Market Opportunities in Indian Dairy Value Chain

A research study for the Victorian Government Business Office India

November 2009

Table of contents
1. 1.1. 1.2. 1.3. 1.4. 2. 2.1. 2.2. 2.3. 3. 3.1. 3.2. 3.2.1. 3.2.2. 3.2.3. 3.2.4. 3.2.5. 3.2.6. 4. 4.1. 4.1.1. 4.1.2. 4.1.3. 4.2. 4.2.1. 4.2.2. 4.2.3. 4.3. 4.3.1. 4.3.2. 4.3.3. 4.4. 4.4.1. 4.4.2. 4.5. 4.5.1. 4.5.2. 4.5.3. 4.6. 4.6.1. 4.6.2. 4.6.3. 4.7. 5. 5.1. 5.2. 5.3. 5.4. 5.5. Introduction ................................................................................................ 4 Background and Objectives ......................................................................... 4 Scope of Work.............................................................................................. 4 Approach ...................................................................................................... 4 Disclaimer..................................................................................................... 5 Executive Summary ................................................................................... 5 Analysis of Indian Dairy value Chain for Potential Opportunities................. 5 Assessment of Victorian Dairy Industry to Qualify Opportunities in India.... 8 Route to Market............................................................................................ 9 Analysis of Indian Dairy Value Chain for Potential Opportunities ...... 10 Section Objective ....................................................................................... 10 Overview of Indian Dairy Industry .............................................................. 10 Size and Growth......................................................................................... 12 Unique Aspects of Indian Dairy Industry .................................................... 12 Industry Structure ....................................................................................... 14 Product Portfolio......................................................................................... 15 Consumption Pattern.................................................................................. 17 Trade Pattern ............................................................................................. 20 Analysis of Indian Dairy Industry Value Chain ..................................... 25 Breeding ..................................................................................................... 25 Current Scenario ........................................................................................ 25 Issues ......................................................................................................... 27 Opportunities .............................................................................................. 27 Feed and Nutrition...................................................................................... 28 Current Scenario ........................................................................................ 28 Issues ......................................................................................................... 30 Opportunities .............................................................................................. 30 Healthcare and Herd Management ............................................................ 30 Current Scenario ........................................................................................ 30 Issues ......................................................................................................... 32 Opportunities .............................................................................................. 34 Milk Production, Storage and Transport..................................................... 34 Issues ......................................................................................................... 35 Opportunities .............................................................................................. 36 Processing.................................................................................................. 36 Foreign Collaborations in Dairy Processing ............................................... 37 Issues ......................................................................................................... 39 Opportunities .............................................................................................. 40 Marketing, Distribution and Retail .............................................................. 42 Current Scenario ........................................................................................ 42 Issues ......................................................................................................... 43 Opportunity................................................................................................. 44 Overall Assessment for Trade in Indian Dairy Industry.............................. 44 Policies and Regulation for Trade and Doing Business ...................... 45 Compulsory Legislation .............................................................................. 45 Voluntary Standards................................................................................... 47 Other Government Regulations ................................................................. 47 Packaging and Labelling Requirements..................................................... 49 Import Procedure and Documentation ....................................................... 50

5.5.1. 5.5.2. 5.5.3. 6. 6.1. 6.2. 6.3. 6.4. 6.5. 6.5.1. 6.5.2. 6.6. 7. 8. 8.1. 8.2. 8.2.1. 8.2.2. 8.3. 8.4. 8.5. 8.5.1. 8.5.2. 9. 9.1. 9.2. 9.3. 10. 10.1. 10.2. 10.3. 10.4. 10.5. 10.6. 10.7. 10.8. 10.9. 11. 11.1. 11.2. 11.2.1. 11.2.2. 11.2.3. 11.2.4. 11.2.5. 11.2.6. 12. 12.1. 12.2.

Procedure ................................................................................................... 50 Documentation ........................................................................................... 53 Duties and Taxes ....................................................................................... 54 Competitive Landscape ........................................................................... 54 Breeding ..................................................................................................... 54 Healthcare and Herd Management ............................................................ 54 Feed and Nutrition...................................................................................... 55 Milk Production, Storage and Transport..................................................... 56 Processing.................................................................................................. 56 Traditional Indian Milk Products ................................................................. 56 Key Universal Products .............................................................................. 57 Marketing, Distribution and Retail .............................................................. 58 Overview of Competitive Landscape in Indian Dairy Industry Value Chain.......................................................................................................... 58 Assessment of Victorian Dairy Industry to Qualify Opportunities in India ........................................................................................................... 60 Section Objective ....................................................................................... 60 Assessment of Victorian Dairy Industry ..................................................... 60 Prominence of Victoria in Australian Dairy Industry................................... 60 Diary Industry Structure.............................................................................. 63 Key Categories and Product Portfolio ........................................................ 66 Key Strengths of Victorian Dairy Industry .................................................. 67 Analysis of Trade Pattern ........................................................................... 68 Exports ....................................................................................................... 68 Imports........................................................................................................ 70 Opportunity Areas in Indian Dairy Market for Victorian Dairy Players72 Current Potential Areas of Trade ............................................................... 72 Attractiveness-Ability Analysis ................................................................... 73 High level Assessment of Opportunities in Indian Diary Industry .............. 76 Key Success Factors ............................................................................... 78 Universal Products - Commodity................................................................ 78 Universal Products - Speciality .................................................................. 79 Bovine Semen ............................................................................................ 79 Second Hand Processing Equipment ........................................................ 80 Cattle Feed................................................................................................. 80 Dairy Extension Services ........................................................................... 80 Potential Trade Issues................................................................................ 81 Future Outlook for Current Potential Areas of Trade ................................. 84 Potential Future Areas of Trade ................................................................. 85 Market Size of Opportunities in Indian Dairy Industry ......................... 85 Section Objective ....................................................................................... 85 Size of Identified Opportunity Areas........................................................... 85 Universal Dairy Products - Commodity ...................................................... 85 Universal Diary Products Specialty ......................................................... 86 Cattle Feed................................................................................................. 87 Dairy Extension Services ........................................................................... 87 Bovine Semen Import................................................................................. 87 Second Hand Dairy Processing Equipment ............................................... 87 Route to Market ........................................................................................ 88 Section Objective ....................................................................................... 88 Route to Market.......................................................................................... 88

12.2.1. 12.2.2. 12.2.3. 12.2.4. 12.3. 12.3.1. 12.3.2. 12.3.3. 13. 13.1. 13.2. 13.3. 13.4. 13.4.1. 13.4.2. 13.4.3. 13.4.4. 13.4.5. 13.4.6. 13.5.

Universal Dairy Products Commodity ..................................................... 88 Universal Dairy Products - Specialty.......................................................... 90 Second Hand Dairy Equipment .................................................................. 92 Dairy Extension Service and Bovine Semen ............................................. 92 Victoria Governments Role for Enhancing Trade Ties with Indian Dairy Industry....................................................................................................... 93 Diplomatic and Trade Channel................................................................... 93 Trade Promotions....................................................................................... 94 Cultural Channel......................................................................................... 94 Appendix ................................................................................................... 95 Appendix 1: Description Key Traditional Indian Milk Products................... 95 Appendix 2: Exchange Rates ..................................................................... 96 Appendix 3: Regulatory Agency Contacts.................................................. 96 Appendix 4: Key Players in Indian Dairy Industry ...................................... 98 Genetics and Breeding............................................................................... 98 Healthcare and Veterinary Pharmaceuticals.............................................. 99 Dairy Processing Plants ........................................................................... 100 Dairy Equipment....................................................................................... 101 Indian Milk Products ................................................................................. 102 Ice Cream Manufacturers......................................................................... 102 Appendix 5: Select Dairy Product Imports to India .................................. 103

1.

Introduction

1.1. Background and Objectives

The import of Australian dairy products to India was stopped in 2003; owing to change in Indias import requirements. The import requirement prohibited import of dairy products that is processed from milk procured from oestrogen administered cattle. However, early this year, Indian government has approved a new system for the health certification of Australian milk products developed by the Australian Quarantine and Inspection Service. As a result, Australian (and Victorian) dairy players are now in a position to resume their business interests in India. As a result of these developments, the Victorian Government Business Office India (VGBO India) wanted to explore all possible avenues of business and trade between Victorian and Indian dairy players. VGBO India has commissioned a study to identify, qualify and quantify the possible business / trade opportunities in the Indian dairy value chain and has entrusted PricewaterhouseCoopers (PwC) to carry out the study on its behalf.

1.2. Scope of Work

The scope of work includes identification, qualification and quantification of possible areas of business / trade in the Indian dairy value chain. The Indian dairy value chain will broadly cover the following areas: Breeding Healthcare and Herd Management Feed and Nutrition Milk Production, Storage and Transport Processing Marketing, Distribution and Retail Apart from this PwC team will also identify key dairy players in India and provide contact details of key executives in those organisations. PwC team will also provide inputs on route-to-market for the qualified business / trade opportunities.

1.3. Approach
PwC approach to this study was a combination of primary research (interviews) and in-depth secondary and internet research. For primary research, PwC team reached out to varied cross section of the stakeholders in the Indian dairy industry for their insights and view points. These include: Private dairy processors Dairy co-operatives Food processors Importers / Distributors

 Gourmet retailers Second hand dairy equipment dealers Dairy extension service providers Scientists from government and private research / education institutes Industry experts / Freelance professionals PwC also leveraged its internal network of consultants in Australia for insights on Australian / Victorian dairy industry. The secondary sources consulted by PwC include industry specific journals, year books, research papers, government / ministry websites, and industry association websites. This report has many references of market sizes and prices in Indian dairy industry. Wherever possible, PwC team has converted the currency from INR (Indian National Rupees) to A$. PwC team has also provided the currency conversion table in Appendix 2. The report also reports some figures in US$.

1.4. Disclaimer
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. This publication contains certain data / information extracted from third party documentation. The copyright in such third party material remains owned by the third parties concerned and PricewaterhouseCoopers expresses its appreciation to these organisations for having allowed it to include their information in this publication. Please note that the inclusion of data / information of an organisation in this publication do not imply any endorsement of that organisation by PricewaterhouseCoopers or any verification of the accuracy of the information

2.

Executive Summary

2.1. Analysis of Indian Dairy value Chain for Potential Opportunities

Dairy industry in India has witnessed a remarkable journey in last few decades. From being a laggard and net importer of dairy products in 1950s and 1960s, India has covered a lot of ground. India now is worlds largest producer of milk (approximately 106 million tonnes annually) and a net exporter of milk products. The credit of this transformation is largely attributed to Operation Flood, a co-operative led movement started in 1970s which took in its fold millions of small holding farmers who joined the three tier co-operative structure and increased Indias milk output at a compounded

annual growth rate (CAGR) of 4.7% since 1969, up from a 0.7% CAGR from 1947 to 1969. The three tier structure constitutes village societies, district unions and state federations. Apart from smallholdings and three tier co-operative structure, India dairy industrys uniqueness also emanates from imbalance in the collection and consumption pattern. Milk is predominantly (as high as 98%) collected from millions of smallholding farmers residing in villages and is sold to the urban centres through a complex distribution structure. The processing sector is dominated by co-operatives, though the prominence of private dairy processors is gradually increasing. Apart from this, the unorganised sector (local sweet makers etc) processes a large portion of the total liquid milk output. In fact, the unorganised sector outnumbers the organised sector (both co-operatives and private players combined) in dairy processing capacity in the ratio of 3:2. The consumption pattern of dairy products in India is very different from many western countries, the primary reason being conventional dietary habits of Indian households. Approximately 55-60% of the milk produced is consumed in liquid form. The rest of the milk products consumed are predominantly traditional Indian dairy products like ghee, paneer, chhana, dahi and other traditional sweets. Universal dairy products like cheese, table butter, ice creams are consumed in moderate amounts, even though the growth rate of some of these products are healthy. In spite of having largest milk production, India is a very minor player in the world dairy trade. Till the 1980s, India had adopted strategies like import-substitution, quantitative restrictions on imports and exports and canalisation. Competition within the organised sector was regulated through licensing provisions, which prohibited new entrants into the milk-processing sector. However, in early 1990s the Government of India introduced major trade policy reforms that favoured increasing privatisation and liberalisation of the economy. The dairy industry was further opened up after India became a member of World Trade Organisation (WTO). In 2000, the Union Government allowed free import and export of most dairy products. India also bound its import tariffs for dairy products at low levels in the Uruguay Round schedules. The import tariffs now range between 30-60% for most products. India has also administered Tariff Rate Quota (TRQ) for key products like milk powder, butter oil, milk food for babies. In recent years, India has maintained a positive trade balance for dairy products. The advantages India leverage are low farm gate prices (due to low milk production costs) and proximity to milk deficit markets of Asia and Middle East. However, Indias export performance is not up to its potential. The key reasons attributed for its below par export performance are low quality and hygiene standards, lack of experience in marketing dairy products in international markets, and significant increase in consumption of milk and milk products in domestic market leading to limited surplus of exports. The government of India has expressed strong interest in maintaining self sufficiency in dairy and other agricultural products. However, there has been a steady increase in import of dairy products to India after trade liberalisation. The key items imported to India are butter oil, whey products, cheese, and milk powders. The key nations that export dairy products to India are Denmark, Nepal, USA, France, Netherlands and

