Feasibility Study

CHAPTER 1 INTRODUCTION
1.1 Introduction
Overall milk production at PCC-MMSU CAMPUS. From 1990 to the present, milk production has
declined by an average of 4.1% per year . A key contributing factor to this trend is the decline in the
number of dairy farms, with a nearly 50 percent decrease in the number of Grade A dairies in the
nine-year span between 2002-2010.
Many producers are now looking for niche markets where they can obtain higher prices for
their products and increase revenues. One potential means for smaller producers to develop niche
markets is through product differentiation. Opportunities may exist for dairy farmers to directly
market pasteurized fluid milk or further processed dairy products. Examples of such products are
farm-bottled milk, organic farm-bottled milk, artisanal cheeses, yogurt, butter, or ice cream. The
objective of this study was to examine the feasibility for PCC dairy farms to produce and market
three products: milk, cheese, and yogurt.
In some cases, on-farm bottled milk and processed cheese and yogurt may receive a premium
price because the milk is locally-produced, locally processed, or because the product may be
organic. These products can allow the producer the opportunity to capture more of the value of the
food dollar. In addition to direct on-farm marketing, potential off-farm market outlets for these
products. These products may also be sold through farmers’ markets or food cooperatives.
Because adding value at the farm level also entails additional costs and some business risk, it
requires careful business planning and evaluation of market potential, including a feasibility
assessment. Market feasibility and financial feasibility should be examined prior to entering into a
value-added enterprise. The purpose of this study was to examine both market and financial
feasibility of value-added enterprises for dairy at PCC-MMSU campus. The specific objectives are to
1) ascertain the current market potential for on-farm value-added opportunities (milk, cheese, and
yogurt) and 2) project the financial feasibility of these on-farm value added activities for PCC-MSSU
campus dairies.
Significant gains in milk production per dairy cow have been made over the years through
technology and improved management practices. While gains have been made in milk production
per cow, progressing from 11,825 pounds per year in 1990 to 16,232 in 2009 , PCC-MMSU campus
milk production per cow still falls below the Luzon average of 20,576 pounds per cow per year. The
increase in production per cow has not been able to offset the declines in numbers of dairy cows in
PCC-MSU campus.
The reason for the decrease in dairy cows in PCC-MMSU campus is…. For example, rising energy
costs have caused an increase in the price of fuel and feed. In 2009, the total operating costs per
hundredweight (cwt) of milk in the Luzon was Php707. In PCC-MMSU campus, these total operating
costs averaged about Php984.5, or about 1.4 times higher than the national average.
The biggest factor contributing to the higher operating costs is the costs associated with
homegrown harvested feed. In comparison with costs, the average uniform milk price for 2008 and 2010
in the Appalachian Order was Php863 per cwt and Php873 per cwt in the Luzon order. A major
component of dairy farm operating costs is feed costs. PCC-MMSU campus farmers spend about 34
percent of their operating costs on homegrown feed, while the Luzon average is about 23 percent Also,
PCC-MMSU campus farmers spend about 44 percent of their operating costs on purchased feed, while
the Luzon average is 53 percent.
PCC-MMSU campus dairy farms produce direct economic impacts not only through the milk they
sell, but also indirectly through the goods and services these farms use and the incomes that associated
industries generate. The direct economic impacts of farm sales of milk and dairy for 2010 were
estimated at Php1,000.10 million with 150 jobs . When multiplier effects are included, the economic
impacts of farm level sales are estimated at Php1,391 million and 300 jobs.
Beyond farm-level sales, the state’s fluid milk and dairy products processing industry also
generates economic impacts. The direct economic output from the fluid milk and dairy products
processing industry is estimated at Php93 billion with 1,100 jobs. When the multiplier effects are
included, the estimated economic impact is Php144.5 billion and 7,600 jobs.

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CHAPTER 1 INTRODUCTION

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