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India will lead the world as the next big cheese market
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Monday, 01 October, 2018, 08 : 00 AM [IST]
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Ankita Kataria
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Once you have a dairy farming model where the costs are lower than the milk prices, rapid milk
production growth is a natural consequence — Torsten Hemme, MD, IFCN, an international farm comparison network
The Indian dairy sector transformed after “Operation Flood” led by the late Dr Verghese Kurien in 1970 which revolutionised milk collection, evaluation and pricing. According to OECD-FAO Agricultural Outlook 2017-2026, “Over the course of the outlook period alone, milk production in India will grow 49% in 2026, India will be the world’s largest milk producer, with an output one-third above that of the second-largest producer, the European Union.” The value of India’s dairy industry is likely to be equal to Rs 9.4 trillion and maintain 15% CAGR over 2016-2020. The production shall grow at a rate of 4.2% to 185 million MT per annum by 2020.
Indian dairy industry holds an inimitable space in the country for its high employment potential and ensuring the availability of nutritious yet affordable food for India’s ever increasing population. The sector is related to socio-economic development and continues to offer a source of livelihood to millions of farmers.
Import of European cows
India has 75 million dairy farms, which is the highest in the world. But majority of them (~79%) have less than 10 cows. Only one-third of the industry is organised compared to the developed nations (90%). In India, buffalo milk is majorly used whereas other continents generally prefer cow milk. India is the largest producer (165.4 million metric tonne in FY17) and consumer (per capita consumption is 352 gram per day) of milk in the world. The reason for the success is decades-long programme of milk collection and import of European cows for cross-breeding with local varieties.
Major dairy products in the Indian market are liquid milk (pasteurised, ultra heat-treated, flavoured milk and so on), milk powder (skimmed milk powder, dairy whitener), fermented products (curd, buttermilk, cheese), baby foods (weaning foods), milk fat (cream, butter, ghee) and dairy desserts (ice cream, khoa, gulab jamun, rasogulla). Emerging dairy products include fortified dairy products, lactose-free milk products and fermented dairy products (functional foods/probiotics). Other value-added products include whey protein and fruit-juice milk beverage.
A lucrative market
India is definitely a lucrative market or turning out to be one because of urbanisation, shopping changes, digitalisation, e-commerce, luxury gaps and local variations. Today, the dairy sector in India is not just about Indian cooperatives (Amul, Mother Dairy) with one or two international players like Nestlé and Danone (has now exited the Indian dairy business to focus on the nutrition sector), but an amalgamation of Indian cooperatives (Verka, Nandini), Indian private companies (Britannia, ITC, Godrej Agrovet, Kwality) and many international players (Groupe Lactalis SA) all of whom are trying to make a mark in the customer’s minds.
The time when the per capita consumption was low and a single company would dominate for specific products is a thing of the past. Now, many others are jumping into the fray to take away their share. It is the value-added products such as cheese, yogurt varieties, skimmed milk powder, infant powder, ice cream and milk-based beverages that will make a difference and the new players are trying their best to set a foot in this since the cooperatives have long ignored this market. To give an example, Danone Foods and Beverages India introduced flavoured yogurt and ready-to-eat custard keeping in mind the changing lifestyle where urban couples and single working women prefer buying products rather than making at home.
Thus, the Indian market is highly attractive, with increasing per capita consumption, but dangerous since the customer inclination is highly complex and this situation is like to convolute. Rajesh Srivastav, chairman, Rabo Equity (which has a stake in Maharashtra-based Prabhat Dairy), stated, “India is strategically a great place to be in, especially, for international players. With milk available in surplus and consumption of milk products on the rise, they can not only tap the Indian market, but also use India as a base to serve other global markets.”
Value-added products
Majority of the innovations and creations are born in the area of value-addition. According to industry analysts, value-added products enjoy margins of around 25-45%, against low margins of 6-8% of liquid milk. Dairy private giants such as Nestlé (Grekyo), Prabhat Dairy and Parag Milk Foods (whey protein) and ITC (Aashirvaad Svasti Pure Cow Ghee) launched their respective brands and the companies were confident that they will hit the mark.
