MINI PROJECT - 2

“DAIRY INDUSTRY”

Submitted in partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)
Session: 2022-23

SUBMITTED TO: SUBMITTED BY:

Ms. Soniya Gupta Ayush Vishwakarma
Assistant Professor MBA, II Sem

LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT &

DEVELOPMENT STUDIES

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 DECLARATION

I hereby declare that the field work entitled of “DAIRY INDUSTRY ” submitted to the

university is a record of an original work done by me under the guidance of MS. SONIYA

GUPTA (Assistant Professor) (LAL BAHADUR SHASTRI INSTITUTE OF

MANAGEMENT & DEVELOPMENT STUDIES) and this Mini report is submitted in

the partial fulfillment of Master in Business Administration.

Date: Ayush Vishwakarma

Place: MBA 2nd Semester

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to our H.O.D. DR. M. K. Rastogi

who gave me the golden opportunity to do this wonderful opportunity to pen down a

innovative business plan and also helped me in doing a lot of Research and I came to know

about so many new things I am really thankful to him.

I am highly indebted to my Faculty guide Ms. Soniya Gupta for her throughout guidance

and constant supervision as well as for providing necessary information regarding the

project & also for her support in completing the project.

I would like to express my gratitude towards my parents & my college mates for their kind

co-operation and encouragement which help me in completion of this project.

However, it would not have been possible without the kind support and help of many

individuals and organizations. I would like to extend my sincere thanks to all of them who

have willingly helped me out with their abilities.

Ayush Vishwakarma

MBA 2nd Semester

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 TABLE OF CONTENT

Sr. Topic Page no.

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9.

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 INTRODUCTION

AN OVERVIEW OF DAIRY INDUSTRY

Dairy industry represents a major segment of the food industry. Every individual consumes

dairy products daily in various forms like curd, cheese, milk, and their increased attention

towards health and nutrition has increased the demand of dairy products. The dairy farming

has been transformed from traditional farming to advanced farming where more tools and

equipments are used to fulfill the increasing demand of the customers and has enabled the

manufacturers to present the dairy products in different forms like condensed milk, powdered

milk, homogenized milk, and pasteurized milk.

THE GLOBAL DAIRY MARKET

INTRODUCTION:

There is a great deal of variation in the pattern of dairy production worldwide. Many

countries which are large producers consume most of this internally, while others (in

particular New Zealand), export a large percentage of their production. Internal consumption

is often in the form of liquid milk, while the bulk of international trade is in processed dairy

products such as milk powder.

Worldwide, the largest producer is India, the largest exporter is New Zealand and the largest

importer is Japan.

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INDIA AND DAIRY INDUSTRY

HISTORY

The dairying in India is as old as the Indian

civilisation! The herbivores milch animals like cattle
and buffalo were domesticated as an integral part of
our social system. In the Indian culture the cattle is a
symbol of purity and motherhood! Though the
practice of milch animal rearing and milking
continued over the centuries, but no attempt was
made to introduce the modern animal husbandry and
dairying practices till the then British rulers thought
it appropriate to ensure milk supply to their people,
especially for the British soldiers. Accordingly, they
established military dairy farm in the North of India,
in the early part of twentieth century. They imported
animals from their country as well as initiated herd
improvement programme, in the military dairy
farms.

The highest milk producer in the entire globe – India boasts of that status. India is otherwise

known as the „Oyster‟ of the global dairy industry, with opportunities galore to the

entrepreneurs globally.

Anyone might want to capitalize on the largest and fastest growing milk and mil products'

market. The dairy industry in India has been witnessing rapid growth. The liberalized

economy provides more opportunities for MNCs and foreign investors to release the full

potential of this industry.

India has vast livestock resources (57 per cent of the world buffalo population

and 16 per cent of the cattle population) and the dairy sector contributes a major

share to the

agriculture GDP. Over the years the sector has played a major role in development of

millions of rural households and also in the socio-economic conditions. In the WTO

era and globalization the industry needs appropriate production, marketing and trade

policy and its periodic revival to keep the pace with the rest of the world and remain
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competitive to grab opportunity regarding international trade.

1. Indian dairy products

(a) Curdled dairy products

 Paneer is an unaged, acid-set, non-melting farmer cheese made by curdling heated milk with

lemon juice or other non-rennet food acid, and then removing the whey and pressing the result

into a dry unit.

