Module 10.  System of milk procurement and processing, pricing and marketing of milk and milk products

Lesson 25

MARKETING OF MILK AND MILK PRODUCTS: AN ECONOMIC ASPECT

25.1  Introduction

There has been a considerable progress in the overall production in the dairy sector. Without a proper marketing, the country would not attain the expected rate of growth in dairy farming. Marketing is a flow of goods and services from producer to consumer and users. In this process the activities include moving the goods from the point of production to the point of consumption.  The activities like creation of time, place, form and  utility are involved. According to Philip Kotler, marketing as a human activity directed at satisfying the needs and wants through exchange process. The performance of the trade activities involved in the flow of goods and services affect the marketing efficiency and producer’s share in the consumer rupee. A marketing system consists of different milk marketing channels. That marketing channel is considered good in which producer get the highest share in consumer rupee and consumer share is highest in producer’s rupee. The interest of the  Producer is to get the highest possible returns from their milk. Between them, there are marketing intermediaries or middlemen who perform various marketing functions like transporting and retailing. All the intermediaries/middlemen are also interested to make highest profit from the milk business. The present lesson provides information on the economic aspect of marketing of milk and milk products through a empirical study conducted in Rajasthan state.

25.2  Important Milk Marketing Channels in India

Table 25.1

Sr. No.

Milk Marketing Channels

Number of intermediaries

1

Producer – Consumer

 

0

2

Producer – Halwai/tea shops – Consumer

 

1

3

Producer – Milk Vendor – Consumer

 

1

4

Producer – Milk Vendor – Contractor - Consumer

 

2

5

Producer – Dairy Co-operative – Milk Plant – Consumer

 

2

6

Producer- Milk trader-Processor-Retailer -Consumer

 

3

7

Producer-Dairy Cooperatives-Milk transporter-Processor-Retailer-Consumer

4

 

25.3  Costs Involved in Marketing of Milk and Milk Products

25.3.1  Cost components

The marketing agencies made capital investment on building, transportation vehicles, and dairy equipments and incurred various variable costs time to time with respect to human labour, purchase of milk, fuel, repairs, electricity etc. Therefore, the expenditure on various items was classified according to their fixed and variable nature.

25.3.2  Fixed costs

Fixed costs are those costs, which are incurred whether or not the production is carried out or do not change with the level of production. These costs include interest on fixed capital and depreciation on buildings and equipments. In addition to this actual expenditure incurred in obtaining the driving license and road tax was taken into account while calculating the fixed costs.

25.3.3  Variable costs

Variable costs include cost of raw milk actually purchased, fuel cost as expenses incurred on petrol for the vehicle, electricity was used for running electric equipments, light etc. and expenses on labour used.

25.4  Price Spread

The economic efficiency of marketing system is generally measured in terms of the price spread of an agricultural commodity. Smaller the price spread, greater will be the efficiency of marketing system. Price spread was calculated as the difference between the price paid by the consumer and price received by the producer farmer.

24.5  Producer’s Share in Consumer’s Rupee 

It is the price received by the farmer expressed as percentage of the retail price. It is calculated as

Ps = (Pf / Pr) * 100

Where,

Ps = Producer’s share in consumer’s rupee.

Pf = Producer’s price.

Pr = Retail price.

25.6  Marketing Efficiency

 Marketing Efficiency through different channels was compared by using the Acharya’s formula.

MME=FP/ (MC+MM)

Where,

MME = Modified measure of marketing efficiency.

FP    = Price received by the Producer.

MC   = Marketing cost

MM = Marketing margins.

25.7  Disposal Pattern of Milk                     

Availability of efficient milk marketing facilities ensures the progress of dairy enterprises. Specially, in case of highly perishable commodities like milk, since it requires quick disposal or conversion into milk products at the farm level. Disposal pattern of milk is demonstrated in Table 25.2. In the study area, both organized and unorganized sectors of milk marketing were functioning.  In the organized sector, three co-operative societies were functioning and in case of unorganized sector, milk vendors, halwaies and contractors were the main marketing agencies involved in milk business. It can be observed that in overall 79.77 per cent of total marketed surplus was disposed through the unorganized sector, whereas 20.23 per cent of the total marketed surplus was disposed off through the organized sector.

Table 25.2 Disposal of milk to different milk marketing agencies (In percent)

Category

of households

Unorganized sector

Organized

Sector

 (Milk Cooperative Society)

Total

 

Milk vendor

Halwai

Tea Shop

Consumer

 

Total

Small

( 1-2 milch animals)

76.90

3.15

2.89

2.89

85.83

14.17

100.00

Medium

( 3-6 milch animals)

55.69

2.99

9.58

0.60

68.86

31.14

100.00

Large

( 7 and above milch animals)

61.05

10.10

6.25

0.00

77.40

22.60

100.00

Overall

67.86

5.03

5.29

1.59

79.77

20.23

100.00

 

Out of the total marketed surplus, 67.86 per cent was marketed through vendors, 11.91 per cent through halwai, teashops and consumers taking together. Among the different categories of sample households, medium herd size category marketed their 31.14 per cent of the marketed surplus through the co-operative sector, while only 14.17 per cent of the marketed surplus of small herd size category was marketed through the co-operative societies. This indicates that still the sample households are mostly dependent on unorganized sector for disposal of their milk.

25.8  Performance of Milk Marketing Channels

In the study conducted, Investment pattern of intermediaries, cost and returns, marketing efficiency were worked out only for following channels:

1.    Producer – Consumer

2.    Producer – Halwai – Consumer

3.    Producer – Milk Vendor(A) – Consumer

4.    Producer- Milk Vendor (B)- Contractor- Consumer

The other active channels were dropped because of time constraint on the part of researcher.

