Economic Analysis

Module 7. Outlook of dairy industry

Lesson 31
DAIRY DEVELOPMENT STRATEGY WITH SPECIAL EMPHASIS IN POST- INDEPENDENCE ERA

31.1 Introduction

Dairy development has been transformed from the earlier phase (1970-80) of slow growth rate of milk production and its utilization in the form of value-added in milk products to a high growth rate of milk production and value-added milk products. It was due to the higher allocations under ‘Operational Flood’ programme in the Fourth Five-Year Plan, which was considered as the turning phase from deficiency to sufficiency in the Indian dairy history. This programme aimed at replicating the Amul Model of Milk Cooperative, which essentially ensured a favourable price regime to milk producers and mode of disbursal of prices through a fair and transparent system. The impact of this programme was reflected in the annual growth rates of milk production; the growth rate increased from 2.80 per cent per annum in 1970s to 6.72 per cent per annum during 1980s but declined subsequently the growth rate is at 4.04.

If we look at the decadal growth process of different promising milk producing states of India, it clearly indicates that there are some states such as Andhra Pradesh, Gujarat, Orissa and Uttar Pradesh where consistent and systematic growth process was achieved during 1990s and 2000s, the growth process continued during the Eleventh Five Year Plan period also whereas in other states, the growth process was found to be inconsistent and volatile.

31.2 Milk & Milk Products Order (MMPO)

When the dairy industry was delicensed, pursuant to the Government’s new economic policy in 1991, it was felt necessary to have a framework to facilitate the healthy growth of the dairy sector. Accordingly, the Government notified the Milk & Milk Products Order (MMPO) 1992 under section 3 of the Essential Commodities Act to maintain and increase the supply of quality milk and milk products. The MMPO has since been amended from time to time to make it more liberal and growth-oriented in keeping with the Government’s Policies. The MMPO was last amended on March 26, 2002 when the concept of milk shed was done away with.

The Order currently stipulates registration of all units handling more than 10,000 litres of milk per day or 500 MT of milk solids per annum. It also lays down conditions of hygiene and sanitation for dairy operations. Registered units are also required to file basic information regarding their functioning regularly so as to update the national database on the dairy industry. Table 31.1 shows the number of dairy plant registered under MMPO (1992) as on 31/312010.

Along with the opportunities to proper, the dairy sector is faced with responsibilities and challenges. During the last few years, liquid milk marketing by dairy cooperatives has been growing at around 4 per cent on a low base while their milk procurement has been growing between 7-9 per cent on a much higher base. Though dairy cooperatives are currently selling 80 per cent of their procurement as liquid milk, the gap between the milk procured and liquid milk marketed has been growing significantly. If the current trend continues, the dairy cooperatives would be selling lesser and lesser proportion of their cured milk in liquid form. Such a situation would subject the dairy cooperatives and consequently their members to high risk because most cooperatives do not have adequate professional expertise and marketing infrastructure to manufacture and market value added consumer milk products. Also, they may be unable to cope with the marketing complexities involved in successfully managing the sales of large volumes of commodities with fluctuating prices.

Table 31.1 Dairy plants registered under MMPO (1992)

Traditional dairy products are part and parcel of the Indian way of life both in rural and urban areas. Their production in the organized and non-organized sector is increasing. However, product technology and equipment as well as lack of suitable packaging materials and system remain major stumbling blocks in the way of adoption of these products by the organized sector. In this scenario, technologies suiting small scale production by entrepreneurs will play a crucial role in channelizing the traditional products through the organized sector.

Under the WTO regime, the Indian milk and milk products are highly vulnerable to international competition. Our dairy industry’s success in the competitive global market greatly depends on the milk producer who needs to be encouraged to produce quality milk which can then be suitably transported and transformed into products meeting high international standards. To achieve this goal, the first pre-requisite is to create right infrastructure for satisfactory milk collection cold chain. This critical component needs to be developed to take care of hygiene, cleanliness and quality of milk that are essential parameters for extending shelf as soon as the milk comes out of the udder.

The world average for milk production amongst cattle is 2,038 kg per lactation. The highest yield is over 9,000 kg in Israel, followed by 7,038 kg in the USA, 5,462 kg in UK and 4,451 kg in Australia. At the other end is: China 1,541 kg, Pakistan 1,179 kg and India 987 kg. The productivity data are not comparable due to diversity in the systems and management practices followed in different countries.

Within India, milk yields vary widely. At one end are herds in institutional farms, reared under modern management, with lactation yield of around 3,000 kg. At the other end are village-reared dairy animals with lactation yield as low as 400 kg. The cause of this low productivity is gradual genetic deterioration and neglect of animals over centuries. Continuing droughts, chronic shortages of feed and fodder, and poor nutritive value of feeds have also contributed to lower productivity and poor fertility of dairy animals.

Lactation yield of around 3,000 kg. At the other end are village-reared dairy animals with lactation yield as low as 400 kg. The cause of this low productivity is gradual genetic deterioration and neglect of animals over centuries. Continuing droughts, chronic shortages of feed and fodder, and poor nutritive value of feeds have also contributed to lower productivity and poor fertility of dairy animals.