Italy. Many dairy products from other major milk producing nations face non-tariff barriers in India. In past few years, India has been able to achieve a fair degree of self sufficiency in all aspects of the dairy value chain. Indian dairy industrys uniqueness has also called for many distinctive requirements and ingenious solutions that one normally doesnt find in other large dairy producing nations. The following are the potential opportunity areas of trade / business across Indias dairy value chain. These opportunities emanate from the issues and gaps witnessed by Indian dairy industry and its stake holders: Breeding High quality imported bovine semen (particularly for Holstein-Friesian and Jersey varieties) Feed and nutrition Low cost supplementary feed and concentrates that can justify the economics of milk production by small farmers; Low cost feed supplements like protein feed and urea molasses block; Feed block making machines. Healthcare and herd management Low cost dairy extension services (feed and nutrition, healthcare and vaccination, artificial insemination, total healthcare management, record keeping etc) at farmers doorsteps; Sophisticated diagnostic kits for diseases like Brucellosis, Tuberculosis, Paratuberculosis, and Elisa test etc; Preventive health products teeth dips, dry cow formulations, milk replacers; Machines for manure and fodder management. Milk production, storage and transport Low cost hygienic milk collection equipment to be used by small holding dairy farmers. Clean-in-place (CIP) systems, small automatic milk collection machines can be purchased for a community of farmers and used collectively. This will address one of the biggest issues in Indian dairy industry, i.e. unhygienic milk collection practice. Processing Packaging equipment for products like butter, cheese, UHT (Ultra High Temperature) milk, aseptic filling; Most of the capital intensive dairy processing equipment like self cleaning cream separators, homogenisers, continuous butter and cheese making machine, pasteuriser plates, large scale ice cream freezers, ammonia compressors etc; Resource efficient processing equipment to suit Indian conditions; Imported second hand dairy processing equipment; Industrial production of traditional Indian dairy products and sweets. Marketing, distribution and retail Low cost packaging technology to suit Indian conditions;

Sensors and automation equipment for fleet and cold storage management.

2.2. Assessment of Victorian Dairy Industry to Qualify Opportunities in India

Dairying is a well-established industry across the temperate and some subtropical areas of Australia. With annual turnover of just under A$ 5,125 million, Victoria dominates the dairy industry in Australia. Victorian dairy players contribute to over 65% of fresh milk and 75% of manufactured dairy products in the country. Over 50% of the Victorias processed dairy products are exported. Victoria's dairy industry is internationally competitive because its low input costs pasture-based systems and clean green (environmental) image. The dairy farm sector is dominated by owner-operated farms consisting of more than 98% of total dairy farms. Over the years the number of dairy farms in Victoria has come down substantially, which led to an increase in average herd size. Improvements in herd genetics, pasture management practices and supplementary feeding regimes have seen the average yield per cow increase substantially in last two decades. Unlike many other states in Australia, drinking milk constitutes only a small percentage (usually less than 10%) of the total milk produced in Victoria. Cheese is the largest category of processed dairy product. The predominant variety of cheese is cheddar. When the ability of Victorian dairy industry was evaluated against the opportunities available in Indian dairy industry, the following outcome emerges: The equipment / machinery / technology areas (e.g. packaging equipment, capital intensive dairy processing equipment, diagnostics kits for bovine diseases etc) does not provide great trade opportunities. Victorian dairy players themselves are importers of these equipment / machinery / technology. The second hand equipment market however provides possible trade opportunities, even though the demand for the same is presently low. Products on the other hand show greater trade potential. Both commodity (SMP, WMP, butter oil etc) and specialty (specialty cheese, ice creams, flavoured yogurts etc) dairy products are moderately attractive. Bovine semen export is another opportunity area, though the requirement is intermittent. Victorian dairy players have high ability to serve these demands from India. However, they will have to deal with trade barriers and regulatory requirements. Cattle feed products have low attractiveness due to low price points and highly distributed consumer base. Nonetheless, Victorian players have moderate capability to meet cattle feed products requirements from India. Services like dairy extension also require low price points and ability to cater to distributed consumer base. Moreover, it requires knowledge on local conditions. Victorian players are moderately placed to meet these requirements, preferably collaborating with Indian partners.

The analysis qualifies six potential areas of opportunity for Victorian players in Indian market. They are: Universal dairy products - commodity (e.g. SMP, WMP, butter oil, table butter, cheese spread etc): The outlook for this is stable and improving. Victorian players can leverage seasonal demand-supply imbalance in India and price differential between domestic (Indian) and imported products. Universal dairy products - specialty (e.g. specialty cheese, premium ice cream, flavoured yogurts etc): The outlook for this is improving. Increasing affluence, growing middle class that has exposure to world gourmet food will help improve the consumption of specialty dairy products. Bovine semen - particularly Holstein-Friesian and Jersey varieties: The outlook for this is stable and fluctuating. This is a restricted item and its occasional imports would be based on specific circumstances only. Second hand capital intensive processing equipment: The outlook for this is improving. Many of private players have small to medium capacity processing plants and are willing to purchase imported second hand equipment to reduce capital investment and stay competitive. Cattle feed including UMMB licks and Bypass Protein Feed: The outlook for this is stable. There is no structural change in smallholding dairy industry in India. Thus it is unlikely that small farmers will alter economics of milk production for greater consumption of cattle feed supplied by private players. Dairy extension services: The outlook for this is stable and improving. There is a strong need for door step dairy extension service at affordable price. With awareness increasing, farmers in relatively affluent states are willing to explore the benefits of dairy extension service.

However, the estimated market size for cattle feed in India is very low (approximately A$ 2 million) to remain attractive for Victorian players.

2.3. Route to Market

The options available to go to market in India for the qualified opportunity areas for Victorian dairy players are summarised below: Universal dairy products commodity: Forming partnership (Joint Ventures) with Indian partners is a preferred and a safer route to market. Sufficient due diligence, prudent selection of business partner and aligning strategic objectives will be key to a successful partnership. Other options include setting up Indian subsidiaries and taking up strategic stakes in Indian dairy processors. Universal dairy products specialty: The most preferred route for specialty dairy products to enter Indian market is through importers / distributors, as the quantity of exports are small and the market is still in the nascent stage. Creation of subsidiaries or Joint Ventures should be considered when the Victorian players reach a critical mass of exports to India and after they have gained significant knowledge about the dynamics of Indian market and its players.

Second hand dairy equipment: The most suitable route to market is interactions with second hand equipment dealer to identify business opportunities. Dairy extension service and bovine semen: The ideal route to market will be to keep the channels of communication open with various organisations (including private dairy farms and government approved agencies) and supply bovine semen as per their requirement. Victorian players can also explore possibilities of joining hands with private dairies which run their own collection network for venturing into dairy extension services. Many of the private dairies provide basic extension services to farmers at village level.

A list of key players in Indian dairy industry and contact details of their executives has been provided to Victorian Government Business Office (VGBO) by PwC. This list can be obtained from the VGBO on special request.

3.

Analysis of Indian Dairy Value Chain for Potential Opportunities

3.1. Section Objective

This section will provide an overview of the Indian dairy industry and analyse the entire dairy value chain in India to understand the issues which can lead to identifying potential trade / business opportunity. This section will also provide an overview of the policies and regulations that impact the Indian dairy industry and dairy trade with India. Additionally, this section will also provide inputs on the prevailing competitive landscape in Indian dairy industry.

3.2. Overview of Indian Dairy Industry

Dairy industry in India has witnessed an eventful journey. From being written off as a basket case a few decades back, India has today emerged as the largest milk producer in the world. More than 70% of Indias milk producers are small marginal farmers, the animals are low milk yielding and land holdings are small. By any yardstick, the progress in dairy industry in India is a remarkable feat. The story of Indias dairy development originates from the success of Gujarat Cooperative Milk Marketing Federation (GCMMF) four decades ago. The success of the business model adopted by Gujarat Cooperative Milk Marketing Federation and the subsequent Operation Flood program portray the story of Indian dairy industry to a significant extent. In the early 1950s, India was commercially importing around 55,000 tonnes of milk powder annually to meet the urban milk demand. The milk production during the 1950s and 60s was more or less stagnant. It was only much after independence that Indias Dairy industry was included in governments development policies. The Governments goal was to provide hygienic milk to the countrys growing urban population.

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The foundation for development of Indias dairy industry was the cooperative movement in the state of Gujarat. In 1952, the Kaira District Cooperative Milk Producers Union (currently the Gujarat Cooperative Milk Marketing Federation, GCMMF) gained the right to supply fluid milk to the Mumbai market. This assured market allowed the cooperative to grow rapidly but also posed a challenge in maintaining a cold chain and balancing milk production with fluid milk demand. The cooperative adopted a unique tiered system of milk collection and processing - came to be known as the Anand model. The cooperative adopted the Amul Brand and developed nationwide brand recognition. In 1960, Amul pioneered production of milk powder and baby food from buffalo milk. Today Amul members supply more than 1 million litres of milk per day and sell 400 tonnes of cattle feed every month. This was supported by the Indian Government through the NDDB (National Dairy Development Board), created in 1965, at Anand. In the late 1960s, Dr V. Kurien designed the concept of Operation Flood. The purpose of Operation Flood was to create a white flood of milk throughout India by widely replicating and financially supporting the Anand model. Phase One of Operation Flood was launched in 1970 while the Second and Third Phase, in 1985 and late1990s, respectively. Operation Flood-inspired cooperatives have raised the incomes of millions of landless marginal farmers who constituted the cooperatives membership. It was only in the year 1991 that the dairy sector was de-licensed. The Milk and Milk Products Order 1992, was revised with controls in 2002 while the MACS Act (Mutually Aided Cooperatives Act), 1995 was introduced to strengthen cooperatives. The Indian dairy sector is a 3 tier structure - village society, district unions federated at state level. The nation's milk supply comes from millions of small producers, dispersed throughout the rural areas. These farmers maintain an average herd of one or two milch animals, comprising cows and/or buffaloes. Today, the Indian dairy Industry is at cross roads again. The industry is dominated by the Government sector and working in a co-operative mode. It is going to face keen competition from the rising private sector, which is making considerable investment in Indian dairy industry.

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3.2.1. Size and Growth

The Operation Flood programme, introduced in 1970 has led to the modernisation of India's dairy sector and created a strong network for procurement, processing and distribution of milk by the co-operative sector. The Operation Flood programme carried out the following functions: Organised village dairy co-operatives, incorporated state dairy development projects and helped the co-operatives become self sustaining Created physical and institutional infrastructure for milk procurement, processing, marketing and production enhancement services Established dairies at Indias major metropolitan centres

Operation Flood has helped increase Indias milk output at a compounded annual growth rate (CAGR) of 4.7% since 1969, up from a 0.7% CAGR from 1947 to 1969. It has resulted in making India the largest producer of milk, and hence the initiative is also referred to as the White Revolution of India. Operation Flood helped the milk production outgrow the population and in recent years, India has become largely selfsufficient in dairy products. Most recently, India achieved a per capita availability of milk (250 grams / day) for consumption - the level recommended by the United Nations' Food and Agricultural Organisation (FAO). India has also become a net exporter of dairy products in recent years.

3.2.2. Unique Aspects of Indian Dairy Industry

The Indian dairy industry is unique in many aspects. Some of them are: Buffalo milk constitutes the largest share of Indian dairy production. This can be attributed to the milk collection pattern, wherein the price of the milk is set by the fat and SNF (Solid Non Fat) content of the milk. Buffalo milk contains higher amount of fat and SNF (7% fat, 9% SNF) compared to cow milk (4% fat, 8.5% SNF).

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There are many milk products which are quite unique to India vis--vis those produced in many western countries. These products are consumed in large quantities by an average house hold in the country. Some of these typical products are dahi, makhan, ghee, khoa, chhana, paneer (to know more about these products please refer Appendix 1). The production and consumption of many of these products is higher than universal products like cheese, butter and dairy spreads. Unlike many developed dairy markets, Indias milk production system is fragmented. Dairying is seen as a cottage industry and is primarily a supplementary occupation for small landholders or landless labourers. Some estimates suggest that approximately 70 million rural households (primarily small and marginal farmers and landless labourers) are engaged in milk production. The average herd size is about two milking animals, and average daily milk production per herd is about four litres. Due to the fragmented nature of the milk production system, a very unique tiered milk collection system has developed in India. This model is especially adopted by the dairy co-operatives, which have been organised into a three-tier structure with the Dairy Co-operative Societies (DCS) at the village level federated under a Milk Union or District Union at the district level and a Federation of member unions at the state level. There are around 13.4 million farmer members of the dairy co-operative societies at the village level, 177 Milk Unions and 17 State Federations. Most private dairies use a mix of village level collection centres and agents / contractors. Since dairying is seen as a cottage industry, there is considerable sensitivity towards protecting the income of small farmers. This is manifested by a dairy research and extension of support system targeted towards small farmers, by agencies like National Dairy Development Board (NDDB) and National Dairy Research Institute (NDRI). The predominant religion (Hinduism, which represents 82% of Indias population) prohibits slaughtering of cows and eating beef. Bull calves and unproductive animals are a disposal problem than an additional source of income. However, buffalos are not considered sacred and slaughtering facilities exist in the country. Buffalo meat is not consumed commonly and is primarily exported.