 Chhena is like paneer, except some whey is left and the mixture is beaten

thoroughly until it becomes soft, of smooth consistency, and malleable but firm.

 Sandesh is a confection made from chhena mixed with sugar then grilled lightly to

caramelize, but removed from heat and molded into a ball or some shape.

 Rasgulla is a confection made from mixture of chhena and semolina rolled into a ball

and boiled in syrup.

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 (b) Non-curdled dairy products

 Khoa or Mawa is made by reducing milk in an open pan over heat.

 Peda is a confection made by mixing sugar with khoa and adding flavoring, such as cardamom.

 Barfi is a confection made by reducing milk and sugar until it solidifies and adding

flavoring, such as pistachio.

 Kulfi is made from slowly freezing sweetened condensed milk. In comparison to ice

cream, kulfi is not whipped or otherwise aerated.

 Ghee is type of clarified butter that is cooked long enough to caramelize the

milk sugar and sterilize the liquid.

(c) Fermented dairy products

 Mishti doi is dahi (Indian yogurt) mixed with sugar

 Shrikhand is strained yoghurt mixed with sugar, and often flavorings such as cardamom,

saffron, or fruit.

 Wheyvit is an alcoholic beverage prepared by fermenting whey with yeast.

(d) Other dairy products

 Kheer is made by boiling rice or broken wheat with milk and sugar, and sometimes

flavored with cardamom, raisins, saffron, pistachios, or almonds.

 Chhena Murki is made by frying cubes of chhena to burn the outside, then soaking them

in syrup flavored with cardamom.

 Pantooa is like gulab jamun, except with some chhena mixed with the usual ingredients

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India's Milk Product Mix

Fluid Milk 46.0%

Ghee 27.5%

Butter 6.5%

Curd 7.0%

Khoa (Partially Dehydrated Condensed Milk) 6.5%

Milk Powders, including IMF 3.5%

Paneer & Chhana (Cottage Cheese) 2.0%

Others, including Cream, Ice Cream 1.0%

2. Overview of the Indian Dairy Sector

The country is the largest milk producer all over the world, around 100 million MT

Value of output amounted to ` 1179 billion (in 2004-05) (Approximately equals

combined output of paddy and wheat!!)

1/5thof the world bovine population

Milch animals (45% indigenous cattle, 55 % buffaloes, and 10% cross bred cows)

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 Immensely low productivity, around 1000 kg/year (world average 2038 kg/year)

Large no. of unproductive animals, low genetic potency, poor nutrition and lack of

services are the main factors for the low productivity

There are different regions – developed, average, below average (eastern states of Orissa,

Bihar and NE region) in the dairy industry.

3. Overall Dimensions of the Indian Dairy Industry

Dairying is an important part of the Indian agricultural economy. At the national level, about

17% of the total value of output from agriculture derives from this sector, placing Indian milk

sector in first place followed by rice (14.4%) and wheat (8.7%) in 1998-99 (CSO, 2001).

From chronic shortages, India has now become the largest producer of milk in the world,

with estimated production of about 81 million tons in 2001. This success story of Indian milk

production has been written primarily by millions of rural producers, and the major share of

credit goes to women dairy farmers. In India, dairying is dominated by smallholder

production systems; almost 70% of the milk producers in India are landless small and

marginal farmers who own one or two animals. It is well known that the Indian dairy sector

has developed in a highly regulated and protectionist economy. However, India initiated

major macro- economic reforms in the early 1990s that encourage the liberalization of all

sectors of the economy, and the dairy sector was no exception. This was reinforced with the

signing of the Uruguay Round Agreement on Agriculture (URAA) in 1994. This increasingly

exposed the Indian dairy sector to world dairy markets that have been highly distorted by

policies of high tariffs, domestic support, and export subsidies in developed countries. There

is likely to be restructuring of the dairy sector around the world, and it would be interesting

to examine the likely implications of these changes for the Indian dairy sector under the new

economic environment of trade liberalization and globalization.

