TABLE OF CONTENTS

ACKNOWLEDGEMENT………………………………………………………..…………ii
EXECUTIVE SUMMARY………………………………………………………………....iii
TABLE of CONTENTS……………………………………………………………..…..….iv
LIST of TABLES……………………………………………………………...……...….….vi
LIST of FIGURES……………………………………………………………...…….…….vii
LIST of ANNEXURES.........................................................................................................viii

1. INTRODUCTION............................................................................................................................................VI

4. MARKET ANALYSIS.....................................................................................................................................XI

5. TECHNICAL ANALYSIS............................................................................................................................XVI
5.2 PRODUCTIVITY OF COWS AND FEMALE BUFFALOES..................................................................................................XIX
6. FINANCIAL ANALYSIS..............................................................................................................................XIX

iv
v
1. INTRODUCTION

The total milk production of India (84.6 million tonne per annum in 2001)
is one of the highest in the world. India boasts of largest population of cattle
and buffalo in the world. The following Figure -1 and Table -1 gives an
indication of the rising milk production over time

Figure 1: Milk production of India

Milk Production per annum

M ilk Production
(million tonne )

100
80 Milk
60
40 Production per
20 annum
0
1950-
1973-
1983-
1988-
1993-
1998-

Year

Source: www.indiastat.com

Table 1 : Milk Production in India

Milk
Production
(million
Year tonnes)
1950-51 17.00
1960-61 20.00
1970-71 22.00
1980-81 31.60
1990-91 53.90
1998-99 75.40

Nevertheless, this leads us away from the true problem plaguing the Indian
livestock sector namely lower productivity. The non-descript breeds in the
country are less productive compared to other descript breeds. One way out

vi
 of this is the crossbreeding, which is being in India for so many years under
the various schemes and activities. Still 80% of the breedable white cattle
(212m) and 60% of the breedable black cattle (90m) are low yielding and
do not belong to any specific breeds1. The existing facilities and
infrastructure requires a large over hauling as vast scope of improvement
exists. Keeping this in mind the government of India has formulated the
National project for cattle and buffalo breeding policy. Action was initiated
in the beginning of the 9th five-year plan for formulating the project for
consolidating the gains of the 8th five year plan and to maximize the return
of investments, ensures the sustainability of operations and quality of
breeding services and services. Under the National project for cattle and
buffalo breeding policy the genetic improvement of cattle and buffaloes had
become an integral part.

In addition, some of the salient features of the dairying sector, which has
forced the Government to take an active role in its development, are2 :-
• Around 80% of livestock is owned by marginal, small and medium
landholders
• Women constitute 71% of labour force in livestock sector whereas in
crop farming they constitute only 33% of the work force.
• Ownership of livestock is more evenly distributed amongst landless
labourers, small and marginal farmer’s vis-à-vis agriculture per se.
• Animal husbandry sector contributes around 20% of the value of output
from agriculture in India.
• Poor coverage of AI services. Covers only 20% of the total cattle
population of 212 million and 40% of 90 million buffaloes.
• Growth rate livestock population at around 1.14% per year whereas the
availability of feeds and fodder due to shrinkage of grazing lands and
environmental concerns. Hence the efforts of the Government is
presently in stabilizing the livestock numbers at present level or even

1
Source : National Project for Cattle and Buffalo Breeding Policy, Department of Animal Husbandry and
Dairying, Ministry o f Agriculture, Government of India
2
Vision Statement, Department of Animal Husbandry and Dairying, Ministry of Agriculture, Government of
India.

vii
 lower the level and improving productivity per unit animal to meet
present and future animal needs using newer technologies.

Keeping these in mind Artificial Insemination (AI) has become an integral

part of any technical programme for improvement of genetic potential of
cattle and buffaloes. Systematic introduction of germplasm into local
livestock has proved to be the best method of increasing milk production
potential. Frozen semen technology is one of the most outstanding
discoveries of biological sciences. AI using frozen semen technology is
gaining popularity day by day. It is possible to cover around ten thousand to
twenty thousand females in one year with only one bull using this
technology. This technique further makes it possible to evaluate genetic
merit of bull through actual genetic transmitting of a particular trait through
its daughter’s performance more effectively and economically. In frozen
semen technology, the semen is stored at extremely low temperature so that
it retains its fertilizing ability for longer period.

2. PROJECT INTRODUCTION

To build a self-sustaining Semen Station which will produce one of the best
quality of Frozen Semen doses.

Scope of the Semen Station

The Semen station which will be built will not only produce Frozen semen
straws but also will produce one of the best pedigree of bulls which may be
sold outside and will also be a production centre for production of sexed
embryos of high pedigree bulls.

Limitations of the project

viii
 The major limitations of the project are :-
• Collection of fresh semen from the bulls is not natural and it is a
fight against nature.
• The temperature of the place where the semen station is established
will affect the productivity of the bulls. Hence, it is assumed here
that the temperature at the place will lie between 15oC to 35oC at all
seasons.
• Currently there are restrictions on import of bulls in India. Hence,
since availability of good pedigree Holstein Friesian bulls (pure
breed) is sceptic it may be a constraint. However, Jersey bulls (pure
breed) and the crossbreed bulls (both Jersey and Holstein Friesian)
are easily available in India.