The cooperatives soon stepped up and tapped the market of value-added products, fortified milk and the traditional Indian dairy sweets. But, R S Sodhi, managing director, Amul, insists, “The bread and butter has to be milk, else, the business model will not work.” Interestingly, many start-ups such as Tru Milk in Ludhiana, Sarda Farms and Blissfresh in Maharashtra or Milk Mantra of Odisha have entered the business with the highly challenging sector of liquid milk.
Emerging dairy markets include food service institutional market, defence market, ingredients market and parlour market. Some recent developments include the tying up of Mother Dairy and the state of Maharashtra for setting up a plant to process milk and milk products in the state. India shall be the next big cheese market due to the rise in food service outlets and changing food habits apart from the fact that it is a taste enhancer.
Parag Milk Foods, India’s second-largest cheese maker after the dairy giant, Amul, sells Go-branded products. It has also collaborated with ColoPlus AB, a Swedish biotech company to launch ‘Go Colo Power,’ a 100% natural immunity booster (a colostrum-based innovation). Milk Mantra launched turmeric-flavour milkshake under the brand MooShake. Cowboys.desi, the retail arm of Trunks and Roots provides pure untouched cow milk with other organic products. They control all the parameters viz. cow feed and fodder, balanced nutrition, hygiene, medical treatment, milking and packing at their integrated and interdependent farm.
Indian Railways is planning to make milk available across railway stations to promote its consumption. Prabhat Dairy has launched Goodness Zone, a franchise-based chain of retail outlets in Maharashtra and aims to open 500 such outlets by fiscal year 2022. ITC is planning to launch packaged milk-based beverages and frozen desserts from its Kapurthala (dairy) plant in Punjab.
Epigamia, which launched first all natural Greek yogurt, has recently introduced India’s first lactose-free curd, ‘Epigamia Artisanal Curd.’ Godrej Agrovet launched ‘Jersey Thickshakes’ to enter the value-added products segment in the five southern states and plans to come up with buttermilk and lassi in Tetra Pak-based packaging. Amul recently launched Haldi Doodh (haldi and milk), Kadhai Doodh (milk with the natural caramel flavour that comes from cooking the milk) and Irish Drink mocktail (a blend of flavours of rich milk cream, coffee, chocolate, hazelnut and caramel).
A premium ice cream brand, Alpenvie, which is prepared from out-of-home impulse products has been launched by Heritage Foods. Bikaner-based Aadvik Foods has beaten Amul to launch camel milk (has several health benefits such as high vitamin content, lactose-free), milk powder and chocolates. The National Dairy Development Board (NDDB) launched its own “quality mark” logo last week which is aimed at process improvement in the entire value chain to ensure safety and quality of milk and milk products.
Real-time herd movement
Technological evolution is evidently playing a role in the farms, industries and supply chain. The farmers can track and control real-time herd movement, eating activity, temperature, weight, overall health, milk production and breeding. Alerts and notifications can be sent to the farmer using trackers which can be managed remotely. Automation has been highly effective in the industry. For instance, milk analysers are available to determine accurate values of fat, SNF and specific gravity of milk as well as adulteration.
Data storage and its easy and efficient management have improved farmer satisfaction. India-based Stellapps offers a cloud-based farm and herd management system, tracks cow metrics including fertility and steps of activity with its tracking devices, health alerts and increased productivity for farms. Amul has an innovative ‘Cow to Consumer’ programme which creates an account for the farmer.
The farmer deposits milk at the collection centre following which the quality and quantity are evaluated and, the card is updated and money is transferred based on the set parameters. The account can be accessed by him through a mobile app. Keventers has set its foot in the liquid milk sector and launched an app, The Milk Co, for premium milk delivery services in Delhi/NCR.
Organic dairying
The farmer is still unknowledgeable about animal diseases and their treatments and doses of antibiotics. The effect of high dose is unknown to the farmer but the producer of fermented products suffers its consequences. Organic dairying is a less-discussed aspect in India but a highly suitable option for the farmers as the agro-climatic conditions in India are conducive for the diverse and disease-resistant native breeds.