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3.2.3. Industry Structure

Milk production in India is highly fragmented and unstructured. Traditionally, bulk of the milk production (around 98%) comes from small and landless farmers, who take up milk production as a supplementary source of income. However, due to high proliferation of co-operative societies, most of these farmers are members of cooperatives and leverage the organised dairy collection network run by co-operatives / government dairies. Private dairies also procure milk from small farmers directly or through agents. The co-operatives usually follow a 3 tier model (popularly known as Anand Model, after the successful Anand based co-operative). The village co-operative societies collect and cool milk from villagers. The district unions consolidate society shipment and operate manufacturing plants to handle fluid surpluses. Marketing and coordination is handled by the state federations.

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3.2.4. Product Portfolio

The uniqueness of Indian dairy consumption pattern is reflected in the product portfolio of the Indian dairy industry. The Indian dairies as well as unorganised sector produce a wide array of dairy products. a) Traditional Indian Milk Product

Traditional Indian milk products are the largest selling and the most profitable segment. This segment accounts for almost 50% of total milk produced and 95% of total milk products consumed in India. The major strength of traditional products is its mass appeal. The market for these products far exceeds the market for universal products like milk powder, table butter, and cheese. The margins for the traditional products are also much higher than those for universal products.

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The product portfolio of traditional Indian milk products is very wide, and is continually expanding. The unique sensory properties and ways of making have been posing a significant challenge for organised sector to produce traditional Indian milk products in large quantities. However, significant headway has been made in industrial production of some traditional Indian products such as shrikhand, gulab jamun, peda and burfi. This is seen as the beginning of a revolution in the production and marketing of all time popular indigenous products that were hitherto the exclusive preserve of traditional sweet makers. However, the organised sector has been able to make inroads into only a few traditional product markets and a large number of products are yet to be produced industrially. The unorganised sector still is the dominant force for traditional Indian milk products. b) Universal Products Though the percentage of universal products is small in overall dairy market, India produces a fairly wide array of products. These include butter, SMPs (Skim Milk Powder), WMPs (Whole Milk Powder), ice creams, baby foods, butter, chocolates, cheese, cheese spreads, cheese slices, dairy whiteners, and margarine etc. Details of few key universal products are provided below. Cheese: The organised cheese market includes cheese and its variants like processed cheese, mozzarella, cheese spreads, flavoured and spiced cheese. The consumption of cheese / edible casein in India is estimated to be A$ 662 million in 2008 and is expected to reach A$ 1,663 million in 2011. Processed cheese corners 60% of the overall market. The next most popular variant is cheese spread claiming a share of around 30% of the total processed cheese market. The market is primarily an urban phenomenon and is known to be growing at around 10%. The market for cheese cubes, slices and tins is growing as well. The flavoured cheese segment on the other hand, has been constantly declining. Ice Cream: Indias Ice Cream market is valued roughly at A$ 811 million in 2008 and is one of the fast growing dairy segments in India. The organised sector accounts for around 40% of the market and is restricted mainly to urban centres. Eight cities account for 60% of Indias total ice cream consumption. Though the unorganised sector accounts for 60% of the market, it is shrinking considerably in urban areas. However, in rural areas, kulfis / ice cream made by small / cottage industry is popular. In small towns and villages, there are thousands of small players who produce ice creams / kulfis and cater to the local demand. The per capita consumption of ice cream in India is little over 500 ml compared to an estimated 30 litres in US. The western and northern parts of India have much higher consumption than the rest. The consumption also witnesses a strong seasonal variation, wherein April to June is considered peak season and accounts for 50% of the sale. The festive season in October-November also contributes 15-20% of the sale. The ice cream prices are reported to be three times higher than the prices prevailing in America, one of the reasons being the legal requirement of at least 10% milk fat in ice cream. Yoghurt: Yoghurt was a very late entrant in Indian market. The primary reason being that an average Indian consumer is in a regular habit of consuming dahi - a cultured dairy product, which has very similar sensory properties as yoghurt. In India, several efforts were made by the co-operatives and private dairies to produce and market yoghurt in small and large quantities. Most of these players had to discontinue the

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yoghurt production because of less awareness among consumers, its higher price compared to dahi, inadequate distribution network and other production and marketing related factors. Another key factor is that dahi is made at home by almost every household. Table Butter: The estimated market size of table butter in India is A$ 356 million, and it is expected to reach A$ 608 million by 2011, at an average growth rate of 20%. The consumption of butter is expected to ride on the changing lifestyle of the middle class, especially in larger cities. In smaller cities and villages, makkhan is usually consumed instead of butter. Milk Powder: Milk powders corner the largest share of universal products in Indian dairy market. The estimated value of milk powder market in India is A$ 1,765 million and expected to rise to A$ 2,164 million by 2011. Milk powder is consumed in large quantities and also exported to many other countries. Milk powders are the preferred substitute to bridge the lean-flush (i.e. off peak-peak productions) as well as regional milk production gap.

3.2.5. Consumption Pattern

Consumption of milk in India is skewed towards liquid milk. Around 55-60% of the milk produced is consumed in liquid form. This may be attributed to the conventional dietary habits of traditional Indian households. A large percentage of Indias population is lacto-vegetarian and milk products represent an important source of 1 protein. Estimates show that 16% of a typical Indian households food expense is spent on milk and milk products. The spent on milk and milk products is second only to the spent on cereals and amounts to 8% of overall household expense. Lack of storage and chilling facilities also contributes to liquid milk consumption within the household after the milk is procured.

As per Dairy India Yearbook, 2007

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High degree of consumption is seen for traditional Indian milk products like ghee, khoa, channa and paneer. These products are consumed at home as well as at the local halwais (sweet makers) place. The consumption of traditional milk products peak during the winter months that coincide with Indias festival and wedding seasons. Many halwais record as much as 40% of their annual turnover during October-November festival season. Universal products like cheese, casein and table butter consumption is still very low. Universal dairy products are still seen as premium food by a large section of Indias population, though their consumption is gradually increasing due to the change in socio-economic conditions and changing lifestyle. The consumption of health and functional dairy products is still in its infancy. The affordability of dairy products varies widely across India. Middle and upper income group have the power to purchase the desired quantities of dairy products. However, the rest of the population, including many people living in the rural areas have significant income constraints. There is a high degree of price and income elasticity for milk and milk products in India. The elasticity of demand varies greatly in rural areas than in urban areas.

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There are also considerable regional differences in the consumption of milk and milk products. The hill regions, northern and western parts of India have much higher per capita consumption of milk vis--vis southern and eastern part of the country. There are regional variations of individual milk product as well. While the consumption of ghee and butter is highest in north, eastern India consumes the highest percentage of milk powder. As the consumer expenditure on milk and milk products is increasing, the consumption preference also is shifting from liquid milk to other by-products (like butter, ghee, paneer etc.) The high income elasticity coupled with growing affluence of Indias population suggests that there is strong likelihood that the milk and milk products consumption will grow at a healthy rate (industry experts indicate it to grow in the range of 8-10% annually). To meet this demand, the current growth rate of milk production (4-5% annually) needs to be stretched. Any gap in growth rates in consumption and production will raise questions about the need for dairy imports to supplement domestic dairy product supplies.

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3.2.6. Trade Pattern

In spite of having largest milk production, India is a very minor player in the world dairy trade. India was primarily an import dependent country till early seventies. Most of the demand-supply gaps of liquid milk requirements for urban consumers were met by importing anhydrous milk fat / butter and dry milk powders. But with the onset of Operation Flood Programme, the scenario dramatically changed and commercial imports of dairy products came to a halt except occasional imports of very small quantities. Dairy in India is seen as a cottage industry (an industry where the creation of products is home-based, rather than factory-based) touching lives of millions of smallholding farmers. So to protect this sector from external markets, India had adopted strategies like import-substitution, quantitative restrictions on imports and exports and canalisation (restricting imports and exports through government or government designated agencies). Competition within the organised sector was regulated through licensing provisions, which prohibited new entrants into the milkprocessing sector. Milk powder and butter oil were available in the international market at lower prices, which made reconstitution of milk from these products cheaper than collecting and selling fresh milk. It was therefore necessary to restrict the availability of these cheap imports to encourage the indigenous production. However, in early 1990s when the Government of India introduced major trade policy reforms that favoured increasing privatisation and liberalisation of the economy. The dairy industry was de-licensed in 1991 to encourage private sector participation and investment in the sector. But in response to socio-political pressures, the government introduced the Milk and Milk Products Order (MMPO) in 1992 under the Essential Commodities Act of 1955 to regulate milk and dairy product production. The order required permission from state/central registration authorities to set up units handling more than 10,000 litres of milk per day or milk solids up to 500 tonnes per annum (TPA), depending on the capacity of the plant. However, concerns were raised about

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these government controls and licensing requirements for restricting large Indian and multinational players from making significant investments in this sector. The government has amended the MMPO from time to time; the major amendment was made in March 2002, when restrictions on setting up milk processing and milk product manufacturing plants were removed and the concept of milkshed2 was also abolished. The second major development in Indian dairy sector policy came when India signed the Uruguay Round Agreement on Agriculture (URAA) in 1994 and became a member of the World Trade Organisation (WTO), which made India open up its dairy sector to world markets. The import and export of dairy products was delicensed and decanalised, and trade in dairy products was allowed freely, with certain inspection requirements. The first major step was taken in 1994-95, when the import of skim milk powder (SMP) and butter oil was decanalised; restrictions on the remaining products were removed in April 2002. Moreover, there was a significant reduction in the import tariffs on dairy products after trade liberalisation. However, India had bound its import tariffs for dairy products at low levels in the Uruguay Round schedules. The Agricultural and Processed Food Products Export Development Authority (APEDA) regulated the export and import of dairy products till early 1990s. However, in the EXIM Policy announced in April 2000, the Union Government allowed free import and export of most dairy products. The value and composition of dairy trade from India varies greatly from year to year and is determined by global demandsupply situation and international prices. As a result the key trading partners also change every year. However India has been consistently maintaining a positive trade balance for dairy products in recent years.

Under MMPO, it was necessary for any dairy plant handling or processing more than 10,000 litres per day of milk to obtain Governmental registration. As per the section 11 of MMPO, every holder of registration certificate was supposed to collect or procure milk only from the milkshed assigned under the registration certificate. The milkshed, in turn, was defined as "an area geographically demarcated by the registering authority for the collection of milk or milk product by the holder of a registration certificate''. However, this concept of milkshed was abolished in March 2002.

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a) Exports India has two distinct competitive advantages that can be leveraged to enhance exports: 1. Low farm gate price: India is one of the lowest cost producers of milk amongst the important milk producing countries. The other countries that come close to / better Indias farm gate price are Argentina, Australia and New Zealand, which produce much less quantities of milk. 2. Proximity to milk deficit market: India has a locational advantage to serve milk deficit areas in neighbouring South and South-East Asian countries.

In the 1990s, India started exporting surplus dairy commodities, such as SMP, WMP, butter and ghee. The major destinations for Indian dairy exports are Middle East (particularly UAE, Saudi Arabia, Syria, and Yemen), Bangladesh, Egypt, Algeria, Morocco, USA, Pakistan, Sri Lanka and Philippines. In terms of products, SMP is the most important product accounting for about 60-65% of total export volume, followed by ghee and butter (10-12% of total exports) and WMP (10-15%).

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Export figures clearly demonstrate that the Indian dairy export is still in its infancy and the surpluses are occasional. India is not able to capitalise on the export opportunity due to the following reasons: Low quality and hygiene standards, which makes it difficult to meet the quality requirements of importing nations Lack of experience in marketing dairy products in international markets Significant increase in consumption of milk and milk products in domestic market leading to limited surplus of exports.

