Efficiency analysis and economic feasibility in two dairies of Maule Region, Chile

Indicators of efficiency and economic feasibility in two irrigated farms located in the Linares area (35º51' S. lat. and 71º35' W. long.), Maule Region, Chile, were estimated. The farms are associated to PROLECHE S.A., an enterprise formed with financial support of the Development Corporation of Production (CORFO) for associative administration. For economic evaluation the discount rate was estimated based on Capital Asset Pricing Model (CAPM) and the Weighted Average Cost of Capital (WACC). Economic feasibility was assessed by mean traditional indicators: namely Net Present Value (VAN), Internal Rate of Return (TIR), Net Present Value Index (IVAN) and Investment Recovery Period (PRI). Productivity per cow-in-milk reached values from 5,141 to 7,355 liters, at the same time the productivity per hectare varied from 9,122 to 8,528 L, for cases 1 and 2, respectively. Profitability measured on total capital investment for milk production varied from 10% (Case 1) to 8.7% (Case 2). Gross margin per cow (in Chilean pesos of March 2000) was $ 279,963 and $ 207,653, while the profit per hectare was $ 337,653 and $ 237,042, for cases 1 and 2, respectively. The TIR reached values from 11.5 to 14.8% for case 1 and 14.6 to 20% for case 2. Considering that VAN is positive and the TIR is higher than the discount rate for all milk pricing scenarios, the main conclusion is that milk production is economically feasible in the two cases for the existing scale of production