25.8.1  Producer share in consumer rupee

It is the price received by the farmer expressed as a percentage of the price paid by the consumer. Table 25.3 shows the share of producers and marketing agencies in the consumer’s price in all the four channels.

In channel-I, as producer sold direct to the consumer, producer received complete amount of consumer’s price. Hence, producer’s share in consumer’s price was100 percent. In channel-II, producer’s share was 76.51 per cent, whereas halwai’s share accounts for 23.48 per cent. In channel-III, the producer’s share was 75.92 per cent and the share of milk vendors was accounted for 24.07 per cent. In channel-IV, the producer’s share (67.54 %) was found lower than other channels. The share of milk vendor-B and contractor was found to be 12.30 per cent and 20.15 per cent, respectively. Average price received by the producer in channel I, II, III and IV is Rs. 12.68, Rs. 11.40, Rs. 11.25 and Rs. 10.71 per litre, respectively, whereas consumer paid Rs. 12.68, Rs. 14.90, Rs. 14.82 and Rs. 15.85 per litre in channel I, II, III and IV, respectively. Producer’s share in consumer rupee was observed highest (76.51 %) in case of channel-II after the producer-consumer channel-I (100 %).

Table 25.3 Share of producer and various agencies in consumer’s price in different channels

Agencies

Marketing channels

 

 

Channel- I

Channel- II

Channel- III

Channel- IV

Producer’s share (%)

12.68

(100)

11.40

(76.51)

11.25

 (75.92)

10.71

 (67.54)

Halwai

-

3.50

(23.48)

-

-

Milk Vendor-A

-

-

3.56

(24.07)

-

Milk Vendor-B

-

-

-

1.95

(12.30)

Contractors

-

-

-

3.19

(20.15)

Consumer’s price (Rs.)

12.68

14.90

14.82

 

15.85

 

  

 Note: Figures in parenthesis indicate share of milk marketing agencies in consumer rupee.

25.8.2  Price spread  

This refers to the difference of price paid by the consumer and price received by the producer. It interprets that smaller the price spread higher the efficiency of marketing system.

Table 25.4 shows the price spread in different channels of milk marketing. The data shown in the table reveal that price spread was zero in channel-I. It was found lower in channel-II (3.50) in comparison to channels –III (3.56) and channels-IV (5.15). It can be said that channel-II was more efficient among different agencies of milk marketing. In channel-II, marketing margin was found lower than channel-III. However, in channel-II, the producer received higher price.

Table 25.4 Marketing cost, marketing margin and price spread in different channels

                                                                                                   (Rs. / Litre)

Particulars

Marketing channels

Channel- I

Channel- II

Channel- III

Channel- IV

Net receipt to producer

12.68

11.40

11.25

10.71

Marketing cost

-

1.58

1.54

2.55

 

Marketing margin

-

1.92

2.02

2.60

Consumers price

12.68

14.90

14.82

15.86

Price spread

 

-

3.50

3.56

5.15

 

25.8.3  Promotion of milk and milk products

The fourth “P” of the marketing is promotion. Certain key questions associated with promotion are:

·         Where and when the marketing messages are to be provided to the target market?

·         How to position the product?

·         Which is the best promotional mix?

·         What promotional mix is adopted by the competitors and how does that influence the choice of your promotional mix?

These are just a few of the questions that can help in building a promotion campaign. Advertising is one way to promote a product and can be accomplished through a multitude of media outlets. Various media outlets used for advertising are radio, television, newsprint, magazines, signage, and the Internet. However, advertising can be expensive and even cost prohibitive for small companies in some situations.

Building relationship with local media people and encouraging them to write information stories about the business or product can also be very helpful. The marketer should keep the media informed of any special activities associated with the product or business. Participating in various fairs like India International Trade Fair, Dilli Haat, Kissan Mela, and Dairy Mela etc. is a great way to get consumers to try the product, and retailers generally like any activity that encourages customer traffic. Promotion is all about the product exposure and brand awareness. Marketers need to be creative and be visible on repeated occasions in order to make the customer aware of the product.

Conclusions

The information on disposal pattern of milk in the study area revealed that in the unorganized sector, the milk vendors were dominating and collecting 67.86 percent of the total marketed surplus whereas in organized sector, milk producer’s co-operatives societies procured only 20.23 percent of total marketed surplus. This indicates that the unorganized sector was dominating in collecting the surplus milk. There is a general impression that the unorganized sector exploits the milk producers. The channel were taken into consideration for comparison where at least one agency involved in milk marketing and thus the producer’s share in consumer’s rupee was highest and the  price spread was observed lowest in case of channel-II, hence, channel -II was considered  the more efficient than channel III and IV. Channel-II was the most efficient channel in comparison to the other channel where milk-marketing agencies are involved.

Among different milk marketing agencies milk vendors were preferred by the households as they pick up milk form the door step and advances loan to the producers while halwaies were preferred because of maintaining a good relation with households and higher price was found to be the main reason of preference for both dairy cooperative societies as well as for direct consumers.

 Selected references

Yogi Raj Kumar, Chauhan, A.K. and Sharma S.P. 2007. Economics of milk marketing in   Jaipur district of Rajasthan, Indian J. of Dairy Science, 60(4):307-311.

Verma, N.K., Singh Kulwant and Chauhan, A.K. 2001. Milk marketing system in Haryana, Haryana Econ. Journal, 21(1-2): 36-38.