Raw milk sale or paneer: deciding with a loan due
Sneha, 30, has a bank loan of ₹6,00,000 at 7% for five years (about ₹11,900 per month) to set up a dairy unit of four milking Murrah buffaloes averaging 7 litres and two crossbred cows averaging 10 litres - 48 litres a day. Her Dairy Cooperative Society pays ₹32 per litre for buffalo milk and ₹28 for cow milk and collects at the gate morning and evening. A sweet shop two kilometres away and about 30 households in her village have agreed to buy paneer if the quality is good; the going retail price is ₹380 per kg, and buffalo milk gives about 1 kg of paneer from 5.5 litres. A 20-litre evening surplus can be diverted. Extra costs per paneer batch: citric acid ₹25, LPG ₹60, packaging ₹50, transport ₹40, and about two hours of family labour. Her monthly feed bill is ₹18,000, labour ₹6,000, transport ₹2,000 and AI, veterinary and miscellaneous ₹3,500. She has no cold storage and no FSSAI registration yet.
1. Work out the daily economics of converting 10 litres and 20 litres of buffalo milk into paneer, and state a decision rule.
Read the worked answer
Option A - sell everything raw: buffalo 28 L × ₹32 = ₹896; cow 20 L × ₹28 = ₹560; total ₹1,456 a day.
Option B - paneer from 10 litres of buffalo milk:
- Yield 10 ÷ 5.5 = 1.8 kg × ₹380 = ₹684
- Milk value forgone 10 × ₹32 = ₹320
- Extra cost (half a batch of acid, gas, packing, transport, labour) ≈ ₹128
- Net gain = 684 − 320 − 128 = ₹236 a day, about ₹7,000 a month.
Option C - paneer from 20 litres:
- Yield 3.6 kg × ₹380 = ₹1,376; milk value ₹640; extra cost ≈ ₹255
- Net gain = ₹481 a day, about ₹14,400 a month.
Decision rule: convert only what the market absorbs. Start at 10 litres for four weeks. Move to 20 litres only if unsold paneer stays under 10% and the price holds above ₹330 per kg. Use buffalo milk, not cow milk - cow milk gives a softer, lower-yield paneer, and cow milk is better sold as liquid milk to the society. Keep the society route for the remaining milk: it is the guaranteed buyer with no spoilage risk.
2. Can the present all-raw-milk plan service the loan? Build a monthly budget and state what that means for the paneer decision.
Read the worked answer
Monthly budget, all raw milk:
- Income: 30 days × ₹1,456 = ₹43,680
- Costs: feed 18,000 + labour 6,000 + transport 2,000 + AI/vet/misc 3,500 = ₹29,500
- Surplus = ₹14,180
- After EMI of ₹11,900 → ₹2,280 left
That is far too thin: one dead calf, one bad fodder month or a small price cut and the EMI is missed.
With paneer at 10 litres: surplus 14,180 + 7,080 = ₹21,260; after EMI ₹9,360. With paneer at 20 litres: surplus 14,180 + 14,430 = ₹28,610; after EMI ₹16,710.
Conclusion: the loan is serviceable only with value addition, and even then she must build a buffer of at least three EMIs (about ₹36,000) before expanding the herd. She should start the paneer batch before the first EMI falls due, register for FSSAI, and keep the milk sale to the society as the fallback for whatever is not converted. Taking a second loan for more animals before the paneer market is proven would be poor judgement.
3. Which records would tell her whether to scale up, hold or stop the paneer line? Name specific trigger points.
Read the worked answer
Daily records: litres milked, litres poured at the society, litres diverted to paneer, paneer kg produced (so yield per 100 L can be calculated), kg unsold at day end, price realised per kg, hours of family labour, and cash spent on acid, gas, packing and transport. A simple cash book plus a batch register with the time and acid quantity per batch is enough.
Monthly analysis: cost per kg of paneer, net margin per litre of milk diverted, and unsold percentage.
Triggers:
- Scale up if unsold stays at or below 10% for four weeks, yield is 17 kg or more per 100 L, and margin is at least ₹20 per litre diverted.
- Hold at the present level if unsold is 10–20% or the price falls below ₹330 per kg.
- Stop and return to the society if unsold exceeds 20% for two weeks, if there is a spoilage or quality complaint, or if family labour is needed elsewhere during the paddy season.
Also record the FSSAI registration number once obtained, and the batch method, so the paneer is repeatable and can be shown to a shop or inspector. Without these numbers the decision becomes an opinion.