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The success of Dairy farming, as a form of business, depends on profitable milk production and marketing. The price of milk depends on various factors such as demand, supply, cost of production, location of the area and marketing channel. Profit margin in the dairy industry has been considered to rest on the difference between the cost of production per liter of milk and the average farm gate price for milk. The objective of this study was to identify the factors affecting the cost of milk production in Ratnapura District and suggest a reasonable and appropriate price for a liter of milk produced by dairy farmers in the district considering the cost of production of milk. A field survey was conducted using a pre-tested questionnaire on the cost of milk production in the area. Two hundred and fifty dairy farmers were selected from the district for the study by using simple random sampling method. The highest amount of cost has been spent for labour. It was estimated to be 44.1% of the total cost while 41.7% of the total cost represents the feeding cost. The rest of the cost is due to other operational costs, like cost of depreciation of initial investment (3.1%), cost of veterinary services (3.2 %), cost of building repairs (0.6%), cost of death and losses (4.9 %) and breeding & miscellaneous costs (2.4 %). The costs of production of a liter of milk by an average farmer, when his family labour costs are included and excluded were Rs. 25.50 and Rs. 14.60 respectively. The average price paid to all farmers surveyed was Rs. 28.75 per liter of milk. It greatly varies with fat content of the milk. Average herd size of the area was four animals per farm. Average milking cows per farm were 2.8.It is recommended to have a minimum price of Rs.30 per liter of milk to make dairying a fairly profitable for farmers in the area.

Analysis of cost of milk production in Ratnapura district