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3.1 Contribution to the National Economy (income and employment)

Dairy enterprise is considered a "treasure" of the Indian economy, particularly for rural

systems. It provides nutrition, draft animal power, organic manure, supplementary

employment, cash income, and a 'cushion' for 'drought proofing' in India (Patel, 1993;

Paroda, 1998). The sector involves millions of resource-poor farmers, for whom animal

ownership ensures critical livelihood, sustainable farming, and economic stability. Dairying

in the recent decades has been considered a vital component in the diversification of Indian

agriculture, where crop farming is beset with stagnating growth and low absorption of

unskilled agricultural laborers. In order to alleviate the problem of unemployment/under-

employment and to maintain domestic tranquility, diversification of crop production into

non-crop enterprises like dairy farming is of vital importance (Pandey, 2000; Alagh, 2002).

At the macro-level, the gross domestic product (GDP) from livestock is estimated about Rs.

98,421 crore (current prices), contributing about 22% to the agricultural gross domestic

product (GDP) and about 5.5% to the national GDP (CSO, 2001). Among various livestock

products, milk constitutes the major share (67%) in value of outputs from the livestock sector

and is the single largest commodity contributing to the value of output from agriculture.

The livestock sector alone provides regular employment to 18.4 million people in

principal/subsidiary status, constituting about 5% of the total workforce (GOI, 2002).

Dairying at the micro-level provides employment and income to more than 70 million farm

families directly in India. Studies conducted across the country have indicated that on

average, a milch animal provides annual employment ranging from 90 to 150 days depending

on the breed and region. Around 10% of agricultural laborers seek gainful employment in

dairy farming. It is estimated that each 6-10 kg per day of additional milk processed in India

generate one person-day of employment for feeding and health care (National Livestock
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Policy, 1996; Mishra, 1999). With regard to income, an annual income of Rs. 1,200-10,000

per milch animal is realized, depending on breed and region. Dairying is found to provide

about 20% of farm employment and about 30% of family income (Ramasamy, 2000).

3.2 Socioeconomic Profile of Dairy Farmers

Indian dairy farming is basically a smallholder production system, characterized by milk

production by the masses rather than mass production of milk. More than 80 million

households (about 73% of rural households) keep some type of livestock. The base for Indian

dairying is provided by millions of landless agricultural laborers and marginal and small

farmers who maintain one or two milch animals of low genetic potential for milk production,

primarily fed on crop residues and byproducts, and reared with the help of under-employed

family members, mostly female workers. Although dairying is becoming more

commercialized in some areas, it predominantly remains subsistence farming constituting a

complementary/supplementary enterprise to crop farming, with regular sales of surplus

production.

Dairy farmers in India are by and large illiterate, resource-poor, and low risk-bearers. They

often exhibit a low level of farming innovation; in the majority of cases, they are either non-

adapters or late adopters of modern technologies. Their average family size is moderate,

around 5 persons. The marketable surplus of milk is about 60% of total milk production.

On marginal farms, it was estimated that the introduction of dairy enterprise increases the

average farm income from Rs. 12,801 to Rs. 18,163 showing an increase of 42% per annum.

On small farms, a similar trend was observed, with average farm increasing from Rs. 33,301

to Rs. 70,664 (an increase of 112%) resulting from the introduction of dairy (Kalra, et al.,

2000). A similar trend was observed in other situations. In a well-planned project on

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integrated milk and crop production for increased productivity, employment, and farm

income in the villages around Karnal, conducted by the National Dairy Research Institute

from 1995 onward in 40 villages around Karnal, it was observed that labor absorption of

different groups of households due to dairy farming increased differently, with an average

increase of 21% in the project area (225 man-equivalent days) over the control area (187

man-equivalent days) (Table 1.2). Not only did dairy enterprise increase income and

employment, but it also increased female labor utilization in different groups of rural

households. On average, female labor utilization in dairy enterprise was 81 man-equivalent

days, or 33% of the total labor employment of 242 man-equivalent days in dairy farming.

The share of female labor utilization varied in different groups, being maximum in landless

laborers (46%) followed by medium farms (32%) (Singh,et

al. 1995). Within dairy operations, 47% of labor is utilized for bringing fodder, 12% for

grazing, 10% for chaffing, 15% for feeding, 7% for cleaning, and 10% for milking (Singh

and Kairon, 1996).

