DAIRY SECTOR IN INDIA: CHANGING DYNAMICS

Meeta Punjabi Mehta

Creative Agri Solutions Pvt. Ltd, New Delhi

Livestock and Fish India Dairy Value Chain Team Meeting

2nd May, 2012, Heritage Village Hotel, Manesar, India

Layout of the Presentation

1. Dairy Sector in the News

2. Changing dynamics in the Indian Dairy Industry

3. Dairy Sector – Key Statistics

4. Regulatory Environment

5. Major concerns for the dairy industry

6. Existing Models of Dairy Supply Chains

7. Recent Launch of the National Dairy Plan

8. Potential areas of focus

DAIRY INDUSTRY IN THE NEWS

News – Farmer prices

• Milk suppliers observe daylong hunger strike over unfair pricing by private companies

• "We get 18 rupees per litre and that milk is sold at 40-45 rupees per litre despite being adulterated. It is very unfortunate that middlemen take away our share of money in the process.

News - Retail prices• Alarming Trend: milk prices go up at least twice a year.

Since February 2006, the NCR witnessed at least 12 price revisions from Rs.19 to Rs.40 per litre for full cream milk.

• The retail inflation data that the government released in February this year reveals that milk and other dairy products became 16.53 per cent more expensive every year compared to "food and beverages", which reported a modest price hike of 4.11 per cent.

News - adulteration• Stating that dairy companies sell more milk than what is

being purchased, the GSS (farmer organization) alleged that adulteration of the commodity is rampant. “Twenty lakh litres of milk is purchased from farmers while 60 lakh litres is sold in the market. Where does the excess milk come from? This proves that the companies sell adulterated milk”. “Even when there is shortage of milk, it does not affect the company supply, raising doubts about dairy companies selling adulterated milk.”

• "Middle men have been selling milk, which is adulterated with urea, dap, caustic soda to these private companies and that is sold to the consumers.

News - investments

• Dairy products: Entry of new competition

• Goodricke to seek RBI nod for entering dairy biz

• IFFCO, New Zealands Fonterra set up investment

• World Bank to provide $352mn for dairy development in India

CHANGING DYNAMICS IN THE INDIAN DAIRY INDUSTRY

Changing Dynamics in the Indian Dairy Industry – Self-sufficiency to Shortfall

• India emerged as the leading producer of milk in 1998 • In 2010-11 milk production was 121 million tons (4%

growth rate). • Based on NDDB estimates, milk demand is growing at

twice this rate, estimated demand in 2020 is 180-200 mn. Tons

• Indicators of imminent shortfall• Consumption of nonfat dry milk is forecast to surpass Indian

production in 2012, reflecting the small but growing deficit• Butter consumption exceeded domestic production in 2010 and is

forecast to do so again in 2011 and 2012.

Changing Dynamics in the Indian Dairy Industry- Unorganized to Organized Sector

• Increase in the volume of marketed surplus going through organized sector as more private sector players enter the market

• Major National and Multinational companies investing in scaling up operations: Hatsun, Reliance, HKB, Nestle, Dannon, Britannia, Fonterra

• Setting up large commercial farms• Dairy Motels model

KEY STATISTICS

Smallholder Dairy System• Small holder dairy system 2-4 animals per HH• Marginal and small categories form the core of the milk

production sector• They formed 58% of all holdings but accounted for as

much as 71% of the in-milk bovine stock in 2002-03. • Substantial increase in the percentage share of the

marginal category in the in-milk bovine population during the last thirty years, from 20% in 1971- 72 to 31% in 1981-82, then to 44% in 1991-92, 52% in 2002-03.

• Dairy complements household income year round, while income from crops is seasonal.

Milk Production & Per Capita Availability (1991-2011)

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-1999

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06  

2006-07

2007-08

2008-09

2009-10

2010-11

0.00

50.00

100.00

150.00

200.00

250.00

300.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Per Capita Availibilty (gms/day) Production (Million Tonnes)

Over a time period of two decades the average growth rate of milk production has been around 4.2 % while that of per capita availability is around 2.4%.