3. METHODOLOGY

A survey of eight Semen Banks across the country was conducted. These
Semen Banks were selected based on their performance in the year 2002-
20033 and a discussion with Dr. M.R. Bhosrekar (Consultant, NDDB) about
the efficient performers in this industry. The reasons were largely qualitative
and were as suggested by Dr. Bhosrekar due to his vast experience in this
field. Those eight Semen Banks selected were :-

 Amul Research and Development Association, Ode (20 kms off Anand)
Anand Milk Union Limited, Anand

 Central Frozen Semen Production and Training Institute, Hessarghatta

(35 kms off Bangalore)
Central Government

 Central Research Station, Urlikanchan (35 kms off Pune)

Bharatiya Agro-Industries Foundation (BAIF)

3
Source : Performance Analysis of Frozen Semen Stations under Cooperatives and Governments, NDDB.

ix
  Doodhsagar Research and Development Association, Jagudhan (11 kms
off Mehsana)
Doodhsagar Dairy, Mehsana

 Nandini Semen Station, Hessarghatta (35 kms off Bangalore)

Karnataka Milk Federation.

 Nucleus Jersey Farm, Udhagamandalam

Aavin, The Tamil Nadu Co-operative Milk Producer’s Federation
Limited

 Sabarmati Ashram Gaushala, Bidaj

National Dairy Development Board

 Vishakapatnam Livestock Development Agency (VLDA),

Vishakapatnam
Government of Andhra Pradesh
The survey was of semi-structured and unstructured interviews of the
officials of these Semen Banks using a checklist. The data collected was
predominantly of secondary nature and some primary data was collected.
Wherever possible the Annual reports of the above said semen stations was
also collected.

A detailed analysis was done of the data collected. Various analytical tools
like demand forecast was performed and various financial indicators like
Net Present value, Internal Rate of Return, Payback period and the
breakeven level of production has been calculated for operations up to 10
years and under various scenarios. In addition, Delphi method for
forecasting, suggestion of the breed mix to be kept and various other issues
was utilized. The people with whom suggestions was sought were all top
officials of JKT-GVY and the various officials of the frozen semen banks
surveyed4.

4
The list of all those people is given in Annexure - I

x
 4. MARKET ANALYSIS

4.1 Players in the market

There are around seventy semen banks in India, of these all are owned by
Central and State governments except one, the only private player is BAIF
in this sector. Of the seventy also majority are in a very bad shape
financially and are on the verge of closing down unless revived by the
government or cooperative concerned. The market leader is Sabarmati
Ashram Gaushala with a production level of 36 lakh semen doses5. The
other major players are BAIF, ABC Salone, CFSP&TI Hessarghatta, etc.

The performance of some of the leading Semen Stations is shown in Table

2. The major reasons for difference in the variable cost as shown below is
mainly due to difference in the difference in productivity of the bulls in the
semen stations. It varies from even as low as 8,000 doses per bull to 30,000
doses per bull. In addition, it depends upon the breed of the cattle kept.
Holstein Friesian give almost double the doses per annum than Murrah bulls
(shown later). The difference in fixed cost arises mainly due to the salaries
and the cost of bulls (which are treated as fixed costs). In case of Amul and
Mehsana semen stations it was seen that the fixed costs were low compared
to other semen stations because they are extension activities of the dairy and
some of the employees handle not only the responsibilities of the semen
station but also that of the dairy (their salary is not debited in the account of
the semen station).

Table 2 : Performance of leading Semen Stations

Production cost per Total
Semen straw Fixed
Semen Station produced Variable Fixed Total Cost
Amul 734,865 3.08 2.31 5.39 1,697,538

5
2003-2004

xi
Mehsana 774,955 3.89 2.6 6.49 2,014,883
Nandini,KMF 1,147,060 2.15 3.44 5.59 3,945,886
NJF,Ooty 1,082,800 4.22 2.08 6.3 2,252,224
ABC Salone 983,906 3.73 3.5 7.23 3,443,671
SAG,Bidaj 3,768,568 1.76 2.58 4.34 9,722,905
CFSP &
TI,Hessarghatta 707,480 No costing done
Vishakhapatnam 836,405 4.32 4.37 8.69 3,655,090
Source : Survey and Performance analysis of Frozen Semen Stations, NDDB

4.2 Market Characteristics

One thing that was very notable across all the semen stations was that they
all had their own captive market. That is there was assured market for the
semen straws produced by all the semen stations and there was an
understanding amongst each of them that they will not enter in others area.
It was also due to the fact that all the semen stations are owned by either the
State government, central government or the cooperatives and to avoid
overlap of AI services to increase coverage.

In addition, production of frozen semen has never been taken up as a

business venture. It is always been considered as an extension activity (in
case of cooperatives) or as an activity for a social cause. The result has been
that many of the stations are in a very bad shape financially and have to
depend on external sources like the governments or cooperatives concerned.
There is no active marketing done in this industry and seldom have the
stations gone out to sell their semen straws.

4.3 Pricing strategy

As written above this business has never been taken up as a business

venture is also reflected in the pricing strategy of the frozen semen stations.
The stations under the cooperatives generally sell at cost whereas in case of
stations owned by governments they either sell at cost, very low margins or

xii
provide the entire stock free to the government (then all the cost is borne by
the government).

Generally, it is seen that the price of frozen semen doses increase by about
Re. 1 every three years. Here the prices taken for calculation are the current
prices i.e. maintain parity with the market prices.