Owing to their poor financial condition and poor networks of organized financial

institutions, farmers more often than not approach private money lenders for credit and

enter into some sort of

marketing contracts for selling milk, normally to the disadvantage of farmers. On the other hand,

regular milk vendors (dudhias) often provide credit at reasonable terms, an important source of

financing to small farmers. Village-level extension workers (Gram sevaks), elite farmers of

the village, and peer groups are the normal sources of information and modern technology

for dairy farmers in the country. Kisan/Dairy melasalso serve as sources of information to

the farmers in selected areas.

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 3.3 Livestock Population Trends

India owns one of the largest livestock populations in

the world. It accounts for about 57% of the world's

buffalo population and 16% of the cattle population

(GOI, 2002). Between 1951 and 1992, the period for

which data are available from the Livestock Census,

the stock of cattle and buffaloes together increased

from 198.7 million to 289 million (45.4%). Cattle

population grew by about 0.76% per year between

1951 and 1992, while buffalo population

almost doubled (2.24% per year) during the same period (Table 1.3). This trend was uniform

during all the inter-census years of this period, and both cattle (1.35%/year) and buffalo

stocks (2.39%/year) witnessed a significant acceleration in growth from 1977 to 1982,

compared to the previous five years. Between 1956 and 1961, the rate of increase of cattle

(2.04%/year) as well as of buffaloes

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(2.66%/year) was the highest among all the sub-periods considered. This period also saw

increases in agricultural production by increasing crop areas, which in turn required greater

animal draft power. Secondly, the farmers saw incentives for increased milk production in

the form of rising milk prices. The turning point in the bovine working male population was

1977. The male cattle population declined by over 12 million from 73.22 million to 61.14

million between 1977 and 1982, and the corresponding decline among male buffalo

population was over 1.96 million (GOI, 1999). This declining trend, however, is not uniform

across the states. Agriculturally progressive states like Punjab, Haryana, Andhra Pradesh,

Kerala, Tamil Nadu witnessed a sharp decline in working male numbers due to farm

mechanization, while the less progressive states like Assam, Bihar, Madhya Pradesh, Orissa,

West Bengal exhibited increasing dependence on work animals.

The demand for livestock products, especially milk and meat, in India has increased

considerably in the recent years, and has a strong potential for further growth. Several

socioeconomic indicators underlie this trend. The per capita consumption of milk in many

parts of the country is low compared to minimum nutritional standards and to that of many

developed and developing countries. The demand for milk and dairy products is income-

elastic, and growth in per capita income is expected to increase demand for milk and milk

products. Empirical evidences show that the composition of the food basket of an average

Indian is gradually shifting towards livestock products (Radhakrishan and Ravi, 1990;

Kumar, 1998). Other socioeconomic and demographic factors such as urbanization,

changing food habits, and lifestyle also reinforce growth in demand for dairy products.

The per capita availability of milk in the country has grown at a rate of 3.02% per annum

from 1980-81 to 1990-91, and at 2.19% per annum from 1990-91 to 1998-99, with an average

annual growth rate of 2.52% from 1980-81 to 1998-99 (Saxena, 2000). The imports of milk

products have declined over the years, while exports have slightly increased. However, net

imports of milk equivalent have been very small in relation to total domestic milk production
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(0.01%). Therefore, domestic consumption of milk has remained more or less equal to the

domestic production of milk. Milk consumption varies widely across regions and economic

groups, and also between urban and rural households. The changing consumption pattern of

milk in the country is presented in Figure 1.2. Liquid milk comprises the largest single share

of the dairy product consumption profile. The share of fat-based products

like ghee showed a declining share, and that of western products like cheese and ice cream

witnessed an increasing trend and is expected to increase further due to changes in food

habits, marketing strategies, income levels, changes in demographic factors, etc.

A study conducted by the National Council of Applied Economic Research (NCAER) in

dairy cooperative societies in Operation Flood (OF) areas showed that milk consumption

levels in OF areas vary across size groups and regions and are substantially higher than the

national average (Table 1.7). Between 1988-89 and 1995-96, the per capita consumption of

milk increased from 290 gms to 339 gms at the aggregate level. A similar trend was

observed for individual zones. The consumption of fluid milk rose sharply in the southern

and eastern zones and remained almost constant in the western zone and declined in the

northern zone (Shukla and Brahmankar, 1999).

