ByChanerin Maneechansook

Examination Committee: Dr. Peeyush Soni (Chairperson) Prof. Athapol Noomhorm Dr. Anil Kumar Anal

Asian Institute of TechnologySchool of Environment, Resources and Development

ThailandMay, 2010

BUSINESS ANALYSIS OF BUFFALO DAIRY FARM:CASE STUDY OF MURRAH FARM, PLAENGYAO DISTRICT

CHACHOENGSAO PROVINCE, THAILAND

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Milk consumption has been promoted long ago through- National policies- Government agency- Aggressive promotional campaigns

of milk processors

Source: Office of Agricultural Economics(2009)

Background of the Research

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0

2

4

6

8

10

12

14

1614.97

Percapita Milk Consumption

Kg.

/cap

ita/

year

- National large dairy industry is based on cow milk, while non- conventional milk like goat milk, soy milk gradually present its significance.- Buffalo milk is newly introduced to market in 2008 by Murrah Farm

Buffalo have a potential to be promoted as a new commercial animal for milk production and building up a permanent career for farmers.

However,….

Government pay less consideration of buffalo comparing to cattle in the livestock development plan ( Indramangala, J. 2003).

No apparent policies to support the production of buffalo milk creates instability on farmers’ and investors’ perception.

It is difficult to see benefits of stock raising in a short term, thus farming buffalo for milking is not widely recognized.

Nutritional benefits of buffalo milk are not publicized to Thais extensively.

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Problem Statement

Main objective:To analyze the possibility of buffalo dairy farm establishment and to come up with recommendations to develop and promote farming buffalo for milking as an alternatively permanent career to Thai farmers and other interested investors

Objective of the Study

Scope and Limitation:

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This study focuses on “Murrah Farm” as a case study

Market analysis

Data regarding consumer’s characteristics is obtain from interview 20 customers of the farm and buffalo milk retailers

Financial analysis

Data is obtained from the farm owner

Expected project life is 20 years

6.75% Discount rate Loan rate at BAAC

Any value used in the analysis is assumed to be constant

Methodology

Conceptual Framework

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Business Analysis

FinancialAnalysis

Market Analysis

Net Present Value

Benefit-Cost Ratio

Internal Rate of Return

Payback period

InternalExternal

Market plan

SWOT

Farm location

Competition analysis in non-conventional

dairy market

Land use allocation

Feeding management

ProcurementAnalysis

ProcessingAnalysis

Consumer characteristics

Market segmentation

Competition analysisFive Force

ModelCompetition

Analysis

Promotion

Sensitivity analysis

Buffalo breed

Herd size

Processing plant

Production technology

Production process

Inventory management

Market targeting

Raw milk production

Population and Sampling

Population• Buffalo dairy farm’s owner • Goat dairy farm’s owner• Customers of buffalo dairy farm

Sample size• 1 sample for buffalo dairy farm’s owner: Murrah Farm• 1 sample for goat dairy farm’s owner: Saudi Farm• 20 samples of buffalo milk consumers

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Data collection

Primary data Secondary data

• In-depth interview

• Observation

• Government Reports

• Research reports

• Official Documents

• Statistics and Records

• Books and Publications

• Internet Resources

Data Collection

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The owner of buffalo dairy farm The owner of goat dairy farm Buffalo milk consumers

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Data Analysis

Data analysis

Quantitative analysis Qualitative analysis

• Describe general business

of buffalo dairy farm

• SWOT analysis

• Five Force Model

• Procurement

• Processing activities

Financial analysis

• Net Present Value

• Benefit-Cost ratio

• Internal Rate of Return

• Sensitivity analysis

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Results and Discussions

Marketing strategy

SWOT Analysis

Strengths High nutritious foods White feature & clean smell Only integrated buffalo dairy farm Local supply Delivery service in BKK

Weaknesses Locate far from target market Low milk yield at 5 kg/head/day Few products’ varieties Limited experience in dairy industry Lack of technology and skill

employees No budget to market the farm

Internal Factors

External Factors

Opportunities Trend of health consciousness Continue grow up of dairy industry No direct competitor Change of Thai eating culture

