Module 16. Dairy manufacturing sector, its status and problems

Lesson 32


32.1 Introduction

This chapter describes problems of dairy industry and strategies to overcome them. It discusses the milk and milk product order (1992) as an important policy measure of dairy industry of India as an important strategy/policy of Government of India with respect to Dairy sector of India.

From an era of shortage of milk, today India is largest milk producing country in the world. Although the milk yield of our milch animals is quite low compared to other countries, India became largest milk producing country due to the efforts of millions of small holder producers and several other policy matters. The various problems faced by dairy industry at various stages are given below.

32.2 Problems

The Indian Dairy Industry is characterized as small scale, dispersed and unorganized. It is facing following problems.
  • Low productivity of milk animals.
  • Inadequate and inappropriate animal feeding and health care.
  • Lack of assured remunerative price of milk producers throughout the year.
  • Inadequate basic infrastructure for collection, transportation, processing and marketing of milk.
  • Lack of professional management.
  • Lack of proper cold chain facilities and logistics lead to revenue and milk losses.
  • The return of investment for the farmer is on the decline.
  • Huge gap in the production standards presents for the need of intervention to boost the overall yield and in production parameters.
  • There is need for incentives for the private corporate houses and conglomerates to venture in to dairy sector extensively on large scale.

32.2.1 Problematic issues at the milk producers level
  • Insufficient feeding of milk animals.
  • Increase incidence of diseases.
  • Low genetic potential of milk animals.
  • Inadequate chilling facilities.
  • Exploitation of milk producers.
  • More production cost.
  • Delay in payment.

32.2.2 Problematic issues at milk collection level
  • Producers are largely small scale.
  • Large number of intermediaries.
  • Gaps in information.
  • Lack of infrastructure.
  • Absence of a screening system.
  • Manipulation of quality by milk producer.

32.2.3 Problematic issues at processing plants
  • Seasonality effects of lean and flush seasons.
  • Absence and non maintenance of quality standards.
  • Adulteration and food safety.
  • Lack of trained and skilled workers.

32.2.4 Problematic issues at storage and logistic level
  • Lack of cold storage facilities.
  • Gap in the cold chain and transport facilities.

32.2.5 Problematic issues at cooperative level
  • Less enrolment as members.
  • Lower participation in decision making process.
  • Losses.
  • Less price of milk.
  • Poor services.
  • Poor infrastructure.

32.2.6 Problematic issues at marketing
  • Large unorganized market.
  • Less penetration to rural markets.
  • Acceptability of the consumer base.
  • Lack of transparent milk pricing system.

32.3 Policy Environment

Dairy sector is a part of agriculture and falls under the state subject for policy matters. However the central government takes a lead in formulating policies in this sector at the national level while its implementation is left to the respective state governments. Before 1970-71 (pre OF period), the main focus of government was to improve the milk production capacity of milch animals. Various programmes were initiated to achieve this objectives viz., key village scheme, intensive cattle development programme etc. A network of veterinary hospitals was established across different states. A number of city milk supply schemes were implemented for the benefits of urban consumers. But one of the drawbacks of pre OF programme was absence of appropriate link between rural producers and urban consumers. The Operation flood programme was launched in 1970-71. The operation flood was a major policy development. It provided missing market link between rural producers and urban consumers through cooperative set up. Under operation flood programme, dairy development through milk producers cooperatives and milk production based on milk sheds was promoted in the rural areas. The government policies were formulated to help dairy cooperatives and large public investments were made in processing and marketing infrastructure through cooperatives. In order to promote milk production, the cooperatives were protected from cheap subsidized imports of dairy products (milk powder and butter oil) by imposing various import restrictions. The milk product imports were regulated through Indian Dairy Corporation. At that time milk powder and butter oil were available in international market at lower prices. This made reconstitution of milk cheaper than collecting and selling fresh milk. Thus it was very essential to protect the dairy cooperatives against such cheap imports. In such a protected regime, milk procurement, processing capacities and urban supplies all grew in matching proportion making India, the self sufficient and modern dairy country in the world. During protected regime, India pursued import substitution policy under which domestic cooperative dairy sector was protected from cheap imports by imposition of quantitative restrictions and other non tariff barriers such as canalizing of imports and exports of the dairy products. At the same time competition from private sector was also eliminated by dissolving new private entrepreneurs into dairy sector under industrial development and regulation Act of 1951 through the provision of industrial licensing.