Besides structural inadequacies, a major reason for India's inability to develop its potential in exports is its trade policy which has been neither consistent nor progressive to allow the dairy industry to develop exports. During 2007, fearing shortage in the domestic market the export of SMP was banned between February to October. The Indian dairy could not take advantage of high prices, then prevailing in the international market. Similarly, in the year 2008, in the wake of rising inflation the Government of India decided to control the price rise and suspended the export incentives on dairy products with effect from 17th April, 2008, which could be restored only on 15th December, 2008. Another area of exports is bulk drug formulation for veterinary use, where India enjoys a fair share of world trade. The key export destinations are CIS countries, Malaysia, Thailand and Indonesia. The key product segments for veterinary drug exports are anthelmintics, antibiotics and growth promoters / supplements. b) Imports The Government of India and many agricultural trade groups have expressed a strong interest in maintaining self sufficiency in dairy and other agricultural products. Thus dairy imports are a contentious issue in India. While government policy generally supports more open trade, dairy interests are strongly opposed to allow greater access to import. The opposition to imports usually concerned about the impact of more open trade on the fate of rural residents and large number of smallholding farmers. However, there has been a steady increase in import of dairy products after trade liberalisation. The composition of imported products keeps changing each year depending on domestic and international demand-supply situation and prices. However, the key import items are butter oil / ghee, cheese, whey products, SMP and condensed whole milk. The main reasons for steady rise in imports are huge export subsidies given by developed countries (mainly the US and EU). The import of butter oil has raised concerns about the industry. Cheap butter oil imported from other countries can be processed to make ghee in India and it is feared that it will discourage the processing industry to procure milk from the farmer. The key nations that export their dairy products to India are Denmark, Nepal, USA, France, Netherlands and Italy. Many dairy products from other major milk producing nations face non-tariff barriers in India. There is prohibition of imports of dairy products derived from animals administered supplemental recombinant Bovine Somatatropin (rBST or BGH) or subject to estrogenic treatment, which are widely used in many dairy exporting nations.

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c) Dairy Trade with Australia India had minor dairy trade ties with Australia in 2003. In 2003, the total dairy export from Australia to India was US$ 6 million and was consisting mainly of milk powder concentrate and lactose. Import of Australian dairy products to India virtually stopped

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after 2003, when Indian government imposed ban owing to use of artificial oestrogens in Australian cows. However, the ban has been lifted recently following Indian Governments approval of a new system for the health certification of Australian milk products developed by the Australian Quarantine and Inspection Service.

4.

Analysis of Indian Dairy Industry Value Chain

4.1. Breeding
4.1.1. Current Scenario
India has worlds largest population of cattle and buffalos and it has a large number of genetic variants in each species. India possesses best breeds of milch buffalos in the world, and most of the best indigenous breeds of cattle excel in their draught capacity. There is also a large number of cross bred cattle. The cross bred cattle are the result of breeding indigenous cattle with exotic ones, so as to improve the milk production while adapting to Indian conditions. Some of the widely available breeds of dairy livestock in India are: Buffalo: Bhadavari, Jaffarabadi, Mehsana, Murrah, Nili-Ravi, Surti Indigenous cattle: Amritmahal, Deoni, Gaolao, Gir, Hallikar, Hariana, Kankrej, Khillari, Malvi, Nagori, Nimari, Ongole, Rathi, Red Sindhi, Sahiwal, Sunandani, Tharparkar Exotic cattle: Holstein-Friesian, Jersey, Karan Fries, Karan Swiss, Red Dane The indigenous cattle are least prolific milk producers. Genetic quality, lack of adequate feed and nutrition are the reasons cited for this. However, the average yield of cross bred milch cattle is more than that of milch buffalos. The count of indigenous cattle is gradually decreasing, while the number of cross bred cattle and buffalos is on the rise. However, the cross breeds form only 10% of the total dairy animals.

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The cross breeding is gaining popularity as it provides greater yield to the farmers with less than proportionate increase in input cost. Popular exotic varieties like Holstein-Friesian and Jersey have adapted to Indian conditions very well. Natural breeding is still very widely practiced in India. The state governments, NGOs and a few private players run breeding farms. These breeding farms keep bulls of higher genetic variant and are involved in production, processing, preservation and utilisation of quality semen from cattle and buffalo. Once the farmer detects the heat, he takes his animal to these breeding farms or nearby veterinary hospital. Artificial Insemination (AI) is gradually gaining ground. The semen banks are usually maintained by government department and located in district head quarters / other prominent cities in the district and supplied to the veterinary hospitals. However the success rate of AI is not very high. Estimates by industry experts put the success rate of AI in the range of 40-50% for cattle and 25-30% for buffalos. The practice of embryo transfers is not high owing lack of widespread facilities and skills. To improve the situation National Dairy Development Board (NDDB) has started providing services to co-operatives and other government agencies on progency testing, Embryo Transfer, and Open Nucleus Breeding Systems.

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4.1.2. Issues
Unregulated practice: The practice of breeding virtually runs sans any effective regulation in India. Progency testing of breeding bulls is still not a wide spread practice. In rural areas, unregulated breeding is prominent. This might pose danger to the genetic improvement programme. Infrastructure: The basic infrastructure for breeding is not of very high quality. Many times the breeding farms are at a far off place from the farmers residence. The time lag in getting the animal in heat to the breeding farm does not augur well for the reproduction. Heat in animals (especially in buffalos as it has silent heat) is detected late in many animals. There is also inadequate availability of breeding bulls in India. The skills and veterinary care is not widely available for advance methods like AI and embryo transfer.

4.1.3. Opportunities
High quality semen is sometimes imported to India from developed countries. The popular verities are Holstein-Friesian and Jersey. However, the Indian government sometimes imposes restrictions on import of semen to safeguard the genetic quality of dairy population in India. The restrictions are to avoid entering of any new disease / germs from foreign countries. The exporting country must comply with the health protocol of Government of India. The health protocol is basically around the status of the country, the state / area or the farm where semen was produced and also the health of the concerned animals. Importers of bovine semen would require permission from Department of Agriculture, Government of India. The importer needs to apply to Ministry of Commerce and the file is then forwarded to the Department of Animal Husbandry, Government of India. The importer is also required to obtain a No Objection Certificate (NOC) from the Department of Animal Husbandry of the respective state. The health guidelines and import procedures can be accessed from the government of India website on the following links: - http://dahd.nic.in/trade/revised%20draft%20notification.doc - http://www.dahd.nic.in/order/livestockimport.doc The importer of bovine semen in India should also have information management system so as to ensure traceability of the calves born to imported semen. This is designed to ensure the credibility of semen importers in India. The import policy of bovine semen also mandates that only the user can import bovine semen. This makes it difficult for small farmers to import semen as they do not have any knowledge of procedures and guidelines. In the past only a few organisations have been able to import semen and all of them have been large farmers / private dairies or established set ups like IndiaGen (which is a subsidiary of NDDB and provides Artificial Insemination service commercially).

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4.2. Feed and Nutrition

4.2.1. Current Scenario
The productivity of cattle greatly depends on the feed, nutrition and care provided to them. Traditionally the feeding practice for Indian cattle has been driven by farm byproducts. The Indian farmers usually create the feed mixes at home or rely on grazing of animals. A typical farmer will let the animals graze on pastures besides feeding them a mixture of cakes, grains by-products and other filler ingredient. The concept of compound cattle feed is also catching up, albeit slowly. Typically the following feed is provided to cattle in India by farmers: Dry fodders - paddy straw, wheat straw, jowar kadbi, sugarcane bagasse / tops, hay, gram husk etc. Green fodder - Lucerne, napier grass, guinea grass, jowar etc Concentrates - Coconut cakes, cottonseed cakes, groundnut cakes, mustard cakes, nigerseed cakes, rapeseed cakes, maize gluten, urad chuni, wheat / rice bran, molasses, tapioca spent pulp etc.

While the organised dairies follow modern feed and nutrition practices, the small farmers usually follow age old practices. Moreover, the small farmers cannot afford to allot separate land for feed cultivation. The incentive for growing crops is much higher for a small time farmer. Lack of awareness, affordability and availability has been the major issues that are inhibiting the adoption of modern feed and nutrition practices. The balanced requirement of proteins and energy is not maintained as per requirement. Specific requirement of lactating animals and season specific balanced feed is usually not practiced. However, due to the awareness programs run by cooperatives and organisations like NDDB and NDRI, many farmers are becoming aware of the different feed and nutrition requirements. Still the economics of dairy production in India does not encourage adoption of good quality compound feed / concentrate mixtures (cattle feed with right mixture of protein, energy and minerals). The co-operatives provide cattle feed to members, which are perceived to be of not very high quality.

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4.2.2. Issues
The prices of raw material for cattle feed is season-specific and volatile leading to inconsistent production and pricing The tax imposed on inter-state transport carrying raw material and finished goods erodes into the thin margin of cattle feed manufacturers. This restricts the cattle feed manufacturers area and scale of operation. Lack of awareness of modern feeding practices, especially among small time farmers. They are usually unaware of the advantages of using good quality concentrates instead of grazing cattle or using home mixes of feed ingredients. A majority of breeds in India (predominantly the indigenous breeds) are of low quality and having very low milk output vis--vis that of breeds in developed nations. This affects the economics of milk production and reduces the feed to milk output ratio.

4.2.3. Opportunities
Low cost and high quality concentrates and complete feed blocks that can justify the economics of milk production by small farmers whose dairy output is 3 - 4 litres per lactating cattle. India remains a country with huge latent demand for dry and green fodder as well. Low cost Urea Molasses Mineral Blocks (UMMB) licks, which do not require heating The traditional UMMB licks available in India are sensitive to desired heating temperature, which is not convenient for small farmers in electricity deficient villages. Bypass Protein Feed (BPF) - This is a new concept in feeding. The basic difference between the conventional balanced feed and BPF is that the basis for formulation is protein / DCP (Digestible Crude Protein) in the former and RDP (Rumen Degradable Protein) / UDP (Rumen Undegradable Protein) besides protein in the latter. The recommended allowance of BPF is 250 grams per litre vis--vis 500 grams for conventional balanced feed. Though the cost of BPF per kilogram is higher (1.3 to 1.5 times that of cattle feed), the cost per litre of milk is lower because of its lower allowance per litre of milk. Complete Feed Block Making machines

4.3. Healthcare and Herd Management

4.3.1. Current Scenario
In order to maximise profits in small dairies, the critical issue is to produce maximum amount of milk with available resources. Amongst the important factors affecting

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productivity are genetics, nutrition, management and diseases. Unfortunately, these areas have often been neglected in Indian dairy industry. The small farmers usually dont know of evolved methods in cattle healthcare and management, and small herd size usually doesnt encourage them to take up herd management in a proactive manner. India has some of the best breeds of buffalos and cross-breeds of cows. The usual breeding practice is that the farmers take their animals to the nearby breeding centres to facilitate their mating with bulls. Predominantly these breeding centres are run by government departments, though there a few private breeding farms as well. Artificial Insemination (AI) is gaining popularity, but the infrastructure available is not widespread. Advanced breeding practices like embryo transfer have low penetration and the proliferation is hampered by non-availability of wide spread infrastructure. The cattle are usually housed in an extension of the farmers house, which may or may not be covered. These are usually thatched houses that are cheap to construct, less labour intensive and easy to modify. These consist of an open loafing area with covered shelter on one side. Common feeding trough is provided in the covered area while watering trough is provided in the open area. Basic sanitation is maintained by the farmers family in the cattle shed. Effluent treatment from the cattle shed is usually not done scientifically. The vaccination program is run by state government Animal Husbandry departments. Currently, there is a high degree of proliferation of the cattle vaccination programme. In spite of that, Indian cattle are prone to many diseases and the mortality and morbidity rate is high compared to those in many developed nations. Veterinary drugs and medication required for treating these diseases are widely available in India. The general management of the cattle herd is quite poor, especially for small herds maintained by farmers in villages. Proactive herd management is not practised. The farmers usually try to take good care of pregnant and lactating animals. However, calf management, heifers and dry cow management, breeding bull management is not up to desired levels. Feed management is another area where Indian farmers lag behind their western counterparts. Different types of feed are needed for different kinds of animals depending on their lifecycles as there has to be a right balance of protein and energy. However, these are generally not adhered to. Most of the farmers depend on grazing or home made mixes. Though India has many good breeds of buffalos and cross bred cows, the life time productivity still needs to catch up with world averages. Many small farmers dont have good knowledge of reproductive management to achieve optimum output from the cattle. Poor dietary pattern usually leads to late puberty, reduced fertility, poor conception rate and delayed calving intervals. Lack of knowledge on proper heat detection, better pregnancy management, hygienic conditions during insemination and unavailability of adequate infrastructure for Artificial Insemination lead to suboptimal milk output. The success rate of AI is relatively lessin case of buffalos (2530% vis--vis 40-50% in case of cows, as per industry experts). The physiology of buffalos (the receptivity for sperms is low compared to cows) as well as lack of proper detection of heat (buffalos usually have silent heat) are some of the key reasons for lower success rate of AI in buffalos.

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Disposal of non-productive animals is a sensitive religious issue in India. Disposal / slaughter of old and non-productive animal are not widespread and thus the disposal facilities are sparse. This makes it difficult for authorities to address outbreak of contagious diseases among cattle.

