This document discusses the changing dynamics of the dairy sector in India. It provides key statistics on milk production, consumption, and the livestock population. It also outlines some of the major concerns for the dairy industry like inadequate veterinary services and inputs. Additionally, the document analyzes existing dairy supply chain models, including strong organized systems like Amul, weak organized systems, and traditional dudhiya systems. Regulatory environment changes that allow more private investment in the dairy sector are also covered.

1. DAIRY SECTOR IN INDIA: CHANGING
DYNAMICS
Meeta Punjabi Mehta
Creative Agri Solutions Pvt. Ltd, New Delhi
Livestock and Fish India Dairy Value Chain Team Meeting
2nd May, 2012, Heritage Village Hotel, Manesar, India

2. Layout of the Presentation
1. Dairy Sector in the News
2. Changing dynamics in the Indian Dairy Industry
3. Dairy Sector – Key Statistics
4. Regulatory Environment
5. Major concerns for the dairy industry
6. Existing Models of Dairy Supply Chains
7. Recent Launch of the National Dairy Plan
8. Potential areas of focus

3. DAIRY INDUSTRY IN
THE NEWS

4. 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.

5. 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.

6. 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.

7. 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

8. CHANGING DYNAMICS IN THE
INDIAN DAIRY INDUSTRY

9. 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.

10. 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

11. KEY STATISTICS

12. 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.

13. Milk Production & Per Capita Availability
(1991-2011)
300.00 140.00
250.00 120.00
100.00
200.00
80.00
150.00
60.00
100.00
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 has
been around 4.2 % while that of per capita availability is around 2.4%.

14. Milk Production: Top 10 States („000
Tonnes)
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

15. 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

16. Livestock Population in India by Species
from 1951-2007 (In million)
350
300
250
200 Cattle
Adult Female Cattle
150
Buffalo
100 Adult Female Buffalo
Total Bovines
50
0
1951 1956 1961 1966 1972 1977 1982 1987 1992 1997 2003 2007

17. Livestock Population in India by Species
1951-2007 (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

18. Change in Livestock Population by
Species (1951-2007)
5
4
3
Cattle
2
Adult Female
1 Cattle
0 Buffalo
-1 Adult Female
Buffalo
-2 Total Bovines
-3
-4

19. Change in Livestock Population by
Species (1951-2007)
5
4
3
2
1 Adult
Female
0 Cattle
Adult
-1 Female
Buffalo
-2
-3
-4

20. Per Capita Monthly Consumption
Expenditures 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

21. Share of Agriculture & Livestock Sector in
Gross 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

22. 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 2009-10
Value of Milk group is about USD 46 bn, accounting for 2/3 of value of
livestock products

23. REGULATORY
ENVIRONMENT FOR
DAIRY SECTOR

24. Regulatory Environment – Private Sector
Investments
• 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

25. Regulatory Environment – Producer
Organizations
Change 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)

26. Regulatory Environment-Producer
Organizations
• 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

27. Regulatory Environment – Food Safety
Regulations
• 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.

28. 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

29. KEY CONCERNS

30. Key Concerns – Veterinary services
Veterinary 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

31. Key Concerns - Inputs
Feed/Fodder
• Depletion of CPRs (due to urbanization, development
projects, land encroachments, government policies pertaining to
re-allocation and distribution of wastelands)
• Specific problems in arid/semi-arid areas
• Management of CPRs
• Quality and affordability of feed-mix is an issue
Credit
• Poor access to institutional credit
• Credit through informal channel has very high loan rate, and
results in exploitation of farmer through lower milk prices

32. 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)

33. Key Concerns - Marketing
Marketing
• 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

34. 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

35. EXISTING MODELS OF
DAIRY SUPPLY CHAINS

36. Comparative Analysis of existing value
chains in Dairy
Existing Models Veterinary Services (Health, Breeding and
Extension)
Strong Organized • Co-ordinates veterinary services (vaccines, AI,
System availability of medicines at cost )
• Investment on extension activities
Weak Organized • Weak/No co-ordination of veterinary services
System • Limited/No emphasis on extension activities
Traditional • No involvement in veterinary services
Dudhiya System • No involvement in extension activities

37. Comparative Analysis of existing value
chains in Dairy
Existing Models Inputs (feed and credit)
Strong Organized • Arrangement for quality feed at nominal rates
System • Involves with bank to organize credit
Weak Organized • Limited/No involvement in ensuring feed supply
System • Limited/No involvement with organizing credit
Traditional • No arrangement for quality feed
Dudhiya • Provides informal credit when required
System

38. Comparative Analysis of existing value
chains in Dairy
Existing Models Production System
Strong Organized • Potential implication on productivity and cost
System because of breed development and extension
focus on feeding practices
• Strong support system to mechanized farms with
larger herd size
Weak Organized • Possibly low productivity and higher costs
System 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 costs
Dudhiya System because of non-scientific feeding practices,
results in lower income from dairy (depends on
relative development of the dairy system)

39. Comparative Analysis of existing value
chains in Dairy
Existing Models Marketing System
Strong Organized • Milk collection at specified booth of the organization
system • 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 company
Weak Organized • Milk collection through agents
System • 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 farmers
Traditional Dudhiya • No milk testing
System • Prices slightly higher than co-op prices (credit linked)

40. Comparative Analysis of existing value
chains in Dairy
Existing Marketing System
Models
Strong • Clean milk practices at village level
Organized • Efficient transportation
system • Good infrastructure for bulk coolers/Chillers
Weak • Lack of focus on clean milk practices
Organized • Inefficient transportation
System
Traditional • Lack of focus on clean milk practices
Dudhiya
System

41. Comparative Analysis of existing value
chains in Dairy
Existing Processing
Models
Strong • Certified plant meeting quality norms,
Organized • Have a variety of quality products catering to
system children and younger generation (yoghurt,
flavored milk)
• Selling mostly in metros, market expansion in
urban areas
Weak • Quality of products is an issue, though has
Organized improved
System • Traditional products
• Tapping only the urban market
Traditional
Dudhiya
System

42. NATIONAL DAIRY PLAN

43. 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

44. 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