4.4 Demand of Frozen Semen

As stated above also around 80% of the total breedable cattle (212m) and
60% of the breedable buffalo population (90m) is non-descript and there is
increased efforts of the Government in increasing the coverage of Artificial
Insemination service across the country either on its own or through or any
other developmental agencies working and technically sound in this area
(ex- BAIF, JKT-GVY).

Hence, the demand for frozen semen is on the rise exponentially and due to
lack of proper production and distribution facilities in India there is a large
chunk of the market that is there is still to be tapped.

According to the informal discussions with the various people, there is a

huge demand for quality semen but very few Semen banks are being able to
provide that quality semen. There are advance orders at the Semen banks
like the Sabarmati Ashram Gaushala (which is considered one of the best
stations in India) and some other banks. On an average, the percentage of
sale hovers around 90% of the stock that is available for sale for the top
semen banks. People also have to buy from semen banks, which do not
produce high quality semen and are even costlier just because there is short
supply of semen. One thing about which everybody was sure was that was if
one is able to produce quality semen then there is huge demand for it.

xiii
 The demand of frozen semen is largely institutional with governments (both
state and central), cooperatives and some NGO’s (like BAIF and JK Trust
Gram Vikas Yojana) being the major buyers. There is some demand also
from some private parties but is not substantial. Majority of the institutions
have their own semen stations but buy from outside if internal demand is
high and generally buy on a tender basis or they approach the semen
stations directly.

States in Southern part of India like Kerala, Andhra Pradesh, Tamil Nadu,
Karnataka and some other states like Gujarat are said to be self sufficient in
the production of frozen semen . However, in the entire North eastern,
eastern and the northern part of India (including the indo-gangetic plain) is
said to be deficient in production of frozen semen.

4.5 Estimating internal demand of JKT-GVY6.

Currently JKT-GVY is operating its Cattle breeding programme in three

states namely :-
 Andhra Pradesh (two district of Anantapur and Chittoor) – 150 centres
 Madhya Pradesh (six districts) – 74 centres
 Chattisgarh (eleven districts) – 180 centres

According to the performance of JKT-GVY in these states in the past four

years, the demand is forecasted based on :-
 In Andhra Pradesh where district wise data was available, it was seen
that Artificial Inseminations (AI) per centre per annum increased at a
rate of 20% (Anantapur) and 25% (Chittoor) per annum. However, it is
envisaged that if JKT-GVY continues to supply frozen semen straws
even after withdrawal then the demand of AI per centre per annum is
expected to increase at the rate of 5% per annum in both in Chittoor and
in Anantapur. In the 40 new centres in Chittoor and the 20 new centres

6
This estimate is a conservative estimate. The real situation will get only better not worse than this.

xiv
 in Anantapur it is thought that the performance will be similar to that in
the past.
 In Madhya Pradesh, it was seen that the AI per centre per annum
stagnated at around 204 frozen semen straws. Hence, it is envisaged that
the demand will remain at the same level.
 In Madhya Pradesh, it was seen that the AI per centre per annum
stagnated at around 240 frozen semen straws. Hence, it is envisaged that
the demand will remain at the same level.
 In case of the 600 expected new centres (in the states of Maharashtra,
Gujarat, Haryana, Madhya Pradesh, Chattisgarh) it is thought there the
performance will be a bit better than that of Madhya Pradesh and
Chattisgarh. Hence, it is assumed that the demand of AI per centre per
month will be around 300 frozen semen straws.

The forecasted demand schedule is as shown in the Annexure-II, and in

Figure 2 and Table 3.

Figure 2 :- Forecasted demand for JK Trust Gram Vikas Yojana

Table 3 : Internal

Demand

Demand of Frozen Semen straws

Demand (in
Year
semen straws

600,000 unit doses)

No. of frozen

400,000 Demand of Frozen 2005 391,719

200,000 Semen straws 2006 405,718
0 2007 421,543
2008 437,949
2005-
2007-
2009-
2011-
2013-

2009 453,540
Year 2010 464,493
2011 475,993
2012 488,069
2013 500,749
2014 514,062

xv
 Of the external demand, it can be said and we can say that the proposed
station can sell off 90% of the stock7 that is available for sale.

4.6 Competitive Priority

Whenever any institution goes to buy frozen semen doses, the

characteristics of the frozen semen that is taken into consideration according
to priority are :-
1. The foremost thing that is taken into consideration is the pedigree of
the bull whose semen it is. This also correspondingly gives the data
for the dam’s milk yield and the milk yield of this bull's daughters.
2. The quality of the semen produced i.e., the conception rate achieved
by the use of the frozen semen.
3. Cost of the frozen semen dose.

5. TECHNICAL ANALYSIS

In artificial insemination, there are basically two types of technologies in

use – the Frozen Semen technology and the Chilled Semen technology.
Frozen semen technology is not only economically but also has a better
performance than the chilled semen technology. One bull can give around
fifteen thousand to twenty thousand frozen semen straws or doses whereas
it can give only four to five thousand chilled semen doses. In addition, the
frozen semen has a conception rate of about 40% whereas the chilled semen
has a much lower conception rate. Hence, frozen semen technology is more
widely accepted and used as compared to chilled semen technology.

7
Stock available for sale = Opening stock + Production for the year – Closing stock (last two months
production). Since the semen, has to be kept for a minimum of 30 days before it is again tested and then sold off.

xvi
 One thing that has to be kept in mind is that collection of fresh semen from
the bulls is a fight against nature. Hence, much expertise in this area is
required and the personnel chosen must be very sound technically.

