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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
1
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
3
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
25
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
27
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
28
The owner of buffalo dairy farm The owner of goat dairy farm Buffalo milk consumers
8
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
9
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
31
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.
46
17
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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19
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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