Milk Production: Top 10 States (‘000 Tonnes)

State 2010-2011Uttar Pradesh 21031

Rajasthan 13234Andhra Pradesh 11203

Punjab 9423Gujarat 9321

Maharashtra 8044Madhya Pradesh 7514

Tamil Nadu 6831Bihar 6517

Haryana 6267

Per Capita Availability of Milk by States (gms/day)

State 2009-2010Top 5 States

Punjab 944Haryana 662Gujarat 418Rajasthan 395Uttaranchal 387

Bottom 5 StatesTripura 77Delhi 72Assam 69

Arunachal Pradesh 59

Mizoram 29

Livestock Population in India by Species from 1951-2007 (In million)

1951 1956 1961 1966 1972 1977 1982 1987 1992 1997 2003 20070

50

100

150

200

250

300

350

Cattle

Adult Female Cattle

Buffalo

Adult Female Buffalo

Total Bovines

Livestock Population in India by Species 1951-2007 (In million)

1951 1956 1961 1966 1972 1977 1982 1987 1992 1997 2003 20070

10

20

30

40

50

60

70

80

Adult Fe-male Cattle

Adult Fe-male Buffalo

Change in Livestock Population by Species (1951-2007)

1951-56

1956-61

1961-66

1966-72

1972-77

1977-82

1982-87

1987-92

1993-97

1997-03

2003-07

-4

-3

-2

-1

0

1

2

3

4

5

Cattle

Adult Female Cattle

Buffalo

Adult Female Buffalo

Total Bovines

Change in Livestock Population by Species (1951-2007)

1951-56

1956-61

1961-66

1966-72

1972-77

1977-82

1982-87

1987-92

1993-97

1997-03

2003-07

-4

-3

-2

-1

0

1

2

3

4

5

Adult Fe-male Cattle

Adult Female Buffalo

Per Capita Monthly Consumption Expenditures in Milk & Milk Products

 

% Expenditure on Milk & Milk

Products

% Expenditure on Meat, Egg

and Fish

% Total Food Expenditure out of Total Expenditure

1970-71Rural 11.66 3.93 73.58Urban 14.72 5.58 64.41

1982Rural 11.46 4.61 65.57Urban 15.62 6.10 59.12

1990-91Rural 14.28 5.31 65.97Urban 17.42 6.60 56.85

2000-2001Rural 15.43 6.38 56.29Urban 18.95 6.92 43.80

Jan 2004-June 2004Rural 15.63 6.11 53.94Urban 18.80 6.31 41.64

July 2004-June 2005Rural 15.38 6.05 55.05Urban 18.62 6.36 42.51

July 2009-June 2010Rural 13.42 8.31 56.98Urban 15.55 8.17 44.39

Share of Agriculture & Livestock Sector in Gross Domestic Products

Share of Agriculture and Livestock Sector in GDP

(At current prices in Rs.   Crore)

Year

GDP (Total)

GDP (Agriculture)GDP (Livestock

Sector)

Rs. % Share Rs. % Share2004-05 2,971,464 476,634 16.04 119333 4.022005-06 3,389,621 536,822 15.84 127,518 3.762006-07 3,952,241 604,672 15.3 142,695 3.612007-08 4,581,422 716,276 15.63 169,296 3.72008-09 5,282,086 799,517 15.14 188,732 3.572009-10 6,133,230 939,922 15.33 241,177 3.93

Value of Milk Group (At current prices in Rs. Crore)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-100

50000

100000

150000

200000

250000

Value of Milk group is about USD 46 bn, accounting for 2/3 of value of livestock products

REGULATORY ENVIRONMENT FOR DAIRY SECTOR

Regulatory Environment – Private Sector Investments

• Dairy sector was de-licensed in 1991• Milk and Milk Products Order 1992: some controls

