The profitability of value-added products in dairy farm diversification initiatives

A more open and competitive dairy market has encouraged certain dairy farms to adopt value-adding strategies in order to achieve a higher profitability, which may be important for farms’ survival. This paper investigated the role of some product characteristics in the profitability of value-added products in these farms. For this purpose, we used a unique database of 265 different products commercialized by 49 Spanish dairy farms that offers information on nine attributes of each product. Using hedonic models as a baseline, we examined the influence of these attributes on the margin per liter (ML) of the products. The results of the regression indicated that cheese and yogurt generated 0.688 and 1.518 € more of margin per liter than liquid milk. Similarly, we found a set of attributes that have a positive influence on ML, including possession of a certificate of protected designation of origin (PDO), the milk-type composition (proportion of sheep milk), a longer expiration period, and involvement in direct marketing strategies (DMS). However, other recognized attributes such as organic labeling, maturation period, size of the sales unit and returnable packaging did not have a significant influence on ML. Our findings also showed that firms producing more elaborated products as cheese and yogurt need a lower percentage of their production to cover the fixed costs associated to transformation and commercialization. Overall, our results revealed that the elaboration of value-added dairy products improves the profitability of dairy farms