A study was done in Burunga sub-county, Kirihura district to determine the impact of fluctuations of milk prices on profitability of cattle enterprises. The milk production enterprises were based on indigenous Ankole Sanga cattle and their crosses with Friesian breeds. Both informal and formal methods were used for marketing of milk. Most of the milk was marketed through informal methods where milk was sold to vendors who transported milk using bicycles, motor bikes and pick-up trucks to cooling plants or dairy plants. The formal channel was where milk was sold directly to a cooling plant owned by Ankole Dairy Products Co-operative Society. Only 32.5% of the farmers, mainly small and medium farmers keeping moderately high milk yielding improved dairy breeds belonged to this co-operative society. Large herd sized farmers were illiterate, keeping low milk yielding indigenous Ankole cattle and were not keen in joining the milk marketing co-operative society. Milk vendors exploited the farmers by setting up their own farm gate prices of milk especially during rainy season when milk was plentiful and roads impassable. There was a geographical difference in prices offered to farmers. Farmers with large herds were offered lower prices than the small and medium herd sized farmers. Daily milk yield per farm increased by 55.2% during wet season from 31.7 litres to 49.2 litres in small farms, by 65.4% in medium farms from 75.7 litres to 125.2 litres and by 50.8% in large herds from 68.4 litres to 103.2 litres. The non-saleable milk during wet season was estimated to be 16% of total daily milk production for the small farms, 13% for medium farms and 29% for the large farms. A majority of the farmers used excess milk for making ghee. Small farms consumed all the excess milk. Not a significant number of farmers, mainly medium sized farmers poured the milk. The average daily income from milk sales during the wet season increased by 17.8% for small farms, increased by 25.8% among medium farms and decreased by 15.9% among large farms. If the prices were stabilized during wet season at the dry season prices, annual income from milk sales would rise by 20.9% for small herd farmers, 19.8% for medium farms and 29% for large farms. If the prices of milk for large farms was stabilised uniformly at prices offered to medium farms during dry season (Ug. Shs 320) there would be increase of annual income from milk sales by 111.3%. Major income for small and medium farms was from milk sales. Where as in large farms, live cattle sales and milk sales equally contributed to total cattle enterprise output. Medium farms received highest gross margin per annum of Ug. Shs. 9,212, 000 (1 USD = Ug. Shs 1,700), followed by large farms with Ug. Shs 6,227,000 and least was with small herd farms with Ug. Shs. 2,930,000 per annum. This gave a return per acre of land per annum of Ug. Shs 92,960 for medium farms, Ug. Shs 50,000 for small and Ug. Shs 26,000 for large farms. The total variable costs were just 29.2% of total outputs from small farms, 18.6% of output of medium farms and 20.5% of output of large farms. Similarly, total variable costs were only 38.7% of total output from milk sales in small farms, 21.8% of output of milk sales in medium farms and 20.5% of output from milk sales from large farms. These observations show that total income earned from the cattle enterprise or from milk sales alone could fully cover the operational costs of the farms. However, reduction of exploitation of middle men could be done by adoption of formal marketing of milk through co-operative formation and enforcement of policy and legal framework to regulate the milk marketing operation.
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