milk price with context to india

8/12/2019 Milk price with context to India

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Abstract

Agricultural cooperatives have been a unique way of addressing the concerns of the

producers and consumers regarding pricing, storage, marketing, and other suchactivities of bringing the commodity to the market. One of such sectors is the dairy,

where there are cooperatives in both the developed and developing countries. Amul

Dairy, a milk cooperative in India is, synonymous with quality of its milk and milk

products as well as fair prices to both the consumer and producer. In this study, we will

examine the effectiveness of Amul by comparing the procurement prices offered by the

dairy cooperative to the cost of producing milk. In addition, we will measure whether

there are economies of scale in milk production.

Objective and Methodology

The primary objectives of this study are twofold: to analyze the effectiveness of a dairy

cooperative via comparison of procurement prices to milk production, and determine

whether there are economies of scale in milk production. Both of these objectives hold

tremendous policy implications not only for cooperative executives, but also for

policymakers and rest of the dairy private sector. Over the past couple of decades,

Indias milk production has grown to make it one

of the largest milk producers in the world. Unlike rest of the major milk producers

(primarily in the developed world), Indias milk producers tend to be on a much

smaller scale. Each milk

producers tends to only have one or two animals resulting in low economies of scale.This particular scenario makes it even more critical for cooperative executives and

policymakers to

know the cost of milk production faced by milk producers. Although there has been a

prior formula which approximates the cost of milk production by tracking national


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statistical organizations, the particular formula does not take into account different

types of fodder used by the milk producer and more importantly does not calculate

labor cost.

In contrast, the survey used in this study includes varying cost components (such asfodder, shelter, cattle feed, labor cost) as well as varying amounts of milk produced

during the

summer and winter costs. The survey was developed in coordination with milk

producers as well as researchers at Indian Institute of Rural Management. The results of

this study are quite significant because it will provide policymakers and cooperative

executives with the current state of the Indian dairy market. As the per capita income of

India increases over the next couple of decades, Indias dairy production will need toincrease to meet the increasing demand. In my recent meeting with the Agricultural

Minister, he indicated that the government was considering

implementing a National Dairy Plan. The National Dairy Plan is aimed at increasing

dairy production by improving fodder access to farmers and improving the quality of

cows and buffaloes via artificial insemination. The government intends to spend $3B

over the next ten years to achieve this objective. The study will provide policymakers

with a picture of different cost pressures faced by farmers in the dairy sector.Furthermore, it will determine whether milk production contains substantial financial

incentives for new entrants to enter this activity or to maintain the current ones. This is

particularly important to the government as it strives to increase milk production to

meet the growing demand. Before we proceed any further, it would

be useful to the reader to learn about the structure of the cooperative, and nature of the

membership of the milk producer. I have discussed them in detail in an earlier paper on

this subject, and have included them here for the r eaders reference.


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Structure

The Kaira District Union was later followed by milk collection centers and cooperatives

set up in other villages and districts of Gujarat. In 1973, all the cooperatives wereorganized under an apex body the Gujarat Co-operative Milk Marketing Federation

Ltd. (GCMMF). Amul is the brand name of the milk and milk products that come out of

GCMMF. It is a three-tiered system consisting of milk collection centers at the village

level, a collection of village collection

centers into a cooperative at the district level and the GCMMF at the top. Each district

union such as Kaira District Co- operative Milk Producers Union Ltd sets its own milk

prices in the district each year.

The cows and buffaloes give milk twice a day for about 8-9 months and 6-7 respectively.

The period, in which they provide milk, is known as the lactation period. The milk

producer

makes his money from the animal during this period. He collects the milk from the cow

or buffalo, and goes to his local collection center. These local collection centers are in

each village

(or in a couple of villages grouped together), where the dairy cooperatives employees

measure the amount of milk, % fat, and % SNF. There is a two-tier system in which the

amount of money

paid to each individual is determined by whether its cows or buffalos milk, and the %

fat in the milk. The % SNF does not tend to vary as much, making the % fat the primary

factor in determining the price. Although cows produce more milk daily and for a

longer period of time,

the milk has lower fat content. The cooperative does not prefer one animal over the

other, and does has procurement prices accordingly.


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Figure 1: Structure of the Kaira District Milk Producers Union in State

Source: Indian Institute of Management Ahmedabad


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Nature of the Membership

Each member of the union is obligated to sell at least 1liter (L) of milk daily to the localcollection centre to continue the district unions services. In addition, the membership of

the union costs a one-time fee of Rs. 60. These services include access to the veterinary

doctor, which charge a minimal amount of Rs. 60 per visit (compared to Rs. 300 per visit

for a private doctor), and the treatment is of no extra cost. There is no contractual

obligation, and each member can potentially sell milk over and above 1 liter to a private

dairy. However, as there are 7

no private diaries in the nearby area, that privilege has remained a theoretical one. Mostof the milk producers (that we surveyed in the village) keep a portion of the milk for

daily consumption, since it is more expensive to buy the milk from Amuls local

collection center than

cost of producing it. In addition to the veterinary services, members also have access to

Amul Dan (nutrition enriched fodder for cows and buffaloes), which allows cows and

buffaloes to produce better quality of milk.

Purpose

As the above background suggests, the primary purpose of the Union was to provide

fair prices to the milk producers without alienating the consumer. Over the course of

several years, the Union has acted against price controls that kept the price of the milk

low because that created a disincentive for production. The Union has been successful

in increasing the milk production in the district primarily by bringing more milk

producers into the union, rather than increasing each individual members ability to

produce more milk (for example, by getting a better breed of


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cows). In recent years, Amul has expanded beyond its initial mission and offers services

such as fodder, education to members, extension of credit to members, etc.

Procedure

The survey was administered in seven villages: Navli, Napad, Chikodhra, Valasan,

Sandesar, Vadod, and Bedva between December 30, 2011 and January 3, 2012. These

villages were recommended by Amul to me based on my criteria of close proximity to

Anand. The close proximity of these villages ensured that the milk producers either

provided their milk to the local collection center or kept for domestic consumption. All

of these villages are within a ten

kilometer radius of Anand, and as such, fall under the Kaira District Co-operative Milk

Producers union collection facilities. All of the milk collected in these villages flows to

Anands Amul dairy, and as a result, all the milk producers are reimbursed based on

the same

pricing scale. I had conducted a similar survey in Navli back in May 2011. Based on my

interaction with farmers in Navli and feedback from the professors at Institute of Rural

Management at Anand, I constructed a more detailed questionnaire to be administered

to the farmers. The questionnaire was in Gujarati. A copy of the survey is included in

the appendix in both Gujarati and English. With the help of the four research assistants,

I conducted this survey.

The survey was administered orally to the villagers and their responses were

subsequently recorded. The assistants were paid for their effort, and before the study

was conducted, I gave them detailed directions, and answered any questions they had.

We conducted the survey after

the milk producers had dropped off their milk at the collection center in the morning

and evening. Furthermore, some of these responses were also recorded at the farmers

dairy farms or homes. In two of these villages (Chikodra and Napad), the data was only

collected from farmers at their homes or milk farms rather than at the collection facility.


