Indian dairy Industry - a profile:

Today, India is 'The Oyster' of the global dairy industry. It offers opportunities galore to entrepreneurs worldwide, who wish to capitalize on one of the world's largest and fastest growing markets for milk and milk products. A bagful of 'pearls' awaits the international dairy processor in India. The Indian dairy industry is rapidly growing, trying to keep pace with the galloping progress around the world. As he expands his overseas operations to India many profitable options await him. He may transfer technology, sign joint ventures or use India as a sourcing center for regional exports. The liberalization of the Indian economy beckons to MNC's and foreign investors alike. Indias dairy sector is expected to triple its production in the next 10 years in view of expanding potential for export to Europe and the West. Moreover with WTO regulations expected to come into force incoming years all the developed countries which are among big exporters today would have to withdraw the support and subsidy to their domestic milk products sector. Also India today is the

lowest cost producer of per litre of milk in the world, at 27 cents, compared with the U.S' 63 cents, and Japans $2.8 dollars. Also to take advantage of this lowest cost of milk production and increasing
production in the country multinational companies are planning to expand their activities here. Some of these milk producers have already obtained quality standard certificates from the authorities. This will help them in marketing their products in foreign countries in processed form. The urban market for milk products is expected to grow at an accelerated pace of around 33% per annum to around Rs.43,500 crores by year 2005. This growth is going to come from the greater emphasis on the processed foods sector and also by increase in the conversion of milk into milk products. By 2005, the value of Indian dairy produce is expected to be Rs 10,00,000 million. Presently the market is valued at around Rs7,00,000mn

Background:
India with 134mn cows and 125mn buffaloes, has the largest population of cattle in the world. Total cattle population in the country as on October'00 stood at 313mn. More than fifty percent of the buffaloes and twenty percent of the cattle in the world are found in India and most of these are milch cows and milch buffaloes. Indian dairy sector contributes the large share in agricultural gross domestic products. Presently there are around 70,000 village dairy cooperatives across the country. The co-operative societies are federated into 170 district milk producers unions, which is turn has 22-state cooperative dairy federation. Milk production gives employment to more than 72mn dairy farmers. In terms of total production, India is the leading producer of milk in the world followed by USA. The milk production in 1999-00 is estimated at 78mn MT as compared to 74.5mn MT in the previous year. This production is expected to increase to 81mn MT by 2000-01. Of this total produce of 78mn cows' milk constitute 36mn MT while rest is from other cattle.

While world milk production declined by 2 per cent in the last three years, according to FAO estimates, Indian production has increased by 4 per cent. The milk production in India accounts for more than 13% of the total world output and 57% of total Asia's production. The top five milk

producing nations in the world are India ,USA, Russia, Germany and France.

Although milk production has grown at a fast pace during the last three decades (courtesy: Operation Flood), milk yield per animal is very low. The main reasons for the low yield are

Lack of use of scientific practices in milching. Inadequate availability of fodder in all seasons. Unavailability of veterinary health services.
Milk Yield comparison:
Country Milk Yield (Kgs per year) 7002 5417 5348 2976 1052 795 2021

USA UK Canada New Zealand Pakistan India World (Average)

Source: Export prospects for agro-based industries, World Trade Centre, Mumbai.

World's major milk producers:

(Million MTs) Country India USA Russia Germany France Pakistan Brazil UK Ukraine Poland New Zealand Netherlands Italy Australia 1997-98 71 71 34 27 24 21 21 14 15 12 11 11 10 9 1998-99 ( Approx.) 74.5 71 33 27 24 22 27 14 14 12 12 11 10 10

Fresh Milk:
Over 50% of the milk produced in India is buffalo milk, and 45% is cow milk. Buffalo milk has 3.6% protein, 7.4% fat, 5.5% milk sugar, 0.8% ash and 82.7% water whereas cow milk has 3.5% protein, 3.7% fat, 4.9% milk sugar, 0.7% ash and 87% water. While presently (for the year 2012)the price of Buffalo milk is ruling at $261-313 per MT that of cow is ruling at $170-267 per MT. Fresh pasteurized milk is available in packaged form. However, a large part of milk consumed in India is not pasteurized, and is sold in loose form by vendors. Sterilized milk is scarcely available in India.