Threats Various substitution products Bias towards buffalo milk No government support Economic recession and political

crisis

Positive Negative

• Internal aspects

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11

Variable for segmenting

consumer market

Group

1 2 3 4

1. Demographic        

Age < 13 years : Children 13-22 years : Teenager 23-60 years: Working age > 60 : Elder

Education Kindergarten/Primary school

Secondary school/Bachelor Bachelor or higher Bachelor or higher

Income No income No income or < 10,000 Baht > 10,000 Baht High income or

having saving money

Race Thai, Thai origin, Non-

ThaiThai, Thai origin, Non-

ThaiThai, Indian origin,

Non-ThaiThai, Indian origin,

Non-Thai

2. Psychographic

Motive and lifestyle

Open for new things

Satisfy with modernity, innovative and image of products

High influence from friends

Living in a hurry Health consciousness

Need fast and convenient  

High influence from parents

High purchase power  

  Self decision  

3. Behavior

Benefit incentive

Tasty Good image Convenience to

buy and consume Health

nourishment Nice and colorful

package Brand's name Good for health  

Cheap price   Guarantee

certificate  

Market Segmentation and Market Target

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Marketing Mix (4P’x)

• Product and Price

Description Price (Baht)

Product Quantity

1) Pasteurized milk 180 ml. 20350 ml. 35

1,000 ml. 80 2) Yogurt 1 cup 25

3) Mozzarella cheese 125 g./cup 124

1 kg. 600 4) Ghee 1 kg. 260 5) Live weight buffalo 1 head 15,000 6) Baby corn 1 kg. 21

Brand image “Murrah Dairy Company”

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Marketing Mix (4P’x)

• Place

Murrah Farm

Wholesaler Retailer Consumers

Foodland Supermarket

Murrah Café & Bistro

Selling at Murrah Farm

Roong-aroon School

• Promotion

Advertising Sales Promotion Electronic media http://www.murrahdairy.com/en/farm.asp.

Public Relation Word-of-Mouth Marketing

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Marketing strategy

• External aspects

Analysis factorsLevel of competition

High Moderate Low1. Rivalry among existing competitors     X2. Threats of New Entrants   X  3. Threats of Substitute Products X    4. Bargaining power of suppliers     X5. Bargaining power of buyers     X

Five Force Model

No direct competitor Suppliers and buyers have low bargaining power Various substitution products with lower price No barriers for new entrants

“Moderated competition”

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Competitor Analysis

1. Cow milk

2. Soy milk

3. Goat milk

• No direct competitor• Indirect competitor

Local Based industry Effective distribution channel and aggressive promotional campaigns Various products and varieties Strong dairy cooperative Government support: subsidies, guarantee sales price and price control Big players are Foremost Friesland, CP-Meiji and Dutch Mill Group

Alternative healthy drink Big players are Green Sport, Lactasoy and Dutch Mill Group

Close competitor Alternative drink to cow milk Government support Big players is Mah Boonkrong Dairy Goat Co., ltd.

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Financial Analysis

Project life is estimated at 20 years according to useable life of farm’s fixed assets

Cost analysis

Costs refer to all expenses spending since starting up the Murrah Farm till the end of project life. Costs are generally separated to three aspects including investment costs, operating costs and maintenance costs.

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Description/ year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total investment costs

17,877,600 8,890,000 2,846,000 5,908,200 1,621,000 2,371,000 25,000 50,000 25,000 25,000

Total operating costs

605,200 689,494 857,524 978,724 1,425,739 2,280,148.62,712,794.

63,179,416.

43,307,849.

83,326,963.6

Total maintenance costs

96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000.0

Total costs 18,578,800 9,675,494 3,799,524 6,982,924 3,142,739 4,747,148.62,833,794.

63,325,416.

43,428,849.

83,447,963.6

Description/ year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Total investment costs

221,200 50,000 926,000 75,000 50,000 50,000 75,000 50,000 50,000 75,000

Total operating costs

3,367,718.6 3,609,268 3,789,704.6 3,865,745.4 3,865,745.4 3,865,745.43,865,745.