5.1 Productivity of the Bulls

The productivity of the bulls has been assumed as in Table 4.

Table 4 :- Productivity of Bulls per annum
HF Jersey HF Jersey Murra HF Jersey HF Jersey Murra Indige
adult adult cross cross h adult young young cross cross h nous
adult adult young young young adult
Production per 500 400 500 400 300 400 300 400 250 250 400
week
Number of weeks 50 50 50 50 50 50 50 50 50 50 50
Total per annum 25,000 20,00 25,00 20,00 15,00 20,00 15,00 20,00 12,500 12,50 20,00
0 0 0 0 0 0 0 0 0
Source : Dr. M.R. Bhosrekar
The rejection rate of the ejaculate in the early years of the station will be a
bit higher. It will be because not only the bulls will be new to the people
who are collecting the semen but also because the people who will be
collecting the semen and there on processing will be a bit new to their work.
It will take a few years (approximately 5 years) to cut down on the rejection
rate, which is very important. However, it cannot be eliminated and around
4% rejection rate is an acceptable rate8. Many stations face this problem
failure to cut down on the rejection rate and hence suffer from low
productivity, low production, and financial losses. The rejection rate is
assumed to be as in Table 5.

Table 5 : Rejection rate year-wise

Rejection HF Jersey HF Jersey Murra HF Jersey HF Jersey Murra Indige Indige
rate adult adult cross cross h young young cross cross h nous nous
adult adult adult young young young adult young
Year 1 8 8 8 8 3 8 8 8 8 3 8 8

8
Minimum Standards for production of frozen semen.

xvii
 2 5 5 5 5 3 5 5 5 5 3 5 5
3 5 5 5 5 3 5 5 5 5 3 5 5
4 4 4 4 4 2 4 4 4 4 2 4 4
5 4 4 4 4 2 4 4 4 4 2 4 4
6 3 3 3 3 1 3 3 3 3 1 3 3
7 2 2 2 2 1 3 3 3 3 1 3 3
8 2 2 2 2 1 3 3 3 3 1 3 3
9 2 2 2 2 1 3 3 3 3 1 3 3
10 2 2 2 2 1 3 3 3 3 1 3 3

The rejection rate for Murrah buffalo has been assumed lower because
generally the rejection rate of the ejaculate of the Murrah buffaloes is very
low.

Now it is assumed that for a station to be able to cater to needs more

comprehensibly it is assumed that the breed mix should be as given in Table
6.

Table 6 : Breed Mix

Breed Percentage of Bulls
Pure Jersey 10%
Pure Holstein Friesian (HF) 15%
Jersey Cross Breed 20%
Holstein Friesian (HF) Cross Breed 20%
Murrah Buffalo 30%
Indigenous (ex - Ongole) 5%

Hence keeping in mind the productivity of the bulls, rejection rate and the
breed mix, the productivity per bull (according to the breed mix) will be as
shown in the Table 7.

Table 7 : Productivity per bull (according to breed mix)

Year Productivity of Adult Productivity of Young
Bulls Bulls
1 18,855 14,333
2 19,328 14,681
3 19,328 14,681
4 19,530 14,835
5 19,530 14,835
6 19,733 14,989

xviii
 7 19,880 14,989
8 19,880 14,989
9 19,880 14,989
10 19,880 14,989

The production figures will differ according to the number of bulls kept at
the farm. The production figures are shown later as it differs under the
various scenarios assumed later on.

5.2 Productivity of cows and female buffaloes

Both Purebred and Crossbred calves have a lower inter-calving period than
the non-descript cows. It is around three months. It means that practically
each cow can give birth to one calf per year if properly maintained.

Also as per the international and Indian standards, the milk yield must be a
minimum of 4,500 litres of milk per annum for Jersey and Crossbred cows
whereas it must be 6,000 litres per annum for Holstein Friesian cows.

It is assumed here that the milk yield of cow and buffaloes is 4,500 litres per
annum.

6. FINANCIAL ANALYSIS

6.1. Laboratory Equipment

The list of the equipment’s and their expected cost are as given in the Table
8.

Table 8 : List of equipments and expected cost.

Name of equipment No. Essential/N Expected Expected
of on-essential Cost- cost-non

xix
 Units essential essential
Biological freezer 1 essential 2,600,000
Automatic filling and sealing machine for Mini straw 1 essential 2,200,000
Inkjet printer (otherwise less costly also available) 1 essential 1,000,000 1,600,0
Digital photometer with auto dispenser 1 essential 1,000,000
Phase contrast microscope with CCTV and Biotherm 1 essential 700,000
Laminar air flow station 1 essential 125,000
Cold handling cabinet 2 essential 300,000
Water bath with stirrer 1 essential 22,000
Hot air oven 2 essential 40,000
Refrigerators 2 essential 22,000
Millipore filtration Unit 1 essential 70,000
Triple Water distillation plant 1 essential 20,000
pH meter single electrode 1 essential 8,000
Autoclave 1 essential 20,000
Air conditioners split type 2 essential 100,000
PC with printer 1 essential 200,000
Frozen semen storage container with rotating facility 1 essential 2,000,000
Freezing racks with straw spreader 1 essential 500,000
AV sterilizer 2 essential 50,000
Single pan electronic balance 1 essential 150,000
Computerized Semen Analyzer (CASA) Bovine specific 1 non- 4,000,0
(for R&D) essential
Differential Interface Contrast Microscope (for R&D) 1 non- 1,000,0
essential
Optional attachment of fluorescence, micrometry and 1 non- 1,200,0
sperm imaging (for R&D) essential

Total 11,127,000 7,800,0

Source :- Dr. M.R. Bhosrekar and some quotations of equipment manufacturing companies

According to the list above it can be seen that the cost of the equipments
that are most essential for the production of frozen semen is Rs. 11,127,000
whereas if the station wants to invest in research and development also then
the expected cost will increase by Rs. 6,800,000 to Rs. 17,927,000.

