Over a span of three decades, India has transformed from a country of acute milk shortage to the worlds leading milk producer, with production exceeding 100 million tonne. This phenomenal success is attributed to a government initiative known as Operation Flood (19701996) and its intense focus on dairy development activities. In that initiative, rural milk shed areas were linked to urban markets through the development of a network of village cooperatives for procuring and marketing milk. And milk production and productivity were enhanced by ensuring the availability of veterinary services, artificial insemination (AI), feed and farmer education. The investment paid off, promoting production gains of 45 per cent per annum. However, that growth has slumped to less than 3 per cent in recent years, raising cause for concern. The slowdown is attributed to the decline in investment in the dairy sector since the end of the Operation Flood initiative. Central and state government allocation for dairy development has diminished in the past two Five-Year Plans.
In light of the increasing demand driven by the growing population, higher incomes and more health-consciousness, the slowdown in dairy industry growth is severely worrisome. Based on estimates by the National Dairy Development Board (NDDB), the demand for milk is likely to reach 180 million tonne by 2022. To supply the market, an average incremental increase of 5 million tonne per annum over the next 15 years is required a doubling of the average incremental rate achieved over the past 15 years. In the absence of sufficient increased production, India will need to rely on the world market for imports. And because of the huge volume required, it will affect global milk prices. Thus, focussing on areas for local dairy development is critical.
Factors affecting the effectiveness of the dairy sector
To assess the dairy sectors competiveness, a performance analysis looked at five factors: demand conditions, market structure, factor conditions, related supporting industries, and government and the enabling environment.
Demand conditions
Demand for dairy products in India is likely to grow significantly in the coming years, driven by more consumers, higher incomes and greater interest in nutrition. Consumption of processed and packaged dairy products is increasing in urban areas. Because of the increasing competition from the private sector, several national and international brands have entered the market and expanded consumers expectation of quality although only among a small proportion of the population. In many parts of the country, people still prefer unpacked and unprocessed milk delivered by a local milkman because of its taste and the perception of freshness. The price elasticity for milk is high, thus demand for milk is very sensitive to price changes.
Market structure
The organised sectors share in milk procurement is very low because a large proportion of the milk and milk products are sold through the informal channel. The informal demand absorbs approximately 41 per cent of the milk and milk products produced in the country, accounting for about 75 per cent of the marketable surplus of milk. The formal channel, with its packaged milk and dairy products, accounts for only about 25 per cent of the marketable surplus, which is about 15 per cent of production.
The informal sector consists of the village milk vendors who procure loose milk from farmers and sell it in urban and peri-urban areas directly to consumers, small private processors or hotels. The milk vendors also may sell processed products, such as paneer or separated cream. The quality of the vendors milk and milk products is not guaranteed. Largely sold in loose form, it is often adulterated with several additives to control spoilage.
The success of the Gujarat Cooperative Milk Marketing Federation (GCMMF), known for its Amul brand and its Amul model of cooperative, is acclaimed. However, there is a perception that cooperative organisations generally have failed in other parts of the country. A less recognised fact is that the cooperatives in other states are organised differently than the GCMMF cooperatives. The GCMMF cooperatives operate as a true representative of farmers and are run by professionally qualified managers. In most other states, the cooperatives are managed by civil servants, function more as government bodies and are weak representatives of farmers.
Most of the private dairies, agents procure the milk from farmers. Some private dairies have established village societies for milk collection that follow the cooperative model. However, this model requires much larger investment and is not economically feasible, considering that cooperatives receive considerable development support from the government (such as feed subsidies). It is not uncommon for private dairies to make loans to farmers, which is a key reason for the somewhat large share of milk directed to this channel.
Factor conditions
Factor conditions for dairying entail the quality of animals, human resources and technical skills, land availability, capital, credit, infrastructure and other inputs relevant to the value chain, as the following explains. The quality of animals is critical in determining its milk productivity and hence overall production. Currently, low productivity per animal hinders development of the dairy sector. Despite being the worlds largest milk producer, Indias productivity per animal is very low, at 987 kg per lactation, compared with the global average of 2,038 kg per lactation.
The low productivity is a result of ineffective cattle and buffalo breeding programmes, limited extension and management on dairy enterprise development, traditional feeding practices that are not based on scientific feeding methods, and limited availability and affordability of quality feed and fodder. In addition, the limited supply of quality animals is exacerbated by policies limiting interstate movement of animals. Indigenous cattle and buffalo make up 45 per cent of the countrys total milk population, in contrast to the cross-bred cows at 10 per cent.
Related supporting industries
Strong supporting industries are critical for the development of any industry. In the case of dairying, the National Dairy Research Institute pursues research and education in all aspects of dairying: microbiology, chemistry, technology, engineering, animal genetics and breeding, livestock production and management, animal nutrition, animal physiology, dairy economics and dairy extension education.
Comparative analysis of the 4 value chains
The following compares performance criteria for the four dairy value chains to determine how they are likely to endure against future competition.
Demand conditions
The GCMMF has a wide range of traditional products as well as several new products catering to the demands of the new generation, such as sugar-free ice cream. It is one of the largest selling brands of dairy products, with presence in all parts of the country. The private dairy also has a range of modern products catering to the young generation, such as flavoured yoghurt.
Market structure and governance
The competitive structure for the four models varies. Dairy is a regional industry with regional dairies serving the local market, especially in the case of packaged milk. There is more scope for inter-regional trade.
The GCMMF competes with other multinational companies, such as Nestlé and Britannia, with certain products but leads among dairy products in India. The private dairy is a leading brand in the city of Hyderabad. However, the state of Andhra Pradesh has a well-developed dairy industry with several private dairies present in the state and rigorous competition among them.
Factor conditions
Livestock assets are likely to be better where organisations serving the area are involved in dairy development activities. The GCMMF has been providing good AI services, which has enhanced the quality of buffalo in the area. The Andhra Pradesh MACS have created a good network of services by involving the State Department of Animal Husbandry, Dairying and Fisheries and NGOs working in its area. With efficient services and involvement in breed development, the quality of herd is likely to improve in the near future.
Related and supporting industries
The GCMMF has created good processing and primary processing infrastructure. Its plants are ISO certified and meet all the quality requirements. The private dairy processing plant also is ISO certified; however, the primary processing at the village level is not very strong.
(The authors are quality control executives at Gandour India Food Processing Pvt. Ltd, Hyderabad. They can be contacted at shareef.foodtech@gmail.com)