ABSTRACT：This research was conducted to study of profitability performances of milk cooperatives in areawhich are as centre of milk production in the Province of Central Java. The cooperatives generallyhave some kind of business to support their main function in supplying fresh milk to milkprocessor industries, such as feed industry, farm industry and as milk collector. This researchwas done in 2008 at eleven milk cooperatives in north and east of Mount Merbabu area (Milkcooperatives: Gotong Royong, Mekar, Rukun, Pabelan, Getasan, Andhini Luhur in District ofSemarang and Mojosongo, Musuk, Cepogo, Ampel-Ganesha and Kota at the District of Boyolali)。

　　The method used in this research was survey with interviews to cooperative's chairman andcollected the annually reports of cooperative's RAT (annual cooperative membermeeting from2004-2006 (reported in 2007)。 The variable observed were its financial ratio on profitability, andfinancial efficiency. The financial ratio's on profitability consist of net cooperatives incomefrom operations, Return on Assets (ROA)， Return on Equity (ROE)， operating profit marginratio, while for financial efficiency is the measure of Assets Turn-Over (ATO)。 The researchresults have indicated that average net cooperatives income from operations between IDR 20-75millions annually in the District of Semarang and between IDR 25-172.7 millions rupiahs in theDistrict of Boyolali. Its value on ROA and ROE were varied and fluctuated around 1.07-1.44 %and 2.46- 3.58 %, in the District of Semarang respectively, and ranged between 0.15-3.8 % and1.06-4, 44 % in the District of Boyolali. It's value on operating profit margins have reducedsharply from average 17 to 8.64 % between 2004-2006, while it's assets turn over were around18.93 to 23.91 %, in the District of Semarang,and fluctuated around 10.7-16.8% and 12.2-15.4% for profit margin and assets turn over in the District of Boyolali. The low performance ofmilk cooperatives, therefore by regarding it's profitability and it's value on assets turn over indicatedthat the managerial skill of cooperatives top management were still too weak lead touncertainly milk supply sustainability to milk processors. The milk industries in Central Javawere worst.

　　Key words: Central of Java, Milk Cooperatives, Profitability, Financial Efficiency

　　INTRODUCTION

　　Milk farming was first introduced inIndonesia on the island of Java during theDutch colonial era, when small herds ofHolstein-Friesian cattle were kept close to thecities of Jakarta and Surabaya and in thehighlands where the climate suited thistemperate breed. After independence, theherds were broken up and smallholder dairiesemerged. Each farmer owned one or twocows and raw milk was sold in urban areasthrough a system of private collectors whoacted as middlemen; the farmers were paidabout 25 percent of the retail price. A seriousattempt to develop the milk industry alongmodern lines was made by the government,commencing with the first Five-YearDevelopment Plan (1969-1974)。 A separateDepartment of Cooperatives, which had astrong influence on rural developmentincluding milking, was formed at this time.

　　During the next Five-Year Development Plan(1974-1979)， attention given to milkdevelopment was intensified. Milkconsumption was increasing yet localproduction was still below 20 percent of thenational requirements. In 1979 the NationalUnion of Milk Cooperatives of Indonesia(GKSI) was established. This was to be asignificant event as it brought under oneumbrella all the existing milk cooperatives inthe rural areas. The union provided assistanceto small farmers by way of imported cattle(with help from the Department of LivestockServices)， credit for the purchase of cattleand equipment for milk collection and milkchilling, as well as vehicles for transport.

　　During the subsequent Five-YearDevelopment Plan (1979-1984)， higherpriority was given to milk development withthe objective of improving the livingstandards of smallholder farmer familiesthrough creating new rural job opportunitiesas well as reducing import subsidies. Markeddevelopment in the milk sector attributable tosubstantial government inputs and strongleadership occurred during this period. As aresult of the increased volume of milkproduced locally, the government had tostrengthen facilities for milk handling andchilling, efficient milk collection, roadtransport and marketing. Foreign assistanceand expertise were obtained by thegovernment to assist in these activities. Theprimary-level milk cooperatives, the NationalUnion of Milk Cooperatives and the privatesectormilk-processing industries participatedjointly in the measures taken to absorb thesteadily increasing quantities of milk. Themilk-processing plants were directed toaccept these increasing amounts on a quotasystem to be reviewed every six months. Thequota established was the ratio of the quantityof locally produced milk to be purchasedagainst milk powder imported by theprocessing factories in liquid equivalent. Thereal renaissance of the milk cooperativesresulted from Presidential Decree No. 2 of1978, which enhanced the role of themultipurpose village unit of cooperativesociety or Koperasi Unit Desa (KUD)， givingmembers greater participation in ruraleconomic development. This enhanced selfrelianceand increased participation of therural population led the way to fullerdevelopment of all cooperatives includingthose in which milking was the dominantactivity. Indeed, the President of Indonesiaremarked at that time: “The primary task ofdevelopment is to uplift the common peoplefrom the abyss of poverty and the principalsolution for raising the weak from poverty(Tambunan, 2008)。

