Milk Supply Chain of Processing Companies and Farmer ... · Milk Supply Chain of Processing ... The Impact of Nestlé's Milk District Model on Efficiency and Welfare of Smallholder

Milk Supply Chain of ProcessingCompanies and Farmer Efficiency

Dr. Abid A. BurkiProfessor of Economics

Lahore University of ManagementSciences

Background• Role of traditional milk collectors, dodhis, in dairy

milk supply chain.– Single buyers of farmer milk.– Buyer side monopoly.

• Supply chain of processing companies in Punjab.• Industry players have gradually increased.

– Transition from single buyer to multiple buyers.– Companies compete to purchase farmer milk.

• Milk districts and non-milk districts in Punjab.

Background• Rapid growth in agro-food supply chains in global

food trade.• Supermarkets ↑ share in retail: < 20% in 1990 to 60% in 2003.

• This growth affecting agri supply chains and smallproducers.

• quality standards; centralized procurement systems• preferred supplier systems

• Little is known on effects on small producers.– Do supply chains benefit small producers?

• Impact assessment needed.– What is the impact on relative efficiency/productivity.

• I will throw some light on this question.

Setting Up a Milk District

• What is involved?• Selection of location contingent upon:

1. Milk availability in the area and potential;2. Milk production cost and prices in the area;3. Share of milk income in total income (income from

milk should be visible);4. Presence of competitors in the area.

• Basic info on some of these attributes• Source: Pakistan livestock census.

Geographic location of milk and non-milk district in Punjab

Per Capita milk production in Punjab, 1996 vs. 2006

Relative milk yield in Punjab districts, 1996 vs. 2006

Predicted price of fresh milk by Punjab districts, 1996

Y = 11.72 – 2.47 X

Items Year

MeanMean

difference p-valueMilkdistrict

Non-milk

districtPer capita milkproduction

1996 0.879 0.716 0.164 0.061*

2006 1.139 0.755 0.384 0.003***

Relative milk yield(per animal)

1996 6.960 6.956 0.004 0.989

2006 10.428 9.028 1.400 0.056*

Relative milk price(per kg)

1996 9.169 10.509 1.340 0.0009***

Mean Difference: Milk Production, Yield, and Price

Survey design

• Cross section data has the advantage ofcomparing households at same point in time,and thus in similar macroeconomic conditions.

• Punjab most populous province: producesnearly 70% of total fresh milk in Pakistan

• Survey conducted from Jan–Apr 2006• Cluster sampling plan used to draw a sample

of 800 dairy HH from rural Punjab

Effects of MD on dairy efficiency

• Findings:1. We predict farmer efficiency higher for

farms in milk district.2. Remoteness of farms decreases efficiency. But MD tend to increase efficiency of farms with their

increasing distance from pucca road.

3. Farmers with large herd size are moreefficient than small herd sizes.

• This effect is augmented if large farms are alsolocated in Milk District.

Effects of MD on dairy efficiency

4. Productivity is higher and inefficiencylower when more competition.• Increased competition leads to better prices

for farmer milk, improved dairy extensionservices, and more economical ways tomanage dairy farms.

• Increase in number of industry playersincreases technical efficiency of dairy farms

Effects of MD on dairy efficiency5. Experienced farmers more efficient than

inexperienced ones.6. Timely feeding of water to milch animals plays

a significant role in increasing milk production.• Farmer who more frequently feed water to their stock are likely

to be less inefficient than those who don’t.7. Farmers suffering from severe long term

depression are relatively more inefficient thanothers

8. Our results confirm potential benefits of feedingadequate amounts of concentrate to milchanimals.

Comulative Frequency

00.10.20.30.40.50.60.70.80.9

1

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Efficiency

Cum

ulat

ive

freq

uenc

y

Non-milk districts

Milk districts

Cumulative distribution function for estimatedtechnical efficiency

Frequency distribution of mean technical efficiencylevels of dairy farms

Non-milk districts

0

50

100

150

200

250

0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Efficiency

Freq

uenc

y

Milk districts

0

50

100

150

200

250

0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Efficiency

Freq

uenc

y

Mean technical efficiency levels bymouza

Mean Technical Efficiency by mouza

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Mouza number

Non-milk supply chain Milk supply chain

Efficiency by market structure

00.10.20.30.40.50.60.70.80.9

Dodhi One Player Tw o Players Three Players

Number of industry players in village

Mea

n ef

ficie

ncy

Mean technical efficiency levels by market structurein villages

Non-milk districts

0.0

0.2

0.4

0.6

0.8

1.0

1 to 2 3 to 4 5 to 6 7 to 10 11 to 15 16 andHigh

Herd Size

Mea

n Ef

ficie

ncy

Milk districts

0.0

0.2

0.4

0.6

0.8

1.0

1 to 2 3 to 4 5 to 6 7 to 10 11 to 15 16 andHigh

Herd size

Mea

n Ef

ficie

ncy

Efficiency by Herd Size in Milk and Non-Milk Districts