4.3.2. Issues
The dairy healthcare segment is not regulated. Though the availability of drugs and medication is available in plenty, there is no mechanism to monitor the suitability and requirement of the drugs. Unregulated production, sale and administration of bovine drugs lead to many health issues in cattle. There is no quality control over veterinary institutions. Most of the semen banks do not carry out progency test. There is no certification or accreditation required for delivering veterinary health services. As a result, there is adverse effect on the genetics, breeding and overall health of Indian dairy cattle. Healthcare is mostly reactive for cattle herds. Proactive / Preventive health management is practiced only in few organised dairies. Many veterinary hospitals lack critical equipment like testing kits for detecting diseases. As a result, the mortality and morbidity rates are high vis--vis those prevalent in other developed nations. There is a dearth of trained animal health workers in India. Many healthcare issues like birth, Artificial Insemination, drug administration are done by people having little or no formal training. Veterinary hospitals are not accessible to all and the availability of dairy extension services (at the

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farmers door steps) is poor. Therefore, many health issues are handled by untrained health workers.

Record management for herd is virtually non-existent in villages. Maintaining day to day record as well as records on purchase of animal, feed, medicines, and treatment is essential to keep a track on the expenditure. Similarly recording the components of output in terms of milk production, calving, growth, reproduction, and sales / disposal of animal also helps provide important information on the economic status of the herd. While it might be difficult for individual farmer to undertake the data management activity, the village societies can certainly take it up. Activities around genetic improvement of cattle breed have not taken off in a big way in India. As a result, India is yet to see many varieties of cattle that are high yielding, disease resistant and adaptable to Indian conditions. Many government organisations have focused on other aspects of dairy development (like milk procurement, processing and distribution) and not been able to replicate the success in animal healthcare and herd management. The physiology of buffalos, which contribute to nearly 60% of Indias milk production, has not been studied in sufficient detail. As a result, many of the health and management practices that are applicable for cows are replicated for buffalos as well. Greater focus and original research are needed in this area for increasing the productivity of Indian dairy industry.

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4.3.3. Opportunities
There is a requirement for dairy extension service i.e. taking the dairy services to the farmers door step. The small farmers dont have access to many a healthcare and management practices that are usually carried in the farm in developed nations. The time required and feasibility of transportation to take the animal to places where these services are rendered turn out to be major roadblocks of successful animal healthcare and management in India. The extension service may include feed and nutrition, healthcare and vaccination, total healthcare management, record keeping etc. There is greater potential for extension services that are time sensitive, e.g. Artificial Insemination / natural services, de-worming. As of now, these services are mostly provided by government departments. Sophisticated diagnostic kits for diseases like Brucellosis, Tuberculosis, Paratuberculosis, and Elisa test etc. are usually not available in India. Preventive health products teeth dips, dry cow formulations, milk replacers (during calf rearing) are also usually imported. Manure management machines like bio-digesters are imported to India Machines for fodder management like fodder preservators, composite machines for fodder making (harvesting, chopping, packing etc) are imported to India

4.4. Milk Production, Storage and Transport

India has a unique pattern of production and collection of milk, which not comparable with practices prevalent in other major milk producing nations. The co-operative model (Anand Model) is predominant. Villagers usually milk their cattle twice daily (once early morning and then in the evening) and collect the milk in cans or vessels. The milk is immediately sent to the nearby collection centres, which collect milk for the nearby villages on behalf of the co-operative. Sometimes the milk is also sent to agents, who work on behalf of the private dairies. The collection centre carries out quality/purity (fat and SNF content) and quantity check and sends the cumulative milk to nearby chilling centres. Many times the collection centres use ice cubes in the milk to maintain the temperature of the milk in transit to chilling centre. Chilling centres use bulk coolers/chillers to bring down the temperature to 4-5 and send the milk to C processing plants in insulated tankers/lorries, which maintain the temperature of milk at around 4 The processing plants usually enter into agreement with transport C. companies on maintaining certain minimum speed limit of their tanker fleet; so that the chilled milk reaches the processing plants as soon as possible without major degradation of bacteriological quality.

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4.4.1. Issues
Unhygienic collection practice: The bacteriological quality of raw milk in India at the time of collection is equivalent to that of leading milk exporting countries. However enough care is not taken to maintain high standards of hygiene during milking and storage. Lack of awareness and basic amenities (like running water in cattle shed for cleaning the cattle shed and milking vessels, sewage disposal etc) and use of unhygienic equipment / vessels significantly impacts the quality of the milk at the place of milking. The current practice of pricing milk based on fat and SNF does not motivate the farmers to strive for hygienic milk collection.

Lack of infrastructure and time lag for chilling: The small holding structure of Indian dairy industry does not allow chilling at the point of collection. The country does not boast of a wide network of chilling plants and bulk coolers either. Many chilling plants suffer due to shortage of electricity and do not run optimally. The time lag for the milk to reach from the household to the chilling centre and subsequently to the processing plant is substantial. During a major portion of this time lag, the milk is kept at ambient temperature (which may touch 40-450C in many parts of the country in peak summer) which results in deterioration of milk quality in terms of sensory properties (odour, taste, colour), composition (fat, SNF, protein etc), and hygiene (bacteriological - pathogenic, somatic cells). An increase in temperature prior to pasteurisation can lead to exponential increase in bacterial count (EU standards allow a maximum of 100,000 / ml) and significantly impact the quality and sensory properties of processed milk products.

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4.4.2. Opportunities
Low cost and hygienic milk collection equipment: For a large portion of the dairy community in India (mostly small / landless farmers) modern milking techniques may be unaffordable. However, there is a very strong need of low cost and hygienic milk collection equipment. Clean-in-place (CIP) systems, small automatic milk collection machines can be purchased for a community of farmers and used collectively. Many co-operatives / private dairies are eager to provide financial assistance to groups of farmers in this regard and encourage hygienic milking practice. The erratic power supply situation in villages should also be borne in mind while designing solutions for this.

4.5. Processing
About 45-50% of milk produced in India is processed. The milk processing is done by: 1. Unorganised sector: This constitutes the local sweet makers who make varieties of traditional milk products. These sweet makers usually have small shops where they use traditional methods (where degree of mechanisation is extremely low) to make milk products which have very small shelf life. The unorganised sector is highly fragmented and processes about 32 million tonnes of milk per annum. 2. Organised sector: Co-operatives / Govt dairies: They process around 10 million tonnes of milk. Liquid milk (pasteurised / processed) form bulk of the product output (around 80%). The rest of the product portfolio is usually dominated by traditional Indian products, though many co-operatives also produce universal dairy products like butter and cheese. Private dairies: Unlike co-operative dairies, the product portfolio of private dairies generally consists of more milk products than liquid milk. Lack of social obligation for producing liquid milk (unlike cooperatives who focus on providing liquid milk to the population) and greater margins on Indian dairy processed products are the reasons for this.

These private dairies process about 14 million tonnes of milk. Recently, most of the processing capacity has been added in the private sector. The processing capacity of organised dairy in India is growing at a rate of 4%. In cooperative sector, few entities control bulk of the capabilities. The more prolific cooperatives operate in the states of Gujarat, Tamil Nadu, Andhra Pradesh, Punjab and Uttar Pradesh. On an average, the processing capacity of co-operative dairies is higher than that of the private dairies. The capacity utilisation in both private and co-operatives is low (around 65-70%) and is increasing gradually. The low capability utilisation is owing to huge difference between milk production in lean (summer) and flush (winter) season. Many companies also outsource the processing work to dairies with excess capacity. While smaller dairies are preferred for milk processing, relatively larger dairies with better technology and track record are preferred for processing dairy products.

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4.5.1. Foreign Collaborations in Dairy Processing

Many Indian dairies have joined hands with foreign dairies in recent years, though few of them have been able to succeed over the long run. Industry sources attribute the failure of joint ventures / collaborations to the following reasons: The quality of milk available for processing in India is inferior compared to the developed nations, which makes the foreign dairies wary of the dairy product quality. Backward integration into maintaining dairy farms or investing substantially on a procurement network is not the priority of Indian private dairy farms or their foreign partners. Many foreign dairies want dairies having pan Indian presence for collaborations. There are not many private dairies with pan Indian presence. Only Amul (which is a co-operative) and some major private players (Britannia, Nestle) can claim to have a presence that covers most parts of India. To achieve scale, foreign dairies want to join hands with dairies with higher processing capacity (upwards of 0.5 million litres a day), which limits their choice in India.

Case Study of BNZF A high profile equal joint venture between Britannia (one of Indias leading dairy and confectionary giant) and New Zealands Fonterra started in 2002, in the name of Britannia New Zealand Foods Pvt. Ltd. (BNZF). The partnership has launched

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several dairy products in various categories like cheese, butter, ghee, dairy whitener and curds under the brand name Britannia Milkman. The joint venture could not take off the way it was envisaged and finally Fonterra exited the JV in April 2009. Several reasons are cited for the non-performance of the JV. Some of them are: The JV was not able to grow its business. Before the joint venture started, dairy was contributing over INR 1300 million or almost 10 per cent of Britannia's top line. The turnover has remained more or less the same since then, and the segment was making losses. For the year ended March 31 2008, BNZF incurred a net loss of INR 51 million on a turnover of INR 1424 million, with the corresponding figures for the preceding fiscal being INR 112 million net loss and INR 1186 million, respectively. The company exited the liquid milk business about four years back, and industry analysts believe Britannia Milkman ghee and dairy whitener were not doing particularly well. Only in cheese is the brand holding on with approximately 20 percent market share, with its main rival, Amul accounting for 65 percent. The JV could not develop a dedicated procurement network, and thus its marketing and distribution was limited. It was largely dependent on contract manufacturing. The company's cheese is produced by Schreiber Dynamix Dairies at Baramati (just as it was earlier dependent on Modern Dairies, Karnal) and other local players for sourcing and packing liquid milk. The product portfolio was also heavily tilted towards universal products, which still have a very low market share in India. Lack of a dedicated procurement network prohibited the JVs involvement in larger and growing liquid milk market, unlike its competitors like Amul and Mother Dairy. For Fonterra, BNZF was an avenue that would eventually help market dairy products manufactured in New Zealand under its own brands, such as 'Anchor' in India. This objective was certainly not being met under the JV arrangement, compounded by high import duties and limited domestic market for products such as cheese. Fonterra was also extremely concerned about the quality of the milk available in India for processing and its possible effects. The fallout of the 'melamine scandal' in September 2008, involving San Lu, a Chinese joint venture in which Fonterra held 43 per cent was cited to be one of the contributing factors. The venture was forced to recall infant milk formula produced under Fonterra's brands after some batches were found to have been contaminated by melamine, a toxic industrial chemical. Fonterra then blamed the problem on the raw milk sourced from third parties in China, while claiming that the products produced using 100 per cent fully-imported dairy ingredients from New Zealand did not have any contamination. As per industry experts, probably, they did not want to risk any such occurrence again in India, which has a similar procurement structure. At the same time, investing in Indias milk supply chain was not Fonterras priority. It was evident from the remarks made by Mr Mark Wilson, Fonterras Managing Director, Asia Middle East, who said On an ongoing basis, we cast a critical eye over our investments to ensure that they reflect our key strategic priorities. While we are seeing a lot of growth in India, given the fragmented local milk supply that requires significant development, investing in Indias consumer dairy market is not a core priority for Fonterra at this time.