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Table 1: Revenue Part of the Survey conducted in villages

Source: DFPI, Annual Report -2013


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Table 2: Expenses Part of the Survey conducted in villages

Source: DFPI, Annual Report -2013


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Table 3: Adjustments

Figure 2: Distribution of Number of Buffaloes


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Distribution of Number of Cows


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Figure 3: Adjusted Cow Milk Cost vs. Three variables (Number of Cows,

Amount of Cow

Fat, and Average Purchase Price of Cow)

Source - www.dairyfest.in
http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775


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Figure 4:

Distribution of Feed Costs Distribution of Feed Costs

(% of Total Costs ex. labor) (% of Total Costs inc. labor)

Source - www.dairyfest.in
http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=b9-67EJTvDIqUM&tbnid=I99kTlsnWAdFsM:&ved=0CAQQjB0&url=http%3A%2F%2Fwww.dairyfest.in%2Fdairyfest.php&ei=ETkbU86RGIOOrQfivIAo&bvm=bv.62578216,d.bmk&psig=AFQjCNGkpSchF-_o4_DULQdw1LngYWgShw&ust=1394379407807775


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Table 4: Sensitivity Table for Feed Costs

Rate of Return = Annual Net Income/Investment

Investment = Market Price of Animals * Number of Animals

Estimated Market Price of Animal (Cow or Buffalo) = Rs. 25000 (from the survey)

In the results above, we surveyed over 300 milk producers. Most of the milk producers

had only one type of animal (cow or buffalo), but when they had both types of animals,

the costs were split between the two types of animals. In order to calculate the amount

of milk produced by an animal in a given year, we assumed that the lactation period

was equally divided between the summer and winter seasons. In addition, we assumed

each animal was kept for the all the

lactation period over its lifetime (10-12). Each lactation period was assumed to last a

year.


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If the animal was purchased, it was depreciated over the entire lactation period time

frame. If the

farmer did not indicate the number of lactation periods expected over an animals life

time, the animal was depreciated over ten years. The fixed assets such as a shed weredepreciated over fifteen years. The labor costs are calculated by assigning an hourly

wage to the amount of hours

the villagers puts in to take care of the animals. The hourly wage is the

(100/365)*NREGA hourly wage to reflect the fact that NREGA only guarantees

employment for 100 days out of the

calendar year. NREGA is the National Rural Employment Guarantee Act passed by the

Government of India which guarantees employment for one individual of a householdfor 100 days at Rs. 100/8-hr day. The feed costs were estimated using market prices for

the inputs (included in the appendix), multiplied by the amount of each fed to the

animals.

As the distribution of the animals indicates, most farmers owned only one or two

buffaloes, and about 4 to 5 cows. Unlike buffalo owners, cow owners had a greater

distribution in the number of cows they owned. As such, there are limits to the

conclusions we may drawabout economies of scale, but suffice to say those will be limit ed to cow owners data

only. As the data indicates, cows produce twice the amount of milk as buffaloes do.

Conversely, cows milk has about half the fat content as a buffalos milk. The amount of

money a farmer earns from the cooperative depends on the fat content of the milk and

the amount of milk provided to the dairy. Furthermore, each farmer generates Rs. 500

annually from each animal he owns by selling animal waste as manure. Additionally,

the farmer also receives a 20% bonus at the end of the year from the cooperative, which

has been calculated on the value of the milk the particular farmer has provided to the

union. The data indicates that buffalo milk is much more expensive to

produce than cow milk. Each animal has similar costs per animal (Rs. 48,000 for

buffaloes and Rs. 46000 for cows), and as result, the difference in costs is primarily due


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to the amount of milk produced by buffalo as opposed to a cow. Buffalo milk does

command a higher procurement price than cow milk since buffalo milk has a greater

percentage of fat than cow milk. Despite the higher procurement price, the data

suggests that owning a buffalo results in negative income(even before labor costs are factored in). One might suggest that there might be an

inclination to move away from buffaloes to cows; however, we dont see t hat in the

data. There are more farmers who own buffaloes than cows. An explanation as to why

this is the case is explored further in the discussion section. In addition, the data

indicates (not surprisingly) that most milk farmers do not have insurance (95% and 90%

for buffaloes and cows respectively). This might be attributed to the fact that the

insurance premium for any particular animal is Rs. 1200 for coverage of Rs. 20,000. Theinsurance premium would reduce the monthly net income of farmers (who own cows

and generate positive income) by 20%, making it unlikely to be bought by many.

However, many farmers indicated that they would like to buy insurance, but insurance

companies no longer offer them. A possible explanation was offered by a professor at

IRMA who had done similar research in Rajasthan. He commented that there was a

moral hazard problem because the insurance company could not accurately judge the

health of an animal, and it was difficult to determine whether the animal died of naturalcauses or otherwise. As such, most insurance companies had stopped issuing such

contracts except in areas where there was a strong local authority, which would hold

the policyholder accountable. Another point to highlight from the data is that the feed

costs (includes all types of fodder and feed) comprises over 90% of the total costs (ex-

labor), and between 57%-95% of the total costs (inc-labor).

Source - www.fao.org , articles on indian milking industry
http://www.fao.org/wairdocs/lead/x6115e/x6115e0b.htmhttp://www.fao.org/wairdocs/lead/x6115e/x6115e0b.htmhttp://www.fao.org/wairdocs/lead/x6115e/x6115e0b.htm


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Milk Yield comparison

Country Milk

Yield

(Kgs per

year)

USA 7002

UK 5417

Canada 5348

New Zealand 2976

Pakistan 1052

India 795

World (Average) 2021

Source: Export prospects for agro-based industries, World Trade Centre, Mumbai.


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Production of milk in India

Year Production in million

MT

1988-89 68.4

1989-90 71.4

1990-91 73.7

1991-94 76.3

1994-98 78.6

1998-03 81.2

2003-06 83.5

2006-09 84

2009-10 88.5

2010-11 88.8

2011-12 89.7

2012-13 93.1

2013-.. 95.0

Although milk production has grown at a fast pace during the last three decades

(courtesy: Operation Flood), milk yield per animal is very low. The main reasons for the

low yield are

Lack of use of scientific practices in milching. Inadequate availability of fodder in all seasons.


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Unavailability of veterinary health services.

World's major milk producers (Million MTs)

Country 200-2008 2008-12 (

Approx.)

India 71 74.5

USA 71 71

Russia 34 33

Germany 27 27

France 24 24

Pakistan 21 22

Brazil 21 27

UK 14 14

Ukraine 15 14

Poland 12 12

New

Zealand11 12

Netherlands 11 11

Italy 10 10

Australia 9 10

Source: DFPI, Annual Report-1999-2013


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Fresh Milk

Over 50% of the milk produced in India is buffalo milk, and 45% is cow milk. The

buffalo milk contribution to total milk produce is expected to be 54% in 2000. Buffalo

milk has 3.6% protein, 7.4% fat, 5.5% milk sugar, 0.8% ash and 82.7% water whereas

cow milk has 3.5% protein, 3.7% fat, 4.9% milk sugar, 0.7% ash and 87% water. While

presently (for the year 2000) the price of Buffalo milk is ruling at $261-313 per MT that

of cow is ruling at $170-267 per MT. Fresh pasteurized milk is available in packaged

form. However, a large part of milk consumed in India is not pasteurized, and is sold inloose form by vendors. Sterilized milk is scarcely available in India.

Packaged milk can be divided according to fat content as follows,

Whole (full cream) milk - 6% fat

Standardized (toned) milk - 4.5% fat

Doubled toned (low fat) milk - 3% fat

Another category of milk, which has a small market is flavored milk.

Per Capita availability of milk

Year gm./day

1950 132

1960 1271968 113

1973 111

1980* 128


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1990 178

2000 192

2005 1982006 200

2007 202

2009 203

2010 212

2011 2252012 250

E= Estimated

P= Provisional

Source - Operation flood was launched in 2010


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The Indian Market - A Pyramid

Consumer Habits And Practices

Milk has been an integral part of Indian food for centuries. The per capita availability of

milk in India has grown from 172 gm per person per day in 1972 to 182gm in 1992 and

203 gm in 1998-99.This is expected to increase to 212gms for 1999-00. However a large

part of the population cannot afford milk. At this per capita consumption it is below the

world average of 285 gm and even less than 220 gm recommended by the Nutritional

Advisory Committee of the Indian Council of Medical Research.

There are regional disparities in production and consumption also. The per capita

availability in the north is 278 gm, west 174 gm, south 148 gm and in the east only 93

gm per person per day. This disparity is due to concentration of milk production in

some pockets and high cost of transportation. Also the output of milk in cereal growing

areas is much higher than elsewhere which can be attributed to abundant availability of

fodder, crop residues, etc which have a high food value for milch animals.

