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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=13943794078077758/12/2019 Milk price with context to India
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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=13943794078077758/12/2019 Milk price with context to India
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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.htm8/12/2019 Milk price with context to India
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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/8/12/2019 Milk price with context to India
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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/8/12/2019 Milk price with context to India
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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.ece8/12/2019 Milk price with context to India
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Capacity expansion in Cheese
Source - www.thehindubusinessline.com
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
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.ece8/12/2019 Milk price with context to India
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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
Source - www.thehindubusinessline.com
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.ece8/12/2019 Milk price with context to India
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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=AFQjCNHA7EtwgdDhqa357LSwBbV7WpPZ7A8/12/2019 Milk price with context to India
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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%2FTop Related