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Traditional Versus Modern Milk Marketing Chains in India: Implications for Smallholder Dairy Farmers

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Traditional Versus Modern Milk Marketing Chains in India: Implications for Smallholder Dairy Farmers by Anjani Kumar, Research Fellow, IFPRI- Delhi.
Presented at the ReSAKSS-Asia - MIID conference "Evolving Agrifood Systems in Asia: Achieving food and nutrition security by 2030" on Oct 30-31, 2019 in Yangon, Myanmar.

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Traditional Versus Modern Milk Marketing Chains in India: Implications for Smallholder Dairy Farmers

  1. 1. TRADITIONAL VS MODERN MILK MARKETING CHAINS IN INDIA Implications for smallholder dairy farmers Anjani Kumar South Asia Regional (SAR) Office International Food Policy Research Institute Myanmar | 31 October 2019 Co-authors: A K Mishra, Sunil Saroj, P K Joshi
  2. 2. Outline  Structure of milk production and marketing  Factors affecting choice of milk marketing outlets  Implications of milk marketing choice  Returns from dairying  Monthly per capita consumption expenditure  Compliance with food safety measures at farm level
  3. 3. Introduction  Rising importance of the dairy sector in the agricultural economy has been one of the most important features of India’s agricultural transformation  India, with 176 million metric tons, is the largest milk producer in the world and milk production continues to grow at a robust rate  India’s milk market is segmented into modern (formal) and traditional (informal) outlets.  Modern outlets include  dairy cooperatives and private processing firms (domestic as well as multinational);  this segment procures about 25 percent of total milk production.  Traditional outlets include  local milk traders, local halwais (sweet-makers), small-scale dairy processors, and consumer-households (Sharma 2015, Kumar et al. 2018)
  4. 4.  Several studies reveal that the majority of the milk in India is sold through traditional marketing outlets  (Staal et al. 2006; Kumar and Staal 2010; Kumar et al. 2011).  However, the recent trend shows that dairy farmers are increasingly using modern milk-marketing outlets.  These emerging trends, while indicative of catering to the expanding consumer base with growing wealth, offer challenges as well as opportunities for both the supply of and demand for milk.  A few studies opine that the poor will suffer from the increased use of modern marketing outlets (Farina et al. 2000; Reardon et al. 2001).  However, a plethora of studies show that the emergence of modern food supply chains has improved the linkages between the buyers and smallholders in developing countries  (Mishra et al. 2018a, 2018b; Otsuka, Nakano, and Kazushi, 2016; Wang et al., 2014).
  5. 5.  A few studies which examined the case of milk marketing in India indicate that farmers who supply milk to informal channels are less efficient and earn lower profits per dairy animal than farmers supplying the cooperative and the multinational sector in Punjab  (Vandeplas et al. 2013; Kumar et al., 2018).  Interestingly, the dominance of traditional milk-marketing outlets persists despite the emergence and expansion of several modern milk-marketing chains.  The integration of dairy farmers with organized and modern milk- marketing outlets remains a major policy discussion in India.
  6. 6. Structure of milk production in India 441 624 858 1,277 558 0 200 400 600 800 1000 1200 1400 Marginal Small Medium Large All Average milk production (Litre / annum) 52.1 21.0 16.4 10.5 0.0 20.0 40.0 60.0 Marginal Small Medium Large Share in milk production (%) 35.9 39.9 50.2 62.9 39.4 0.0 20.0 40.0 60.0 80.0 Marginal Small Medium Large All % of agricultural households producing milk
  7. 7. Contribution of marginal and small farmers in total milk production 0.0 20.0 40.0 60.0 80.0 100.0 RJ MP PB KA HR AP CG MH GJ TN UP JH UK BH HP AS OD KR JK WB 55.5 55.8 58.4 63.1 63.4 66.0 70.3 70.9 75.3 81.8 83.9 85.0 89.1 89.8 92.7 93.4 93.5 94.4 95.9 98.1 Share in milk production (%) 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 AP MP RJ MH HR KA PB CG GJ TN UP AS BH OD JH KR UK HP JK WB 64.1 64.2 65.5 67.8 68.3 71.1 71.2 75.3 75.8 83.7 88.9 91.9 93.2 93.6 94.3 94.3 95.3 95.8 96.7 98.3 % share in milk producing households
