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Report Supply Chain Mgmt Milk

Apr 07, 2018

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    1 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    Preface

    The usefulness of fresh milk is stressed in these words from the Holy Quran:

    And verily in the cattle there is a lesson for you. We give you to drink of that which is in their bellies, from between excretion and blood, pure milk,

    palatable to the drinkers. (16:66)

    Drink your milk" is a phrase each and every one of us remembers hearing growing up. Inmost children's books, a glass of milk represents the healthiest food for our children's littlebodies. Pregnant women are recommended to drink a glass of milk a day and teenagers arerecommended dairy with every meal.

    For most of us, milk has been touted, for a large part of our lives, as the ultimate healthfood, yet the availability of the pure fresh milk at the right price is the greatest challenge!!

    This project report is part of the Supply Chain Management Course in Executive MBAprogram at IBA, Karachi. It encompasses the issues relating to the Supply Chain of FreshMilk right from the nature that is the cow to the doorstep of every customer in our countryPakistan.

    It was a learning experience for us all in the team and we are thankful to our CourseInstructor Mr. Hanif Ajari who entrusted upon us this research and developed the variousconcepts of Supply Chain Management during the studies.

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    2 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    Cont e nts

    Overview o f th e milk ec ono my

    Pr odu c tion ba s e

    S upp ly a nd d ema nd

    Milk marke ts a nd supp ly c h ai ns

    1.R u ral supp ly c h ai n

    2.Urba n supp ly c h ai n

    3.Pr o ce ss e d supp ly c h ai n

    Const rai nts in Milk supp ly Ch ai n

    Na tion al d airy st ra tegy: I ssu e s a nd oppo r tun itie s

    Con cl us ion Refere n ce s

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    3 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    Overview o f th e milk ec ono my

    Pakistan is the sixth most populous country in the world, with an estimated population of over

    160 million, growing at a rate of more than 1.8 percent per annum. Agriculture, being themainstay of the economy, generates 20.9 percent of the total GDP and employs 43.4 percentof the total workforce.

    With an almost 50 percent contribution, livestock is by far the most important subsector inagriculture. In the past ten years, the subsector grew by an average of 5.8 percent. Theshare of livestock in agriculture growth jumped from 25.3 percent in 1996 to 49.6 percent in2006. The higher growth in the livestock sector has been mainly attributed to growth not onlyin the headcount of livestock, which is commercially important, but also in milk production.Within the livestock sector, milk is the largest and single most important commodity. Despite

    decades of oversight by the Government, P akistan was the 4th largest milk producingcountry in the world with 45 billion liters of milk production per annum. Country is bestowedwith 155 million Livestock. However, milk production per animal was not up to mark due toone or another reason. According to the 2006 livestock census (Table 1), milk productionhad increased by 36 percent since 1996.

    T able 1: Rela tive i n crea s e i n milk p r odu c tion o ver two d eca d e s

    T yp e o f a n imal Gr oss a nnu al p r odu c tion ** (billi on litre s)

    % c h a n gebe twee n

    1986 1996 2006 1986 & 1996 1996 & 2006 Co ws 7.07 9.36 13.33 32.4 42.4Bu ffal o 14.82 18.90 25.04 27.5 32.5T ot al 21.89 28.26 38.37 29.1 35.6

    ** Calculated using average annual lactation length of 250 for cows and 305 days for buffalo. S ou rce: Ec ono mic su rvey o f Paki st a n 2007

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    4 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    Pr odu c tion ba s e

    Despite being the most lucrative livestock product, milk production is the least

    commercialized enterprise in the agricultural economy. The majority of the national livestockherd is distributed in small units throughout the country. About 55 million landless or smallholder farmers produce the bulk of the countrys milk supply.

    Buffalos and cows are the major milk-producing animals. According to a FAO study on milkmarketing in Pakistan in 2003, 80 percent of the milk in the country was collectively producedby rural commercial and rural subsistence producers. The peri-urban producers account for 15 percent of the total production, whereas urban producers contribute 5 percent. Annex IIIshows the distribution of milk as it moves along the various links in the overall supply chain.