　　Milk farming in Indonesia still remains asmall farmers' operation with an average of3-6 cows per farmer, who traditionally hasalso kept cattle for manure. More than 85percent of the milk farmers are members ofmilk cooperatives that handle the collection,chilling and distribution of milk to milkprocessingplants. It is therefore, talkingabout milk industry in Indonesia shouldconsider the performance of milkcooperatives: their roles and tasks'. Farmers'livelihoods depend largely on the strength ofmilk cooperatives. The milk cooperativesstrength, it self depend, on skill of managerswho carry out milk cooperatives.In general the function of milkcooperatives are as : marketing whichtransport of milk to market, purchasing whichpurchase and sell of milk, bargaining whichgive services (credit, insurance, payment oftelephone and electricity) as well asnegotiation and product processor (Wissman,2005; Williamson, 1998) During recentyears, the agribusiness sector has more andmore been confronted with the challengesof internationalizing food markets. This developmenthas also seized milk cooperativeswhich are forced to become more competitive(Ebneth and Theuvsen, 2002)。

　　Milk Cooperativemanagers seemingly have mainobjectives in their quest for maintaining aviable milk farm business included profitability,and financial efficiencyProfitability, meaning the ability of themilk cooperatives to cover all costs over timeand accumulate wealth in order to surviveover time (Trannel, 2002)。 Profitability ofmilk cooperatives which have a function asbargaining cooperative or milk manufacturingprovide information about the successand failure of business activities.(Henehan,2002)。 While, financial efficiency measuresthe intensity a business uses it assets to generategross revenues and the effectiveness ofproduction, pricing, financing, and marketing( Ling, 2006)DATA COLLECTION AND ANALYSISData CollectionPrimary and secondary data were collectedby survey from Milk Cooperatives inDistrict of Semarang and Salatiga as well asin Boyolali.

　　The primary data were collected fromperson interview from manager which carriesout milk cooperatives, while the secondarydata were from the annual report of cooperatives(RAT, annual cooperative membermeeting) 2004-2006, collected at the early of2008.

　　Data Analisis

　　Data obtained were analyzed descriptivelyof its value on Return on Equity, Returnon Investment, Operating Profit Marginsand Assets Turn Over. As compared to thoseof the ideal value as Tranel (2002)a. Profitability1. Net Cooperatives Income From Operations(NCIFO) = Total Revenue –Total Cost2. 　　Target more than 35%RESULTS AND DISCUSSIONMilk Production AreaAt the District of Semarang and Salatigaas well as in the District of Boyolali, milkfarmers are associated with village milk cooperativesat sub District level. The villageunits of cooperatives implicated at this studywere KUD Mekar Ungaran, KUD RukunSalatiga, KUD Gotong Royong Tengaran,KUD Getasan, KUD Sumber Karya Pabelan,KSU Andini Luhur Tengaran. While at theDistrict of Boyolali were KUD Mojosongo,KUD Kota, KUD Ampel, KUD Cepogo andKUD Musuk. These village unit of cooperativeshave a function in bargaining and milkmarketing, generally to milk factories, i.e.:

　　Friesian Flag as well as Indolakto in Jakarta ,Citra National in Salatiga and Sari Husada inYogyakarta.

　　Net Cooperatives Income from Operations(NCIFO)This is the measures of cooperativesrevenues from any operations- cost of productionknown as SHU (Sisa hasil usaha)， asin Table 2. In general, the values of NCIFOat the District of Boyolali were greater thanthose in Semarang- Salatiga District. Trendof NCIFO value at the District of Semarang-Salatiga during 2004-2006were increase, exceptfor KUD Getasan. Values NCIFO of ofKUD Mekar and Andhini Luhur were fluctuatedand Assets Turn Over. As compared to thoseof the ideal value as Tranel (2002)RESULTS AND DISCUSSIONMilk Production AreaAt the District of Semarang and Salatigaas well as in the District of Boyolali, milkfarmers are associated with village milk cooperativesat sub District level. The villageunits of cooperatives implicated at this studywere KUD Mekar Ungaran, KUD RukunSalatiga, KUD Gotong Royong Tengaran,KUD Getasan, KUD Sumber Karya Pabelan,KSU Andini Luhur Tengaran. While at theDistrict of Boyolali were KUD Mojosongo,KUD Kota, KUD Ampel, KUD Cepogo andKUD Musuk. These village unit of cooperativeshave a function in bargaining and milkmarketing, generally to milk factories, i.e.:

　　Friesian Flag

　　as well as Indolakto in Jakarta ,Citra National in Salatiga and Sari Husada inYogyakarta.

　　Net Cooperatives Income from Operations(NCIFO)This is the measures of cooperativesrevenues from any operations- cost of productionknown as SHU (Sisa hasil usaha)， asin Table 2. In general, the values of NCIFOat the District of Boyolali were greater thanthose in Semarang- Salatiga District. Trendof NCIFO value at the District of Semarang-Salatiga during 2004-2006were increase, exceptfor KUD Getasan. Values NCIFO of ofKUD Mekar and Andhini Luhur were fluctuatedindicating the change of managerialstyle or profit opportunities. While in BoyolaliDistrict these values were decrease exceptfor Mojosongo. In general, the value ofNet Cooperatives Income from Operation ofMilk Cooperatives was less and less in BoyolaliDistrict, while there relatively stable inSemarang District.