• Collection areas/milk sheds specified• Processing capacity fixed

• Revised MMPO in 2002: controls stand withdrawn• Private sector investment in dairying has increased

significantly

Regulatory Environment – Producer OrganizationsChange in regulations relating to co-operatives

• Co-operatives originally the success model for dairy development

• The success could not be replicated for several reasons

• Different regulations in each state• Interference of government, became quasi-

government organizations, not democratic organizations representing farmer interest

• Modified co-operative legislation to address concerns• Mutually Aided Co-operative Society (MACS

implemented only in some states)

Regulatory Environment-Producer Organizations

• New regulation for “Producer Companies”• Set up under Companies Act, 1956 • Conceptually strong model on the lines of private company

• Faced challenges in implementation because model too sophisticated and complex for involvement of small farmers

• Ongoing dialogue for a separate legislation for producer companies

Regulatory Environment – Food Safety Regulations • Under the mandate of the Food Safety and Standards act

of 2006, the FSSAI has consolidated various food laws, including the Milk and Milk Products Regulation (MMPR) 2009, into one umbrella, Food Safety and Standards Regulation, 2011 enforced in August 2011.

• Mandatory licensing for food processors, from relevant state or central authority, depending on scale and scope

• Food business operators are expected to assume their responsibility for safety in production, import, distribution, and sale of food.

Regulatory Environment- Trade• Traditionally, India has been an importer of dairy products• For the first time in 1993, exports exceeded imports• Since 1993, exports grew significantly• India’ share in global trade is less than 1% because of

high domestic consumption• Recent change, ban on exports to address the issue of

rising prices• Imports with quotas and restrictions

KEY CONCERNS

Key Concerns – Veterinary servicesVeterinary Services (Extension/Breeding/Health)

• Agriculture is a state policy in India, center cannot enforce policies, state interventions are driven by the ideologies and interests of the state government.

• DAHD is with the Ministry of Agriculture

• DAHD has a network of veterinarians providing livestock veterinary services

• Overall, extension is almost non-existent, poor coverage for AI and health services, though improving (20% coverage for AI, FMD coverage 25%)

• Efforts to enhance coverage through paravets & CBAHW

• E-vet project in Madhya Pradesh, innovation in service delivery

Key Concerns - InputsFeed/Fodder•Depletion of CPRs (due to urbanization, development projects, land encroachments, government policies pertaining to re-allocation and distribution of wastelands)

•Specific problems in arid/semi-arid areas

•Management of CPRs

•Quality and affordability of feed-mix is an issue

Credit

•Poor access to institutional credit

•Credit through informal channel has very high loan rate, and results in exploitation of farmer through lower milk prices

Key concerns – Production System

• Low productivity, large number of unproductive animals, poor genetic resources, poor feeding practices

• Quality of milk, amount of time taken for milk to reach to bulk cooling/chilling center

• Mechanization, intensification is low (though emerging in progressive states as Punjab)

Key Concerns - MarketingMarketing

• About 50-55% of milk for home consumption

• Of the marketed surplus 80-85% goes through unorganized channel

• Three major channels – Co-operative, traditional dudhiya, private sector

• Co-operatives are price-setters (implication of weak co-operative system on farmer prices)

• Other players pay somewhat higher than the co-operative price (co-op price is the benchmark)

• Premium on fat content hence buffalo milk fetches higher price, cow milk pricing based on total solids

• In a large part of the country, there are no testing facilities at the village level, implications for transparency in pricing

Comparative Analysis of existing value chains in Dairy (Study conducted for FAO, 2008)

• Strong organized sector models: co-operative sector (Amul Co-operative), and private sector (Nestle)

• Weak Organized Sector Models: co-operative sector (Comfed, Bihar), weak private sector model (Heritage Dairy)