43,865,745.

43,865,745.

43,865,745.4

Total maintenance costs

96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000 96,000

Total costs 3,684,918.6 3,755,268 4,811,704.6 4,036,745.4 4,011,745.4 4,011,745.44,036,745.

44,011,745.4 4,011,745.4 4,036,745.4

Cost analysis

Revenue analysis

Sources of income

Pasteurized milk: 80 Baht per liter Yogurt: 25 Baht/cup/120 g. Mozzarella cheese: 600 Baht per kg. Ghee: 260 Baht per kg. Heifer age 24 months: 12,000 Baht per head Bullock age 24 months: 15,000 Baht per head Unproductive male breeder: 18,000 Baht per head Unproductive female breeder: 10,000 Baht per head Baby corn: 21 Baht per kg.

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Cash inflow

Item 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cash from selling buffalo dairy products

0 0 0 0 0 3,985,578 4,800,738 5,796,267 6,986,489 7,166,566

Cash from selling live buffalo

0 0 135,000 228,000 228,000 240,000 333,000 393,000 688,000 813,000

Cash from selling baby corn

0 0 0 0 0 0 252,000 546,000 546,000 546,000

Scrap value 0 0 0 0 0 0 0 0 0 0

Net Cash Inflow 0 0 135,000 228,000 228,000 4,225,578 5,385,738 6,735,267 8,220,489 8,525,566

Item 2,013 2,014 2,015 2,016 2,017 2,018 2,019 2,020 2,021 2,022

Cash from selling buffalo dairy products

7,511,851 9,786,730 11,429,442 12,070,651 12,070,651 12,070,651 12,070,651 12,070,651 12,070,651 12,070,651

Cash from selling live buffalo

606,000 900,000 1,394,000 1,637,000 1,709,000 1,689,000 1,687,000 1,645,000 1,693,000 1,889,000

Cash from selling baby corn

546,000 546,000 546,000 546,000 546,000 546,000 546,000 546,000 546,000 546,000

Scrap value 5,520 1,500 1,500 0 0 0 0 0 0 9,773,000

Net Cash Inflow 8,669,371 11,234,230 13,370,942 14,253,651 14,325,651 14,305,651 14,303,651 14,261,651 14,309,651 24,278,651

Investment Analysis

Discount rate 6.75%

Net Present Value 9,045,420.30

Net Present Cost 66,462,140.74

Net Present Benefit 75,507,561.04

Benefit-Cost ratio 1.14

Internal Rate of Return 8.60%

An investment in farming dairy buffalo is interesting and worth to make an investment since the results from investment analysis show that the business would gain benefit in long term operation.

“Payback period is 15 years and 4 months”

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Sensitivity Analysis

Increase of production costs

Assumption PVB(Baht)

PVC(Baht)

NPV(Baht)

BCR IRR (%)

General situation 75,507,561.04 66,462,140.74 9,045,420.30 1.14 8.60

Production cost increase 5% 75,507,561.04 67,864,450.72 7,643,110.32 1.11 8.32

Production cost increase 10% 75,507,561.04 69,266,760.70 6,240,800.34 1.09 8.03

Production cost increase 15% 75,507,561.04 70,669,070.68 4,838,490.37 1.07 7.75

Production cost increase 20% 75,507,561.04 72,071,380.65 3,436,180.39 1.05 7.46

Production cost increase 30% 75,507,561.04 74,876,000.61 631,560.00 1.01 6.88

Production cost increase 35% 75,507,561.04 76,278,310.59 (770,750.00) 0.99 6.59 Even the production costs is increasing 30%, the farm still is able

to maintain its operation and earn profit from its investment.