Stagnant until 1970, India’s milk production began to rise, crossing 30-million tonnes in 1980, 50 million tonnes in 1989, 75-million tonnes in 1998, and is projected to cross the 100-million-tonnes in 2007. Some 47 per cent of India’s milk production comes from northern India, with Utter Pradesh contributing 16 million tonnes-producing more milk than countries such as New Zealand, Australia, Ukraine, Turkey. The milk surplus states in India include Utter Pradesh, Punjab, Rajasthan, Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh, Haryana, Tamil Nadu and Karnataka.

The crossbred cow has emerged as an important dairy animal with its animal yield surpassing that of buffalo. About 10 per cent of all cows-in-milk are crossbreds. Their contribution is estimated at 20 per cent of the total milk production. The crossbred technology has further augmented the viability of the dairy units by increasing the milk production per animal. A major advantage is that crossbred cows continue to produce milk in summer month when the buffalo milk output drops by as much as 50 per cent. Though popular, crossbreeding has yet to spread wide. The first extensive, systematic and frozen semen-based crossbreeding programme was initiated in 1963 in Kerala under the bilateral Indo-Swiss Project (ISP). This project resulted in the population of crossbred cows exceeding that of non-descript cows in Kerala. The success of ISP led to similar projects in other parts of the country. States that have sizeable crossbred population include Maharashtra, Punjab, Tamil Nadu, Utter Pradesh and Karnataka.

Table 31.2 Growth of milk production and per capita availability of milk in India

31.2.1 Milk procurement

The operation Flood laid a strong infrastructure of village Dairy Cooperative Societies (DCS), District Milk Union and State Milk Federations thus establishing an efficient milk procurement network. Creating such an infrastructure has been a major challenge for the private sector. It is true that enjoining milk producers to the dairy plant is expensive but it ensures that the milk received at reception dock is of the right quality and quantity. Most private dairy companies used collection and commission agents to collect milk and transport it to their processing plants. Some large dairy plants have established village collection centres can increase and linked them to intermediary chilling centres. Those who trust in procuring good quality milk are finding that the investment in bulk milk coolers at collection centres can increase the capital cost but gives the good returns in the long run. The small milk producers, who are often not organized, are unable to obtain a reasonable share of the prevailing market price for their milk. Even the farmers who are members of dairy cooperatives do not get remunerative price for their milk if their cooperative is not professionally managed.

31.2.2 Dairy as an industry

Until now India managed its dairy Industry will because it had to deal with shortage. It has today attained fair level of self-sufficiency. Would India face an age of milk surplus? Would India need to manage these surpluses and create the required processing capacities? A recent Rabobank study has projected the need for additional processing capacity of 86,866 tonnes/day by 2015 and 40,437 tonnes/day by 2010 requiring an investment of Rs 217 billion until 2010 plus Rs 101 billion in the period 2010-15. The bulk of this investment is expected by the private sector.

Will the private sector dominate the dairy sector handling around 20 per cent of India’s total milk production in 2011? Would the cooperative dairy sector consolidate and focus on quality of milk and milk products, but handle 10 per cent of the milk produced?

To extend its reach, the private dairy sector would need to set up rural milk procurement network similar to the cooperatives and reduce its dependence on intermediary milk collectors and transporters.

As per the livestock census, the cattle population declined from 198 million in 1997 to 185 million in 2003. The number of non-descript indigenous cows has declined by 10 per cent from 178 to 160 million. The number of crossbred cattle population has increased by 20 per cent from 20 million to 24.6 million, and the number of buffaloes has increased by 10 per cent from 89 million to 98 million.

Farm size is likely to consolidate. Will the number of commercial dairy farms having larger use hi-tech milking systems and technology to produce clean and wholesome milk.

The tree-fold challenge before the Indian dairy Industry would be to focus on; quality, product development and global marketing. The industry would have to pay more attention to HRD, R&D in milk product, equipment technology and exports.

Prevalence of heavy subsidies in the farm sector of developed countries and thereby, the probability of dumping dairy commodities in the domestic market have been major concern for less developed trade partners from the beginning of competitive multilateralism. Though antidumping measures and time-bound phasing out of subsidies are approved by all the Uruguay Round signatories, it is yet to convince that the inherent lacunae are eliminated and the trade environment has become transparent. For instance, in the case of manufactured goods, import of parts or components of the final product for assembly can still be made subject to the normal duties/tariffs. Probable reason for this has been that anti-dumping duties do not provide for anti-circumvention measures. Similarly in case of agricultural commodities, the subsidy levels in developed countries are maintained more or less the same by making suitable alteration in their terminologies. The significance of this in the context of less developed countries for their market competitiveness and foreign exchange earnings is quite alarming, since exports of agricultural commodities is one of the major source of their essential foreign exchange. Further this has the potential to collapse the dominating domestic economy sector. In this context however, the WTO a Agreement called for a fair comparison between export price and normal value in calculating the dumping margins of the commodities concerned. It further specifies that the administrative cost and profit shall be based on the actual data to determine the cost of production of the company/country alleged to be dumping.

Hence, enforcement of WTO agreements, prima facie, seems to be the most significant component for ensuring a transparent multilateral trade in agricultural and dairy commodities. The feasibility of enforcing such a provision however, depends on the bargaining power of individual country or country groups in the world trade body.