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Abstract
The two-axes pricing policy is followed normally in the dairy business centres of Tamil Nadu. Though
it is scientifically rational, it ignores the input prices, technology and government policies. For sustaining
the growth momentum and achieving an annual average growth of 7-8 per cent in the next five years
and considering that dairying is practised as a component of mixed farming systems, it becomes
imperative to take into account the interrelationship among the enterprises and general economic
factors while fixing the milk price. In this study, development of a price determination model has
been reported. It is based on the cost of production and takes into account price and non-price factors,
viz. technology, and projected different price scenarios of milk for the coming years. The study
undertaken in the Tamil Nadu state, is based on primary data collected for the year 2002-03 and has
used normalized restricted quadratic profit function analysis and price determination models. It has
been found that to maintain constant returns to the production cost of milk, the milk price would need
an upward adjustment of 9.97 per cent, whereas to provide constant net monetary income, the milk
price would need an upward adjustment by 10.30 per cent for buffalo milk. Considering 2002-03 as
the base year, the estimated price for milk per litre is expected to be Rs 23.64 at constant monetary
income and Rs 23.15 at constant return to production cost in the year 2009-10. The results of the
paper are illustrative of the utility approach in generating consistent price sets for milk in response to
alternative policy interventions.