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4.5.2. Issues
Lean-Flush fluctuation and limited flexibility in altering product mix: The capacity utilisation in lean season hits a low during lean season, due to unavailability of milk. The smaller dairies in particular suffer due to lack of a broader portfolio of products which can keep the utilisation high during lean season. However, many smaller dairies are now taking up outsourced work to leverage their unutilised capacity. Regional demand-supply imbalance: The production, processing capacity and consumption are not aligned in all states. As a result, competition for milk in key procurement belts of North India (Western Uttar Pradesh, Haryana, and Punjab), Rajasthan, Maharashtra, Tamil Nadu, Andhra Pradesh and Northern Karnataka is much greater than other areas. The installed capacity needs to be supplied with increased milk procurement and supported by procurement infrastructure. Lack of scale: Majority of Indias dairy plants have installed capacity in the range of 0.1 to 0.35 million litres per day, much lesser than typical dairy processing plants in developed nations. Lack of scale is a significant factor for the inability to invest in procurement infrastructure, quality control, transportation on one hand and market development on the other. Lack of commercialisation of traditional products: India has huge potential for traditional products (e.g. paneer, kheers, lassi, rosogollas etc). The processing pattern is also hugely skewed towards traditional products vis--vis universal products (almost by a factor of 10). Despite attractive inherent profitability, manufacturing and marketing of traditional products has largely been in the domain of unorganised sector (halwais), who offer short shelf life products. The following factors have largely inhibited large scale commercial production of traditional Indian milk products Dairy technology: The traditional Indian milk products and by-products have unique sensory properties and ways of processing. The processing has traditionally been done in small scale using traditional methods (with no or minimal mechanisation). There is very little dairy technology research done so as to make large scale production of traditional milk products possible. Available advanced dairy technologies / processes in developed countries are of little help to produce traditional Indian milk products. Institute like NDRI are working on dairy technology and industrial process for Indian milk products. The focus areas of research are continuous processing, heat processes to increase storage stability, reduced fat products, dry (reconstitutable) mixes, use of dairy proteins (whey protein concentrates) that will be produced from increased cheese manufacturing, and the use of membrane technologies. - Dairy engineering: There is a dearth of specialised equipment for large scale production of traditional products as well. However, the situation is improving as some Indian companies have started indigenously developing and supplying industry specific equipment for traditional milk products. Some dairies have started adapting equipment used in other industries to be utilised for making traditional milk products as well (e.g. machines used for meat balls was modified to make gulab jamuns, a round shaped sweet). However, in many cases the resultant end product has not been able to match the products from local sweet makers in terms of perceived quality and thus have not been able to gain popularity. For example, paneer or

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sweets like rosogolla have very different sensory profile when made by local sweet shop vis--vis commercial dairies. Easy availability of all these milk products has also made the acceptance of machine produced products difficult. - Cheap labour and regional preferences: Many sophisticated equipment that can be used for making traditional milk products are not put to use as manual labour intensive production is cheaper in India than machine based production. Also, the regional preference for traditional milk products varies greatly. For example, people in South India like their curd / dahi a lot sourer than the rest of the country. This necessitates regional customisation and does not augur well for mechanised mass production. - Packaging technology: Milk and milk products face the risk of limited shelf life. The perishable nature, coupled with harsh Indian climatic conditions makes it difficult to transport it to far off places. Many industry experts believe that the industry is still not mature in terms of packaging capabilities which would retain nutrition and extend shelf life, so that it can reach a higher consumer base. The quality of milk available for processing is not of very high quality, owing mainly to inefficient procurement network. This issue is more pronounced for private dairies that dont usually invest in building a dedicated supply chain network.

4.5.3. Opportunities
Packaging equipment: This is the area where Indias dependency is highest on external sources. Most types of high capacity packaging equipment are imported to India. These include packaging equipment for butter, cheese, UHT (Ultra High Temperature) milk, aseptic filling. Packaging equipment for many traditional Indian products like ghee, paneer etc are also imported. Specific processing equipment: Though India has made tremendous progress in terms of creating indigenous dairy equipment; some specific areas are still import

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dependent. The degree of dependency on imports varies from equipment to equipment. Below is a indicative list of import dependent equipment for dairy processing: - Self cleaning cream separators - Homogeniser head and the material used for homogeniser heads - Continuous butter making machine - Continuous cheese making machine - UHT / Aseptic filling machines - Aseptic homogenisers - Large scale ice cream freezers - Retort sterilisers - Atomisers for powder plant - Pasteuriser plates - Ammonia compressor / Screw compressors However, most of these machines are capital intensive and their demand is not very high. So this opportunity should be evaluated carefully. Imported second hand processing equipment: There is a market for imported used dairy processing equipment in India. Many smaller dairies use second hand capital intensive processing equipment like evaporators, homogenisers, separators, pasteurizers, chillers, bactofuse, clarifiers, continuous butter making machines, cheese machines, vats, silos, tanks, continuous freezers, ice cream machinery etc. Companies like Warana Industries Ltd. deal with imported second hand dairy equipment. They usually recondition and refurbish the imported equipment as per users requirement and provide service and maintenance. The second hand equipment are sold on actual user name directly in India. Resource efficient equipment: Indian dairies frequently face infrastructure issues in operations. Power outages are frequent and availability of water is scarce in many parts of the country. Many of the dairies are situated away from the traditional industrial zones, where the infrastructure / resource situation is much better. Resource efficient machinery is a latent requirement of the industry, e.g. clean-inplace (CIP) systems that use less water, machinery that run on alternative sources of energy etc. Products: There is huge untapped potential for traditional Indian products. However, industrial production of these products is in its infancy. Moreover, the know-how, process and technology are gradually being developed by Indian dairy scientists and companies. Because of its uniqueness commercial dairies outside India are not in a position to contribute to Indian dairy industry. But there is potential in the universal product range. Some of the areas that show greater potential than others are ice creams, butter, SMP, WMP, cheese / edible casein and whey products. Life style products like UHT milk, low calorie dairy products and its consumables (sugar replacer, fat replacer, flavouring etc) also hold potential in future.

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4.6. Marketing, Distribution and Retail

4.6.1. Current Scenario
Organised Sector
The organised sector relies on an elaborate supply chain for marketing and distribution of dairy products. They have to adopt different supply chains as the composition of product varies widely. The types of dairy products from the organised sector can be classified based on the temperature they need to maintain during transport and at the point of sale. These product types are

Ambient products: Products like UHT milk, UHT lassi, SMP, butter and ghee. These
products typically dont require refrigeration.

Chilled product: Products like butter, cheese, pasteurised milk which require refrigeration
but not at freezing temperature.

Frozen products: Products like ice cream, paneer, mozzarella cheese which requires
freezing temperature (~4-50C) during transport.

The supply chain for different types of milk products is shown in the figure below.

The organised dairies, in most cases, maintain a three tier distribution network of wholesaler-retailer-customer / distributor-retailer-customer. They maintain their own depots for frozen products and use extensive network of insulated containers / lorry fleets, usually on contract. At the point of sale, the dairies provide visi coolers (a type of refrigerating unit kept at retail stores for storing colas, liquid milk and other frozen foods) and freezers to retailers for keeping their products fresh. The products in India are sold in packs of various sizes. More recently, many dairies have been trying to sell products in smaller packet sizes to make it more affordable for large sections of the society.

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Unorganised Sector
The organised sector meets only 40-50% of liquid milk demand in major cities. They have been able to bring distribution network to only about 1000 out of 5000 cities and towns in India. Thus the unorganised sector still is a dominant force for milk supply in urban India. The unorganised sector for dairy in India has limited avenues for elaborate marketing, distribution and retail. The milkman usually sells liquid milk door to door in urban areas in cans or vessels. Packaging of traditional Indian sweets is usually in cardboard boxes, lined with parchment papers. Products such as rosogolla, gulabjamuns and mishti doi are usually sold in tin / plastic pots, cups / tubs. Due to perishable nature of the milk products / sweets, the halwais are able to sell to only a limited geography from their stores.

4.6.2. Issues
Packaging: Packaging remains a big concern for Indian dairy marketing. The harsh climatic conditions affect the shelf life of the dairy products. This issue is more

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pronounced in many of the traditional Indian sweets. High temperature, unhygienic conditions and long transportation cycles also significantly damage the bacteriological quality of many milk products. High cost aseptic packaging like tetra pack add substantially to the unit price and puts the products at a disadvantageous position vis-vis the unorganised sector. Infrastructure Issues: India is mired with infrastructure issues. The prevailing road conditions often increases the transportation time. Power infrastructure leaves a lot to be desired and many retail stores do not have back up arrangements for freezers and visi coolers. All these factors substantially reduce the shelf life of the dairy products. Tracking of goods in transit and storage: Dairy products that need freezing temperature during transit and storage (in cold storages) needs tracking and reporting mechanism that can provide history of the temperature maintained and their durations. Many transporters and cold storage operators provide less than adequate cooling to dairy products, which reduces the bacteriological quality of the product. Market penetration: Despite their best efforts, the organised dairy products sector has not been able to penetrate beyond a few major urban centres (unlike the leading FMCG players who have made significant strides). Infrastructure issues, limited affordability in rural areas and low shelf life are the reasons cited for this.

4.6.3. Opportunity
Packaging: There is great potential for packaging technology that can sustain the food quality over long transportation time and during harsh summer conditions in India. Packaging should not substantially add to the overheads of production. The unit price of most of the Indian milk products is low and any substantial increment due to packaging will make it uncompetitive vis--vis the unorganised market. Bottom of the pyramid: The rural market and many urban centres are not penetrated by the organised dairy sector yet. This is potentially a huge market and can be tapped if the product availability and pricing are worked out correctly. Many companies are following the foot steps of FMCG companies to market smaller units so that they can be affordable to a greater section of the society. Single use small packs of 10-20 grams of butter, ghee, cheese, milk powder etc are the need of the day. Sensors and automation equipment: To monitor the temperature of dairy products during transit and storage (in cold storages) there is a requirement for sensors and automated equipment that will keep track of the temperature during transport and storage and provide reports. These set of equipment can be placed on the transport fleet and cold storages to monitor and provide automated reports. These set of equipment also need to be sufficiently tamper proof to avoid any malpractice.

4.7. Overall Assessment for Trade in Indian Dairy Industry

India being the largest producer of milk is a lucrative market for trade. At the same time, one should be cognizant of the uniqueness of the Indian dairy industry. The Indian dairy market is fragmented and thrives on millions of smallholder farmers as main producers of milk. The co-operatives have deep rooted presence in rural areas and provide means of income to millions of smallholding farmers. Also, India is as big

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a consumer of milk and milk products and largely has been self sufficient is recent years. The consumption pattern and product portfolio in India is also unique. Due to small holding structure, optimisation has not reached its full potential in all aspects of dairying. There are quite a few areas of improvement / opportunities in the dairy value chain. The organised dairy has not taken to full commercial utilisation of resources. Advent and increasing prominence of private players have opened up doors for some areas for trade with other countries. Greater opportunity areas for trade are dairy processing technology and operations know how, dairy equipment and engineering, packaging and distribution. There is also scope for some of the universal products like butter oil, SMP, cheese. However, the size of the universal products market is disproportionately small compared to overall milk product consumption in India.

5.

Policies and Regulation for Trade and Doing Business

Agriculture, including the dairy sector, is state controlled in India, and state governments are primarily responsible for the development of the sector. The central government supplements the efforts of the state governments through various schemes for achieving accelerated growth of the sector. To ensure proper development and growth of this industrial sector, the Government of India has instituted various laws. The various regulations that govern the dairy processing industry can broadly be classified into: 1. Compulsory legislation 2. Voluntary standards 3. Other government standards

5.1. Compulsory Legislation

Prevention of Food Adulteration Act, 1954 and Rules, 1955 (PFA): This Act is the basic statute that is intended to protect the common consumer against the supply of adulterated food. This specifies the different standards for various food articles. The

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standards are in terms of minimum quality levels intended for ensuring safety in the consumption of food items and for safeguarding consumers against harmful impurities and adulteration. The Central Committee for Food Standards, under the Directorate General of Health Services, Ministry of Health and Family Welfare, is responsible for the operation of this Act. The provisions of the Act are mandatory and contravention of the rules can lead to both penalties and imprisonment. A copy of The Prevention of Food Adulteration Act and Rules can be accessed from Ministry of Health and Family Welfare, Government of India website at http://www.mohfw.nic.in/pfa%20acts%20and%20rules.pdf

Milk and Milk Product Order (MMPO) 1992: The Milk and Milk Product Order (MMPO), 1992, issued on June 9, 1992 seek to ensure the supply of liquid milk, an essential commodity, to consumers by regulating its processing and distribution. This order has undergone many amendments in subsequent years. Salient Features of the MMPO Order included registrations for units handling up to 75,000 litres of milk per day are granted by the State Governments and units with more than 75,000 litres per day capacity are registered by the Central Registering Authority. The MMPO certificate also specified the milkshed area, which, under the order is defined as a geographical area demarcated by the Registering Authority for the collection of milk by the registered unit. However major amendments were undertaken in 2002 and restrictions on setting up milk processing and milk product manufacturing plants were removed and the concept of milkshed was also abolished. The other salient features of MMPO include directives on: Maintenance of specified hygienic conditions in the premises where milk and milk products are handled, processed, manufactured or stored. Registration, renewal, suspension and transfer of registration Modification, addition, and alteration in equipment or premise Power to enter, inspect and seize Appeal to controller and central government Procedure for drawing samples, conducting analysis, and issue of prohibition order Powers of Central Government to issue directions Temporary restriction on production of milk product Levy on skimmed milk powder and milk fat Appeal to the Central Government Suspension or cancellation of registration Certification, packing, marking and labelling Compliance with directions and orders Prosecution and penalty A copy of the MMPO can be accessed from http://dahd.nic.in/order/mmpo.doc Standards on Weights and Measures (Packaged Commodities) Rules, 1977: These Rules lay down certain mandatory conditions for all commodities that are packed, with respect to declarations on quantities contained. These Rules are operated by the Directorate of Weights and Measures, under the Ministry of Food and Civil Supplies.

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Export (Quality Control & Inspection) Act, 1963: The Export Inspection Council is responsible for the operation of this Act. Under the Act, a large number of exportable commodities have been notified for compulsory pre-shipment inspection. The quality control and inspection of various export products is administered through a network of more than fifty offices located around major production centres and ports of shipment. In addition, organisations may be recognised as agencies for inspection and /or quality control. Recently, the government has exempted agriculture and food products, fruit products and fish and fishery products from compulsory pre-shipment inspections; provided that the exporter has a letter from the overseas buyer stating that the overseas buyer does not require pre-shipment inspection from official Indian inspection agencies. Pollution Control: No Objection Certificate from Pollution Control Board is a must.

