Economies of Scale in the Production of Milk: An Analysis of the States of Rondonia, Tocantins and Rio de Janeiro

This study aimed to analyze the business maintenance issue faced by milk producers, in the long term. It was analyzed farms in the states of Rondonia, Tocantins & Rio de Janeiro. The main goal of this study was to verify the existence of economies of scale among milk producers. The function that presented better adequacy to the data was that of cost translog. The production factors taken into consideration were: capital, land, work & direct expenses. The economic analysis shows the difficulties to survive faced by farmers in the long term. This happens because the relation immobilized capital/production is very high. The regression results reveal that the vast majority of producers in this case study operate in economies of scale, being that only 3.4% of them do not. The point of minimum average cost was obtained at about 178 thousand liters per year, that is, an average of 487 liters per day. Another group formed by 10% of the case study is closer to the point of minimum average cost & presents a daily production between 183 & 487 liters. And finally, the last group which presents itself in a less favorable situation with a production lower than 180 liters per day. It is highlighted that these producers can significantly reduce their costs if they increase their production, once they are found in the most accentuated part of the average cost curve in the long term & can greatly develop in the activity by using the economies of scale. Adapted from the source document.