In India about 46 per cent of the total milk produced is consumed in liquid form and 47per cent is converted into traditional products like cottage butter, ghee, paneer, khoya,

curd, malai, etc. Only 7 per cent of the milk goes into the production of western

products like milk powders, processed butter and processed cheese. The remaining 54%

is utilized for conversion to milk products. Among the milk products manufactured by

the organized sector some of the prominent ones are ghee, butter, cheese, ice creams,

milk powders, malted milk food, condensed milk infants foods etc. Of these ghee alone

accounts for 85%.

It is estimated that around 20% of the total milk produced in the country is consumed at

producer-household level and remaining is marketed through various cooperatives,


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private dairies and vendors. Also of the total produce more than 50% is procured by

cooperatives and other private dairies.

While for cooperatives of the total milk procured 60% is consumed in fluid form and

rest is used for manufacturing processed value added dairy products; for private dairies

only 45% is marketed in fluid form and rest is processed into value added dairy

products like ghee, makhan etc. Still, several consumers in urban areas prefer to buy

loose milk from vendors due to the strong perception that loose milk is fresh. Also, the current level of processing and packaging capacity limits the availability of packaged

milk.

The preferred dairy animal in India is buffalo unlike the majority of the world market,

which is dominated by cow milk. As high as 98% of milk is produced in rural India,

which caters to 72% of the total population, whereas the urban sector with 28%

population consumes 56% of total milk produced. Even in urban India, as high as 83%

of the consumed milk comes from the unorganized traditional sector.

Presently only 12% of the milk market is represented by packaged and branded

pasteurized milk, valued at about Rs. 8,000 crores. Quality of milk sold by unorganizedsector however is inconsistent and so is the price across the season in local areas. Also

these vendors add water and caustic soda, which makes the milk unhygienic.

India's dairy market is multi-layered. It's shaped like a pyramid with the base made up

of a vast market for low-cost milk. The bulk of the demand for milk is among the poor

in urban areas whose individual requirement is small, maybe a glassful for use as

whitener for their tea and coffee. Nevertheless, it adds up to a sizable volume - millionsof litres per day. In the major cities lies an immense growth potential for the modern

sector. Presently, barely 778 out of 3,700 cities and towns are served by its milk

distribution network, dispensing hygienically packed wholesome, quality pasteurized

milk. According to one estimate, the packed milk segment would double in the next five


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years, giving both strength and volume to the modern sector. The narrow tip at the top

is a small but affluent market for western type milk products.

Growing Volumes

The effective milk market is largely confined to urban areas, inhabited by over 25 per

cent of the country's population. An estimated 50 per cent of the total milk produced is

consumed here. By the end of the twentieth century, the urban population is expected

toincrease by more than 100 million to touch 364 million in 2000 a growth of about 40

per cent. The expected rise in urban population would be a boon to Indian dairying.Presently, the organized sector both cooperative and private and the traditional sector

cater to this market.

The consumer access has become easier with the information revolution. The number of

households with TV has increased from 23 million in 1989 to 45 million in 1995. About

34 per cent of these households in urban India have access to satellite television channel.

Potential for further growth

Of the three A's of marketing - availability, acceptability and affordability , Indian

dairying is already endowed with the first two. People in India love to drink milk .

Hence no efforts are needed to make it acceptable. Its availability is not a limitation

either, because of the ample scope for increasing milk production, given the prevailing

low yields from dairy cattle. It leaves the third vital marketing factor affordability. How

to make milk affordable for the large majority with limited purchasing power? That is

essence of the challenge. One practical way is to pack milk in small quantities of 250 ml

or less in polythene sachets. Already, the glass bottle for retailing milk has given way to


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single-use sachets which are more economical. Another viable alternative is to sell small

quantities of milk powder in mini-sachets, adequate for two cups of tea or coffee.

Marketing Strategy for 2000 AD

Two key elements of marketing strategy for 2000 AD are: Focus on strong brands

and, product mix expansion to include UHT milk, cheese, ice creams and spreads. The

changing marketing trends will see the shift from generic products to the packaged

quasi, regular and premium brands. The national brands will gradually edge out the

regional brands or reduce their presence. The brand image can do wonders to a

product's marketing as is evident from the words of Perfume Princess Coco Channel: In

the factory, we pack perfume; in the market, we sell hope.

Emerging Dairy Markets

Food service institutional market: It is growing at double the rate of consumer market Defense market: An important growing market for quality products at reasonable

prices Ingredients market: A boom is forecast in the market of dairy products used as raw

material in pharmaceutical and allied industries

Parlour market: The increasing away-from-home consumption trend opens new vistas

for ready-to-serve dairy products which would ride piggyback on the fast food

revolution sweeping the urban India.


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India, with her sizable dairy industry growing rapidly and on the path of

modernization, would have a place in the sun of prosperity for many decades to come.

The one index to the statement is the fact that the projected total milk output over the

next 15 years (1995-2010) would exceed 1457.6 million tonnes which is twice the totalproduction of the past 15 years!

Penetration of milk products

Western table spreads such as butter, margarine and jams are not very popular in India.

All India penetration of butter/ margarine is only 4%. This is also largely represented

by urban areas, where penetration is higher at 9%. In rural areas, butter/ margarine

have penetrated in 2.1% of households only. The use of these products in the large

metros is higher, with penetration at 15%.

Penetration of cheese is almost nil in rural areas and negligible in the urban areas. Per

capita consumption even among the cheese-consuming households is a poor 2.4kg pa as

compared to over 20kg in USA. The lower penetration is due to peculiar food habits,

relatively expensive products and also non-availability in many parts of the country.

Butter, margarine and cheese products are mainly manufactured by organized sector.

Similarly, penetration of ghee is highest in medium sized towns at 37.2% compared to31.7% in all urban areas and 21.3% in all rural areas. The all India penetration of ghee is

24.1%. In relative terms, penetration of ghee is significantly higher in North and West,

which are milk surplus regions. North accounts for 57% of ghee consumption and West

for 23%, South & East together account for the balance 20%. A large part of ghee is


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made at home and by small/ cottage industry from milk. The relative share of branded

products in this category is very low at around 1-2%.

Milk powder and condensed milk have not been able to garner any significant

consumer acceptance in India as indicated by a very low 4.7% penetration. The

penetration is higher at 8.1% in urban areas and lower at 3.5% in rural areas. Within

urban areas, it is relatively higher in medium sized towns at 8.5% compared to 7.7% in a

large metros.

Market Size And Growth

Market size for milk (sold in loose/ packaged form) is estimated to be 36mn MT valued

at Rs470bn. The market is currently growing at round 4% pa in volume terms. The milk

surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,

Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk

products is concentrated in these milk surplus States. The top 6 states viz. Uttar

Pradesh, Punjab, Madhya Pradesh, Rajasthan, Tamil Nadu and Gujarat together

account for 58% of national production.

Milk production grew by a mere 1% pa between 1947 and 1970. Since the early 70's,

under Operation Flood, production growth increased significantly averaging over 5%

pa.

About 75% of milk is consumed at the household level which is not a part of

commercial dairy industry. Loose milk has a larger market in India as it is perceived to

be fresh by most consumers. In reality however, it poses a higher risk of adulteration

and contamination.


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The production of milk products, i.e. milk products including infant milk food, malted

food, condensed milk & cheese stood at 3.07 lakh MT in 1999. Production of milk

powder including infant milk-food has risen to 2.25 lakh MT in 1999, whereas that of

malted food is at 65000 MT. Cheese and condensed milk production stands at 5000 and11000 MT respectively in the same year.

Source: Annual Report 1999-2010, DFPI

Major Players

The packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-

operative Milk Marketing Federation (GCMMF) is the largest player. All other local

dairy cooperatives have their local brands (For e.g. Gokul, Warana in Maharashtra,

Saras in Rajasthan, Verka in Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu,

etc). Other private players include J K Dairy, Heritage Foods, Indiana Dairy, Dairy

Specialties, etc. Amrut Industries, once a leading player in the sector has turned

bankrupt and is facing liquidation.