　　Return on Assets

　　Return on Assets (ROA) eliminates theinfluence of different capital structure . Thus,it is more comparable to judge cooperativeenterprise effeciency All of village unit cooperatives(milk cooperatives) in CentralJava have presented their values on ROAlower than 5 %.

　　The value of ROA were still lower thanthe interest of conventional bank at the momentor the value of profits sharing of Islamicor Syariah Banks, 5 %. Even in general ,trend of ROA were decrease. In USA, thevalue of ROA of milk industry was between10-14 % (Bolland et al., 2000)。

　　Return on Equity (ROE)

　　Return on Equity (ROE) reflects a companypotential to realize profit and income .

　　Such as their value on ROA, the values ofROE of milk cooperatives in Central Javawere also less than 5 % of interest or profit ,far below the value of ROE of milk industriesin USA (Bolland et al., 2000)， and lower andlower during consecutive years.

　　Operating Profit Margins (OPM)

　　The value of operating profit margins ofmost milk cooperatives in Central java werefar below 25 % of ideal value. Milk cooperativesKSU Andhini Luhur have presented thethe ideal value. Even though, it is consideredas pseudo-cooperatives since, it was not clearthe kind of cooperatives members which providemilk.The OPM measure profit per unit ofoutput. Since milk cooperatives in CentralJava are in the form of village unit cooperativeswhich their main businesses are not onlymilk and milk products, it was thereforenot clear whether the most profits among thevillage unit cooperatives come from milkbusiness.

　　Asset Turnover Ratio

　　Assets turnover ratio reflects financialefficiency of milk cooperatives as presentedin Table 6.There were only villages –unitcooperatives of KUD Rukun and Mojosongowhich have received the ideal ratio, 35 %(Tranel, 2002)。 The value of financial efficiencywill measure the intensity a businessuses it assets to generate gross revenues andthe effectiveness of production, pricing, financingand marketing (Ling, 2006)。 It alsoindicates that milk cooperatives managers dotheir business in best way or not.GENERAL DISCUSSIONIn general, the performances of milk cooperativesin the Province of Java Centralwere low. In District of Semarang-Salatigawere better than those in District of Boyolali.

　　The low performance of profitability and financialefficiency of milk cooperatives inCentral Java were generally due to low levelof education of farmers, milk cooperativesmanagers and also low productivity of milkcows kept by farmers. This situation hasweighted by low land ownership which generallyless than 0.5 Ha per farmers with 4-6head of cows. It was also found that milkcooperatives are still engaged in a ruinouspredatory competition against each others,rather than to choose a merger strategy. Oneof bad attitude of milk cooperatives in theseprovinces was to receive and collects milkfrom farmer's members of other milk cooperatives.

　　In the past the village unit cooperativesor primary cooperatives which werejoint to secondary cooperative called as Associationof Milk Cooperatives or GKSI hasproduced milk products by their own brandand managed by themselves. But now thebrands of Indomurni and Indolakto have beensold to PT Indolakto, and becoming new privateindustry named PT Indolakto. This wasan indication of weak position of milk cooperativesin market. In the other hand, the privatelyowned milk industry often own strongbrands and have comparatively strong marketposition, even in low price mass market articleslike milk powder, pasteurized milk andbutter as well as sterilized milk. It was aworst situation for milk cooperatives consideredlead to bankruptcy due its value ofOPM far below 25 %. Two ways to increaseprofitability are to increase profit per unit ofoutput or to increase volume of output , whilemaintaining profit per unit.

　　Increasing profits per unit of outputneed to reduce cost of milk production at thefarm level by modify fixed cost or variablecost and reduce handling cost of milk at themilk cooperatives level. With the handlingcost of milk around IDR. 560- 700 for themilk price IDR. 2.800 per liter or 25 %, itwas considered as so expensive by farmermembers,lead to incapability of farmers toimprove the management of milk cattle andmilk quality. While for increasing the volumeof output are limited by the low productivityof milk cows. Majority of milk cows kept byfarmers are Friesians Holstein breed importedfrom temperate region. High temperatureand humidity in Indonesia are makingheat stress for milk cows, lead to sharp reductionof milk production at least 30 %.

　　Gradual acclimatization or placing the cowsin the hill with sufficient water supply willkeep the productivity of this breed more than20 liter per days. It is a case of the District ofSemarang but not District of Boyolali whichsuffers from the lack of water, especially duringdry seasonsBut, improving farmer's skill and knowledgeto formulate feed for their milk cowsare regarded as the best way in order to reducecost of production and increase the milkproduction without add the number of cowsin limited land surface and will maximize theprofits. Addition the number of heads willsrisqué to reduce fodder base support.

　　ACKNOWLEDGEMENT：This study was supported and helped bystudent assistants at the laboratory of DairyScience and Industry at The Faculty of Animal Science Gadjah Mada University, as wellas by the chief of milk cooperatives. Forthose, we thank a lot.

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