In the early nineties, Indian government faced the problem of balance of payment crisis. This led to change in policy measures for all sectors of the economy. India adopted the policy of liberalization for all sectors of economy including dairy sectors of the economy. The dairy industry was relicensed in 1991. The aim of delicensing was to encourage private investment and flow of capital and new technology. Upon opening up the sector, many new private dairy plants were established. Within a year of removing the licensing system, more than 100 new dairy plants were established by private entrepreneurs. This led to unhealthy competition due to limitation of adequate availability of basic raw material (milk). Thus in 1992 again government of India enacted milk and milk product order (MMPO-1992). The salient provisions of MMPO 1992 are as under.

32.4 Milk and Milk Products Order (MMPO) 1992

MMPO, 1992 regulates entry in to the dairy industry by providing for a system of registration for new units beyond a specified processing capacity. It has also laid down standards of safety & hygiene for dairy units. One of the key objectives of MMPO is to ensure adequate availability of liquid milk for consumers.

Salient provisions of MMPO, 1992 are as under:

"Business in milk & milk products" means sale or purchase of milk & milk products and includes manufacturing, processing, handling or controlling of milk or milk products.

"Milk shed" means an area geographically demarcated by the registering authority for the collection of milk or milk products by-the holder of a registration certificate.

Registration: It is necessary to obtain registration certificate from registering authority for manufacturing or carrying on business in milk or any milk products for creating any manufacturing facility for the business.

Plants producing between 10,000 to 75,000 liters of milk per day or manufacturing milk products containing between 500 to 3750 tones of milk solids per year need state registration. When the volume exceeds 75,000 liters of milk per day or 3,750 tones of milk solids per year, registration with central authority is necessary.

The applicant has to satisfy the registering authority with regard to:
  • Proper utilization of milk in the region from the milksheds
  • Availability of milk for the general public
  • Quality & quantity of milk available in the region
  • Remunerative price for milk
  • Facilities available for handling milk & milk products
  • Policy of preferential treatment to the cooperative sector
  • Any other matter which may be relevant to the healthy development of the dairy industry

The holder of the registration certificate shall (a) be bound to confine the collection of milk to the milkshed and (b) inform of any additions /alternations made to the premises to the registering authorities within 30 days from the completion of addition/alteration.

The registration certificate issued under this order shall be valid for a period of five years from the date of issue.

32.4.1 Collection of milk

a. Only from the milk shed assigned under the registration certificate.

b. In case of shortage of milk in the milkshed area or surplus of liquid milk outside the milkshed area, the authority may permit to collect milk from outside the milkshed for not exceeding 90 days.

c. Milk collection outside the milk shed be made only through cooperative milk federation or union, at a price mutually agreed upon, and in the absence of any such agreement at the price at which the cooperative federation or union concerned sells milk to any other cooperative federation or the union.

d. Liquid milk should not be used for making any products for period specified by Central Government & declared by notification in official Gazette.

32.4.2 Quarterly returns and additional information

Every holder of registration certificate shall, within 30 days of the expiry of every quarter, submit a return in duplicate in the specified forms. Detailed procedures have been specified for many other related areas as well as other provisions of MMPO (1992).

32.4.3 Discontinuation of the milk shed concept in the MMPO

There was a perception that the MMPO is an entry barrier for private sector investment in the dairy sector where only 10-15 per cent of the milk is processed and more private sector investment is required, to "process" more milk. The "Integrated Sample Surveys" conducted by the concerned departments of the state governments indicate that milk retention on an all India basis by rural households is about 50 per cent of the production, Therefore, considering that milk production in India averages 220 million litres per day, only 110 million litres per day is available as marketable surplus for processing. The capacity registered under is about 60 million litres per day, capable of processing about 63 per cent of the marketable surplus.