5.2. Voluntary Standards

There are two organisations that deal with voluntary standardisation and certification systems in the food sector. The Bureau of Indian Standards looks after standardisation of processed foods and standardisation of raw agricultural produce is under the purview of the Directorate of Marketing and Inspection. Bureau of Indian Standards (BIS): The activities of BIS are two fold - formulation of Indian standards in the processed foods sector and the implementation of standards through promotion, and through voluntary and third party certification systems. BIS has on record, standards for most of processed foods. In general, these standards cover raw materials permitted and their quality parameters, hygienic conditions under which products are manufactured and packaging and labelling requirements. Manufacturers complying with standards laid down by the BIS can obtain an "ISI" mark that can be exhibited on product packages. BIS has identified certain items like food colours/additives, vanaspati, containers for packing, milk powder and condensed milk, for compulsory certification. Directorate of Marketing and Inspection (DMI): The DMI enforces the Agricultural Products (Grading and Marketing) Act, 1937. Under this Act, Grade Standards are prescribed for agricultural and allied commodities. These are known as "Agmark" Standards. Grading under the provisions of this Act is voluntary. Manufacturers who comply with standard laid down by DMI are allowed to use "Agmark" labels on their products.

5.3. Other Government Regulations

Industrial License: No license is required for setting up a Dairy Project in India. Only a Memorandum has to be submitted to the Secretariat for Industrial Approvals (SIA) and an acknowledgment is to be obtained. However Certificate of Registration is required under the Milk and Milk Products Control Order (MMPO) 1992.

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Foreign Investment: Foreign Investment in dairying requires prior approval from the Secretariat of Industrial Approvals, Ministry of Industry, as dairying has not been included in the list of High Priority Industries. Automatic approval will be given up to 51% Foreign Investment in High Priority Industries. In case of other Industries, proposals will be cleared on case to case basis. Government may allow 51% without enforcing the old limit of 40% applicable under Foreign Exchange Regulations Act at its discretion.

Foreign Technology Agreements: Foreign Technology Agreements are freely allowed in high priority industries under the following terms: Lump sum payment of INR 10 million (A$ 0.27 million). Royalty payment of 5% on domestic sales and 8% as exports subject to total payment of 8% on sales turnover, over a 10 year period from the date of agreement or 7 years from commencement of production. Foreign Technology Agreements in dairying also need prior approval. Foreign Exchange required for payment of Royalty will have to be purchased at market rates. Foreign Technicians can be freely hired.

Import of Capital Goods: Import of capital goods is automatically allowed if it is financed through Foreign Equity. Alternatively, approval is needed from the Secretariat of Industrial Approvals. The approval depends on the availability of Foreign Exchange Resources.

Import of Second Hand Capital Goods: Import of Second hand goods is allowed subject to the following conditions: Minimum Residual life of 5 years The equipment should not be more than 7 years old. A certificate from the Chartered Engineers of the country of origin certifying the age and the Residual life is to be produced. Import will be allowed only for actual users.

Dividend Balancing: Remittances of dividend should be covered by earnings from exports recorded in the years prior to the payment of dividend or in the years of the payment of the dividend. The Live-Stock Importation Act, 1898: This act and its amendment in 2001 provide general regulations and procedures for livestock importation to India. A copy of this act can be accesses from Government of India website at http://dahd.nic.in/order/livestockimport.doc

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5.4. Packaging and Labelling Requirements

There are many requirements that an import must conform with, while importing products. Some of the key requirements are provided below: As per Notification No. 44 (RE-2000)/19972002, issued by the Department of Commerce on 24 November 2000, all packaged commodities imported into India should carry the following declarations: Name and address of the importer Generic or common name of the commodity packed. The name of the manufacturing company and contact details of the manufacturer. Net quantity using standard units of weights and measures. All weights or measures to be reported in metric units. Certain commodities can only be packed in specified quantities (weight, measure, or number). These include baby food, weaning food, biscuits, bread, butter, coffee, tea, vegetable oils, milk powder, and wheat and rice flour. If the net quantity of the imported package is given in any other unit, its equivalent terms of standard units shall be declared by the importer. Month and year of packaging in which the commodity was manufactured, packed, or imported. The Maximum Retail Price (MRP) at which the commodity in packaged form may be sold to the ultimate consumer. This price shall include all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertising, delivery, packing, forwarding, and the like. Labels must be printed in English or Hindi (Devnagari Script). Every package of vegetarian food must bear a symbol in green colour on the principal display panel just close to the name or brand name of the food. Similarly, every package of non-vegetarian food must bear a symbol in red colour. Details of ingredients as per PFA. Imports of certain products, including some food products (milk powder, condensed milk, infant milk foods, milk-cereal based weaning foods) and food additives, must comply with mandatory Indian quality standards. All manufacturers and exporters whose products are sold in India are required to register with the Bureau of Indian Standards.

Shelf Life: Notification No. 22 (RE-2001) 19972002, dated 30 July 2001, issued by the Department of Commerce, states: Imports of all such edible/food products, domestic sale and manufacture of which are governed by the PFA shall also be subject to the condition that, at the time of importation [emphasis added], these products are having a valid shelf life of not less than 60 per cent of its original shelf life. Shelf life of the product is to be calculated, based on the declaration given on the label of the product, regarding the date of manufacture and the due date of expiry.

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As per notification GSR 388 (E), issued by the Department of Health, on 25 June 2004, states that, every package of food which contains permitted artificial sweetener shall carry the label CONTAINS ARTIFICIAL SWEETENER AND FOR CALORIE CONSCIOUS, along with the name or trade name of the product. As per notification GSR 339 (E), dated 27 May 2005, issued by the Department of Health, states that: No containers or label relating to infant milk substitute or infant food shall have a picture of infant or women or both. It shall not have picture or other graphic materials of phrases designed to increase the saleability of the infant milk substitute or infant food. The terms Humanised or Maternalised or any other similar words shall not be used. The package and/or any other label of infant milk substitute or infant food shall not exhibit words, Full Protein Food, Energy Food, Complete Food, or Health Food, or any other similar expressions. The PFA Rules, 1955, includes a positive list for the presence of pesticide residues in various commodities and food (manufactured/imported) products, and their respective tolerance levels. Of the 189 pesticides registered for regular use in India, only 121 have Maximum Residue Limits (MRLs) notified. There are 27 pesticides that do not require MRLs. For the remaining pesticides, MRLs have not yet been established. CODEX Alimentarius MRLs may be accepted for imported foodstuffs only for those pesticides not included in Indias own positive list of pesticides. All imported foods are randomly sampled at the port of entry for their conformity to PFA standards. On 16 June 2004, with immediate effect, the Ministry of Commerce and Industry published a list of high risk food items, imports of which are subject to 100 per cent sampling. This list includes edible oils and fats, pulses and pulse products, cereal and cereal products, milk powder, condensed milk, food colours, and food additives, among other items. The import of product samples via express mail or parcel post is allowed, contingent on obtaining prior permission from the Directorate General of Foreign Trade (DGFT). Mail order imports are not allowed. Once the products enter the domestic market, they are to be monitored randomly at the retail and wholesale level by the respective regulatory authorities. Further reference to packaging and labelling requirement can be found at Part VII of The Prevention of Food adulteration Act and Rules (PFA). To get a copy of the PFA please visit the web link http://www.mohfw.nic.in/pfa%20acts%20and%20rules.pdf Section 26 of The Milk and Milk Product Order (MMPO), 1992. To get a copy of the MMPO please visit the web link http://dahd.nic.in/order/mmpo.doc

5.5. Import Procedure and Documentation

5.5.1. Procedure
Import License3

The import procedures undergo changes periodically and it varies from product to product. The exporters must validate the most current procedure for products before exporting to India.

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Most dairy products are out of the list of Prohibited Items and Restricted Items in the exim policy. This means that the importers of the dairy products do not need to apply for an import license. However, Government of India changes the status of the dairy products from time to time. In the event, some of the dairy products feature in the list of Restricted Items, the importer will need to procure import license issued by Director General of Foreign Trade (DGFT). Items featured in the list of Restricted Items can not be imported to India. Please refer to the following web link to get the status of individual dairy products as per their Harmonised System (HS) product classification code. For dairy produce - http://www.infodriveindia.com/content/Exim/DGFT/ITC-HS-CodesImport-Sch-1-2009/ch%2004.doc For bovine meat - http://www.infodriveindia.com/content/Exim/DGFT/ITC-HS-CodesImport-Sch-1-2009/ch%2002.doc A typical import license consists of two copies: Foreign Exchange Control Copy: To be utilised for effecting remittance to foreign seller or for opening letter of credit. Customs Copy: To be utilised for presenting to Customs authority enabling them to clear the goods. In the absence of custom copy, import will be declared as an unauthorised import, liable for confiscation and or penalty. Import licenses are valid for 6 months, with the license term renewable. Many a times, the importers utilise the service of Clearing and Forwarding Agent (C&FA) for the import process. The key procedures Indian Customs is as follows: The key document is an import permit (for items that feature in the list of Restricted Items like bovine meat). No consignment shall be imported into India without a valid import permit issued by DGFT for items that feature in the list of Restricted Items. Since most dairy products can be freely imported to India, an import license will not be required by the importer. The importer or his agent shall file an application in Plant Quarantine (PQ) Form-15 in respect of each cargo immediately upon arrival or in advance in case of perishable consignments to the officer-in-charge of plant quarantine station at the notified point of entry along with the prescribed documents. On receipt of the application the PQ officer shall scrutinise the application and if found complete in all respects shall register the application and assess the inspection fees. On payment of inspection fees by the importer as per the prescribed rates in the form of demand draft / pay order drawn in favour of the 'Pay and Accounts Officer, Department of Agriculture and Cooperation' of concerned area of jurisdiction, the PQ officer shall issue a quarantine order specifying name of inspecting staff, date, place and time of inspection of the consignment.

Bovine meat is still in the list of Restricted Items

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On arrival of the consignment, the documentation and certificates are checked by the custom authorities to ensure that the product is permissible for imports. In order to ensure that the packaging and labelling requirements conform to importation requirements, the container is opened and checked. A Port Health Officer (PHO) withdraws samples for testing with the Food and Drug Administration (FDA) or any government recognised testing lab. The product should comply with PFA requirements (it is advisable for exporters to send some samples beforehand to the importer for testing to avoid the unexpected outcome). The port health officer, in case of doubt of the pests or adulteration, will send samples of fresh fruits and vegetables to plant quarantine and processed food (vegetarian) to Central Food Technological Research Institute (CFTRI) for inspection. In the case of frozen/processed meat and marine products the customs officials are required to send samples for testing to animal quarantine and Marine Products Export Development Authority (MPEDA) respectively. Inspection by Port Authorities The clearance of imported food products at the port of entry requires a certification from the port health authority that the product conforms to the standards and regulations of the PFA. Detailed guidelines are laid down for examination and testing of food items prior to customs clearance. General Inspection General inspection is conducted in addition to testing of samples. Customs officials are required to check the condition of the hold in which the products are transported, the physical appearance of the productswhether the package is swollen or bulged and also check for the presence of insect infestations, dirt, etc. Customs officials have to ensure that the products comply with the labelling requirements under the Prevention of Food Adulteration rules and Packaged Commodity rules. Also, the officer will check if the imported food item, at the time of import has a valid shelf life of not less than 60 per cent of original shelf life.

