Economic and financial performance of representative small scale dairy production units to 2027

Abstract

Background: Small-scale dairy systems are vital in rural communities and strategic for livelihoods an economic development. Objective: To estimate the economic and financial viability of small-scale dairy Representative Production Units (RPU) in the high plateau of the State of Mexico using a Monte Carlo simulation. Methodology: Net yields were estimated for a 5-year planning horizon via simulated values for the distribution of input and product processes, establishing 2022 as the base scenario. A stochastic modelling approach was used to determine the economic and financial outlook considering the cost of two sources of labor for the simulations: (1) Cost of family labor (FL); and (2) Cost of external hired labor (EL). Results: A panorama of economic viability was evidenced. However, a lack of financial wellbeing was also determined. When FL was factored in, net income was estimated in $17.99 thousand USD in 2023 and $26.35 thousand USD in 2027. On the other hand, considering EL resulted in a net income of $9.88 thousand USD in 2023 and $16.31 USD in 2027. The Net Present Value in 2027 was calculated at $-161.84 thousand USD and $-191.27 thousand USD, with FL and EL, respectively. While the RPUs were determined to be competitive, the level of risk was significant due to the high monetary value, limited degree of specialization of the RPUs, and the prevailing volatile scenario at the time. Implications: This study can enable decision-makers, on one hand, to analyze and design policies and differentiated strategies for small-scale dairy production systems. On the other hand, it can empower dairy farmers to assess scenarios of technical and productive intervention. Conclusions: The financial and economic weakening of the studied RPU could have negative implications in terms of public policy, labor, marketing, value chains, and the persistence of producers in such activity.