DAIRY SECTOR IN INDIA: CHANGING DYNAMICS Meeta Punjabi Mehta Creative Agri Solutions Pvt. Ltd, New DelhiLivestock and Fish India Dairy Value Chain Team Meeting 2nd May, 2012, Heritage Village Hotel, Manesar, India
Layout of the Presentation1. Dairy Sector in the News2. Changing dynamics in the Indian Dairy Industry3. Dairy Sector – Key Statistics4. Regulatory Environment5. Major concerns for the dairy industry6. Existing Models of Dairy Supply Chains7. Recent Launch of the National Dairy Plan8. Potential areas of focus
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 – 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, Fonter ra• Setting up large commercial farms• Dairy Motels model
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)300.00 140.00250.00 120.00 100.00200.00 80.00150.00 60.00100.00 40.00 50.00 20.00 0.00 0.00 Per Capita Availibilty (gms/day) Production (Million Tonnes)Over a time period of two decades the average growth rate of milk production hasbeen around 4.2 % while that of per capita availability is around 2.4%.
Milk Production: Top 10 States („000Tonnes) State 2010-2011 Uttar Pradesh 21031 Rajasthan 13234 Andhra Pradesh 11203 Punjab 9423 Gujarat 9321 Maharashtra 8044 Madhya Pradesh 7514 Tamil Nadu 6831 Bihar 6517 Haryana 6267
Per Capita Availability of Milk by States(gms/day) State 2009-2010 Top 5 States Punjab 944 Haryana 662 Gujarat 418 Rajasthan 395 Uttaranchal 387 Bottom 5 States Tripura 77 Delhi 72 Assam 69 Arunachal Pradesh 59 Mizoram 29
Livestock Population in India by Species from 1951-2007 (In million)350300250200 Cattle Adult Female Cattle150 Buffalo100 Adult Female Buffalo Total Bovines50 0 1951 1956 1961 1966 1972 1977 1982 1987 1992 1997 2003 2007
Livestock Population in India by Species1951-2007 (In million) 80 70 60 50 40 Adult 30 Female Cattle 20 Adult Female 10 Buffalo 0 1951 1956 1961 1966 1972 1977 1982 1987 1992 1997 2003 2007
Change in Livestock Population by Species (1951-2007)543 Cattle2 Adult Female1 Cattle0 Buffalo-1 Adult Female Buffalo-2 Total Bovines-3-4
Change in Livestock Population by Species (1951-2007)54321 Adult Female0 Cattle Adult-1 Female Buffalo-2-3-4
Per Capita Monthly ConsumptionExpenditures in Milk & Milk Products % Expenditure % Expenditure % Total Food on Milk & Milk on Meat, Egg Expenditure out of Products and Fish Total Expenditure 1970-71 Rural 11.66 3.93 73.58 Urban 14.72 5.58 64.41 1982 Rural 11.46 4.61 65.57 Urban 15.62 6.10 59.12 1990-91 Rural 14.28 5.31 65.97 Urban 17.42 6.60 56.85 2000-2001 Rural 15.43 6.38 56.29 Urban 18.95 6.92 43.80 Jan 2004-June 2004 Rural 15.63 6.11 53.94 Urban 18.80 6.31 41.64 July 2004-June 2005 Rural 15.38 6.05 55.05 Urban 18.62 6.36 42.51 July 2009-June 2010 Rural 13.42 8.31 56.98 Urban 15.55 8.17 44.39
Share of Agriculture & Livestock Sector inGross Domestic Products Share of Agriculture and Livestock Sector in GDP (At current prices in Rs. Crore) GDP (Livestock GDP (Agriculture) Sector) Year GDP (Total) Rs. % Share Rs. % Share 2004-05 2,971,464 476,634 16.04 119333 4.02 2005-06 3,389,621 536,822 15.84 127,518 3.76 2006-07 3,952,241 604,672 15.3 142,695 3.61 2007-08 4,581,422 716,276 15.63 169,296 3.7 2008-09 5,282,086 799,517 15.14 188,732 3.57 2009-10 6,133,230 939,922 15.33 241,177 3.93
Value of Milk Group(At current prices in Rs. Crore) 250000 200000 150000 100000 50000 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10Value of Milk group is about USD 46 bn, accounting for 2/3 of value oflivestock products
Regulatory Environment – Private SectorInvestments • 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 – ProducerOrganizationsChange 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-ProducerOrganizations• 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 SafetyRegulations• 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 – 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, developmentprojects, land encroachments, government policies pertaining tore-allocation and distribution of wastelands)• Specific problems in arid/semi-arid areas• Management of CPRs• Quality and affordability of feed-mix is an issueCredit• Poor access to institutional credit• Credit through informal channel has very high loan rate, andresults 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
Comparative Analysis of existing valuechains in DairyExisting Models Veterinary Services (Health, Breeding and Extension)Strong Organized • Co-ordinates veterinary services (vaccines, AI,System availability of medicines at cost ) • Investment on extension activitiesWeak Organized • Weak/No co-ordination of veterinary servicesSystem • Limited/No emphasis on extension activitiesTraditional • No involvement in veterinary servicesDudhiya System • No involvement in extension activities
Comparative Analysis of existing valuechains in DairyExisting Models Inputs (feed and credit)Strong Organized • Arrangement for quality feed at nominal ratesSystem • Involves with bank to organize creditWeak Organized • Limited/No involvement in ensuring feed supplySystem • Limited/No involvement with organizing creditTraditional • No arrangement for quality feedDudhiya • Provides informal credit when requiredSystem
Comparative Analysis of existing valuechains in DairyExisting Models Production SystemStrong Organized • Potential implication on productivity and costSystem because of breed development and extension focus on feeding practices • Strong support system to mechanized farms with larger herd sizeWeak Organized • Possibly low productivity and higher costsSystem because of non-scientific feeding practices, results in lower income from dairy (depends on relative development of the dairy system)Traditional • Possibly low productivity and higher costsDudhiya System 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 DairyExisting Models Marketing SystemStrong Organized • Milk collection at specified booth of the organizationsystem • 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 companyWeak Organized • Milk collection through agentsSystem • 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 farmersTraditional Dudhiya • No milk testingSystem • Prices slightly higher than co-op prices (credit linked)
Comparative Analysis of existing valuechains in DairyExisting Marketing SystemModelsStrong • Clean milk practices at village levelOrganized • Efficient transportationsystem • Good infrastructure for bulk coolers/ChillersWeak • Lack of focus on clean milk practicesOrganized • Inefficient transportationSystemTraditional • Lack of focus on clean milk practicesDudhiyaSystem
Comparative Analysis of existing valuechains in DairyExisting ProcessingModelsStrong • Certified plant meeting quality norms,Organized • Have a variety of quality products catering tosystem children and younger generation (yoghurt, flavored milk) • Selling mostly in metros, market expansion in urban areasWeak • Quality of products is an issue, though hasOrganized improvedSystem • Traditional products • Tapping only the urban marketTraditionalDudhiyaSystem
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