Per capita milk consumption (gm/capita) in Operation Flood Areas: 1995-96

Source: Shukla and Brahmankar (1999)

3.4 Trends in Production and Productivity of Milk

Milk production in the country was more or less stagnant during the 1950s and 1960s, and

annual production growth was negative in many years. Milk production was estimated at

about 17 million tons in 1950-51, rising to about 20 million tons in 1960-61 and 22 million

tons in 1970-71. The annual compound growth rate during the first decade after

independence was about 1.64% and this growth rate declined to 1.15% during the 1960s and

the early 1970s. The performance of the Indian dairy sector over the last three decades has
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been extremely impressive. Milk production in the country has more than tripled to about 81

million tons between 1970-71 and 2000-01, with an average increase of about 4.5% per

annum. The giant leap in milk production in the country is striking (Figure 1.3). It can be

attributed mainly to increased demand driven by increased population, higher incomes and

urbanization, and tight controls on imports of dairy products (Candler and Kumar, 1998). The

period was also accompanied by the successful implementation of Operation Flood and other

dairy development programs implemented by the State and Central governments, which

although large in scale, only directly affected a small proportion of farmers. The growth in

milk production during the decade of 1970s was about 4.5%, increasing to about 5.5% in the

1980s (Table 1.9). During the last decade (1990-91 to 2000-01), milk production in India

increased at a growth rate of around 4.2%, which is much higher than the global rate of about

1%.

The major milk producing states in the country are Uttar Pradesh, Punjab, Rajasthan,

Madhya Pradesh, Maharashtra, Gujarat, Andhra Pradesh, Haryana, Tamil Nadu, and

Karnataka, accounting for about three-fourths of total milk production in the country. State-

wise shares of Indian milk production for selected years in the 1980-97 period are shown in

Table 1.10. Uttar Pradesh is the largest milk producing state, producing about 13.5 million

tons of milk, followed by Punjab (7.6 million tons), Rajasthan (6.2 million tons),

Maharashtra (5.6 million tons), and Madhya Pradesh (5.4 million tons) in 1998-99 (GOI,

1999). During 1982-83 (TE), the top five milk producing states were Uttar Pradesh (18.5%),

Punjab (10.1%), Rajasthan (9.8%), Gujarat (6.8%), and Haryana (6.6%), accounting for

more than half of total milk production (Figure 1.4). However, in the triennium ending 1998-

99, Gujarat and Haryana lost their position among the top five producers. The top five milk

producing states in 1998-99 were Uttar Pradesh (18.1%), Punjab (10.1%), Rajasthan (8.2%),

Madhya Pradesh (7.5%), and Maharashtra (7.4%), and these states accounted for about 51%

of milk produced in the country. The share of Karnataka, Kerala, Madhya Pradesh,

Maharashtra, Tamil Nadu, and West Bengal in total milk production increased between
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1980-82 and 1996-98. In contrast, the share of Bihar, Haryana, Rajasthan, Uttar Pradesh, and

West Bengal declined during this period.

3.5 Trends in Production and Productivity of Milk

Milk production in the country was more or less stagnant during the 1950s and 1960s, and

annual production growth was negative in many years. Milk production was estimated at

about 17 million tons in 1950-51, rising to about 20 million tons in 1960-61 and 22 million

tons in 1970-71. The annual compound growth rate during the first decade after

independence was about 1.64% and this growth rate declined to 1.15% during the 1960s and

the early 1970s. The performance of the Indian dairy sector over the last three decades has

been extremely impressive. Milk production in the country has more than tripled to about 81

million tons between 1970-71 and 2000-01, with an average increase of about 4.5% per

annum. The giant leap in milk production in the country is striking (Figure 1.3). It can be

attributed mainly to increased demand driven by increased population, higher incomes and

urbanization, and tight controls on imports of dairy products (Candler and Kumar, 1998). The

period was also accompanied by the successful implementation of Operation Flood and other

dairy development programs implemented by the State and Central governments, which

although large in scale, only directly affected a small proportion of farmers. The growth in

milk production during the decade of 1970s was about 4.5%, increasing to about 5.5% in the

1980s (Table 1.9). During the last decade (1990-91 to 2000-01), milk production in India

increased at a growth rate of around 4.2%, which is much higher than the global rate of about

1%.

