Economies of scale in small ruminants farming in Southern North West Frontier Province-Pakistan

M Ishaq, A Farooq and U Farooq

Technology Transfer Institute (PARC), Tarnab, Peshawar, NWFP-Pakistan
ishaqecon@gmail.com or ishaqecon@yahoo.com

Abstract

The study was conducted during May 2005 in Bannu district of NWFP province of Pakistan with the objectives to find out the factors responsible for livestock profitability and to estimate returns to scale in livestock farming.

The results of Cobb-Douglas production function suggest that livestock milk yield is more sensitive to change in capital (number of milking animals); one percent increase in capital creates approximately 0.8 percent increase in milk yield, other things being constant. While the labor, land and grazing period insignificantly contribute in milk yield. The results of the model also suggest increasing return to scale. This indicates that increase in milk is higher than the increase in inputs. It is concluded that small ruminant farming in the study area is a profitable enterprise.

Key words: Cobb-Douglas function, costs and revenue, rainfed areas, returns to scale, small ruminants

Introduction

The livestock production system varies between the two broad areas in Pakistan: the arid and semi arid and irrigated areas. In some arid and semi arid areas where crop production is not possible due to meager precipitation, the farmers subsist on livestock farming, including cattle, sheep, goats, camel and horses. Sheep and goats are reared as a subsidiary occupation rather than a commercial enterprise and utilized for milk, mutton, skin and wool production in the dry land areas (Hasnain 1985).

The importance of livestock sector is relatively more in NWFP compared to the provinces of Punjab and Sind, since the later have well established industrial sectors; and suitable land for crops. According to an estimate in NWFP, the livestock contributed 62.8 billion rupees to the national exchequer. Out of the total 74521 square kilometers geographic area, NWFP possess 700 km long and 145 km wide range of mountainous land providing grazing to livestock of sedentary farmers, semi-nomadic and nomadic shepherds (Sadiq et al 2001). Table 1 outlines the contribution of livestock sector towards the National Economy.

As reported earlier, livestock sector is relatively more important for the provincial economy of NWFP (the share of livestock sector in the provincial GDP is 55% against the 45% from crops (Ahmad et al 1993)). However, NWFP has so far unable to make any major break through in the production of livestock and its products. Sadiq et al (2001) reported that the livestock contribution towards provincial exports is insignificant. Although Pakistan is the fifth largest milk producing country in the world however, in terms of yield it is among the lowest in the world. According to Khan et al (1999) factors such as low quality breeds, insufficient fodder, low nutritional value of feeds, climatic condition and poor management contribute to the low yield.

Keeping in view the number of households deriving their livelihood from the livestock and allied activities; inadequate research studies and the potential strength of the livestock sector, the study in hand was designed with the objectives to find out the factors responsible for livestock profitability and to estimate returns to scale in livestock farming.

Methodology

The study is based on both the primary and secondary data. The primary data were collected from forty livestock farmers through face to face interview while the secondary data were collected through review of published/unpublished literature, internet etc.

Data analysis

To capture the effect of various factors affecting milk production, the Cobb-Douglas (1928) production function was estimated (Vira and Narnicka 2003).

Y = A . L^a . K^b . Z^g . m (1)

Where:

Y is output

L is labour input

K is capital input

Z is land input

A, a, b, g are parameters

m is disturbance term

Parameter A measures the efficiency of the production function or the scale of production - how much output is possible to create, if one unit of each input is used. Parameters a, b, g measure how the amount of output responds to the changes in inputs (Varian 1993).

The relationship between output and input variables in Cobb-Douglas (1928) production function (1) is nonlinear. However, if it is log-transformed, the following linear function is obtained.

Y = ln A + a ln L + b ln K + g ln Z + m Þ b₀ + b₁ ln L + b₂ ln K + b₃ ln Z + m (2)

The above function is linear in its parameters b₀, b₁, b₂, b₃ and therefore is a linear regression model. Now it is possible to use the Ordinary Least Square (OLS) method to estimate the regression. b_s are the partial elasticity of output with respect to a particular input and measure the percentage change in one input, holding the other input levels constant. Furthermore, the sum of b₁, b₂ and b₃ gives information about the return to scale, i.e., the response of output to a proportionate change in the inputs. If β₁+β₂+β₃+β ₄ = 1, then there are constant return to scale. If β₁+β₂+β₃+β ₄<1, then there are decreasing return to scale and if β₁+β₂+β₃+β ₄>1, there are increasing return to scale (Gujrati 1995).

Results and discussion

Herd size is one of the major determinants of financial status of a farmer, which in turn, affects farmers' ability to adopt modern production practices of animals raising. The overall mean flock size was 6 ruminants (Table 2) in number comprised of 6 goats (kept by 88 % farmers) and 5 sheep (kept by 35% farmers). Overall mean milking and young goats were 2 each, kept by 63% and 55% farmers, respectively and 4 dry goats kept by 68% respondents in the study area. Whereas, the number of milking sheep was 2 with 18% farmers, each dry and young sheep 3 in number kept by 30% and 13% farmers, respectively.

