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Private dairies to surge ahead of cooperatives in milk procurement by the decade-end

India to be `10-lakh crore market by 2020; money is in liquid milk, dahi and khoa, not cheese and butter

Written by Harish Damodaran | New Delhi | Updated: January 12, 2017 1:57 pm
 White revolution, milk production, Dairy India, dairy sector, India milk producer, India dairy production, India news, Indian Express A farmer near Anand in Gujarat feeds a young calf. (Express Photo by Bhupendra Rana)

Private corporate dairies will overtake cooperatives and handle larger milk volumes than the latter within the next five years. In 2015, cooperatives and organised private dairies procured an estimated 15.55 million tonnes (mt) each of milk. By 2020, procurement by private dairies is projected to reach 28.93 mt, ahead of the 23.67 mt of cooperatives, according to the latest edition of the industry publication, Dairy India.

This is also consistent with the general trend observed since 1992 – when the dairy sector was de-licensed and private players allowed to freely establish capacities – and even more so from the early 2000s. Prior to that, especially during the heydays of the Operation Flood Programme (1970-96) built around cooperatives, there were hardly any large organised private diaries, barring the odd Nestle India or Milkfood Ltd.

But today, the Chennai-based Hatsun Agro Product Ltd alone procures an average 26 lakh litres per day (LLPD) or close to 1 mt annually. Besides, there are at least 9 companies with an average milk procurement of 10-15 LLPD each (Parag Milk Foods, Schreiber Dynamix Dairies, Heritage Foods, Tirumala Milk Products, Kwality Ltd, Sterling Agro Industries, VRS Foods, Bhole Baba Milk Food Industries and Nestle India) and many others that do 5-10 LLPD (Prabhat Dairy, Indapur Dairy, Dodla Dairy, Creamline Dairy Products, SMC Foods, Milkfood, Gopaljee Dairy Foods, and Anik Industries).

As far as cooperatives go, a major chunk of their total average milk procurement of around 415 LLPD in 2015-16 was accounted for by only 5 state-level federations: Gujarat (‘Amul’ at 170 LLPD), Karnataka (‘Nandini’ at 63 LLPD), Tamil Nadu (‘Aavin’ at 30 LLPD), Rajasthan (‘Saras’ at 25 LLPD) and Bihar (‘Sudha’ at 17 LLPD). The cooperative sector now basically comprises a few large players that are mainly into liquid milk marketing, whereas private dairies cover a host of medium-scale corporates, most of them post-1992 entrants and, interestingly, very few multinationals.

Organised dairies, both cooperatives and private, together handled 31.1 mt or just over 21 per cent of India’s total milk production of 146.3 mt in 2015. But in 2020, the country’s output, Dairy India estimates, will touch 190 mt and the organised sector would procure 52.6 mt or nearly 28 per cent of this. The remaining 72 per cent will be handled by traditional small-scale suppliers/vendors (58 mt, marginally up from 54.6 mt in 2015) or retained for consumption within rural households (79.4 mt, up from 60.6 mt).

Dairy India has pegged the Indian market for milk and dairy products – in terms of the value paid by consumers – at Rs 5,26,403.6 crore or $81 billion in 2015, which will grow to Rs 10,05,264.2 crore or $134 billion by 2020, assuming an exchange rate of Rs 75 to a dollar. The organised sector’s share of this market is seen to rise from about 29 per cent to 37 per cent over this period.

Significantly, the biggest component of India’s dairy market is liquid milk; it’s roughly 58 per cent share in the total value is unlikely to register major change between now and 2020. At the same time, Dairy India has forecast the share of organised dairies in liquid milk marketing to go up from 23.3 per cent to 31 per cent. In other words, consumers will increasingly purchase branded liquid milk sold in pouches, as opposed to buying in loose from the neighbourhood dudhia.

After liquid milk, the largest segment of the country’s dairy market is desiccated/coagulated products (khoa, chhana and paneer) used as base material for a variety of indigenous sweets and preparations, followed by ghee. While much of these are produced by households or halwais (sweetmeat makers) themselves, Sharad Gupta, editor and publisher of Dairy India, believes there is lot of scope for industrial-scale manufacture, particularly of khoa.

“The volumes for khoa are huge, as it is the main ingredient in every sweet from gulabjamun, burfi and peda to kalakand. It can be produced by dairies on a large-scale using continuous khoa making machines for use both as a conserved dairy commodity, similar to milk powder, and also for supplying to halwais. The industry should, in fact, look more at traditional milk products. The market for these far exceeds that of western dairy products like whiteners, table butter and cheese,” Gupta points out.