Detailed Checks
Apart from the general checks referred to above, all consignments of edible / food products imported through ports are required to be referred to the Port Health Officer (PHO) for testing. The Ministry of Commerce and Industry has published a list of high risk food items. This list includes edible oils and fats, milk powder, condensed milk, food colours, and food additives, among other items. In order to alleviate the difficulties of importers consignments are allowed to be stored in warehouses pending the receipt of test reports. Clearance for home use will be allowed only after receipt of the test report. If the product fails the test, the customs authorities will ensure that the goods are re-exported out of the country by following the usual adjudication procedure or destroyed as required under the relevant rules. As regards ports where Port Health Officers are not available, the Customs is required to draw the samples and get them tested from the nearest Central Food Laboratory or a Laboratory authorised to conduct such testing by the Directorate General of Health Services. In addition to testing of food items under the PFA Act, these items shall also be subject to examination / testing to ensure compliance of the requirements of other Acts, Regulations and Orders such as Meat Food Products Order, the Livestock

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Importation Act, etc. if applicable, before these are allowed clearance into the country. Livestock The livestock productsmeat and meat products of all kinds including fresh, chilled and frozen meat are allowed to be imported only against a sanitary import permit issued by the Department of Animal Husbandry and Dairying. For this purpose, a detailed import risk analysis is carried out and a sanitary import permit is issued only after the concerned authorities are satisfied that the import of the consignment will not adversely affect the health of the animal and human population of this country. The Import Permit lays down the specific conditions that will have to be fulfilled in respect of the consignment, including pre-shipment certifications and quarantine checks. The Permit also specifies the post-import requirements with regard to quarantine inspection, sampling and testing. The livestock products are allowed to be imported into India only through the sea ports or airports located at Delhi, Mumbai, Kolkata and Chennai, where the Animal Quarantine and Certification Services Stations are located. On arrival at the port/seaport, the livestock product is required to be inspected by the officer in-charge of the Animal Quarantine and Certification Services Station or any other veterinary officer duly authorised by the Department of Animal Husbandry and Dairying. After inspection and testing, wherever required, quarantine clearance is accorded by the concerned quarantine or veterinary authority for the entry of the livestock product into India. If required in public interest, the quarantine or veterinary authority may also order the destruction of the livestock product or its return to the country of origin. Detail procedure of livestock import to India can be referred from http://dahd.nic.in/order/livestockimport.doc. For any disinfection or any other treatment considered necessary, the importer on his own or at his cost has to arrange for the required treatment of the consignment under the supervision of a duly authorised quarantine or veterinary officer. However, certification is based mostly on visual inspection and records of past imports. Importers of new products can sometimes face undue delays in clearing their products. The custom clearance period may last between one day and one month, depending on the product and experience of the importer. In case of a dispute or rejection of the consignment, the importer can file an appeal at the Customs office at the port of entry. Processed Food Exporters of processed food from any country to India need to get an approval for their processed food products from Central Food Technological Institute (CFTRI), Mysore. Samples of all imported processed food items (vegetarian) will have to be sent to (CFTRI) for testing. The products are tested for nutrition labelling, amino acid profile, vitamins, fatty acid composition, contaminants such as pesticide residues, food additives and adulterants. Samples received from the ports are analysed as per the specifications. After getting an approval from CFTRI, the goods will be handed over to the importers for distribution.

5.5.2. Documentation
The documentation requirements from the importer include:

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Original import permit Phytosanitary certificate (original) issued at the country of origin Customs bill of entry (duly endorsed) Shipping/airway bill Invoice and Packing list Fumigation certificate Certificate of Origin Bill of lading Certification from port health authorities

5.5.3. Duties and Taxes

There are no excise duties on any of the dairy products manufactured in India. VAT applicable for Dairy products is 4% for skimmed milk powder and 12.5% for other Dairy Products (VAT is value added tax for sale within India). The applicable duty rates are revised by the Government of India periodically. The state-level taxes on manufactured products create a non-level playing field vis-vis the unorganised sector, which can price its products lower as there is no outflow on account of such levies. Further, there is high level of taxation on dairy equipment and machinery (16% central excise + 15.3% sales tax + 4% octroi), with the exception of a few products which are exempt. Also, the excise duty on polyethylene film, aseptic packaging machines, milk vending machines, pouch filling machines, used in packing and distribution increases the cost of packed and pasteurised milk.

6.

Competitive Landscape
Most of the breeding services are provided by government run breeding farms or by agriculture / veterinary colleges. However there are few co-operatives and private breeding farms that also provide these breeding services. There are also government recognised NGOs (Non Government Organisations) like BAIF (Bharatiya Agro Industries Development Research Foundation) who work in the areas of livestock improvement and husbandry) that provide this service. Likewise semen banks and centres administering AI are predominantly government run centres or institutes. Some co-operatives, NGOs and NDDB (in certain parts of the country) also provide these services. The coverage of breeding services is much better in regions with high producing dairy animals.

6.1. Breeding

6.2. Healthcare and Herd Management

The animal healthcare can be broadly classified under two heads.

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1. Drugs and medication - The animal drugs and medication industry in India is mature and competitive. There are both MNCs and India players who manufacture and market drugs. There are also alternative drugs and medicine (e.g. ayurveda - a traditional Indian medicine practice) available for cattle. The vaccines are usually handled by government departments. The feed supplement, mineral mixture and allied products market is also well developed. Since these products (feed supplement, mineral mixture and allied products) are not regulated there is very little entry and exit barrier. 2. Healthcare services - Healthcare services are mostly provided by government departments. The departments run veterinary hospitals and semen banks. These hospitals cater to the small village farmers, mostly free of cost. Organised dairy sector usually manage it themselves or seek help from private service providers (wherever possible). However, not many organised players are present in providing dairy extension services at the farmers door step. However, the government is contemplating on providing door step animal healthcare services under National Cattle and Buffalo Breeding Project. The door step services will be linked to cost recovery to maintain economic viability. Scientific herd management in India is not commonly practiced by the small farmers. The organised dairy farms usually devise their home grown management system, based on recommendations of industry experts. Record management is usually done manually, even though some IT enabled systems are now available. The small number of organised dairy farms is one of the reasons why not many herd management solutions are available in the market.

6.3. Feed and Nutrition

At the current milk production level of 106 million tonnes, with the thumb rule of 0.5 kg of feed per litre of milk, Indias annual cattle feed market potential stands at 53 million tonnes. On top this 0.25 kg of feed per maintenance animal is required, though it is rarely practiced. How ever, the animals are usually fed with basic home made mixes or farmers resort to grazing. Thus the estimated market size is around 8 million tonnes, much lesser than the actual requirement. The private players produce around 3 million tonnes, and the co-operatives produce 5 million tonnes. The rest is produced by home mixes. It is estimated that the market size of this sector will grow at 10 percent. The cattle feed production in India involved three categories players: 1. Co-operatives: The co-operatives in India provide feed to their member farmers. These feed are usually of not very high quality. To be able to maintain the economics of milk production, the co-operatives need to sell the composite feed to the farmers at subsidised / very low rates. Usually the prices for a kilogram of composite feed provided by the co-operatives range between INR 8 -10. 2. Private players: The private players usually make feed intended for high yielding cattle and buffalo, and they focus on organised dairies and buffalo meat market. The private players find it difficult to maintain the quality of the feed at the prices that the small time farmers will be willing to pay. The

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number of organised dairies in India is not very high. Thus many private players find the cattle feed production unattractive and are focusing on producing poultry feed. The cattle and poultry feed formulation and standards are same, while the latter is more profitable for private manufacturers. 3. Unorganised sector: The unorganised sector also caters to the small farmers. The quality usually is not up to the mark. The table below provides production of cattle feed by key manufacturers in the organised sector.

6.4. Milk Production, Storage and Transport

Milk production and collection is a competitive sector, though the balance is in favour of co-operatives. Co-operatives have very wide coverage and large number of farmer members. The co-operatives provide other supplementary services like feed, extension services, vaccination to the member farmers. The private dairies dont usually procure directly from villagers and have agents in the villages for milk procurement. The private dairies have negotiated price with the agents, and are not involved with price negotiation between the agent and farmer. The agents in most cases are previous dairy co-operative employees and leverage their relationship with farmers. The negotiated price between agent and the farmer is generally higher than the co-operative price. Agents often provide loans and same day payment to farmers to maintain loyalty. The collection of private dairies is pronounced in districts where co-operative is less active or areas where the milk density is high.

6.5. Processing
6.5.1. Traditional Indian Milk Products
Almost all dairy companies in the organised sector have now taken to production of traditional Indian milk products. A major push in this direction has come from the bigger brands like Amul, Mother Dairy, Nestle, Britannia, Haldiram, Bikanerwala, K. C. Das, Chitales, Ganguram, Brijwasi, Bikaji, Chandu, Tewari, and Ghasitaram. However, they have been able to industrially produce a fraction of the entire traditional milk product portfolio. Some of the products which are produced by organised sector are rosogolla, gulab jamun, dahi and its varieties, shrikhand, peda, ghee, paneer, varieties of milk drinks, and basundi. Even in those markets they are

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facing stiff competition from unorganised players who thrive on low capital base and avoid the costs associated with standard hygienic practices. Industry experts estimate that the unorganised sector outscores the organised sector roughly 6 times in traditional sweets, 20 times in dahi and its by-products, 5 times in ghee market.

6.5.2. Key Universal Products

Cheese: Gujarat Cooperative Milk Marketing Federation (GCMF) with the Amul brand continues to be the main operator in the branded cheese market in India. It pioneered the market for processed, branded cheese. What GCMF was able to do successfully was to develop the technology to make cheese from buffalo milk (Across the world, it is made from cow milk). Britannia Industries joined the fray in the cheese market in mid-1990s through an arrangement with Dynamix Dairy Industries (DDI). Britannia's cheese is sold in tins in the form of cubes, and in individually wrapped slices in packs of fives and tens. The slices are being promoted more aggressively worldwide, and these account for a bulk of cheese consumption. These are gaining acceptance in India as well. Amul followed Britannia in launching slices. Its cheese spread in the form of paste has been well received in the market. Britannia has been concentrating on metros and large cities. The network covers some 60,000 dairy outlets equipped with cold cabinets, refrigerators and insulated boxes. Amul covers some 500,000 retail outlets. French cheese major, Fromageries Bel, has entered the Indian market with La Vache Kirit or what is worldwide known as The Laughing Cow. Its target market to start with were the two metros of Delhi and Mumbai with distribution entrusted to Delhi-based Rai & Sons, distributors for premium food brands, Ferraro Rocher and Ricola. The Bel product is produced at Bel's facility in Poland exclusively for the Indian market. La Vache Kirit is a guaranteed vegetarian product. Fromageries Bel is expected to widen its product portfolio by launching laughing Kirit (creamy cheese in cube form) and Babybel (semi-hard with a wax coating appropriate for sandwiches). Laughing Cow was expected to be followed by an Austrian cheese brand, Happy Cow (owned by Woerle). Woerle has entered into a licensing arrangement with Veekay Foods & Beverages in Mumbai. Nestle and Kraft has been planning to make foray in the Indian market. Other foreign brands in India include: Probolene, Colby, Mozzarella and Parmessan from Italy, Cheddar from Dutch, Gryueve. The new entrants will have to compete with well-established players such as Amul, Britannia's Milkman and Daburs Le Bon, enjoying substantial market shares in the overall Indian cheese market. The US-based Philip Morris, which brought in its Kraft cheese brand earlier, has gained a significant presence in the market. The rest of the market is spread among Indian dairies like Verka, Nandini, Vijaya and Vadilal. Dairy whiteners: Apart from MNCs like Nestle and bigger Indian companies like Britannia, the Indian enterprises have also made perceptible progress in the dairy whitener market. Names like Amul, Sapan, Vijaya, Mohan, Parag and several others have been seen in the marketplace with their whiteners. These are available mostly in pouches, tetrapacks, and in the near future, may be in miniportion cups. Aseptically packed creamer in miniportions is widely used in the West, but has yet to enter the Indian market in any substantial way. Amul did make a beginning with its whitener pouches and has emerged as a leader with a market share of 45% followed by Nestles 23%. Nestle India with its Everyday dairy whitener has established its

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brand well. It has also entered into the market with its Nestle Pure Milk and, of course, a product in its niche area, Nescafe Frappe. While Sapan characterises it as Dairy Special (instant milk mix for tea and coffee), Vijaya is the only UHT processed milk homogenised brand sold in the market in 200 ml and one litre tetrapack. All the rest, Amulya, Meadow, Mohan, Parag and Shweta dairy whiteners are in the form of powders. Mohan also markets a non-dairy whitener alongside its dairy type product. 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. SMP: The SMP is a highly competitive segment with many co-operatives and private dairies manufacturing it in large quantities. The bigger players in this segment are Amul and Nestle. Butter: Butter is another universal product that is highly competitive as it is manufactured by many co-operatives and private dairies. Amul is the leader in this segment.

6.6. Marketing, Distribution and Retail

The organised sector faces stiff competition from the unorganised sector in traditional Indian milk product category. Fresh products from the local sweet maker and its variety are preferred over products on the shelf in supermarkets. The local sweet maker also caters to specific regional tastes and preferences, which the mass produced milk products are not able to match. However, the organised players have added advantages like supply chain that enable them to reach to a wider mass. Progress in dairy technology and packaging has enabled greater shelf life of many machine produced traditional milk products. Changing urban lifestyles and growing need for convenience in availability are other reasons for gradual increase in popularity of milk products manufactured by the organised sector. Players having diversified product categories (similar to the FMCG industry) or established dairies (like Amul) that have a developed supply chain and network of dedicated freezers and visi coolers, are at an advantageous position vis--vis the regional players. The milk products generally compete with soft drinks and other frozen foods for shelf space.

7.

Overview of Competitive Landscape in Indian Dairy Industry Value Chain

The Indian dairy value chain is an interesting story of varying degree of competition across each of its components. The degree of competition varies on account of presence of co-operatives, available technology, infrastructure, and maturity of the

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supply chain. The level of competition seems higher in collection, processing and subsequent sectors. Sectors like breeding, healthcare, management, extension services etc have not been entirely tapped by the private sector yet. Below is a summary of current level of competitive forces in various elements of Indian dairy value chain.

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