Market Opportunities in the Indian Dairy Market Pt 1

Market Opportunities in Indian Dairy Value Chain

A research study for the Victorian

Government Business Office – India November 2009

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

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5.5.1. Procedure................................................................................................... 50 5.5.2. Documentation ........................................................................................... 53 5.5.3. Duties and Taxes ....................................................................................... 54 6. Competitive Landscape ........................................................................... 54 6.1. Breeding ..................................................................................................... 54 6.2. Healthcare and Herd Management ............................................................ 54 6.3. Feed and Nutrition...................................................................................... 55 6.4. Milk Production, Storage and Transport..................................................... 56 6.5. Processing.................................................................................................. 56 6.5.1. Traditional Indian Milk Products ................................................................. 56 6.5.2. Key Universal Products .............................................................................. 57 6.6. Marketing, Distribution and Retail .............................................................. 58 7. Overview of Competitive Landscape in Indian Dairy Industry Value

Chain.......................................................................................................... 58 8. Assessment of Victorian Dairy Industry to Qualify Opportunities in

India ........................................................................................................... 60 8.1. Section Objective ....................................................................................... 60 8.2. Assessment of Victorian Dairy Industry ..................................................... 60 8.2.1. Prominence of Victoria in Australian Dairy Industry................................... 60 8.2.2. Diary Industry Structure.............................................................................. 63 8.3. Key Categories and Product Portfolio ........................................................ 66 8.4. Key Strengths of Victorian Dairy Industry .................................................. 67 8.5. Analysis of Trade Pattern ........................................................................... 68 8.5.1. Exports ....................................................................................................... 68 8.5.2. Imports........................................................................................................ 70 9. Opportunity Areas in Indian Dairy Market for Victorian Dairy Players72 9.1. Current Potential Areas of Trade ............................................................... 72 9.2. Attractiveness-Ability Analysis ................................................................... 73 9.3. High level Assessment of Opportunities in Indian Diary Industry .............. 76 10. Key Success Factors ............................................................................... 78 10.1. Universal Products - Commodity................................................................ 78 10.2. Universal Products - Speciality .................................................................. 79 10.3. Bovine Semen ............................................................................................ 79 10.4. Second Hand Processing Equipment ........................................................ 80 10.5. Cattle Feed................................................................................................. 80 10.6. Dairy Extension Services ........................................................................... 80 10.7. Potential Trade Issues................................................................................ 81 10.8. Future Outlook for Current Potential Areas of Trade ................................. 84 10.9. Potential Future Areas of Trade ................................................................. 85 11. Market Size of Opportunities in Indian Dairy Industry ......................... 85 11.1. Section Objective ....................................................................................... 85 11.2. Size of Identified Opportunity Areas........................................................... 85 11.2.1. Universal Dairy Products - Commodity ...................................................... 85 11.2.2. Universal Diary Products – Specialty ......................................................... 86 11.2.3. Cattle Feed................................................................................................. 87 11.2.4. Dairy Extension Services ........................................................................... 87 11.2.5. Bovine Semen Import................................................................................. 87 11.2.6. Second Hand Dairy Processing Equipment ............................................... 87 12. Route to Market ........................................................................................ 88 12.1. Section Objective ....................................................................................... 88 12.2. Route to Market.......................................................................................... 88

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12.2.1. Universal Dairy Products – Commodity ..................................................... 88 12.2.2. Universal Dairy Products - Specialty.......................................................... 90 12.2.3. Second Hand Dairy Equipment .................................................................. 92 12.2.4. Dairy Extension Service and Bovine Semen ............................................. 92 12.3. Victoria Government’s Role for Enhancing Trade Ties with Indian Dairy

Industry....................................................................................................... 93 12.3.1. Diplomatic and Trade Channel................................................................... 93 12.3.2. Trade Promotions....................................................................................... 94 12.3.3. Cultural Channel......................................................................................... 94 13. Appendix ................................................................................................... 95 13.1. Appendix 1: Description Key Traditional Indian Milk Products................... 95 13.2. Appendix 2: Exchange Rates..................................................................... 96 13.3. Appendix 3: Regulatory Agency Contacts.................................................. 96 13.4. Appendix 4: Key Players in Indian Dairy Industry ...................................... 98 13.4.1. Genetics and Breeding............................................................................... 98 13.4.2. Healthcare and Veterinary Pharmaceuticals.............................................. 99 13.4.3. Dairy Processing Plants ........................................................................... 100 13.4.4. Dairy Equipment....................................................................................... 101 13.4.5. Indian Milk Products ................................................................................. 102 13.4.6. Ice Cream Manufacturers......................................................................... 102 13.5. Appendix 5: Select Dairy Product Imports to India .................................. 103

