Suggestions for reformation in sheep farms based on production cost

Abstract

Sheep farming is considered to be one of the most dynamic sectors of the rural economy. Nevertheless, the operation of sheep farms presents several weaknesses, which are probably due to the relatively short period during which the sector has become systematised and has developed on a business basis. One of the most important problems facing this sector is the high production costs, which affect its competitive profile. This paper studies the potential of restructuring and promoting the business growth of sheep farms, by reducing their production costs. As an application of the proposed methodology, we used economic data from 110 Greek sheep farms. More specifically, through the application of principal component analysis, the present study examines the “internal cohesion” of the factors that shape the overall production costs, while analysing the structural relations between their primary parameters. Through the application of hierarchical cluster analysis, the farms in question are grouped into two clusters, based on the scores per cost component and the discriminating capacity of these components is highlighted. It is concluded that all efforts to reduce production costs should aim at: a) a productive use and rational utilisation of the fixed capital, b) a reduction of production costs for animal food, c) a productive valorisation of family labour. The latter (as a cost component) presents a discriminating capacity for all sheep farms. It is therefore obvious that a reduction in wages is a necessity for all such farms. A full valorisation of family labour, and an increased level of mechanisa tion per employee, is expected to lead to a reduction in the former’s cost of use.