MILKING THE FUTURE: DVF DIARY FARM CASE PARTNERS WITH THE FILIPINO

FARMER

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Objective:

The objective of this report is to assess the current situation of DVF Dairy Farm and its underlying
problems why DVF fails to meet the projected 30% corporate minimum growth rate. Currently,
DVF only operates at 15% growth rate. Moreover, this report will also contain analysis and
evaluation (strategy, time and risk) of possible options to address this gap.

Situation Appraisal

DVF was established primarily to provide livelihood to the farmers and employment to the
residents of Nueva Ecija. It raised its quality specification of raw milk to develop the A and B
market and demand from the premium market is steadily increasing.

DVF is both a farm and a processing facility of raw carabao’s milk and which the final processed
products are sold to institutional and retail customers. DVF uses local manpower to produce fresh
carabao’s milk (gatas ng kalabaw) and to develop other milk-based products like pastillas,
cheese, flavored milk and etc. to extend the life of the milk.

DVF collects raw milk from its existing 150 female carabaos in the farm, which yields consistent
milk quality requirement. The rest of the milks are taken from the carabao farmers through the
local cooperative – Talavera Dairy Cooperative Incorporated (TDCI). Aside from earning from the
milk they sell to the cooperative, these farmers (a member cooperative) also receive $12 monthly
stipend for each carabao that came from TDCI. This gives the farmers the opportunity to earn
more.

The relationship of DVF and the carabao farmers of TDCI is indirect because DVF relies on the
production and supply of TDCI from farmers outside DVF. These milks are tested by the
cooperative’s accredited milk collectors before transported to DVF which undergoes five series of
test since DVF only accepts grade A milk, otherwise, these milks are rejected or bought at a lower
price.

However, the milk collected both from the farm and the cooperative is still insufficient for the
demand of the raw materials to be processed as fresh and processed milk products. Especially
DVF has existing contractual obligations to institutional customers whose demand for the products
grew in volume. This makes DVF secure a minimum amount of raw milk so it can perform its
obligation to deliver carabao’s fresh milk and derivative milk products.

The market for dairy products is not a problem because the local milk supply in the Philippines
only accounted for less than 1% of the total demand. And the demand for carabao’s milk is greater
than cow’s milk because of its superior properties like having only 1/5 of the cholesterol found in
cow’s, smoother texture and having more valuable nutrients like calcium, protein.

However, since selling milk is a sensitive business, there are inherit logistical challenges in the
production of at the commercial level like maintaining the quality throughout the milk production
process. All phases of carabao’s milk production have the risk of contamination when not properly
handled from the milking, transporting, pasteurization to packaging of the final product. Raw milks
that are contaminated will be immediately rejected reducing the available supply.

Overall, this means that there is no question about the demand for the dairy products and the
problem lies on the amount of supply available in the market.
Problem Analysis

The increasing demand growth rate of carabao’s milk at an average of 30% to 50% a year has
not been met by DVF even after controlling its supply chain. At average, the company can only
reach as far as 15%, short by half compared to the minimum demand growth trajectory.

There are two reasons why DVF was unable to meet even the 15% minimum market
requirement. These are the following:
a. DVF has limited financial capacity to increase output
Increasing the capacity based on the number of liters produced involves increasing your
working capital to support the daily operations.

Moreover, increasing the output twice from what we are currently making requires
additional processing equipment to get the output double; otherwise, the existing
equipment of DVF will be overworked and can potentially create break down problems.
b. DVF has insufficient supply of raw milk
The availability of carabao’s milk slows down the expected growth of the company.
Limited supply means less input in the milk processing, thus, suspending the potential
additional output. The factors that affect the supply of raw milk are:
i. Tedious procedure for farmers in instituting the processing standard resulting
to farmers pole vaulting which affects raw milk supply

It has become a problem for DVF because these procedures are the major
component of having a good quality of milk and if not performed correctly, the
harvested milk will be rejected and decreases the available raw milk supply of
DVF.