Packaging Technology

Milk was initially sold door-to-door by the local milkman. When the dairy co-operatives

initially started marketing branded milk, it was sold in glass bottles sealed with foil.

Over the years, several developments in packaging media have taken place. In the early

80's, plastic pouches replaced the bottles. Plastic pouches made transportation and


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storage very convenient, besides reducing costs. Milk packed in plastic pouches/bottles

have a shelf life of just 1-2 days , that too only if refrigerated. In 1996, Tetra Packs were

introduced in India. Tetra Packs are aseptic laminate packs made of aluminum, paper,

board and plastic. Milk stored in tetra packs and treated under Ultra High Temperature(UHT) technique can be stored for four months without refrigeration. Most of the dairy

co-operatives in Andhra Pradesh, Tamil Nadu, Punjab and Rajasthan sell milk in tetra

packs. However tetra packed milk is costlier by Rs5-7 compared to plastic pouches. In

1999-00 Nestle launched its UHT milk. Amul too re-launched its Amul Taaza brand of

UHT milk. The UHT milk market is expected to grow at a rate of more than 10-12% in

coming years.

Export Potential

India has the potential to become one of the leading players in milk and milk product

exports. Locational advantage : India is located amidst major milk deficit countries in

Asia and Africa. Major importers of milk and milk products are Bangladesh, China,

Hong Kong, Singapore, Thailand, Malaysia, Philippines, Japan, UAE, Oman and other

gulf countries, all located close to India.

Low Cost Of Production :

Milk production is scale insensitive and labour intensive. Due to low labour cost, cost of

production of milk is significantly lower in India.

Concerns in export competitiveness are

Quality :


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Significant investment has to be made in milk procurement, equipments, chilling and

refrigeration facilities. Also, training has to be imparted to improve the quality to bring

it up to international standards.

Productivity :

To have an exportable surplus in the long-term and also to maintain cost

competitiveness, it is imperative to improve productivity of Indian cattle.

There is a vast market for the export of traditional milk products such as ghee, paneer,

shrikhand, rasgolas and other ethnic sweets to the large number of Indians scattered all

over the world.

India's exports of milk products

Description

(Quantity, M T.:

Value, Rs.

million)

1998-02 2002-08 2008-13

Quantity Value Quantity Value Quantity Value

Skimmed milk

powder4,638.62 3,35.32 282.70 19.64 5.00 0.375

Milk and Milk

Food for babies8.27 2.019 111.37 4.27 11.00 2.02

Milk cream 332.23 28.04 1.00 0.084 - -

Sweetened

condensed milk41.73 2.84 9.22 0.97 60.39 7.22


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Whey 78.46 3.75 11.50 1.01 6.00 0.342

Ghee/Butter/Butter

oil7,895.08 431.1 299.97 19.2 4,352.08 2,38.95

Cheese

(a) Fresh 0.10 0.013 - - - -

(b) Processed 5.67 1.20 2.1 0.375 22.10 2.19

(c) Other 66.64 8.35 36.78 0.69 24.84 4.55

TOTAL - 8,72.7 - 52.4 - 2,55.6

Source: DFPI, Annual Report-1999-2013

Discussion

Before we start detailed discussion on this topic, we should acknowledge the fact that

milking is a secondary source of income for most farmers. They are unlikely to pursue

this activity if it does not generate positive net income for their household. However,

my data seems to suggest the opposite when labor costs are included for both cows and

buffaloes. Given that the total costs including labor result in a negative income for both

cow and buffalo owners, this is an economic activity that generates wages (similar to a

job) rather than a business. Let us for a moment ignore labor costs and assume that

whatever positive income the farmer generates is fair compensation for his effort. The

data indicates that buffalo owners still do not generate a positive


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net income, yet most of the farmers are buffalo owners. Unless they are doing this

activity for altruistic purposes which we already know they are not, then there must be

an alternative explanation. One could point to the fact that the feed costs (which

comprise almost all of thecosts) were improperly calculated. Maybe some of the fodderis not fed throughout the entirecalendar year. That would be a possible explanation,

however, the results already control for it.

An alternative explanation could either be that the farmers have exaggerated the

amount of fodder they feed the animals or that most farmers do not pay the market

prices of fodder. As the

sensitivity table indicates, if the fodder costs are 50% of what I have estimated them to

be, a buffalo owner will generate Rs. 1100 (of monthly income) for one buffalo and Rs.2400 for onecow. The results are similar to what I found in my earlier study in which I

indicated that the margins for cow and buffalo milks are similar, and as a result, one

prefers the animal with the

higher milk output. The results indicate that there should be an incentive away from

buffalo ownership towards cow ownership. However, there is no way to measure this

trend unless one has data about animal ownership over the years to see whether such a

trend is taking place. If in fact, the true fodder costs faced by many of these farmers are50% of what I have estimated, milking remains a profitable enterprise. However, if the

costs are closer to what I estimate, then it is likely that many of these animal owners will

exit the business in the upcoming years.

Interestingly, a couple of farmers commented on the fact that if one had to buy all the

ingredients at the prevailing market price, they would not make any money. This

would suggest that many farmers buy at least some of these ingredients at below

market prices. Many farmers grow their

own dry and green grass, which make up over 50% of the fodder costs, at 20% of the

market prices for those ingredients. The value of 20% of the market price only includes

the price of seeds, fertilizer, and water required to grow these ingredients. It does not

include the price of the land in its computation. For the purposes of this activity, we


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have assumed that the farmer already owns this land and is not using it for any other

purposes, diminishing the possible

opportunity cost. By growing their own dry and green grass, the overall fodder costs

are closer to the 50% threshold in the sensitivity table, leading to lucrative rates ofreturn (74% and 114% for

buffaloes and cows) and significant secondary income. If one is a landless farmer, the

only way for one to make money in the milking enterprise is to receive certain

ingredients at a below

market cost. It is certainly the case that some farm hands (who are landless) are allowed

to take some green and dry grass with them to feed their animals at little to no cost. It is

likely the case that overall feed costs for them are closer to 70-75% of the estimated feedcosts, making it just the case that milking is a profitable enterprise. Most of the landless

owners are ones who own buffaloes rather than cows. If the farm hands are no longer

allowed to take these grasses at little

or no cost, they will likely be driven out of the milking enterprise.

The above analysis assumes that milk procurement prices will not be increasing any

time soon. Milk demand is expected to rise 29% over the next five years to 150 million

tones, where as production is not expected to ramp up as quickly. This will put anupward pressure on the end price the consumer has to pay, which will end up

benefiting the milk farmers. The increased demand on milk will cause the supply side

to ramp up as well. If that is so the case, there will be increased demand for feed. The

supply of feed will determine how high its price can go, which can potentially diminish

the overall profit opportunity in the milking business. If the profit opportunity does

survive, it is likely the case that the consumer will end up paying significantly

higher prices for milk than he is currently paying. It is likely that the supply of feed is

limited as well given that India is primarily utilizing its irrigable land for agricultural

purposes for humans rather than growing fodder. What is one to do in such a scenario?

One may state that higher prices for a commodity due to increased demand and low

supply is basic economics and hence, are justified. However, one ignores the nutritional


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importance of milk in the Indian diet, emphasized by milk producers setting aside a

portion for their children. It is an important source of protein and other vitamins, which

might make it difficult to replace in a vegetarian diet. Many Indian consumers,

especially lower-income ones,of milk may no longer be able to afford the commodity because of higher prices. The

Indian state might be truly worried about this particular aspect of the problem if the

prices truly start to make

milk unaffordable to wide swath of the population.

There are a number of ways in which the Indian state might respond to this problem. In

the short-run, the Indian state could open up the domestic milk market to the rest of the

world in a limited manner. There could be a quota of importing milk powder to meetthe increased demand and keep a check on prices. For example, if there is a gap

between production and consumption of 10 million tones, the government could set a

quota of 7 million tones. The remaining 3 million tones would put upward pressure on

the prices, creating an incentive for milk farmers to ramp up production as the milk

prices continue to rise, albeit at a slower pace.