Packaged milk can be divided according to fat content as follows,

Whole (full cream) milk - 6% fat Standardized (toned) milk - 4.5% fat Doubled toned (low fat) milk - 3% fat Another category of milk, which has a small market is flavoured milk. Penetration of milk products Western table spreads such as butter, margarine and jams are not very popular in India. All India penetration of butter/ margarine is only 4%. This is also largely represented by urban areas, where penetration is higher at 9%. In rural areas, butter/ margarine have penetrated in 2.1% of households only. The use of these products in the large metros is higher, with penetration at 15%. Penetration of cheese is almost nil in rural areas and negligible in the urban areas. Per capita consumption even among the cheese-consuming households is a poor 2.4kg pa as compared to over 20kg in USA. The lower penetration is due to peculiar food habits, relatively expensive products and also non-availability in many parts of the country. Butter, margarine and cheese products are mainly manufactured by organized sector. Similarly, penetration of ghee is highest in medium sized towns at 37.2% compared to 31.7% in all urban areas and 21.3% in all rural areas. The all India penetration of ghee is 24.1%. In relative terms, penetration of ghee is significantly higher in North and West, which are milk surplus regions. North accounts for 57% of ghee consumption and West for 23%, South & East together account for the balance 20%. A large part of ghee is made at home and by small/ cottage industry from milk. The relative share of branded products in this category is very low at around 1-2%. Milk powder and condensed milk have not been able to garner any significant consumer acceptance in India as indicated by a very low 4.7% penetration. The penetration is higher at 8.1% in urban areas and lower at 3.5% in rural areas. Within urban areas, it is relatively higher in medium sized towns at 8.5% compared to 7.7% in a large metros.

Market Size And Growth:

Market size for milk (sold in loose/ packaged form) is estimated to be 36mn MT valued at Rs470bn. The market is currently growing at round 4% pa in volume terms. The milk surplus states in India are

Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu.
The manufacturing of milk products is concentrated in these milk surplus States. The top 6 states viz. Uttar Pradesh, Punjab, Madhya Pradesh, Rajasthan, Tamil Nadu and Gujarat together account for 58% of national production. Milk production grew by a mere 1% pa between 1947 and 1970. Since the early 70's, under Operation Flood, production growth increased significantly averaging over 5% pa. About 75% of milk is consumed at the household level which is not a part of commercial dairy industry. Loose milk has a larger market in India as it is perceived to be fresh by most consumers. In reality however, it poses a higher risk of adulteration and contamination. The production of milk products, i.e. milk products including infant milk food, malted food, condensed milk & cheese stood at 3.07 lakh MT in 1999. Production of milk powder including infant milk-food has risen to 2.25 lakh MT in 1999, whereas that of malted food is at 65000 MT. Cheese and condensed milk production stands at 5000 and 11000 MT respectively in the same year.

Major Players:
The packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-operative Milk Marketing Federation (GCMMF) is the largest player. All other local dairy cooperatives have their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in Rajasthan, Verka in Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other private players include J K Dairy, Heritage Foods, Indiana Dairy, Dairy
Specialties, etc. Amrut Industries, once a leading player in the sector has turned bankrupt and is facing liquidation. Export Potential: India has the potential to become one of the leading players in milk and milk product exports. Locational advantage : India is located amidst major milk deficit countries in Asia and Africa. Major importers of milk and milk products are Bangladesh, China, Hong Kong, Singapore, Thailand, Malaysia, Philippines, Japan, UAE, Oman and other gulf countries, all located close to India. Low Cost Of Production : Milk production is scale insensitive and labour intensive. Due to low labour cost, cost of production of milk is significantly lower in India. Concerns in export competitiveness are:

Quality : Significant investment has to be made in milk procurement, equipments, chilling and refrigeration facilities. Also, training has to be imparted to improve the quality to bring it up to international standards.

