware of herd health control methods). It is well established that reduction of the incidence and continuous control of the major diseases of intensification is achievable with the use of some of these inexpensive preventive management techniques (Andrews, 2000, Radostits et al., 1994). The identification of an institutional framework and the development of a policy to support such programs should significantly increase milk production in the smallholder sector from its current low level of 6–8 L per cow per day, increasing private (firm-level) profitability. However, the economic impact on social profitability is unclear. Currently no known estimates exist of the impact of adoption of such preventive technology on smallholder dairy farms in Thailand.