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1. Introduction

1.1. Background and Objectives

The import of Australian dairy products to India was stopped in 2003; owing to

change in India’s 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

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• 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 world’s 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 India’s milk output at a compounded

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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 industry’s

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, India’s 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

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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 industry’s uniqueness has also called

for many distinctive requirements and ingenious solutions that one normally doesn’t

find in other large dairy producing nations.

The following are the potential opportunity areas of trade / business across India’s

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 farmer’s 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;

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• 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 Victoria’s 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.

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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.

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• 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 India’s 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

India’s 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

India’s Dairy industry was included in government’s development policies. The

Government’s goal was to provide hygienic milk to the country’s growing urban

population.

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The foundation for development of India’s 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 India’s major metropolitan centres

Operation Flood has helped increase India’s 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 self-

sufficient 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-à-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, India’s 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 India’s 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 co-

operatives 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 co-

ordination 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: India’s 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 India’s 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

17

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 India’s

population is lacto-vegetarian and milk products represent an important source of

protein. Estimates1 show that 16% of a typical Indian household’s 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.

1 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 halwai’s (sweet makers) place. The consumption of traditional milk products

peak during the winter months that coincide with India’s 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 India’s

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-à-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 India’s 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 milk-

processing 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

21

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 demand-

supply 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.

2 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 India’s 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

25

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 Government’s 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 world’s 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 farmer’s

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


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 by-

products. 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 co-

operatives 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.

29

30

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-à-vis that of breeds in developed

nations. This affects the economics of milk production and reduces the feed to milk

output ratio.


• 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-à-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


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

31

productivity are genetics, nutrition, management and diseases. Unfortunately, these

areas have often been neglected in Indian dairy industry. The small farmers usually

don’t know of evolved methods in cattle healthcare and management, and small herd

size usually doesn’t 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 farmer’s 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 farmer’s 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 don’t

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 sub-

optimal milk output. The success rate of AI is relatively lessin case of buffalos (25-

30% vis-à-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-à-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

33

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 India’s 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.

34


• There is a requirement for dairy extension service i.e. taking the dairy

services to the farmer’s door step. The small farmers don’t 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°C and send the milk to

processing plants in insulated tankers/lorries, which maintain the temperature of milk

at around 4°C. The processing plants usually enter into agreement with transport

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.

35

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.

36


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 co-

operatives 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 co-

operative sector, few entities control bulk of the capabilities. The more prolific co-

operatives 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.

37

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 India’s leading dairy and

confectionary giant) and New Zealand’s Fonterra started in 2002, in the name of

Britannia New Zealand Foods Pvt. Ltd. (BNZF). The partnership has launched

38

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 JV’s 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 India’s

milk supply chain was not Fonterra’s priority. It was evident from the remarks

made by Mr Mark Wilson, Fonterra’s 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 India’s consumer dairy market is not a

core priority for Fonterra at this time”.

39

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 India’s 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-à-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

40

sweets like rosogolla have very different sensory profile when made by local sweet

shop vis-à-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 don’t usually invest in building a dedicated supply chain network.


• Packaging equipment: This is the area where India’s 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

41

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

user’s 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-in-

place (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.

42

4.6. Marketing, Distribution and Retail


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 don’t 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.

43

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

44

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-

à-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-à-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

45

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

46

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.

47

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.

48

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)/1997–2002, 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) 1997–2002, 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 India’s 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

3 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 products4 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-Codes-

Import-Sch-1-2009/ch%2004.doc

For bovine meat - http://www.infodriveindia.com/content/Exim/DGFT/ITC-HS-Codes-

Import-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.

4 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 products—whether 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 products—meat 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-à-

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

6.1. Breeding 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.

6.2. 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 farmer’s 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, India’s 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 don’t 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 Dabur’s 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 Nestle’s 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-à-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.

Market Opportunities in the Indian Dairy Market Pt 1

Documents