Secondly, the cooperative establishment could incentivize milk farmers to increase

productivity of their animals by providing low interest loans. There is a lot of room toincrease the

productivity of Indian cows and buffaloes. According to my data, the buffaloes produce

on average between 4-5 liters of milk in a day. A recent article cited that the government

of Punjab was taking steps to allow importation of Pakistani buffaloes, which produce

36 liters of milk in a day. A report back in 1996 stated that high yielding animals are

likely to consume more fodder and feed than the animals they are replacing. The

cooperative should likely target farmers who already own land because their feed costs

are 50% of the market value of the feed. One could also suggest that the cooperative

could encourage increased ownership of animals. However, the

data (at least for the cow owners) indicates that having a greater amount of animals

does not lead to lower cost. As we stated later, the conclusions one can draw from this


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are limited since the distribution of the number of cows owned by milk farmers is quite

skewed. This means that there are few savings to be drawn from having a greater

number of animals. However, having a greater number of animals incentivizes the

farmer to set aside a piece of his land particularly for fodderproduction reducing his overal l costs. If he doesnt have a gre ater number of animals,

setting aside a piece of land might result in a higher opportunity cost and he may

decide against doing

so.

Thirdly, since the supply of the irrigable land that can be set aside for fodder is limited,

the government might feel the need to subsidize fodder. However, I argue there is little

need to do so. The higher demand for fodder will be an incentive itself to farmers in theform of higher prices. Milk producers, who own land, will set aside more of their land

to produce fodder pushing down its demand. The government could create incentives

for farmers who produce fodder to improve the productivity of fodder farms, and form

partnerships with private players to set up additional feed processing facilities.

Source - India is world largest milk producer! | Agriculture and Industry ...

www.agricultureinformation.com
http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/


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What does the Indian Dairy Industry has to Offer to Foreign Investors?

India is a land of opportunity for investors looking for new and expanding markets.

Dairy food processing holds immense potential for high returns. Growth prospects in

the dairy food sector are termed healthy, according to various studies on the subject.

The basic infrastructural elements for a successful enterprise are in place.

Key elements of free market system raw material (milk) availability an established infrastructure of technology

supporting manpower

An entrepreneur's participation is likely to provide attractive returns on the investment

in a fast growing market such as India, along with an export potential in the Middle

East, Singapore, Malaysia, Indonesia, Korea, Thailand, Hong Kong and other countries

in the region.

Among several areas of potential participation by NRIs and foreign investors.

Following list outlines a few promising opportunities:-

Biotechnology

Dairy cattle breeding of the finest buffaloes and hybrid cows Milk yield increase with recombinant somatotropin Recombinant chymosin, acceptable to vegetarian consumers Dairy cultures, probiotics, dairy biologics, enzymes and coloring materials for food

processing


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Retailing

There is scope for standardizing and upgrading food retailing in major metropolitan

cities to meet the shopping needs of a vast middle class. This area includes grocery

stores of European and North American quality, warehousing and distribution.

Product development

Dairy foods can be manufactured and packaged for export to countries where Indian

food enjoys basic acceptance. The manufacturing may be carried out in contract plants

in India. An option to market the products in collaboration with local establishments or

entrepreneurs can also be explored. Products exhibiting potential include typical

indigenous dairy foods either not available in foreign countries or products whose

authenticity may be questionable. Gulabjamuns, Burfi, Peda, Rasagollas, and a host of

other Indian sweets have good business prospects. Products typically foreign to India but indigenous to other countries could also be

developed for export. Such products can be manufactured in retail package sizes and

could be produced from milk of sheep, goats and camel. Certain products are

characteristically produced from milk of a particular species. For example, Feta cheese

is used in significant tonnage, in Iran. Sheep milk is traditionally used for authentic Feta

cheese. Accordingly, India's goat and sheep herds can be utilized for the manufacture of

such authentic products.


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Ingredient manufacture

Export markets for commodities like dry milk, condensed milk, ghee and certain cheese

varieties are well established. These items are utilized as ingredients in foreign

countries. These markets can be expanded to include value-added ingredients like

aseptically packaged cheese sauce and dehydrated cheese powders.

Cheese sauce: Canned cheese sauce is made from real cheese to which milk, whey,

modified food starch, vegetable oil, colorings and spices may be added. Cheese sauce is

useful in kitchens for the preparation of omelet, sandwiches, entrees, and soups. Inaddition, cheese sauce is used as a topping on potatoes and vegetables and may be

incorporated in pasta dishes. Cheese powders: Cheese powders are formulated for dusting or smearing of popular

snacks like potato chips, crackers, etc. They impart flavor and may be blended with

spices.

With the globalization of food items, an opportunity should open up for food serviceand institutional markets.

Technology-driven manufacturing units

These plants would fulfil an essential need by providing a centralized and specialized

facility for hire by the units which cannot justify capital investment but do need such

services. Potential areas for state-of-the-art contract-pack units may conceivably


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specialize in cheese slicing, or dicing line, cheese packaging, butter printing, and aseptic

packaged fluid products.

Training centers for continuing education

NRIs could set up technology transfer and updating centers for conducting seminars

and workshops - catering to the needs of workers at all levels of the dairy industry.

Here technical, marketing and management topics can be offered to ensure that the

manpower continues to acquire the latest know-how of their respective fields.

The entrepreneurs need powerful tools to implement their plans. Appropriate

investment and involvement by NRIs can serve as a catalyst for India's dairy food

industry leading to exploration of business potential in domestic and export trade. Risk

factors must be identified and managed by in-depth study of chosen areas so thatchances of rewards are maximized under the current liberalization climate.

Source - India is world largest milk producer! | Agriculture and Industry ...

www.agricultureinformation.com
http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/http://www.agricultureinformation.com/mag/2006/02/india-is-world-largest-milk-producer/


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Indian (traditional) Milk Products

There are a large variety of traditional Indian milk products such as

Makkhan - unsalted butter.

Ghee - butter oil prepared by heat clarification, for longer shelf life.

Kheer - a sweet mix of boiled milk, sugar and rice.

Basundi - milk and sugar boiled down till it thickens.

Rabri - sweetened cream.

Dahi - a type of curd.Lassi - curd mixed with water and sugar/ salt.

Channa/Paneer - milk mixed with lactic acid to coagulate.

Khoa - evaporated milk, used as a base to produce sweet meats.

The market for indigenous based milk food products is difficult to estimate as most of

these products are manufactured at home or in small cottage industries catering to local

areas.

Consumers while purchasing dairy products look for freshness, quality, taste and

texture, variety and convenience. Products like Dahi and sweets like Kheer, Basundi,

Rabri are perishable products with a shelf life of less than a day. These products are

therefore manufactured and sold by local milk and sweet shops. There are several such

small shops within the vicinity of residential areas. Consumer loyalty is built by

consistent quality, taste and freshness. There are several sweetmeat shops, which havebuilt a strong brand franchise, and have several branches located in various parts of a

city.


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Branding Of Traditional Milk Products

Among the traditional milk products, ghee is the only product, which is currently

marketed, in branded form. main ghee brands are Sagar, MilkMan (Britannia), Amul

(GCMMF), Aarey (Mafco Ltd), Vijaya (AP Dairy Development Cooperative Federation),

Verka ( Punjab Dairy Cooperative), Everyday (Nestle) and Farm Fresh (Wockhardt).

With increasing urbanization and changing consumer preferences, there is possibility of

large scale manufacture of indigenous milk products also. The equipments in milk

manufacturing have versatility and can be adapted for several products. For instance,

equipments used to manufacture yogurt also can be adapted for large scale production

of Indian curd products (dahi and lassi). Significant research work has been done on

dairy equipments under the aegis of NDDB.

Mafco Limited sells Lassi under the Aarey brand and flavoured milk under the Energee

franchise (in the Western region, mainly in Mumbai). Britannia has launched flavored

milk in various flavors in tetra packs.

