Dairying: as seen by the small farmer

We went for a few Focussed Group Discussions in Ganjam District of Orissa under Dhanei Kshetriya Financial Services service area. The idea was to interact with dairy farmers and understand the status of dairying. A lot of things came up during the discussions, stories are same as those heard in any other part of the country.

Loan for cattle:

There are schemes of the Govt under which the farmers get subsidised loans for buying cattle and getting insurance. Under one such scheme, the co-operative facilitates to help the farmers get a 50% subsidy for loan but stipulates that they are “required” to buy cattle ONLY from a fixed place.

The farmer goes and buys a cow which gives about 10-12 litres of milk and it costs him Rs.18000. He brings the cow home and realises that the cow actually gives just 3-4 litres and not 10-12 litres!

The loan officially issued in his name is of Rs.18000 but it seems that the actual value of the cow is only about Rs.9000-10000! What happens to that Rs.8000 extra is anybody’s guess.

The farmer is left with a cow which gives 3-4 litres/day and in some cases even less! He has to repay a loan which even after subsidy on interest would still mean too much to repay from the cash flows “generated” out of a 3-4litre/day milk!

Cattle Insurance:

The subsidy scheme also applies to the insurance product. The farmer pays just Rs.300 for annual insurance cover for a Rs.15000 animal which converts to a 2% premium for the farmer and 2% for the govt for a total of 4% premium charged by the insurance company.

In order to get claims settled in case of death of cattle, the farmer has to call the vet, pay him/her Rs.50-Rs200, ask for a death certificate, get the photograph of the dead animal, collect the tag of the dead animal and along with all these things, farmer goes to the nearest town and deposits at the “bank” for claim to be settled.
In recent experience, out of 6 people in one village only one person’s claim has been settled!
Why should they take an insurance product when the claim will never get settled?

Govt vaccinates cows regularly but even after that, there were cases of cows dying of preventable diseases which they were vaccinated against!
Our assumption is-low quality vaccines/cold chain not maintained!

On an average, the farmer spends about Rs.300 annually on veterinary care. If we add up cases of pregnancy diagnosis etc, the spending is about Rs.500-600. On occasions they end up spending upto Rs.1000-2000.

Financing for High Value cattle:
The farmers know that keeping high value cattle is better for generating more returns but keeping high value cattle means additional care.For those who are interested to take the “hassles”, their concern is finance. The requirement of finance is not just for cattle but also for the shed. High value cattle need proper sheds to be constructed for them. The spending on feed is also higher.

Assuming about Rs.5000-6000 for shed and Rs.1000-1500 for feed, a “cattle loan” product has to provide finance for two cattle purchased at about 6months interval and also has to provide for cost of shed and feed for 1 month and cost of insurance as well. A simple calculation will reveal that the total financing requirement would actually add up to more than Rs.50000. (Assuming cattle of Rs.20000-25000)

(Off course if we assume a 10-15% contribution from the farmer for the “Project” of two high yielding dairy cattle, we will get a figure between Rs.45000-Rs.49000 as the amount for a comprehensive cattle loan.)

NOTE:A cattle loan would not make sense unless there is a guaranteed price for milk sold. In other words, forward linkage is a basic necessity.


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