6.2. Inflation

xx
 An inflation rate of 5% has been assumed everywhere excluding the price of
the frozen semen sold and in case of salary where an increment of 10% per
annum is provided for. The discount rate has also been assumed to be 5%.

6.3. Area Requirements and other miscellaneous initial investments to

be made

The area requirements and the cost associated with it are (corresponding to
a herd size of 100 bulls, 30 cows and quarantine shed for 15 bulls) as shown
in Table 9.

Table 9 : Area requirements.

Particulars Area Expecte Total area Cost Total cost Type of
required per d units required building if
unit any
Bull shed 150 sq feet 100 15,000 sq feet 250per sq feet 3,750,000 kuchha
bulls
Cow shed 150 sq feet 30 cows 4,500 sq feet 250per sq feet 1,125,000 kuchha
Quarantine shed 150 sq feet 15 bulls 2,250 sq feet 250per sq feet 562,500 kuchha
Laboratory 1,500 sq feet 1 1,500 sq feet 500 per sq feet 750,000 pucca
Storage Sheds 3000 sq feet 1 3000 sq feet 150 per sq feet 450,000 pucca
600 sq feet 1 600 sq feet 250per sq feet 150,000 pucca
1000 sq feet 1 1000 sq feet 250per sq feet 250,000 pucca
500 sq feet 1 500 sq feet 250per sq feet 125,000 pucca
Semen Collection 2 5,000 pucca
shed
Administrative 5,000 sq feet 1 5,000 sq feet 300 per sq feet 1,500,000 pucca
Office
Staff Quarters 2,000,000 pucca
Total 10,667,500

(All figures in Rs.)

Table 10 : Miscellaneous initial investments to be made.

Particulars Cost per No. of Units Total cost
unit
Jeeps/Cars 400,000 2 800,000

xxi
Tractor 500,000 1 500,000
Electricity connection (advance) 50,000
Telephone connection (advance) and telecom 30,000
Internal Roads 100,000
Land 100,000 per 60 acres 6,000,000
acre
Land Development 400,000
Office Equipment 400,000
Total 8,280,000
(All
figures in Rs.)
Table 10 gives the other miscellaneous expenditure initially that have to be
taken care of.
Hence, the total initial investment required will be as shown in Table 11
under the different scenarios.

Table 11 : Initial investment under different scenarios.

Particulars Equipments Area Miscellaneo Total
us
Buy only essential equipments and have to buy 11,127,000 10,667,500 8,280,000 30,074,500
land
Buy only essential equipments but don't have to 11,127,000 10,667,500 2,280,000 24,074,500
buy land (i.e., get as grant for nominal lease
from some agency like govt.)
Buy all equipments and have to buy land 17,927,000 10,667,500 8,280,000 36,874,500
Buy all equipments but don't have to buy land 17,927,000 10,667,500 2,280,000 30,874,500
(i.e., get as grant for nominal lease from some
agency like govt.)
(
All figures in Rs.)

We can see from the table above that the minimum initial investment is just
around Rs. 2.4 crores whereas the expected maximum investment is around
Rs. 3.7 crores. While the decision of getting land free or at a nominal rate
for either ownership or lease lies on an external agency, the decision on
whether to invest or not in research and development depends upon the
station owner. However, it is advisable to invest in research and

xxii
 development because it will not only add to the goodwill of the station in
terms of modern laboratory but also will help in training facilities, research
and may also help in revenue generation through scientific research.

6.4. Recurring costs

Recurring costs are the day-to-day costs required for running the station.
Recurring costs are further sub-divided into fixed and variable costs. The
various fixed and variable costs and their basis are discussed below.

6.4.1 Variable Costs

Variable costs are those costs, which change according to change in the
level of production. The various variable costs considered are :-

6.4.1.1. Medicine Costs

The medicine costs of treatment of bulls come around Rs. 2 per

bull/cow/calf per year9. It is a variable cost because it depends upon the
number of bulls on the farm and the number of bulls in turn indicates the
production level of the semen station.

6.4.1.2. French Mini Straw

The finished product i.e., the Frozen semen is stored in plastic straws of
0.5ml, 0.25ml or 0.28ml. Of all the technologies best is the French Mini
Straw technique. Generally, in India 0.25ml and 0.28ml straws are sold. The
0.25ml straw is 133 mm long and 0.15 mm in diameter (the sperm
concentration is kept at 30 millions). The cost of the straw is Re. 1 per
straw.

6.4.1.3. Chemicals, Rubber ware and Glassware

9
Source : Dr. MR. Bhosrekar

xxiii
Various chemicals are used during processing and dilution of semen. In
addition, rubber wares like gloves, aprons, artificial vagina’s (AV’s) are
used in semen collection and processing and are dependent upon the
number of collection of ejaculates. Even glassware used in the AV’s is also
dependent upon the number of collection of ejaculates. Hence, they are all
variable costs. It is estimated that the cost of the chemicals, rubber ware and
glassware comes around 20 paisa per straw produced.