    According to the 2006 livestock census (Table 2), 51 percent of the 8.4 million reporteddairying households owned 14 animals, 28 percent of dairying households maintained herdsizes of 510 animals; another 14 percent had herds of 1150 animals). Only 7 percent of the dairying farms in the country could be considered large, with more than 50 animals.

    T able 2: Her d s ize by hous e ho ld

    No . o f a n imal s Ow n er sh ip by hous e ho ld (%) 12 27.3234 23.7356 14.32

    710 13.681115 6.291620 2.652130 2.583150 2.7151 o r m o re 6.72T OTAL 100 S ou rce: Paki st a n L ive sto ck Ce nsus, 2006

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    5 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    S upp ly a nd d ema nd :-

    As a food item, milk (both milk and liquid milk equivalents) is second only to cereals in thelevel of per capita consumption in Pakistan ,which nationally is 190 litres. Province-wise, per capita consumption stands at 246 kg in Sindh, 132 kg in Punjab , 86 kg in North-WestFrontier (NWFP) and 108 kg in Baluchistan .

    Due to rising inflation and high poverty levels, the majority of Pakistani consumers are priceconscious. Therefore, demand for raw milk is large compared to processed milk. Hence, rawmilk is the primary dairy product supplied in the country. More than 90 percent of the suppliedmilk is collected and sold unprocessed through the informal market by a multi-tiered layer of marketing agents.

    The supply of milk to meet domestic demand has usually lagged. To fill the gap, powderedmilk is imported every year. From July 2006 to November 2007, dairy products worth 2 320

    million rupees (US$38.6 million) were imported. The Statistics Division lists the products asmilk and milk food for infants.

    Milk marke ts a nd supp ly c h ai ns :-

    Milk markets in Pakistan can be classified into three categories: rural, urban andinternational. Similarly, the three supply chains in Pakistan are rural, urban and processedsupply chains, as the following explains.

    1.R u ral supp ly c h ai n

    A significant proportion of the milk produced in rural areas is consumed at source within thehamlet or village, either through farmstead consumption or in some cases, direct sales by thefarmer to the neighborhood. The remaining 3040 percent is supplied through an intricatesupply chain, consisting of multiple layers of intermediaries. Figure 1 elaborates the rural milksupply chain and the price of milk at each node in the chain.

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    6 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    Fig u re 1: R u ral supp ly c h ai n (e st ima ted p r o c u reme nt p rice s a t r up ee s p er li tre )

    Source: Market information,

    2.Urba n supp ly c h ai n

    Urban consumers in Pakistan consume an estimated 912 million litres of milk every year. Tosatisfy some of this demand, milk is produced in urban and peri-urban areas of the country,accounting for 5 percent and 15 percent of the total milk production, respectively. Because

    this quantity is not sufficient to meet the entire urban demand, the deficit is met by ruralproducers.

    Peri-urban dairy farms are located on the outskirts of major cities. These are usually ownedby market-oriented farmers and can be classified into two general groups, distinguished byherd size. Most operate on relatively small scale, owning 1050 dairy animals. The larger farmers usually own up to 500 dairy cows. This latter category of farm is either owned andoperated by a progressive farmer individually or is part of the peri-urban cattle colonies.

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    7 ISSU ES IN SU PPLY CHAIN MANAGEMENT OF FRESH MILK: LOCAL PERSPECTIV E

    As depicted in Figure 2, the urban milk marketing chain, the producer has relatively morecontrol over the supply because the consumer is easily accessible and is also willing to pay ahigh price for milk. Hence, in many instances, farmers in the urban milk marketing chainintegrate production and marketing functions in their operations. Instead of relying on amiddleman, they sell the milk directly.

    Fig u re 2: Peri- u rba n supp ly c h ai n (e st ima te d p r o c u reme nt p rice s a t r up ee s p er li tre )

    3.Pr o ce ss e d supp ly c h ai n

    Most of the milk in the country is marketed in raw form. According to industry estimates, only

    35 percent of the milk is marketed through formal channels as processed milk. Currently,there are more than 20 dairy processing plants operating in the country. The major productproduced by them is UHT or pasteurized milk. Other products include powdered milk, butter,cream and lassi. Figure 3 depicts the supply chain for UHT milk.

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