Livestock feed

Livestock feeding is a critical component of livestock management, especially in the rainfed farming systems. Under rainfed conditions, fodder is not available throughout the year. Livestock is fed on number of fodder and feed resources to meet the nutritional requirements. The crops and crop residues form the bulk of the feed for livestock. In addition to this dry fodder is fed to the animals in green fodder shortage period. However, the free grazing helps in a relatively more economical way to meet the dietary needs of the animals.

In the study area, free grazing was very common and practiced by all of the respondents on average for 10 months, to feed the animals. Beside free grazing, sorghum, Shaftal, maize, grasses and wheat were the major feeds, fed to the animals. Farmers' grazing their livestock at uncultivated/fallow lands and reported severe stress on rangelands. It was also noticed that number of small ruminants was high in areas where more grazing lands were available.

Costs and revenue

Livestock in the study area were mainly kept for milk production and production of young. The revenue from livestock thus comprised of these two products. Wool (in case of sheep) and manure were the other products that produce extra revenues to the livestock farmers. Feed, veterinary medicines and labor constituted the cost (Table 3).

Milk contributed the largest share in revenue (78 percent) on overall basis, followed by young (20 percent). On the cost side, labour and fodder were the main cost constituents. Labour accounted for about 84 percent of the total cost and feed accounted for 15 percent.

The farmers of the area received gross revenues of Rs.5,630/- from goat keeping, Rs.5,193/- from sheep and Rs.5,276/- on overall basis per animal per year. The labour constituted the major cost component and amounting to Rs.2,737/- each for goat, sheep on overall basis, per animal per annum. The feed cost incurred on goat amounting to Rs.275/-, sheep Rs.595/- and on overall basis Rs.474/-. While the medicine cost accounted to Rs.37/- for goat, Rs.39/- for sheep and Rs.36/- on overall basis, per animal per annum. After deducting the costs incurred on various component from gross revenue, the net revenue came to Rs.2,581/- for goat keeping Rs.1,822/- for sheep and Rs.2,029/-, on overall basis per animal per annum.

Results of Cobb-Douglas production function and economies of scale

The results of Cobb-Douglas production function (Table 4) suggest that livestock milk yield is more sensitive to change in capital (number of milking animals); one percent increase in capital creates approximately 0.8 percent increase in milk yield, other things being constant. While the labor, land and grazing period insignificantly contribute in milk yield. The results of the model also suggest increasing return to scale. This indicates that increase in milk is higher than the increase in inputs. It is concluded that small ruminant farming in the study area is a profitable enterprise.

Conclusion and policy implication

The livestock production system varies between the two broad areas in Pakistan: the arid and semi arid and irrigated areas. In some arid and semi arid areas where crop production is not possible due to meager precipitation, the farmers subsist on livestock farming, including cattle, sheep, goats, camel and horses. Sheep and goats are reared as a subsidiary occupation and way of life rather than a commercial enterprise in the dry land areas. Sheep and goats are traditionally utilized for milk, mutton, skin and wool production. Livestock was fed on number of fodder and feed resources to meet the nutritional requirements. However, the free grazing helped in a relatively more economical way to meet the dietary needs of the animals. Livestock in the study area were mainly kept for milk production and production of young. Milk contributed the largest share in revenue, followed by sale of young. On the cost side, labour and fodder were the main cost constituents. It is concluded that small ruminant farming in the study area is a profitable enterprise.

• There is no control on grazing of communal lands. Furthermore, no development efforts have been made so far to develop these land resources by motivating farming communities on participatory principles together with conducive legislative measures.
  
  
• Livestock feeding is a critical component of livestock management, especially in the rainfed farming systems. Multi-cut fodder should be introduced in the area in order to make the feed available through out the year.

References

Ahmed M, Asghar C and Khan N A 1993 Participation of rural women in agriculture and household activities: A micro-level analysis. Proceeding of 1^st International Conference on Agricultural Strategies in the 1990's: Issues and Policies, held at Islamabad on May 1991.

Cobb C W and Douglas P H 1928 A theory of production. The American Economic review. 1928 supplement, pp. 139-165.

Government of Pakistan 1999 Agricultural Statistics.  Federal Ministry of Food, Agriculture and Livestock, Islamabad

Gujrati N D 1988  Basic econometrics. 3rd edition. McGraw Hill book co. Singapore p.215.

Hasnain H U 1985 Sheep and Goat in Pakistan. FAO: Animal production health paper. 1995. No.56. FAO. Quetta, Pakistan.

Khan A M, Khan M I, Sheikh A D, Khan N A and Tariq B 1999 Baseline survey of livestock management in the rainfed farming systems of Pothwar and Shakargarh, Punjab. Social sciences institute. NARC. Pakistan Agricultural Research Council, Islamabad.

Sadiq G, Ishaq M and Saddozai S H 2001 Livestock keeping in the aridland farming of NWFP. Agricultural economics research unit, ARI, Tarnab-Peshawar, NWFP-Pakistan.

Varian R H 1993 Intermediate economics. A modern approach. (p.306) USA: W.W. Norton and Company, Inc.

Vira V and Narnicka K 2003 Semi-subsistence farming in lativia: Its production function and what will be the impact of proposed EU support. Stockholm School of Economics in Riga. Working papers 2003:14 (49).

Received 27 June 2006; Accepted 30 November 2006; Published 8 February 2007

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