6.4.1.4. Feeding cost of bulls

As number of bulls directly determines the production level of the station

the feeding cost of the bull is a variable cost. The feed requirement of the
bull is on the basis of body weight and it is a mixture of green fodder, dry
fodder or silage and feed concentrate. Taken all together the feed cost comes
around Rs. 60 per adult bull per day and around Rs. 30 per young bull or
calf per day.

6.4.1.5. Liquid Nitrogen

Uninterrupted supply of Liquid nitrogen is very essential for running the

semen station. Liquid nitrogen is used for preservation of the semen straws
and has a temperature of –196 degree centigrade. Liquid nitrogen can be
either produced on the station itself or can be bought from outside (it is a
by-product of many industries like the fertilizer industry). It is cheaper to
buy from outside and costs around Rs. 12 per litre. However, it is also
treated as a variable cost and it costs around 75 paisa per straw produced.

6.4.2. Fixed costs

Fixed costs are those costs, which have to be incurred in spite of whether
production takes place or not. The various fixed costs are :-

6.4.2.1. Salary

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The minimum requirement of the staff and their salaries are given in the
Table 12 below, which also shows the major responsibility to be held by
those personnel.

Table 12 : Staff and salary structure

Post/Responsibility Salary No. of Total Total
per posts salary Salary
month per
per post month
Coordinator/Manager (also the person 15,000 1 15,000 195,000
will look after health)
Quality Control Officer 13,000 1 13,000 169,000
AV preparation, sterilization of 6,000 1 6,000 78,000
equipments etc
Racking, equilibration etc 5,000 1 5,000 65,000
Filling and Sealing 5,000 1 5,000 65,000
Printing 5,000 1 5,000 65,000
Evaluation and dilution 12,000 1 12,000 156,000
Semen collectors 6,000 2 12,000 156,000
Management of storage sheds 1,800 2 3,600 46,800
Security 1,800 3 5,400 70,200
Accountant 5,000 2 10,000 130,000
Driver 2,000 2 4,000 52,000
Sweepers 1,200 1 1,200 15,600
19 Total 1,263,600
(All figures in
Rs.)

In addition to the above employees, Bull attendants are also required. The
salary of the Bull attendant will be Rs. 2,200 per month and a ratio of one
bull attendant per nine bulls has to be maintained. Again, it is assumed that
salary is paid for 13 months per annum (the extra one month salary being
the bonus amount.). However, the salary of the bull attendant Rs. 2,200
include the bonus amount hence, he is paid for 12 months because generally
these employees are contract employees.

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Here it is also assumed that an annual increment of 10% is there on the
previous year’s salary.

6.4.2.2. Stationery

Stationery costs of around Rs. 25,000 per annum are anticipated (without
adjusting for inflation).

6.4.2.3. Electricity

Although some part of electricity can be treated as a variable cost, the major
chunk of it is a fixed cost. Hence, the entire amount is treated as a fixed cost
and it is anticipated to be Rs. 150,000 per annum (without adjusting for
inflation).

6.4.2.4. Telephone and communication

Telephone and communication costs of around Rs. 20,000 per annum are
anticipated (without adjusting for inflation).

6.4.2.5. Depreciation

Here the depreciation rates have been taken as shown in the Table 13 in the
next page.
The depreciation written off year wise and the remaining book value of the
assets is as shown in the Annexure III for both essential and non-essential
equipments.

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Table 13 : Depreciation schedule
Particulars Rate Economic Method
Life
Kuchha buildings 12.50% 8 years WDV
Pucca buildings 10.00% 10 years WDV
Lab equipment 10.00% 10 years WDV
Vehicles 20.00% 5 years WDV
Office 20.00% 5 years WDV
Equipments

Here the economic life of each asset is as shown above in the table.

6.4.2.6. Miscellaneous Expenses

A provision of Rs. 100,000 per annum has been kept as miscellaneous

expenses. (without adjusting for inflation).

6.5. Income

The major source of income is the sale of Frozen semen straws. Here we
assume that we can sell the semen at a price of Rs. 10 per straw. Although
the price in the market varies from Rs. 8 per straw to Rs. 20 per straw this
can be taken as a fair assumption.

From the past experience in the market it is seen that the price for frozen
semen straws generally increase by Re. 1 every three years. Hence, starting
from Rs. 10 at the end of the tenth year the price of the frozen semen dose
will become around Rs. 13. The expected price year wise is as shown in the
Table 14 below –
Table 14 : Expected Sale price of Frozen Semen doses over the years.
Year 1 2 3 4 5 6 7 8 9 10
1
Price (in Rs.) 0 10 10 11 11 11 12 12 12 13

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Here we assume that the income from the sale of dung and the empty
concentrate (feed) bags will match the expenses required to run the Gobar-
gas plant and the water plant.

Further there is also an assumption that the milk produced by the cows and
buffaloes on farm can be sold off at a rate of Rs. 8 per litre net of
transportation charges. In addition, the milk yield of each cow will be a
minimum of 4,500 litres per lactation period.

Here the income from the sale of sexed embryos has not been taken into
consideration since information could not be generated regarding the cost of
production and market for it. However, there is tremendous scope for sexed
embryos and is gaining popularity not only world wide but in India also as
most of the semen stations are considering expanding into this field. The
price of a sexed embryo if produced domestically ranges between Rs. 4,000
to Rs. 8,000 whereas if it is imported it costs around Rs. 40,000 (largely due
to efforts required to preserve it and the governments not encouraging such
transactions.)

