Scientific Papers Series Management , Economic Engineering in Agriculture and Rural Development Vol.13, Issue 1, 2013
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RATE OF RETURN ON INVESTMENT IN A DAIRY CATTLE
BREEDING FARM IN BULGARIA
Tsvetana HARIZANOVA
Institute of Animal Science, Kostinbrod, Bulgaria, 2232, sp. Pochivka, phone/fax: 0721/68940; e-mail: ts_harizanova@abv.bg
Corresponding author: ts_harizanova@abv.bg
Abstract
The paper analyses the rate of return on investment in a dairy cattle breeding farm in Bulgaria. To achieve the aim, it was investigated a dairy cattle breeding farm in Bulgaria first category with average number of 83 cows in the main herd. Based on information collected from the farm in 2012 and on own calculations it was defined the different types of investments necessary to create a farm. It was calculated also the rate of return of cash inflows, rate of return of cash outflows and investments per cow. It was found that the analyzed farm has implemented 12.5% rate of return on investment in 2012. Investments per cow are 4422 euros. The largest share of investments has the investments in productive animals (43.6%). 64.6% of the revenues are from the sale of milk. The largest share of the cash outflows have the purchase of feed and forage production - 58.3%. Subsidies play an important role for profitable operation of the analyzed farm.
Key words: cash flows, cattle breeding, investments per cow, rate of return on investment
INTRODUCTION
Value of the different cash flows, generated from the main activity, r te of return on investments [4], [7], rate of return of expenses and revenues [4], [8] and investments per cow [5] in dairy cattle breeding sector are extremely important for the motivation of farmers and employees, for the cost of the production and product quality. Each enterprise is interested in optimizing expenses and revenues to achieve positive financial result. Various researches in the sphere of economic effectiveness in dairy cattle breeding were published: some authors [2] examined the competitiveness of dairy cattle farms in terms of their size in Bulgaria; the structure and return on investment in dairy cattle breeding in Bulgaria was investigated [3]; economic models in dairy farms were examined [1].
MATERIALS AND METHODS
The aim of the study is to determine the rate of return on investment in a dairy cattle breeding farm in Bulgaria.
To achieve the aim, it was investigated a dairy cattle breeding farm in Bulgaria first category with average number of 83 cows in the main herd.
Based on information collected from the farm in 2012 and on own calculations it was defined the different types of investments necessary to create a farm. Cash flows exclude VAT. Cash inflows and outflows were estimated. The net cash flow was calculated as a difference between cash inflow and cash outflow occurred in 2012.
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flow is not equal to the net profit. Some of the cash outflows incurred this year will be pointed as expenses during the next year or years when the farmer sell the production or put it in the next production cycle (feed the
animals with forage – own production, which
was produced previous year). Revenues are equal to the cash inflows.
RESULTS AND DISCUSSIONS
Table 1 represents investments, cash inflows, cash outflows, ROI (%), ROCo (%), ROCi (%) and Ic (%).
Cash inflows include:
- revenues from the sale of male calves – 35
calves a few weeks after birth;
- revenues from the sale of cull cows and heifers (12 cows and heifers per year);
- revenues from the sale of milk – 280 tons
per year;
- revenues from subsidies;
In the analyzed farm 15% of cow are culled annually, average service period is 60 days, dry period - 70 days. The cows are from the Black and White breed and are culled mainly due to aging; artificial insemination is practiced; selection is on a proper level. Approximately 1-2% of cows in the herd have clinical mastitis and endometritis. The average milk yield is 6,100 liters and the farm sells on the market about 280 tons cow milk per year. Animals are kept free - boxing. In the summer they graze on the pastures and a small amount of compound feed was given to them. The cows are milked twice a day with automated milking line. Hygiene in the farm is excellent. Ventilation is a natural with chimneys.
ROI (%) has value of 12.5%, it means that every 100 euros of investments account for 12.5 euros net cash flow.
ROCo (%) shows that on every 100 euros of cash outflows account for 54.8 euros net cash flow.
ROCi (%) represents that on every 100 euros of cash inflows account for 35.4 euros net cash flow.
Investments per cow are 4422 euros.
Table 1: Cash flows
Cash flows: Value (a thousand euros): Investments including: 367
Cows 160
Tractors 70
Land 30
Buildings 30
Bobcat 25
milk line 13
manure spreader trailer 12
forage harvester 9
Microbus 3
Trailers 2
hay rake 1
forage grinder 1
cow brush 1
others 10
Cash inflows including: 130
from milk sale 84
from the sale of male calves 2 from cull cows and heifers sale 4
from subsidies 40
Cash outflows including: 84 for combined fodder 45 for grain and lucerne production 4
Labour 15
Medicaments 1
Disinfectants 2
Electricity 3
vet services 1
accounting services 1
rent /pastures/ 4
fuel 3
other materials and services 5
Net cash flow 46
ROI (%) 12.5
ROCo (%) 54.8
ROCi (%) 35.4
Ic (a thousand euros) 4.422 Source: data, collected from a dairy farm and own calculations
Figure 1 shows that the largest share of investments has the investments in productive animals (43.6%) followed by the investments in tractors (19.1%).