  8. 8. Average annual household milk production across states in India (litres) 0 500 1000 1500 2000 2500 CG JH AS OD WB AP MP UK BH MH KR UP JK KA HP TN RJ GJ PB HR 18 33 129 142 200 283 471 482 520 560 573 574 614 675 713 757 955 1,397 2,118 2,148
  9. 9. Milk marketing channels in India Milk Value Chain I Consumer Retailers Milk cooperatives Milk collectors Milk Producer Consumer RetailerMilk Trader Processor Consumer ConsumerRetailerConsumer Milk Trader Milk Value Chain II Milk Value Chain V Milk Value Chain IV Milk Value Chain III
  10. 10. Milk marketing pattern in India Source: Kumar et al (2019) 53.2 22.4 15.7 8.7 % share in marketed milk Marginal Small Medium Large 51.8 14.7 19.8 9.7 2 0.9 1.1 0.1 Distribution of milk producers selling to different outlets Not seeling Household Milk vendor Formal market Household & local Household & formal Local & formal All
  11. 11. 0 100 200 300 400 500 600 Marginal Small Medium Large All 237 349 431 558 294 Marketed surplus of milk (L/annum/household) 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Marginal Small Medium Large All 53.7 56.0 50.3 43.7 52.6 Marketed surplus as % of milk production
  12. 12. Structure of marketed surplus milk across states in India, 2013 0 200 400 600 800 1000 1200 GJ PB TN HR KA KR MH RJ MP UP BH AP UK JK HP WB AS OD JH CG 1052 998 654 592 502 497 424 230 215 208 205 200 186 176 133 110 108 97 17 12 Average annual marketed surplus of milk (litres) 0 10 20 30 40 50 60 70 80 90 KR TN AS MH GJ KA AP CG OD WB JH PB MP BH UK UP JK HR RJ HP 86.9 86.4 83.6 75.8 75.3 74.4 70.6 68.6 68.3 55.2 51.4 47.1 45.7 39.4 38.6 36.2 28.7 27.6 24.1 18.7 % of milk production
  13. 13. Factors affecting choice of milk marketing channels  Age  Gender  Education  Herd size and composition  Scale of milk production  Caste affiliation  household size  Land size  Source of information
  14. 14. Impact of dairy cooperatives Member Nonmember Treatment effects Milk yield Member (a) 4.09 (c) 2.93 TT = 1.16*** Nonmember (d) 2.07 (b) 1.80 TU = 0.27*** Net return per liter Member (a) 7.16 (c) 5.20 TT = 1.96*** Nonmember (d) 4.87 (b) 3.52 TU = 1.35*** FSI Member (a) 0.43 (c) 0.39 TT = 0.04*** Nonmember (d) 0.45 (b) 0.42 TU = 0.03*** Kumar et al 2018
  15. 15. Impact of dairy cooperative membership on milk yield, net return, and FSM adoption by farm size Farm Category Mean outcome ATT t-value Change in % Members Nonmembers Milk yield Landless 5.2 3.3 1.9 1.7102* 57.6 Marginal 8.3 4.3 4.0 3.3245*** 93.0 Small and large 8.5 4.7 3.8 2.5282** 80.9 Net return per liter Landless 8.4 8.0 0.4 0.1176ns 4.7 Marginal 12.5 7.0 5.4 2.7300*** 77.1 Small and large 10.0 5.3 4.7 1.9171* 89.2 Adoption of FSI Landless 0.44 0.36 0.8 2.1391** 20.4 Marginal 0.53 0.44 0.9 3.251*** 20.4 Small and large 0.56 0.49 0.7 2.185** 12.6 Kumar et al 2018
  16. 16. Average treatment effects of different milk marketing channels Kumar et al 2019 Milk marketing outlets Annual income from dairying (In Rs.) Household 8937.95*** Local trader 14280.86*** Formal chain 19434.81*** Household and local 22265.72*** Household and modern 30214.07*** Local and modern 24396.81*** All three 17815.19***
  17. 17. Conclusion and policy recommendations  Our studies suggest that the likelihood of selling to milk-marketing outlets is influenced by observable characteristics like: ofamily size, social caste, educational attainment, training, and farm size as well as receipt of publicly funded unemployment benefits, food subsidies, and sources of technical information  These findings can inform the design and targeting of policies that aim at fostering adoption of single and multiple milk-marketing outlets in India  Participation of smallholder dairy farmers in milk-marketing should be encouraged  Selling to formal chains should be encouraged because this outlet yields significant positive effects on Indian smallholder dairy farmers’ economic welfare  The participation in modern milk marketing chains be facilitated by improving extensive services, reducing entry barriers based on caste and assets.
  18. 18. Thank you

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