One example of how inward-looking, yet out-of-box, innovation can help is dahi (curd or yogurt). This was a non-existent product category in the portfolio of major dairies even two decades ago, as curd and butter milk were almost entirely being made from milk at home. But in 2015, the total market for dahi – which also includes lassi/chhach (butter milk) – was Rs 12,420 crore, out of which organised dairies contributed Rs 6,720 crore. For 2020, Dairy India has projected the dahi market’s size at Rs 32,600 crore, with the organised sector’s share being Rs 19,600 crore or 60 per cent! This is way bigger than table butter or cheese. For all the hype, the market in India for the latter is a mere Rs 1,350 crore and seen at Rs 3,600 crore by this decade-end.

On the production side, 51.1 per cent of the country’s milk output of 146.3 mt in 2015 came from buffaloes, with crossbred cows (25.2), indigenous cattle (20.2), and other animals (3.5) accounting for the rest. For 2020, however, Dairy India expects the contribution of buffaloes to total milk production of 190 mt to fall to 45.5 per cent, alongside that of indigenous cows (16.3) and other animals (3.2). As much as 35 per cent of India’s milk will be from crossbred cattle, whose population, too, is likely to go up from 3.97 crore to 5.4 crore.

On the other hand, despite official efforts at promoting indigenous cattle breeds through programmes like the Rashtriya Gokul Mission, their overall population is slated to decline from 15.12 crore in 2012 to 12 crore by 2020. The buffalo numbers will rise marginally from 10.87 crore to 11.4 crore, as higher fat content milk and ease of sale for slaughter purpose continue to make it viable for farmers to rear them.

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  1. G
    Gulzar Wangde
    Jan 12, 2017 at 1:11 pm
    Interesting article by Harish Damodaran. #Dairy is a fascinating industry as India turns the largest producer of Milk in the world making upto 18% of global volumes. And with expected demand in India to reach 210mt by 2020-21, there is a huge opportunity in this sector. lt;br/gt;lt;br/gt;There is ample opportunity in "Market Milk and Value added products". This includes opportunity for setting up milk procurement systems, creating "market linkage" for farmers, establish "right pricing models" for rural farmers, improving supply-chains, setting up cold chains, transportation solutions, packaging solutions, payment solutions(e-payments), data solutions (mobile, cloud, real-time). Add to it the 'social impact' possibilities of increasing livelihoods for rural farmers. lt;br/gt;lt;br/gt;But there is a crucial “barrier to entry” – access to seed capital. Being a highly capital intensive sector, it becomes difficult for new entrepreneurs to take this path. In order to reach Proof of Concept or MVP stage; lot of investment is required in building ets and setting up the supply chain. Add to that high working capital. lt;br/gt;lt;br/gt;This is where investors (VC, Angel, PE, Impact investors) can help and support in bridging this gap and getting such projects off the ground.
    1. Kishor Harilal Jani
      Jan 12, 2017 at 5:52 am
      AMUL is plagued with vices of monopoly and indulging in profiteering. This was bound t o happen. It is high time for Amul to revert back to its ori g inalienable path of Dr. Ktian.
      1. M
        Jan 12, 2017 at 8:22 am
        The day Mr. Kurien left AMUL, it lost his credibility. But there is a good news, new private dairy companies are doing very fabulous work. Yes, we need good quality of milk (milk products) in a reasonable price.
        1. N
          Narendra M
          Jan 12, 2017 at 3:28 am
          Question is whether the private corporate dairies or milk producers will pay remunerative prices to farmers (milk producers). We often find that milk consumers, particularly in metros like Delhi, Mumbai etc. are always at receiving end and have to pay price dictated by the producers, whether the private or cooperatives. How does one ensure that the primary producers of milk get a remunerative price and at the same time consumers are charged a fair price? 2. Milk Cooperatives in Maharashtra still do not pay as much as Gujarat’s Cooperative Milk Producers (like marketers of Amul) pay to producers of milk who are members of primary milk cooperatives. Despite this, these Milk Cooperatives in Maharashtra are in a position to increase retail price of milk from time to time. Almost political parties in Maharashtra are controlling the management of these Milk Cooperatives as these Cooperatives are vehicles of political power.