7. VARIOUS OPTIONS, SCENARIOS AND THEIR

EVALUATION

For the regeneration of the bulls, there can be three possibilities :-

 Buy all bulls/calves from outside and do not have any internal
generation of bulls. In a way progeny testing can also be approximated
to this since we procure only those bulls those are of good pedigree and
are up to the required standards.
 Keep cows on farm so that there is internal generation of bulls. Do the
internal generation of bulls through frozen semen only. (There will be
equal chance of birth of a male or a female calf).

xxviii
 Keep cows on farm so that there is internal generation of bulls. Do the
internal generation of bulls through sexed embryos only. (There will be
100% chance of birth of a male calf, which is preferable).

However, it is to be noted here that these three options are not mutually
exclusive. All three can occur simultaneously or in any other combination.
Here, however it is taken as mutually exclusive just for simplicity.
Then under these we can have two options taking into consideration
whether the station should produce around 10 lakh semen doses only or
should the production increase yearly so that the station houses around 100
bulls on the farm. (this option is a mutually exclusive one)

Again, here a decision has to be made whether the station should start with
around 20 bulls or should it start with 50 bulls. (Twenty bulls because it is
considered the minimum number with which one should start a semen
station, and fifty bulls because if the station should have a production
capacity of 10 lakh semen doses then the minimum number of bulls
required is fifty.). (again, this decision is also a mutually exclusive one)

Then what should be the initial investment be is to be decided also. As

shown above there can be four scenarios where Rs. 24,074,500 would be
the minimum investment and Rs. 36,874,500 would be the maximum
investment.

In all, there would be around 48 scenarios. Broadly, there are 12 scenarios

and 4 sub-scenarios. The details of those are as under. The 12 scenarios are
:-

1. Start with 50 bulls and go up to 100 bulls. Don’t have internal

generation of bulls but buy all from outside.
2. Start with 20 bulls and go up to 100 bulls. Don’t have internal
generation of bulls but buy all from outside.

xxix
3. Start with 50 bulls and go up to 100 bulls. Have internal generation of
bulls. Use semen straws, hence equal chance of birth of male and female
calves.
4. Start with 20 bulls and go up to 100 bulls. Have internal generation of
bulls. Use semen straws, hence equal chance of birth of male and female
calves.
5. Start with 50 bulls and go up to 100 bulls. Have internal generation of
bulls. Use sex embryos, hence 100% chance of birth of male calves.
6. Start with 20 bulls and go up to 100 bulls. Have internal generation of
bulls. Use sex embryos, hence 100% chance of birth of male calves.
7. Have a maximum production of 10,00,000 semen doses and buy all
bulls from outside starting with 50 bulls.
8. Have a maximum production of 10,00,000 semen doses and buy all
bulls from outside starting with 20 bulls.
9. Have a maximum production of 10,00,000 semen doses starting with 50
bulls but have internal generation of all the bulls using semen straws so
that there is equal chance of birth of male and female calves.
10. Have a maximum production of 10,00,000 semen doses starting with 20
bulls but have internal generation of all the bulls using semen straws so
that there is equal chance of birth of male and female calves.
11. Have a maximum production of 10,00,000 semen doses starting with 50
bulls but have internal generation of all the bulls using sex embryos so
that there is 100% chance of birth of male calves.
12. Have a maximum production of 10,00,000 semen doses starting with 20
bulls but have internal generation of all the bulls using sex embryos so
that there is 100% chance of birth of male calves.

The four sub-scenarios are :-

a) Buy only the essential equipments required for frozen semen production
and have to buy land (no scope of getting land as grant or on nominal
lease amount).
b) Buy only the essential equipments required for frozen semen production
but do not have to buy land (scope of getting land as grant or on
nominal lease amount).

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c) Buy all the essential equipments required for both frozen semen
production and research and development activities and have to buy
land (no scope of getting land as grant or on nominal lease amount).
d) Buy all the essential equipments required for both frozen semen
production and research and development activities but do not have to
buy land (scope of getting land as grant or on nominal lease amount).

A diagrammatic representation of the options in order of the decision to be

taken chronologically is shown in Annexure IV

7.1. Summary of the Scenarios.

The summary for all the scenarios i.e., the financial indicators like Net
present value (@12% because I believe that money can be raised at this
interest rate easily), Internal rate of return and the Payback period are as
shown in the table 15 below.

Table 15 : Summary of the financial indicators for the scenarios and the
sub-scenarios (all figures in Rs.)