Investments in land and buildings have values of 8.2%. The share of investments in milk line is 3.5%; investments in bobcat are 6.8%. Total percents of investments in equipment (tractor, bobcat, forage harvester, manure spreader trailer, forage grinder, trailers, hay rake) occupy 32.7%.
Figure 2 represents that 64.6% of the revenues are from the sale of milk, followed by the revenues from subsidies- 30.8%. The smallest share of revenues has the revenues from the sale of cull cows and heifers (3.1%) and male calves (1.5%).
Consequently, subsidies are crucial to good and profitable operation of the farm. If the
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paribus, then net cash flow would have the value of 6k euros; ROI (%) - 1.6%; ROCo (%) - 7.1%; ROCi (%) - 6.7%; ROI (%) would be under the interest rate on deposits in Bulgaria (around 5% [6]) and therefore the farmer would not have been interested in investing the money in creating a dairy farm. The analysis of the data in Figure 3 shows that the largest share of the cash outflows has the purchase of feed and forage production - 58.3%, followed by labor costs (17.8%), other materials and services (6%) and rent of pastures (4.7%). The lowest share of cash outflows has veterinary services (1.2%), accounting services (1.2%) and medication (1.2%). Cost of fuel, electricity and disinfectants are respectively 3.6%, 3.6% and 2.4%. 43.6% 19.1% 8.2% 8.2% 6.8% 3.5%3.3% 2.5% 0.8% 0.5% 0.3% 0.3% 0.3% 2.6% cows tractors land buildings bobcat milk line manure spreader trailer f orage harv ester microbus trailers hay rake f orage grinder cow brush others
Fig. 1 Investments %
64.6 1.5
3.1 30.8
f rom milk sale f rom the sale of male calv es f rom cull cows and heif ers sale f rom subsidies
Fig. 2 Cash inflows %
53.6% 4.8% 17.8% 1.2% 2.4% 3.6% 1.2% 1.2% 4.7% 3.6% 6.0%
f or combined f odder f or grain and lucerne production labour
medicaments disinf ectants electricity v et serv ices accounting serv ices rent /pastures/ f uel
other materials and serv ices
Fig. 3 Cash outflows %
CONCLUSIONS:
- In 2012 the analyzed farm has implemented 12.5% rate of return on investments;
- On every 100 euros of cash outflows account for 54.8 euros net cash flow.
- On every 100 euros of cash inflows account for 35.4 euros net cash flow.
- Investments per cow are 4,422 euros.
- The largest share of investments has the investments in productive animals (43.6%) followed by the investments in tractors (19.1%);
- 64.6% of the revenues are from the sale of milk, followed by the revenues from subsidies - 30.8%;
- The largest share of the cash outflows have the purchase of feed and forage production - 58.3%, followed by labor costs (17.8%); - Subsidies play an important role for profitable operation of the analyzed farm;
REFERENCES
[1]Berentsen P. B. M., G. W. J. Giesen, 1995. An
environmental – economic model at farm level to
analyse institutional and technical change in dairy
farming. Agricultural Systems, Volume 49, p. 153 –
175.
[2]Gaidarska V. Harizanova T., T. Ivanova, N. Rusev, Stoikov P. 2009, "Investigation of the competitiveness of dairy farms with different capacity". Proceedings of the conference "Traditions and Modernity in veterinary medicine," Forestry University, p 96-101
[3]Harizanova, Ts., V. Gaidarska, T. Ivanova, 2012. Possibility to evaluate the structure of investments in dairy cattle breeding farms. Journal of Mountain
Agriculture on the Balkans, vol. 15, 1, p. p. 102 – 109.
[4]Lukanov K., 2002. Financial – economic analysis of
tСО ПКrm. ПТrst ОНТtТonĽ puЛlТsСТnР СousО “PrТгmК”-
Plovdiv, Bulgaria, p. 101 – 103.
[5]Miller, A. J., D. B. Faulkner, PAS, R. K. Knipe, D. R. Strohbehn, D. F. Parrett and L. L. Berger, PAS, 2001. Critical Control Points for Profitability in the Cow-Calf Enterprise, J. Professional Animal Scientist,
vol. 17 no. 4, p. 295-302.
Scientific Papers Series Management , Economic Engineering in Agriculture and Rural Development Vol.13, Issue 1, 2013
PRINT ISSN 2284-7995, E-ISSN 2285-3952
