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Growth Sustainability in the Indian Dairy Segment
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Monday, 01 October, 2018, 08 : 00 AM [IST]
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Poonam Yadav
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Dairy is a universal agriculture product. It is an essential part of the global food system and plays a key role in the sustainability of rural areas in particular. The dairy industry actively adds to the economy of several societies, areas, and countries. An increasing demand worldwide is noticeable at present and the industry is globalising thus increasing the scope and intensity of the global dairy trade.
It is estimated that milk production throughout the world will be witnessing an average growth rate of 1.8% per annum by 2025, with an increase of 177 million tonne. In the recent decades, developing countries have increased their share in global dairy production; out of which India is the world’s largest milk producing country.
India produces approximately 13% of the global milk production and also has the world’s largest number of bovine animals. Dairy has become an important secondary source of income for millions of rural families in India and has assumed the most important role in providing employment and generating income opportunities.
However, as the country devours almost all of its own milk production, India has neither been an active importer nor an exporter before the year 2000. But since the white revolution, things have changed; India’s dairy imports have decreased while the exports have increased at a tremendous rate. India consistently exports speciality products like casein for food processing or pharmaceuticals.
Despite this, the majority of the dairy industry in India is still highly unorganised and is dominated by small and marginal dairy farmers. Regardless of India being the largest milk producer, only 35% of the milk is processed and that too with a number of challenges in terms of structure, working proficiencies, quality, and marketing among other aspects.
The Challenging, Yet Lucrative, Market
Today, India offers plentiful to entrepreneurs worldwide who wish to capitalise on one of the largest and fastest growing markets in the world. As the industry holds enormous unused opportunities, it has fascinated a number of private companies and investors. Additionally, the Indian government striving to deploy measures for the development of the dairy sector by providing support to the milk cooperatives and commercial producers.
The sustained growth of the Indian economy has also played a major role in the rise of the spending capacity of the customers. Rapid urbanisation as well as rapid changes in the dietary patterns with the increase in the working population and the increasing health-consciousness among the consumers has led to a shift towards ready-to-eat dairy and healthy products.
Tier 1 cities show a higher growth proposing markets for value-added products like cheese, yoghurt, and SFM. Value addition of products is expected to increase from 8% to 35% by 2025.
Also, with India set to have more than 19% of the world’s population by 2030, the country faces an enormous challenge ahead for its agricultural sector. During this time, the demands for dairy products are estimated to grow at a rate of 9-12%.
Obviously the Indian dairy industry will struggle to maintain 100% self-sufficiency due to huge local demand. The industry will have to renovate to meet the ends to accommodate imports with the home produced dairy products. The Indian dairy industry will present to be a very profitable market.
Along with the increasing population comes the pressure of urbanisation. It is predicted that there could be 6% to 7% decline in the area allocated for pastures and animal grazing by 2020. A lot of investment needs to be directed towards building capacity as well as incentivising and subsidising cattle feed manufacturers in order to set up mineral mix plants as well.
Possible High-Points to Reap on Investments
The Indian dairy market is multi-layered and is designed like a pyramid with a vast market for low-cost milk at the base. Out of the total milk production, 46% is consumed in the liquid form and 47% is processed and converted into traditional dairy products – like butter, ghee, and cottage cheese. Only the remaining 7% goes into the production of Western goods. This presents a great opportunity for foreign investors.
Additionally, since India is a major consumer of tea and coffee, it would be a very large market to explore. In addition to domestic consumption, the creamers find a high level of institutional acceptance, especially, in railways, hotels and airlines. This institutional market can be tapped first and then it can be extended to the household sector.
The most effective milk market is mainly restricted to urban areas, inhabited by over 25% of the country’s population. Approximately 50% of the total milk produced in India is consumed in these areas. Currently, the organised sector both cooperative and private along with the traditional sector supply to this market.
Moreover, any innovation which can enable the organised sector to manufacture and market original dairy products on an industrial scale can have a far-reaching impact on the dairy industry as well as the economic condition of milk producers.
Major innovations are needed in quality assurance, manufacturing, packaging and process engineering to adapt these products to the current market and requirements.
Tremendous Potential in the Market
Dairy food processing has huge potential in the market for high returns along with an export potential in the Middle-East, Singapore, Malaysia, Korea and Hong Kong. The most promising opportunities for potential participation by foreign investors are dairy cattle breeding of the buffaloes and cows.
Potential also exists for manufacturing and marketing of food processing machinery, which are of topnotch quality at competitive cost. Manufacturing of both machinery and packaging material will help develop brand loyalty.
Milk production is a rather efficient way of converting the vegetable material into animal food. Yet the equipment required in milk handling and loss of nutrient energy in the process, certainly makes milk a moderately expensive food.
Also if the dairy production is to play an important part in rural development, the price to milk producers has to be remunerative. In a situation of growing international prices, scarcity of food and foreign exchange constraints, extensive subsidisation of milk conception might get difficult in many of the developing countries, including India.
Outlook over the Sector’s Growth
As the world is getting integrated into one marketplace, quality certification is becoming essential. However, there are a very few plants in the country which have successfully obtained the ISO and HACCP certification. Along with posing lucrative business prospects, the dairy industry in India functions as a tool for socio-economic development of the country.
Keeping a track of its socio-economic impact, the Government of India has introduced various initiatives and schemes aimed at the development of the dairy sector in the country with an objective to increase the production of milk, improve cattle productivity, expanding and strengthening the rural market, and providing better access to the farmers.
Despite having the largest milk production, India is still a minor player in the world market. India is ranked 18th in the world export with a 1.6% share in total world exports. This gives the Indian dairy industry a significant potential for exports and the rapid growth in domestic demand pose huge challenges as well as opportunities.
The dairy industry in India has witnessed a rapid growth. The liberal economy of the country provides more options for MNCs and foreign investors to release the full potential of this industry. Among other Indian agri-businesses, the food-processing sector is predominantly promising and is, unquestionably, one of the biggest potential markets for processed foods.
To remain in today’s competitive world market the dairy industry constantly needs to reinvent itself and develop capacities for continuous improvement.
(The author is senior content writer at Allied Analytics LLP. She can be contacted at poonam.yadav@alliedanalytics.com)
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