GCMMF has also made a beginning in branding of other traditional milk products with

the launch of packaged Paneer under the Amul brand. It has also created a new

umbrella brand "Amul Mithaee", for a range of ethnic Indian sweets that are proposed

to be launched The first new product Amul Mithaee Gulabjamun has already been

launched in major Indian markets.


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Western Milk Products

Western milk products such as butter, cheese, yogurt have gained popularity in the

Indian market only during the last few years. However consumption has been

expanding with increasing urbanization.

Butter

Most Indians prefer to use home made white butter (makkhan) for reasons of taste and

affordability. Most of the branded butter is sold in the towns and cities. The major

brands are Amul, Vijaya, Sagar, Nandini and Aarey. Amul is the leading national brand

while the other players have greater shares in their local markets. The latest entrant in

the butter market has been Britannia. Britannia has the advantages of a wide

distribution reach and a strong brand recall. Priced at par with the Amul brand, it is

expected to give stiff competition to the existing players. In 1999-00 the butter

production is estimated at 4 lakh MT of this only 45K MT is in the white form used for

table purposes rest all is in the yellow form.

Cheese

The present market for cheese in India is estimated at about 9,000 tonnes and is growing

at the rate of about 15% per annum. Cheese is mainly consumed in the urban areas. The

four metro cities alone account for more than 50% of consumption . Mumbai is the

largest market (accounting for 30% of cheese sold in the country), followed by Delhi


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(20%). Calcutta (7%) and Chennai (6%). Mumbai has a larger number of domestic

consumers, compared to Delhi where the bulk institutional segment (mainly hotels) is

larger.

Demand for various types of cheese in the Indian market

Type of cheese % of total

consumption

Processed 50

Cheese spread 30

Mozzarella 10

Flavoured/Spiced 5

Others 5

Source - www.thehindubusinessline.com

The major players are Amul, Britannia, and Dabon International dominating the

market. Other major brands were Vijaya, Verka and Nandini (all brands of various

regional dairy cooperatives) and Vadilal. The heavy advertising and promotions being

undertaken by these new entrants is expected to lead to strong 20% growth in the

segment. Amul has also become more aggressive with launch of new variants such as

Mozzarella cheese (used in Pizza), cheese powder, etc.

The entry of new players and increased marketing activity is expected to expand the

market. All the major players are expanding their capacities.
http://www.thehindubusinessline.com/industry-and-economy/agri-biz/crisil-sees-milk-on-the-boil-as-demand-exceeds-supply/article1561973.ecehttp://www.thehindubusinessline.com/industry-and-economy/agri-biz/crisil-sees-milk-on-the-boil-as-demand-exceeds-supply/article1561973.ecehttp://www.thehindubusinessline.com/industry-and-economy/agri-biz/crisil-sees-milk-on-the-boil-as-demand-exceeds-supply/article1561973.ecehttp://www.thehindubusinessline.com/industry-and-economy/agri-biz/crisil-sees-milk-on-the-boil-as-demand-exceeds-supply/article1561973.ece


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Capacity expansion in Cheese


Milk Powder

Milk powder are mainly of 2 types

Whole milk powder

Skimmed milk powder

Whole milk powder contains fat, as distinguished from skimmed milk powder, which is

produced by removing fat from milk solids. Skimmed milk powder is preferred by diet

conscious consumers. Dairy whiteners contain more fat than skimmed milk powder but

less compared to whole milk powder. Dairy whiteners are popular milk substitute for

Company Brands State Capacity

Dynamix

Group

Manufactures for

Britannia

Maharashtra 35 tons

per day

GCMMF Amul Gujarat 20 tons

per day

APDDCF Vijaya Andhra

Pradesh

10 tons

per day


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making tea, coffee etc. The penetration of these products in milk abundant regions is

driven by convenience and non perishable nature (longer shelf life) of the product.

Dairy sector of advanced nations export milk products with a subsidy of $ 1000 per

tonne with a level of subsidy more than 60 % of the price of milk powder produced in

India, this has led to large scale imports of milk powder both in whole and skimmed

form. To protect the domestic sector from these subsidized imports the central

government has recently increased the basic import duty on all imports of milk powder

more than 10000 MT to 60% from 15%. For imports less than 10000 MT the basic

customs duty has been left unchanged at 15%.

In 1999-00 India is estimated to have imported about 18,000 tonnes of milk powder

against a total estimated production of 2.40 Lakh MTs. In 2000-01 India is expected to

export 10000 MT of skimmed milk powder due to rise in international prices to $2300

per MT from last year's levels of $1400 per MT. These expectations are based on the

strong demand from Russia, East Asia and Latin America, and also on tightening of

supply in EU, which accounts for 75% of the annual global Skimmed Milk Powder

exports.

Major Players

Milk Powder/Dairy Whiteners : Major skimmed milk brands are Sagar (GCMMF) and

Nandini (Karnataka Milk Federation), Amul Full Cream milk powder is a whole milk

powder brand.

Leading brands in the dairy whitener segment are Nestle's Everyday, GCMMF's

Amulya, Dalmia Industry's Sapan, Kwality Dairy India's KreamKountry, Wockhardt's

Farm Fresh and Britannia's MilkMan Dairy Whitener.


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Condensed Milk

The condensed milk market has grown from 9000 MT in 1998 to 11000 MT in 1999.

Condensed milk is a popular ingredient used in home-made sweets and cakes. Nestle's

Milkmaid is the leading brand with more than 55% market share. The only other

competitor is GCMMF's Amul.

Value addition in milk powder - Infant Foods

Nestle is the market leader in the segment. This is a category where brand loyalties are

very strong as mothers want the best for their babies. Heinz is the only other significant

competitor to Nestle in this segment. Nestle's Cerelac and Nestum together have

around 80% market share and Heinz's Farex has close to 18% share. Wockhardt is a

relatively new entrant with its First Food brand. Wockhardt also proposes to launch a

new baby food Easum containing moong (moong is one of the easily digestible pulses).The Easum brand will directly compete with Nestle's Nestum (made from rice).

In infant formula also Nestle's Lactogen formula and Lactogen standard formula are the

leading brands with around 75% market share. Other brands are Heinz's Lactodex

Farex, Wockhardt's Raptakos, and Amul's Amulspray.


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Regulatory Framework

The dairy industry was de-licensed in 1991 with a view to encourage private investment

and flow of capital and new technology in the segment. Although de-licensing attracted

a large number of players, concerns on issues like excess capacity, sale of

contaminated/ substandard quality of milk etc induced the Government to promulgate

the MMPO (Milk and Milk Products Order) in 1992. Milk and Milk Products Order

(MMPO) regulates milk and milk products production in the country. The order

requires no permission for units handling less than 10,000 litres of liquid milk per day

or milk solids up to 500 tpa. MMPO prescribes State registration to plants producing

between 10,000 to 75,000 litres of milk per day or manufacturing milk products

containing between 500 to 3,750 tonnes of milk solids per year. Plants producing over

75,000 litres per day or more than 3,750 tonnes per year of milk solids have to be

registered with the Central Government. The stringent regulations, government

controls and licensing requirements for new capacities have restricted large Indian and

MNC players from making significant investments in this product category. Most of the

private sector players have restricted themselves to manufacture of value added milk

products like baby food, dairy whiteners, condensed milk etc.

All the milk products except malted foods are covered in the category of industries for

which foreign equity participation up to 51% is automatically allowed. Ice cream, which

was earlier reserved for manufacturing in the small-scale sector, has now been de-

reserved. As such, no license is required for setting up of large-scale production

facilities for manufacture of ice cream.

Subsequent to de-canalization, exports of some milk based products are freely allowed

provided these units comply with the compulsory inspection requirements of

concerned agencies like: National Dairy Development Board, Export Inspection Council


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etc. Bureau of Indian standards has prescribed the necessary standards for almost all

milk-based products, which are to be adhered to by the industry.