Yielding to the criticism that the MMPO contained entry barriers to the creation new and additional milk processing capacities. The Government made some important amendments to the MMPO in March 2002. The salient features of the new amendments are:
  • The provision of assigning milkshed to processors has been done away with. Processors are free to procure milk from any area of their choice,
  • MMPO 92 will now basically regulate food safety, quality, sanitary and hygienic conditions of all registered units.
  • Dairy plants have to be inspected before commissioning and also need to be inspected at least once every year. However, dairy plants been given flexibility in choosing whether the inspection should be done by a team of experts or a firm of quality auditors from an approved list.
  • In monitoring product safety, quality, hygienic and sanitary standards in the dairy industry, the Registering Authority is required to make use of reports issued by inspection teams or quality audit firms.
  • The provision for food safety and quality have been made applicable even for business milk handling less than 10,000 liters per day or less than 500 metric tons milk solids per annum. However, such business would not be required to obtain registration, undergo inspection prior to commissioning their plants or undergo routine annual inspections.
32.5 National Dairy Plan

India's leading dairy development agency, the National Dairy Development Board (NDDB), as proposed around $4 billion ( 173 billion) draft National Dairy Plan to increase the country's milk production from the current 102 million tonnes to meet the projected demand of 180 million tones by 2021-22. NDDB proposed the draft plan in its annual report for 2007-08.

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32.5.1 The National dairy plan focuses on

1. Productivity measures to enhance milk production as the average annual incremental production will have to increase from 2.5 million tons now to 5 million tons over the next 15 years.

2. Strengthening and expanding infrastructure to procure, process and market milk through existing and new institutional structures. The plan proposes to increase the share of the organized sector in milk production to 65 percent from the current 30 percent to ensure supply of quality milk to consumers.

32.5.2 SWOT analysis of Indian dairy industry:


1. Enhanced milk production with consequently increased availability of milk processing.

2. Improved purchasing power of the consumer.

3. Improved transportation facilities for movement of milk & milk products.

4. Increased availability of indigenously manufactured equipment.

5. Large no. of dairy plants (678) in the country.

6. Vast pool of highly trained & qualified manpower available to the industry.

7. Country’s vast natural resources offer immense potential for growth & development of dairying.


1. Lake of appropriate technologies for:

2. Tropical climate conditions.

3. Erratic power supply.

4. Lake of awareness for clean milk production.

5. Underdeveloped raw milk collection systems in certain parts of the country.

6. Seasonal fluctuations in milk production pattern.

7. Regional imbalances of milk supply.

8. Species – wise variation in milk quality received by dairy plants.

9. Poor productivity of cattle & arable land.

10. Scarce capital for investment in the dairy development programme on a priority basis.

11. Absence of proper data records which is essential for preparing development programme.

12. Dairy development programs have not been fully implemented as per the needs of the region in different agro – climatic zones.

13. Lake of marketing avenues for the dairy produce.

14. Non-availability of software for preparing needed dairy schemes / projects.

15. Lake of infrastructure for offering dairy business management programs.


1. Greatly improved export potential for milk products of western as well as traditional types.

2. Established & expanding market for traditional dairy products.

3. Increasing demand for fluid milk as well as value added production.

4. Byproduct utilization for import substitution.

5. Employment generation.

6. Growing demand for milk & milk products.

7. Liberalized polices in dairy sector.

8. Availability of large resources of unconventional feeds & folders.

9. Availability of diverse germ plasm with unique features like heat tolerance, disease resistance, draft ability & ability to survive & produce under stress conditions.

10. Availability of animal production technologies for faster development & effective implementation.

11. Integrated structure of marketing for milk & milk products.

12. Integrated structure of livestock marketing through regulated markets.

13. Improved collection of data on contract basis through agencies.

14. Market information intelligence system for milk & milk products.

15. Development of software for project formulation for dairy enterprise.


1. Introduction of foreign products in Indian market.

2. Increasing chemical contaminants & residual antibiotics in milk .

3. Poor microbiological quality of milk.

4. Export of quality feed ingredients particularly cakes under the liberalization policy.

5. Deficiency of molasses, a rich source of binding agent in feed industry & constituent of urea molasses mineral lick.

6. Excessive grazing pressure on marginal & small community lands resulting in complete degradation of land.

7. Extinction of the indigenous breeds of cattle due to indiscriminate use of crossbreeding program to enhance milk production.

8. The liberalization of the dairy industry is likely to be exploited by multinationals. They will be interested in manufacturing value added products. It will create milk shortage in the country adversely affecting the consumers.

Last modified: Monday, 1 October 2012, 10:17 AM