• Traditional Model: Local dudhiya involved in milk collection

EXISTING MODELS OF DAIRY SUPPLY CHAINS

Comparative Analysis of existing value chains in DairyExisting Models Veterinary Services (Health, Breeding and

Extension)

Strong Organized System

• Co-ordinates veterinary services (vaccines, AI, availability of medicines at cost )

• Investment on extension activities

Weak Organized System

• Weak/No co-ordination of veterinary services• Limited/No emphasis on extension activities

Traditional Dudhiya System

• No involvement in veterinary services• No involvement in extension activities

Comparative Analysis of existing value chains in DairyExisting Models Inputs (feed and credit)

Strong Organized System

• Arrangement for quality feed at nominal rates• Involves with bank to organize credit

Weak Organized System

• Limited/No involvement in ensuring feed supply• Limited/No involvement with organizing credit

Traditional DudhiyaSystem

• No arrangement for quality feed• Provides informal credit when required

Comparative Analysis of existing value chains in DairyExisting Models Production System

Strong Organized System

• Potential implication on productivity and cost because of breed development and extension focus on feeding practices

• Strong support system to mechanized farms with larger herd size

Weak Organized System

• Possibly low productivity and higher costs because of non-scientific feeding practices, results in lower income from dairy (depends on relative development of the dairy system)

Traditional Dudhiya System

• Possibly low productivity and higher costs because of non-scientific feeding practices, results in lower income from dairy (depends on relative development of the dairy system)

Comparative Analysis of existing value chains in Dairy

Existing Models Marketing System

Strong Organized system

• Milk collection at specified booth of the organization• Sale of milk based on testing/transparent system• Regular payment (weekly or biweekly)• Direct payment from the organization• For co-operatives, farmers are also a part of the profits, not

in the case of private company

Weak Organized System

• Milk collection through agents• No testing of milk, pricing at the whim of the agent• Payment through agents, no direct relationship between

organization and buyer• Difference between price received and price received by

farmers• Even in the case of co-operatives, benefits not passed on to

the farmers

Traditional Dudhiya System

• No milk testing• Prices slightly higher than co-op prices (credit linked)

Comparative Analysis of existing value chains in DairyExisting Models

Marketing System

Strong Organized system

• Clean milk practices at village level• Efficient transportation • Good infrastructure for bulk coolers/Chillers

Weak Organized System

• Lack of focus on clean milk practices• Inefficient transportation

Traditional Dudhiya System

• Lack of focus on clean milk practices

Comparative Analysis of existing value chains in DairyExisting Models

Processing

Strong Organized system

• Certified plant meeting quality norms, • Have a variety of quality products catering to

children and younger generation (yoghurt, flavored milk)

• Selling mostly in metros, market expansion in urban areas

Weak Organized System

• Quality of products is an issue, though has improved

• Traditional products• Tapping only the urban market

Traditional Dudhiya System

NATIONAL DAIRY PLAN

National Dairy Plan• Fifteen years, total outlay (346 Mn USD), funded by World

Bank, Implemented by NDDB • Launched on April 20, 2012 (Phase 1 covers 14 major

dairy producing states)• Focus activities

• Production of High Genetic Material Bulls• Semen Production• Innovative Models for Service Delivery• Ration Development Program• Fodder Development• Village Milk Procurement• Knowledge Sharing

Future Areas of Focus

• Research related to sustainable value chains linking small holder dairy farmers to organized dairy systems

• Research related to impact on farmers of being part of different value chains (implications for price, cost, herd size, income from dairy)

• Research focused on models of Farmer Organizations for developing dairy value chains

• Impact of dairy development on women empowerment and socio-economic implications

• Innovative approaches for enhancing availability of livestock services• Pilots of alternate models for extension activities related to feeding

practices, clean milk production, transparent pricing systems• Identifying approaches for strengthening infrastructure related for

enhancing quality• Research on issues related to food safety and quality