Proposal to Amend the MMPO

A proposal to raise the exemption limit for compulsory registration of dairy plants,

from the present 10,000 litres a day to 20,000 litres, is being considered by the Animal

Husbandry Department. The 75,000-litre limit is likely to be raised either to 100,000

litres or 125,000 litres in the amended order. The new order would also do away with

the provision for re-registration.

Amul's secret of success

The system succeeded mainly because it provides an assured market at remunerative

prices for producers' milk besides acting as a channel to market the production

enhancement package. What's more, it does not disturb the agro-system of the farmers.

It also enables the consumer an access to high quality milk and milk products. Contrary

to the traditional system, when the profit of the business was cornered by the

middlemen, the system ensured that the profit goes to the participants for their socio-economic upliftment and common good.

Looking back on the path traversed by Amul, the following features make it a pattern

and model for emulation elsewhere. Amul has been able to:


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Produce an appropriate blend of the policy makers farmers board of management and

the professionals: each group appreciating its roles and limitations Bring at the command of the rural milk producers the best of the technology and

harness its fruit for betterment Provide a support system to the milk producers without disturbing their agro-economic

systems Plough back the profits, by prudent use of men, material and machines, in the rural

sector for the common good and betterment of the member producers and Even though, growing with time and on scale, it has remained with the smallest

producer members. In that sense, Amul is an example par excellence, of an intervention

for rural change.

The Union looks after policy formulation, processing and marketing of milk, provision

of technical inputs to enhance milk yield of animals, the artificial insemination service,

veterinary care, better feeds and the like - all through the village societies.

The village society also facilitates the implementation of various production

enhancement and member education programs undertaken by the Union. The staff of

the village societies have been trained to undertake the veterinary first-aid and the

artificial insemination activities on their own.

Amul's success: A model for other districts to follow.

Amul's success led to the creation of similar structures of milk producers in other

districts of Gujarat. They drew on Amul's experience in project planning and execution.

Thus the 'Anand Pattern' was followed not just in Kaira district but in Mehsana,

Sabarkantha, Banaskantha, Baroda and Surat districts also. Even before the Dairy Board

of India was born, farmers and their leaders carried out empirical tests of the


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hypotheses that explained Amul's success. In these districts, milk producers and their

leaders experienced significant commonalties and found easy and effortless ways to

adapt Amul's gameplan to their respective areas. This led to the Creation of the

National Dairy Development Board with the clear mandate of replicating the 'Anandpattern' in other parts of the country. Initially the pattern was followed for the dairy

sector but at a later stage oilseeds, fruit and vegetables, salt, and tree sectors also

benefited from it's success.

GCMMF: An Overview

Gujarat Cooperative Milk Marketing Federation (GCMMF) is India's largest food

products marketing organization. It is a state level apex body of milk cooperatives in

Gujarat which aims to provide remunerative returns to the farmers and also serve the

interest of consumers by providing quality products which are good value for money.

Members: 12 district cooperative

milk producers' Union

No. of Producer Members: 2.12 million

No. of Village Societies: 10,411

Total Milk handling capacity: 6.1 million litres per day


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Milk collection (Total - 1999-

00):

1.59 billion litres

Milk collection (Daily Average1999-00):

4.47 million litres

Milk Drying Capacity: 450 metric Tons per day

Note - Cattle feed manufacturing Capacity: 1450 Mts per day.

Sales Turnover Rs (million) US $ (in million)

1994-95 11140 355

1995-96 13790 400

1996-97 15540 450

1997-98 18840 455

1998-99 22192 4931999-00 22185 493


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Major dairy products manufacturers

Some of the major dairy products manufacturers in the country

Company Brands Major Products

Nestle

India

Limited

Milkmaid,Cerelac,

Lactogen, Milo,

Everyday

Sweetened condensed

milk, malted foods, milk

powder and Dairy

whitener

Milkfood

Limited

Milkfood Ghee, ice cream, and other

milk products

SmithKline

Beecham

Limited

Horlicks, Maltova,

Viva

Malted Milkfood, ghee,

butter, powdered milk,

milk fluid and other milk

based baby foods.Indodan

Industries

Limited

Indana Condensed milk, skimmed

milk powder, whole milk

powder, dairy milk

whitener, chilled and

processed milk

Gujarat

Co-

operative

Amul Butter, cheese and other


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milk

Marketing

Federation

Limited

milk products

H.J. Heinz

Limited

Farex, Complan,

Glactose,

Bonniemix,

Vitamilk

Infant Milkfood, malted

Milkfood

Britannia Milkman Flavoured milk, cheese,

Milk Powder, Ghee

Cadbury Bournvita Malted food



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Future Prospects

India is the world's highest milk producer and all set to become the world's largest food

factory. In celebration, Indian Dairy sector is now ready to invite NRIs and Foreign

investors to find this country a place for the mammoth investment projects. Be it

investors, researchers, entrepreneurs, or the merely curious Indian Dairy sector has

something for everyone.

Milk production is relatively efficient way of converting vegetable material into animal

food. Dairy cows buffaloes goats and sheep can eat fodder and crop by products which

are not eaten by humans. Yet the loss of nutrients energy and equipment required in

milk handling inevitably make milk comparatively expensive food. Also if dairying is to

play its part in rural development policies , the price to milk producers has to be

remunerative. In a situation of increased international prices, low availabilities of food

aid and foreign exchange constraints, large scale subsidization of milk conception will

be difficult in the majority of developing countries.

Hence in the foreseeable future, in most of developing countries milk and milk products

will not play the same roll in nutrition as in the affluent societies of developedcountries. Effective demand will come mainly from middle and high income consumers

in urban areas.

There are ways to mitigate the effects of unequal distribution of incomes. In Cuba

where the Government attaches high priority to milk in its food and nutrition policy, all

pre-school children receive a daily ration of almost a litre of milk fat the reduced price.

Cheap milk and milk products are made available to certain other vulnerable groups,by milk products outside the rationing system are sold price which is well above the

cost level. Until recently, most fresh milk in the big cities of China was a reserved for

infants and hospitals, but with the increase in supply, rationing has been relaxed.


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In other countries dairy industries have attempted to reach lower income consumers by

variation of compositional quality or packaging and distribution methods or blending

milk in vegetable ingredients in formula foods for vulnerable groups. For instance,

pricing of products rich in butter fat or in more luxury packaging above cost level so asto enable sales of high protein milk products at a some what a reduced price has been

widely practiced in developing countries. This policies need to be brought in Indian

Dairy scenario.

Reference - The indian dairy industry overview - Series 1

www.slideshare.net/.../the- indian -dairy -industry -overview-series-1-1...

2 Jan 2012 An Overview of the Indian Dairy Industry & Segmentswithin. business.mapsofindia.com milk-co-operatives

www.socialsciences-ejournal.org/4.6.Parameswara%20Reddy.pdf (growth of dairy

industry)
http://www.google.co.in/url?sa=t&rct=j&q=dairy%20industry%20in%20india&source=web&cd=4&cad=rja&ved=0CD4QFjAD&url=http%3A%2F%2Fwww.slideshare.net%2Fsubby123%2Fthe-indian-dairy-industry-overview-series-1-10762575&ei=yXZJUPP4L8rQrQev-oHwCg&usg=AFQjCNHA7EtwgdDhqa357LSwBbV7WpPZ7Ahttp://www.google.co.in/url?url=http://business.mapsofindia.com/milk-co-operatives&rct=j&sa=X&ei=yXZJUPP4L8rQrQev-oHwCg&ved=0CEsQ6QUoADAF&q=dairy+industry+in+india&usg=AFQjCNFhXgqcO5RtXZ3DP-0ABmntXwk5cQhttp://www.socialsciences-ejournal.org/4.6.Parameswara%20Reddy.pdfhttp://www.socialsciences-ejournal.org/4.6.Parameswara%20Reddy.pdfhttp://www.google.co.in/url?url=http://business.mapsofindia.com/milk-co-operatives&rct=j&sa=X&ei=yXZJUPP4L8rQrQev-oHwCg&ved=0CEsQ6QUoADAF&q=dairy+industry+in+india&usg=AFQjCNFhXgqcO5RtXZ3DP-0ABmntXwk5cQhttp://www.google.co.in/url?sa=t&rct=j&q=dairy%20industry%20in%20india&source=web&cd=4&cad=rja&ved=0CD4QFjAD&url=http%3A%2F%2Fwww.slideshare.net%2Fsubby123%2Fthe-indian-dairy-industry-overview-series-1-10762575&ei=yXZJUPP4L8rQrQev-oHwCg&usg=AFQjCNHA7EtwgdDhqa357LSwBbV7WpPZ7A


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Government and Cooperative Response

As discussed in the introduction, the government has moved in this regard by

introducing a National Dairy Plan, the first phase of which is being partly funded by

the World Bank. The plan is aimed at increasing the quality of the animal through

artificial insemination, and setting up plants to augment cattle feed. Though the dairy

plan does state so otherwise, the government

could also consider investing in research to increase the yield per acre of fodder and

feed in addition to setting up feed plants.

