| Summary: | The income of milk producers depends on the amount of milk produced and sold and its selling price, plus a premium (if that kind of incentive is applied). Following the results in the milk production, on a sample of 21 farms in BiH in the period of July 2010-June 2011, it was found by gross margin calculation that an average milk producer achieved gross margin of 1.031 BAM per dairy head per year at an average milk producer price of 0.577 BAM/litre and the premium of 0.118 BAM/litre. The producer price of milk and premiums are subject to frequent debate and negotiation between milk producers, processors and the state. Based on the sensitivity analysis of gross margin to the change of milk producer price and milk premium, it was found that an average milk producer in BiH could tolerate decrease in the producer price of up to 40% and decrease in milk premiums of up to 80% at the same time, but in that case s/he would end up without gross margin out of which the other remaining (fixed) production costs would be covered. In the case of increase of milk producer price by 50%, gross margin per dairy head would be doubled (1.938 BAM/head) and in the case of keeping the same level of milk price and increasing milk premiums by 0.24 BAM/litre, gross margin would increase by 36%. In addition to these combinations, other effects of change in gross margin level are presented in the paper, due to variation of the milk producer price by ±50% from its basic level and variation of the milk premium by displaystyle ±100%. The results of the analysis confirm that the milk production under the given conditions is highly resistant to reduction of milk producer price and milk premium, and detailed results of different combinations of milk prices and premiums are presented in the paper.
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