As a consequence, the farmers move away from DVF because it requires

more technical procedures. There is high probability that the milk will be
rejected if not properly executed, thus, affecting their potential income. This
has become one of the significant reasons why farmers are pole vaulting.

ii. Limited number of farmers and carabaos to get raw materials from

The migration of famers to look for work elsewhere reduces the manpower.
This affects the supply of raw milk because there are less people working in
the farms who collects and takes care of these carabaos. This may be brought
by the need of the farmers to sustain their means for survival (financial).
Options

The table below will summarize analysis and evaluation of options in connection with the
proposed strategy, the time it takes to execute and the risk inherent to the corresponding option.

Options Strategy Timeline Risk

Objective: To address the limited financial capacity to meet the additional 15% demand
a. Increase working Working capital: Available within two 1. Additional costs
capital Include or weeks given the to produce DVF
increase down current financial products because
payment on major condition is sound to of the cost of
contracts to buffer apply for a loan borrowing money
working capital or
finance through 2. The funding
short loan becomes
borrowing to available but no
partner agencies raw materials to
like Lanbank of process because
the Philippines of limited supply
and Small
Business
Corporation

b. Additional budget Plant Expansion: Planning will take 1-2

for plant expansion Financing through months.
long term
borrowing to Securing the budget
partner agencies through loan is 1-2
or work on a grant months
supporting
Carabao milk Purchasing, delivery,
expansion and installation are
between 2-3 months

Objective: To address the insufficient supply of raw milk to meet the additional 15% demand
by increasing available carabaos and carabao farmers

Introduce get a carabao The calf is from The first set of female 1. The possibility
now and pay in carabao the herd of DVF. carabaos to give birth that the carabao
later program: There will be an this year. will die before
agreement giving birth
DVF provides female between the
carabao calf to an farmer and DVF 2. The risk of no
interested farmer and that upon the birth offspring
repayment will only be of the first female
after the animal calf, it shall be 3. The risk that only
produces a female returned to DVF. male carabaos
offspring are calves
In addition, it
should also
include the
exclusivity of DVF
on its milk and will
be paid according
to what is due

Objective: To increase farmer participation or eliminate pole vaulting and increase raw
 materials input by streamlining processing standard

Strengthen post-harvest Investment of Portable milking The cost of

management practices portable milking machines and cooling investment might
by investing in portable technology and tanks are already exceed the benefits
milking technology cooling tanks to available in the in terms of return on
where DVF or improve the market. This will be investment
Cooperatives will take handling and available between 1-
care of the harvesting transport of milk 2 weeks.
and transporting of the
milk according to its The truck/vehicle
standards. used to deliver the
finished product can
also be used to
transport raw milk
from the farm to the
plant

Analysis of the proposed options

From the alternatives provided above, the most favorable option is to strengthen the post-
harvest management practices to reduce contaminated or rejected milk from the farmers to
DVF. Milking and transporting from the source are the pinnacle of good milk quality and should
be the primary concern for DVF. This way, DVF will continually serve its the purpose to create
inclusive growth with the farmers.

The second-best option is the initiative to offer a carabao to interested farmers and they do
not have to shell out money but only replace the female calf when the carabao gives birth.
However, a written agreement should be executed for the protection of DVF to secure exclusivity
of milk and the return of the new calf to extend the program to the next borrowers.

The third will be increasing financial capacity is the least option. DVF should address first the
need for raw materials before increasing the output or plant expansion. We understand that we
have an increasing demand for the milk products but DVF might incur unnecessary costs because
it has yet to establish the supply chain.

Course of Action

Option 1 – Immediate
We start from the currently available carabao farmers and improve the milk quality delivered by
getting the milk themselves using portable milking machine to reduce rejects and generate grade
A or B only by intervention from DVF or the cooperative.

Option 2 – With in the year

Introduce another form of carabao lending based on the expected calves to be born this year.
The DVF will give female carabaos and will be repaid when the carabao has given birth.