20 I had the opportunity to share my preliminary findings with Mr. Rahul Kumar,

Managing Director of Kaira District Co- operative Milk Producers Unio n Ltd. He

mentioned that he too expected milk demand to double in the next decade. He expects

consolidation in the milking

arena from smaller producers to medium size producers and increase in number of milk

farms.

In order to meet the new demand, there will be need to be increase in the number of

animals/producer as well as an increase in the productivity of each of those animals.He envisions increased productivity through higher breed of cows, and introduction of

milking machines (which cost Rs. 48000 and can milk four cows at a time, and are

subsidized to cost Rs. 24000 to a farmer). Amul is taking steps to support the transition

from smaller (1-2 animals) which constitute 80% of Amuls procurement to larger

farmers which constitute about 20% of its

procurement. It is envisioning giving smaller milk coolers to milk farmers and

collecting their output directly, instead of those milk producers visiting their milk dairy(resulting in higher

transportation expenses and wastage of time). Furthermore, the cooperative has

partnered with banks to provide low cost loans to farmers, who are deemed credit


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worthy by their local village society. The credit worthiness of farmers is determined by

the secretary of the village milk

collection society, who oversees the daily collection of milk in the local village dairy.

These loans cost roughly 10% (1% above the existing rate) instead of the loans a farmerwould be able

to get otherwise (at 13-14%) if he is able to pass all the hurdles the banks throw at him.

Amul facilitates farmers getting loans by guaranteeing that they will pay by deducting

their principal and interest from the amount of milk they pour at the dairy. Loan is

necessary because most of

these farmers (80% who own 1-2 animals) do not accumulate capital over the course of

the year through selling of milk because the net income they generate through thisactivity goes into running their households. Thus loans are necessary in order to buy a

better breed and quality of

animals (which cost more) as well as to increase the number of animals they currently

own. Mr. Kumar agreed with the fact that there will be consolidation over the next 10

years as individuals

realize the economies of scale and they will move in this direction due to high labor and

feeding costs. He also agreed with the finding that individuals who are able to sustainthis activity need to have some amount of token land where they can grow some of the

fodder because home grown fodder costs significantly less than (1/5 of market price)

the price it is available in the market .


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Possible Challenges

The above steps face a couple of challenges, excluding the ones pertaining to

implementation.

1) Real Estate Prices : In the area that I surveyed, real estate prices have skyrocketed

in the past

few years. According to farmers, farmers with land are selling a portion of their land

holdings,

which are being converted from agricultural to residential land diminishing the overall

land area for agriculture. This will result in a local shortage of fodder, and put an

upward pressure on

fodder prices. Even if the upward pressure on prices does not materialize, it will force

several

milk producers to purchase fodder at market prices diminishing their net income and

some instances even making milking unsustainable. When I discussed this phenomenon

with Mr.Rahul Kumar, he stated that high real estate prices are prevalent only in villages in close

proximity to urban centers. He stated that farmers internally are not selling their land

because there are few purchasers of those land holdings. However, this problem does

result in the need to

produce more fodder from a smaller pool of irrigable land. The dairy plan could

potentially also

focus improving the productivity of the remaining irrigable land set aside for fodderand cattle

feed.


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2) Rate of Return : As discussed in the above paragraph, land prices affect the rate of

return that

is required by farmers to be in this business. If a farmer has a choice between either

earning 9%(fixed deposit rates in India) on the money he has received by selling the land or

milking, it will

depend on the rate of return. In the sensitivity table, the rates of return were calculated

only for an annual year. In the following example, I calculate a return for a piece of land

that the farmer

could use for his milking enterprise. The cost of construction of a shed would Rs. 1

Million and purchasing 10 cows would cost anywhere between Rs. 250,000 Rs.400,000. Let us use the market price that we used earlier which is Rs. 25, 000 for an

animal. We will peg the monthly net

income earned from an animal at Rs. 2500, and multiplied by 10 each month will result

in a monthly income of the farm of Rs. 250,000. We realize that the rate of return is a

comfortable 20%, and the farmer would be happy to pursue such an activity. The rate of

return calculated in

this instance is an internal rate of return. However, we must not forget the fact that this

would elevate milking from a secondary source of income to a primary source of

income. We must also remember that milking would experience higher volatility than

placing ones money in a fixed .


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3) Labor Shortage :In the above example, we have calculated monthly net income excluding labor costs.

We have operated under the assumption, that this activity will be pursued by members

of the household who otherwise have no other outlet to generate activity. However, this

would not be a correct assumption when discussing a milk farm. The family is likely to

hire a farm hand, and due to labor shortages in the area, likely to pay him around Rs.

4000/month to take care and run the enterprise. Let us see how that affects internal rate

of return.


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The inclusion of labor costs reduced the internal rate of return by 25%. If the farmer has

to pay

the farm hand a Rs. 1000/month, IRR drops to 14%. The IRR in milking is still higher

than that

rate of return offered by the checking account, but if he sells his land for a high enough

price, hisabsolute monthly income could be higher than the one generated via milking.


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Table 5: Market prices of items at which cost of feed was calculated

Source - www.indiawaterportal.org
http://www.google.co.in/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=twxeS0TkTzPjkM&tbnid=KglFvA6C9jiWDM&ved=0CAcQjB0&url=http%3A%2F%2Fwww.indiawaterportal.org%2Farticles%2Fstatistical-year-book-india-2013-compilation-data-sets-ministry-statistics-and-programme&ei=7VobU7ePM8bVrQeM-YC4DQ&psig=AFQjCNGd9LurNTc2AX81BsqoCDTSkXQaqg&ust=1394388077933204http://www.google.co.in/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=twxeS0TkTzPjkM&tbnid=KglFvA6C9jiWDM&ved=0CAcQjB0&url=http%3A%2F%2Fwww.indiawaterportal.org%2Farticles%2Fstatistical-year-book-india-2013-compilation-data-sets-ministry-statistics-and-programme&ei=7VobU7ePM8bVrQeM-YC4DQ&psig=AFQjCNGd9LurNTc2AX81BsqoCDTSkXQaqg&ust=1394388077933204http://www.google.co.in/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=twxeS0TkTzPjkM&tbnid=KglFvA6C9jiWDM&ved=0CAcQjB0&url=http%3A%2F%2Fwww.indiawaterportal.org%2Farticles%2Fstatistical-year-book-india-2013-compilation-data-sets-ministry-statistics-and-programme&ei=7VobU7ePM8bVrQeM-YC4DQ&psig=AFQjCNGd9LurNTc2AX81BsqoCDTSkXQaqg&ust=1394388077933204http://www.google.co.in/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=twxeS0TkTzPjkM&tbnid=KglFvA6C9jiWDM&ved=0CAcQjB0&url=http%3A%2F%2Fwww.indiawaterportal.org%2Farticles%2F

milk price with context to india

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