Average Average Average

variable fixed total
Payback cost per cost per cost per
Scenario NPV (12%) period IRR straw straw straw
1 a 12,162,145 5 19.69% 3.08 2.34 5.42
b 18,162,145 5 25.44% 3.08 2.34 5.42
c 5,362,145 7 14.93% 3.08 2.56 5.64
d 11,362,145 5 19.05% 3.08 2.56 5.64

2 a 14,516,229 5 20.20% 3.12 2.44 5.56

b 20,516,229 5 25.40% 3.12 2.44 5.56

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 c 7,716,229 7 15.81% 3.12 2.71 5.83
d 13,716,229 5 19.61% 3.12 2.71 5.83

3 a 17,169,599 5 22.43% 3.71 2.07 5.78

b 23,169,599 4 28.47% 3.71 2.07 5.78
c 10,369,599 6 17.45% 3.71 2.28 5.99
d 16,369,599 5 21.77% 3.71 2.28 5.99

4 a 17,743,095 5 21.45% 4.40 2.23 6.63

b 23,743,095 5 26.55% 4.40 2.23 6.63
c 10,943,095 6 17.11% 4.40 2.49 6.89
d 16,943,095 5 20.87% 4.40 2.49 6.89

5 a 20,181,877 5 23.36% 3.78 2.19 5.97

b 26,181,877 4 29.11% 3.78 2.19 5.97
c 13,381,877 6 18.56% 3.78 2.41 6.19
d 19,381,877 5 22.72% 3.78 2.41 6.19

6 a 16,865,872 5 21.29% 3.76 2.59 6.35

b 22,865,872 5 26.50% 3.76 2.59 6.35
c 10,065,872 7 16.86% 3.76 2.85 6.61
d 16,065,872 5 20.70% 3.76 2.85 6.61

7 a -236,291 9 11.84% 3.07 3.28 6.35

b 5,763,709 7 16.68% 3.07 3.28 6.35
c -7,036,291 10 7.79% 3.07 3.64 6.71
d -1,036,291 9 11.30% 3.07 3.64 6.71

8 a -1,631,490 9 10.93% 3.10 3.60 6.70

b 4,368,510 7 15.34% 3.10 3.60 6.70
c -8,431,490 10 7.17% 3.10 4.01 7.11
d -2,431,490 9 10.43% 3.10 4.01 7.11

9 a -4,092,100 10 8.98% 4.17 3.69 7.86

b 1,907,900 8 13.65% 4.17 3.69 7.86
c -10,892,100 10 5.06% 4.17 4.09 8.26
d -4,892,100 10 8.45% 4.17 4.09 8.26

10 a -3,769,959 10 9.21% 4.17 3.78 7.95

b 2,230,041 8 13.94% 4.17 3.78 7.95
c -10,569,959 10 5.26% 4.17 4.17 8.34
d -4,569,959 10 8.68% 4.17 4.17 8.34

11 a 1,567,989 8 13.07% 3.71 3.56 7.27

b 7,567,989 6 18.05% 3.71 3.56 7.27
c -5,232,011 10 8.93% 3.71 3.90 7.61
d 767,989 9 12.51% 3.71 3.90 7.61

xxxii
 12 a -5,405,548 10 8.14% 4.07 4.74 8.81
b 594,452 9 12.49% 4.07 4.74 8.81
c -12,205,548 10 4.44% 4.07 5.16 9.23
d -6,205,548 10 7.65% 4.07 5.16 9.23
(All
figures in Rs.)

7.2. Evaluation of the Scenarios

From the table above some points that can be inferred are :-

• It is not feasible to limit production to 10 lakh semen doses per

annum. It is reflected in low IRR for the scenarios 7 to 12. It is
mainly because economies of scale are not being enjoyed. (It is
important to note here that there is no capacity constraint on the part
of laboratory equipments. Same equipments can handle 10 lakh
semen doses per annum and even the same equipment can handle 20
lakh semen doses per annum. The constraint is on the part of the
number of bulls that are kept at the semen station.)

• If the semen station is started with 50 bulls then the return on capital
is higher and it is preferable to start with around 50 bulls.

• It is also preferable to get land free of cost or at a nominal lease

amount as the project will then give a higher return on capital.
However, this decision is external to the organization as the
organization can only try to get the land but giving it depends upon
an external agency.

• Investment in only the essential equipments is desirable as it will

lead to lower initial capital requirement and hence a better rate of
return on the capital invested.

xxxiii
 • There is not much significant difference in options for internal
generation i.e., no internal generation of bulls, internal generation
through semen straws and internal generation through sexed
embryos. However, internal generation through sexed embryos give
a higher rate of return rather than the other two options.

8. RECOMMENDATION

Taking all the points of view of the various people met and looking at the
financial indicators calculated above it is recommended that setting up a
frozen semen station will be financially feasible. It is advisable to follow
scenario 5.c.. The various features of it are :-
• The Frozen semen station that should be set up must be setup with a
number of bulls as close to 50 bulls initially and gradually go up to
100 bulls.
• Try to get land free of cost or at a nominal lease.
• Invest in all equipments i.e., even the equipments necessary for
research and development although it will lead to a bit lower return
on investment. It is because this investment will not help in greater
quality control but will also help in production of sexed embryos. As
quality control is one of the most important factors of production,
(many stations have gone defunct or are not self-sustainable because
there is inadequate quality control measures.). In addition, income
from the sale of sexed embryos has not been taken into
consideration hence, the financial indicators are lower than the
potential.
• It is very important to have internal generation of bulls because of
non-availability of quality bulls and also majority of the banks
whoever sells the bulls first keeps the best bulls for themselves and
then sells the rest. In addition, it was seen that the best bulls at all
the semen stations were from internal generation and not bought
from outside.

xxxiv
 • Primarily try for internal generation through sexed embryos but can
also generate through semen straws or buy from outside depending
upon the need.
• Emphasize more on market creation rather than on competing for the
same existing market, which is very limited.

The cash flows, profit and loss, breakeven level, production cost to produce
the semen, sale plans for 5.c. are shown in Annexure V, VI and VII.

xxxv