Morarka Foundation, based in Jaipur, Rajasthan (an NGO) started promoting organic farming actively since 1993 with an initial daily procurement of 5,000L milk from farmers who were registered organic crop producers. This milk was sold in Jaipur at 25-50% higher rate.
But major challenges are high cost of production and maintenance of animal health, certification paperwork and compliance costs and organic input sourcing. The Government of India needs to initiate and convert these constraints into a large opportunity by improvising organic standards, lowering the certification cost, training and extension and developing a strong domestic market.
The ban on import of milk and products containing milk from China has been extended citing food safety concerns. The recent announcement of 10% export subsidy has divided the companies regarding their opinions on export prices and domestic prices and their consequent effect on farmers.
Profit margins
The increase in the minimum purchase price shall reduce the profit margins of the companies. But to minimise the impact, these companies may cut the distributors’ and retailers’ margins. Major problems in promoting exports include lower average milk yield per cattle, small size of milch animal holdings, use of buffalo milk and unmonitored supply chain.
The national demand for export commodities such as skimmed milk powder has plummeted since China and Russia stopped importing it and the players including Amul and GCMMF had been forced to decrease it by 6-7%. Moreover, it is difficult to export it since the international prices are lower than Indian prices.
The Indian farmer is unprotected since the falling prices directly hit him. The reduction in Indian exports led to companies reconstituting the powder which further reduced the domestic prices. The big companies exploited this situation by entering into other markets and pushed the small dairy farmers out of business without considering their importance as the backbone of milk production.
Innovations in product development
Another major challenge is maintaining a cold food chain, but some companies are overcoming it by innovations in product development. For instance, Danone earlier introduced ambient yogurt and milk-based products with a shelf stability of six months. Milk collection is an obstacle and a defined procurement network is a must.
“The dairy business of Britannia is a Rs 400 crore business and we are going back to the drawing board. We have ambitious growth plans in the dairy sector, but we will invest in a collection model,” stated Varun Berry, managing director, Britannia Industries Ltd.
Half a century ago, Dr Kurien motivated the farmers and designed a collection system which efficiently maintained the milk quality. It is still the workable model for Indian cooperatives. Thus the mantra for success in dairy sector in India has 7Ps – procurement, processing, product, price, place, promotion and packaging. Sustainability of the farms is imperative for the processing industry to be successful. The study of the global market is necessary to make and implement development plans.
Water and fodder availability
Global warming is giving a warning call of losing approximately three million tonne of milk in next three years due to elevating temperatures. This shall create problems of water and fodder availability as well. Insufficiencies in supply chain can also pose health risks as producer tends to adulterate the milk.
A target set for 2027 is doubling the milk production by 2027. But the major bottlenecks at farm level include limited fodder quantities, neglecting the quality of fodder and lack of farm management skills. The cost of cattle feed is high which also leads to increase in cost of milk and thus both need to be dealt with simultaneously and carefully.
Buffaloes can be maintained on more fibrous crop residues, but these animals need cooling facility such as wallowing tank or shower/foggers. Some dairy regions are under the pressure of reduced farm lands due to rapid urbanisation.
The future of dairy farming appears bright as the processors are bound to improve the farms and industries. Farm structure is gradually observing a change wherein farms with less animals (<5) are reducing and those with 10-50 cows (medium-scale) are improving.
The Indian dairy sector foresees supply chain investments of US$2billion by 2020 to support the market and growth of value-added dairy products. An increase from 25% to 30% is also expected in the organised sector. Increasing young population coerces the company to source quality raw milk and expand capacity as they demand value-added products.
IFCN chairman Anders Fagerberg states, “Let’s move in dairy development from a top-down to a more bottom-up approach. Via this approach, we can better insure that dairy farming is attractive for the next generation, the younger people.”
(The author is PhD scholar, food technology, Punjab Agricultural University, Ludhiana)
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