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Risk analysis of investments in-farm milk cooling tanks

Author(s): Sant´Anna Danielle D. | Silva Carlos Arthur B. da | Gomes Sebastião T.

Journal: Revista de Economia e Sociologia Rural
ISSN 0103-2003

Volume: 41;
Issue: 2;
Start page: 407;
Date: 2003;
Original page

Keywords: milk | bulk milk collection | risk analysis

A risk analysis for the installation of milk cooling tanks (250, 500 and 1,000 L) on Brazilian rural properties was conducted in this study. The results showed that all investments had a return higher than the annual 12% minimum rate of attractiveness. There was a direct relationship between tank size and investment profitability and an inverse relation between size and risk. The probability of achieving returns lower than the opportunity cost was highest for the smallest tank (42%). In order to make the investment in small cooling tanks more attractive, the dairy industry incentives offered to farmers for supplying cooled milk could be increased. However, this approach might make investments in bulk milk collection by dairy companies infeasible. Thus, a recommendable strategy for a successful modernization of the Brazilian dairy sector?s inbound logistics would be to promote an increase in the volume of the milk produced per farm.

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