Productivity : To have an exportable surplus in the long-term and also to maintain cost competitiveness, it is imperative to improve productivity of Indian cattle. There is a vast market for the export of traditional milk products such as ghee, paneer, shrikhand, rasgolas and other ethnic sweets to the large number of Indians scattered all over the world

India's exports of milk products:

Description (Quantity, M T.: Value, Rs. million) Skimmed milk powder Milk and Milk Food for babies Milk cream Sweetened condensed milk Whey Ghee/Butter/Butter oil (a) Fresh (b) Processed (c) Other TOTAL 1995-96 Quantity 4,638.62 8.27 332.23 41.73 78.46 7,895.08 0.10 5.67 66.64 Value 3,35.32 2.019 28.04 2.84 3.75 431.1 0.013 1.20 8.35 8,72.7 Cheese 2.1 36.78 0.375 0.69 52.4 22.10 24.84 2.19 4.55 2,55.6 1996-97 Quantity 282.70 111.37 1.00 9.22 11.50 299.97 Value 19.64 4.27 0.084 0.97 1.01 19.2 5.00 11.00 60.39 6.00 4,352.08 1997-98 Quantity Value 0.375 2.02 7.22 0.342 2,38.95

Branding Of Traditional Milk Products Among the traditional milk products, ghee is the only product, which is currently marketed, in branded form. main ghee brands are Sagar, MilkMan (Britannia), Amul (GCMMF), Aarey (Mafco Ltd), Vijaya (AP Dairy Development Cooperative Federation), Verka ( Punjab Dairy Cooperative), Everyday (Nestle) and Farm Fresh (Wockhardt). With increasing urbanization and changing consumer preferences, there is possibility of large scale manufacture of indigenous milk products also. The equipments in milk manufacturing have versatility and can be adapted for several products. For instance, equipments used to manufacture yogurt also can be adapted for large scale production of Indian curd products (dahi and lassi). Significant research work has been done on dairy equipments under the aegis of NDDB. Mafco Limited sells Lassi under the Aarey brand and flavoured milk under the Energee franchise (in the Western region, mainly in Mumbai). Britannia has launched flavored milk in various flavors in tetra packs. GCMMF has also made a beginning in branding of other traditional milk products with the launch of packaged Paneer under the Amul brand. It has also created a new umbrella brand "Amul Mithaee", for a range of ethnic Indian sweets that are proposed to be launched The first new product Amul Mithaee Gulabjamun has already been launched in major Indian markets. Western Milk Products Western milk products such as butter, cheese, yogurt have gained popularity in the Indian market only during the last few years. However consumption has been expanding with increasing urbanization.

Butter:
Most Indians prefer to use home made white butter (makkhan) for reasons of taste and affordability. Most of the branded butter is sold in the towns and cities. The major brands are Amul, Vijaya, Sagar, Nandini and Aarey. Amul is the leading national brand while the other players have greater shares in their local markets. The latest entrant in the butter market has been Britannia. Britannia has the advantages of a wide distribution reach and a strong brand recall. Priced at par with the Amul brand, it is expected to give stiff competition to the existing players. In 1999-00 the butter production is estimated at 4 lakh MT of this only 45K MT is in the white form used for table

purposes rest all is in the yellow form. Cheese:

The present market for cheese in India is estimated at about 9,000 tonnes and is growing at the rate of about 15% per annum. Cheese is mainly consumed in the urban areas. The four metro cities alone account for more than 50% of consumption . Mumbai is the largest market (accounting for 30% of cheese sold in the country), followed by Delhi (20%). Calcutta (7%) and Chennai (6%). Mumbai has a larger number of domestic consumers, compared to Delhi where the bulk institutional segment

(mainly hotels) is larger. Milk Powder:

Milk powder are mainly of 2 types

Whole milk powder Skimmed milk powder

Whole milk powder contains fat, as distinguished from skimmed milk powder, which is produced by removing fat from milk solids. Skimmed milk powder is preferred by diet conscious consumers. Dairy whiteners contain more fat than skimmed milk powder but less compared to whole milk powder. Dairy whiteners are popular milk substitute for making tea, coffee etc. The penetration of these products in milk abundant regions is driven by convenience and non perishable nature (longer shelf life) of the product. Dairy sector of advanced nations export milk products with a subsidy of $ 1000 per tonne with a level of subsidy more than 60 % of the price of milk powder produced in India, this has led to large scale imports of milk powder both in whole and skimmed form. To protect the domestic sector from these subsidized imports the central government has recently increased the basic import duty on all imports of milk powder more than 10000 MT to 60% from 15%. For imports less than 10000 MT the basic customs duty has been left unchanged at 15%. In 1999-00 India is estimated to have imported about 18,000 tonnes of milk powder against a total estimated production of 2.40 Lakh MTs. In 2000-01 India is expected to export 10000 MT of skimmed milk powder due to rise in international prices to $2300 per MT from last year's levels of $1400 per MT.
Major Players:Milk Powder/Dairy Whiteners : Major skimmed milk brands are Sagar (GCMMF) and Nandini (Karnataka Milk Federation), Amul Full Cream milk powder is a whole milk powder brand.

Leading brands in the dairy whitener segment are Nestle's Everyday, GCMMF's Amulya, Dalmia Industry's Sapan, Kwality Dairy India's KreamKountry, Wockhardt's Farm Fresh and Britannia's MilkMan Dairy Whitener. Condensed Milk: The condensed milk market has grown from 9000 MT in 1998 to 11000 MT in 1999. Condensed milk is a popular ingredient used in home-made sweets and cakes. Nestle's Milkmaid is the leading brand with more than 55% market share. The only other competitor is GCMMF's Amul. Value addition in milk powder - Infant Foods:

Nestle is the market leader in the segment. This is a category where brand loyalties are very strong as mothers want the best for their babies. Heinz is the only other significant competitor to Nestle in this segment. Nestle's Cerelac and Nestum together have around 80% market share and Heinz's Farex has
close to 18% share. Wockhardt is a relatively new entrant with its First Food brand. Wockhardt also proposes to launch a new baby food Easum containing moong (moong is one of the easily digestible pulses). The Easum brand will directly compete with Nestle's Nestum (made from rice). In infant formula also Nestle's Lactogen formula and Lactogen standard formula are the leading brands with around 75% market share. Other brands are Heinz's Lactodex Farex, Wockhardt's Raptakos, and Amul's Amulspray

Amul's secret of success:

The system succeeded mainly because it provides an assured market at remunerative prices for producers' milk besides acting as a channel to market the production enhancement package. What's more, it does not disturb the agro-system of the farmers. It also enables the consumer an access to high quality milk and milk products. Contrary to the traditional system, when the profit of the business was cornered by the middlemen, the system ensured that the profit goes to the participants for their socio-economic upliftment and common good. Looking back on the path traversed by Amul, the following features make it a pattern and model for emulation elsewhere. Amul has been able to: Produce an appropriate blend of the policy makers farmers board of management and the professionals: each group appreciating its roles and limitations

Bring at the command of the rural milk producers the best of the technology and harness its fruit for betterment Provide a support system to the milk producers without disturbing their agro-economic systems Plough back the profits, by prudent use of men, material and machines, in the rural sector for the common good and betterment of the member producers and Even though, growing with time and on scale, it has remained with the smallest producer members. In that sense, Amul is an example par excellence, of an intervention for rural change.

The Union looks after policy formulation, processing and marketing of milk, provision of technical inputs to enhance milk yield of animals, the artificial insemination service, veterinary care, better feeds and the like - all through the village societies. The village society also facilitates the implementation of various production enhancement and member education programs undertaken by the Union. The staff of the village societies have been trained to undertake the veterinary first-aid and the artificial insemination activities on their own.

Amul's success: A model for other districts to follow:

Amul's success led to the creation of similar structures of milk producers in other districts of Gujarat. They drew on Amul's experience in project planning and execution. Thus the 'Anand Pattern' was followed not just in Kaira district but in Mehsana, Sabarkantha, Banaskantha, Baroda and Surat districts also. Even before the Dairy Board of India was born, farmers and their leaders carried out empirical tests of the hypotheses that explained Amul's success. In these districts, milk producers and their leaders experienced significant commonalties and found easy and effortless ways to adapt Amul's gameplan to their respective areas. This led to the Creation of the National Dairy Development Board with the clear mandate of replicating the 'Anand pattern' in other parts of the country. Initially the pattern was followed for the dairy sector but at a later stage oilseeds, fruit and vegetables, salt, and tree sectors also benefited from it's success.