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Sensitivity Analysis

Decrease of earned income

Assumption PVB(Baht)

PVC(Baht)

NPV(Baht)

BCR IRR(%)

General situation 75,507,561.04 66,462,140.74 9,045,420.30 1.14 8.60

Income decrease 5% 71,873,653.82 66,462,140.74 5,411,513.08 1.08 7.88

Income decrease 10% 68,239,746.60 66,462,140.74 1,777,605.85 1.03 7.13

Income decrease 15% 64,605,839.37 66,462,140.74 (1,856,301.37) 0.97 6.34

Murrah Farm should carefully monitor a decreasing of earned income and not let it reduces until 15% reduction otherwise the farm would experience loss form investment.

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Sensitivity Analysis

Increase of production costs and decrease of earned income

AssumptionPVB

(Baht)PVC

(Baht)NPV

(Baht) BCRIRR(%)

General situation 75,507,561.04 66,462,140.74 9,045,420.30 1.14 8.60

Production cost increase 5% and income decrease 5%

71,873,653.82 67,864,450.72 4,009,203.10 1.06 7.59

Production cost increase 10% and income decrease 10%

68,239,746.60 69,266,760.70 (1,027,014.10) 0.99 6.53

Once both situation of production costs increase and earned income decrease happen simultaneously, Murrah farm face highest uncertainty. It can operate only at 5% of both increase and decrease rate. If both rate reach 10%, the farm immediately experience loss.

An increase of production costs and a decrease of earned income have direct influence to the farm’s operation and its capability of making profits, therefore the farm has to pay attrition and plan properly to handle these situation.

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Conclusions and Recommendations

Conclusion

Marketing Target group of Murrah Farm is consumers in BKK . Primary target is working age, secondary target is children younger than 13 years old To capture target market, marketing strategies are implemented according to marketing mix (4P’s). Competition in buffalo dairy market is considered as moderate. No direct competitor but various substitution products with lower price

Procurement Farm location has full access to basic infrastructure Farming buffalo is operated under 300 rais Main buffalo breeds are Murrah, Swamp and cross-breed. Average milk yield is 5 kg./head/day. Lactation period is 240 days 2/3 of buffalo farming areas are allocated to crops planting for feeds Concentrate is supplement feeds particularly for milking buffalo.

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Conclusions and Recommendations

Conclusion

Processing activities Processing plant is located in the farm area to process milk daily Technology are uncomplicated, and machineries and equipment are operated manually Inventory management concerns with

Raw materials: own milk supply and process daily. Other processing supplies are ordered locally when stock almost finish Good in process: Raw milk is processed within a day. If there goods in process, it will be kept in the fridge at 4 C Finish goods are stored in the fridge waiting to be delivered to customers on every Monday, Wednesday and Friday

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Conclusions and Recommendations

Conclusion

Financial analysis Total costs for 20 years of business operation is 100,371,763.00

Baht. Total return on investment is 176,996,738.00 Baht. The results of investment analysis show that

NPV at 6.75% discount rate is 9,045,420.30 Baht. BCR is 1.14 IRR is 8.60%Payback period is long at 15 years and 4 months

The results of sensitivity analysis indicate that Murrah Farm can maintain its operation profitably even when

Production cost is increasing 30% Earned income decrease for 10%Production costs and 5 % and earned income decrease 5%

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Conclusions and Recommendations

Recommendation to Murrah farm

Market research is necessary to be performed in order to have adequate information to set proper market strategies for market expanding

Improve milk yield because it concerns with raw material for milk processing and supplying to market which finally return as farm income.

Food safety and guarantee certificate Budget plan and monitor farm’s expense i.e. setting proper work

schedule and manage good work allocation can to reduce costs of hiring new workers

Plan properly for expanding the market and channel of distribution to distribute products to cover all targeting area and deliver products to customers at its most convenient.

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Conclusions and Recommendations

Recommendation for further study

Results of the research study indicate that buffalo dairy farm has a potential in dairy market and it’s also possible in term of financial feasibility.

However, the study on buffalo dairy farm is not widely conducted in Thailand. For further study, it would be suggested to study on consumer behavior and their attitude towards buffalo milk in order to recommend appropriate market strategy to buffalo farm owner and other people who are interested in making investment in buffalo dairy farm.

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THANK YOU

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