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1986-87 46.1 1998-99 74.7

1988-89 48.4 1999-00 78.1

1990-91 53.9 2000-01 81.0

Cumulative growth rate (%/annum)

1950-51 to 1960-61 1.64

1960-61 to 1973-74 1.15

1973-74 to 1980-81 4.51

1980-81 to 1990-91 5.50

1990-91 to 2000-01 4.21

Source: Basic Animal Husbandry Statistics 1999, Department of Animal Husbandry and

Dairying, Ministry of Agriculture, Government of India

The major milk producing states in the country are Uttar Pradesh, Punjab, Rajasthan,

Madhya Pradesh, Maharashtra, Gujarat, Andhra Pradesh, Haryana, Tamil Nadu, and

Karnataka, accounting for about three-fourths of total milk production in the country. State-

wise shares of Indian milk production for selected years in the 1980-97 period are shown in

Table 1.10. Uttar Pradesh is the largest milk producing state, producing about 13.5 million

tons of milk, followed by Punjab (7.6 million tons), Rajasthan (6.2 million tons),

Maharashtra (5.6 million tons), and Madhya Pradesh (5.4 million tons) in 1998-99 (GOI,

1999). During 1982-83 (TE), the top five milk producing states were Uttar Pradesh (18.5%),

Punjab (10.1%), Rajasthan (9.8%), Gujarat (6.8%), and Haryana (6.6%), accounting for

more than half of total milk production (Figure 1.4). However, in the triennium ending 1998-

99, Gujarat and Haryana lost their position among the top five producers. The top five milk

producing states in 1998-99 were Uttar Pradesh (18.1%), Punjab (10.1%), Rajasthan (8.2%),

Madhya Pradesh (7.5%), and Maharashtra (7.4%), and these states accounted for about 51%

of milk produced in the country. The share of Karnataka, Kerala, Madhya Pradesh,
15
Maharashtra, Tamil Nadu, and West Bengal in total milk production increased between

1980-82 and 1996-98. In contrast, the share of Bihar, Haryana, Rajasthan, Uttar Pradesh, and

West Bengal declined during this period.

3.6 Trends in milk production and per capita availability in India; 1950-51 to 2000-01

3.7 Outlook for Trade in Indian Dairy Products

India has reformed its trade policy with regard to dairy products with the removal of

quantitative restrictions and other NTBs on the imports of milk and dairy products, which

can now be freely imported into India. With processed products for which there is direct

competition, this policy may force local products to match imported dairy products both in

terms of cost and quality. This change in import policy is in line with India's commitments to

the WTO and domestic market reforms.

India is the largest producer of milk in the world but holds a negligible share in world trade.

However, India has the potential to become one of the leading players in milk and milk

product exports. India is located amidst major milk deficit countries in Asia and Africa.

Major importers of milk and dairy products are Bangladesh, China, Hong Kong, Singapore,

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Thailand, Malaysia, the Philippines, Japan, UAE, Oman, and other gulf countries, all located

close to India. On the other hand, there could be competition in domestic markets from

subsidized imports of dairy products from developed countries.

Milk production in India is scale-neutral and labor-intensive; therefore, due to cheap labor,

costs of milk production are significantly lower in India. There is also a vast market for the

export of traditional milk products such as ghee, paneer, shrikhand, rasgolas and other

ethnic sweets to the large number of Indians scattered all over the world. In anticipation of

export opportunities and in view of the post- WTO scenario, India is gearing up to tackle the

demands of the international market. Indian companies are getting ready to meet

international standards. However there are certain concerns in export competitiveness such

as:

Milk hygiene and quality control

Much of the process and product development in the past has been supply-driven rather than

demand-driven. There have been considerable investments in the setting up of large-scale

milk processing plants and dairy product manufacturing plants in the cooperative sector

located on the periphery of cities. Attention should be paid to improving the quality of milk

and maintaining a hygienic and sanitary environment in the processing plants. The immediate

priority, therefore, should be to put in place a mechanism for good manufacturing practices

and quality control to meet hygienic standards and to produce high-quality dairy products.

The planners and policy-makers should take appropriate measures to meet the sanitary and

phyto-sanitary specifications prescribed by the World Trade Organization (WTO), which

range from the quality assurance of processed dairy products to the health status of livestock.

Significant investments must be made in milk procurement, equipment, chilling, and

refrigeration facilities. A vigorous training program to educate farmers to understand the

importance of milk hygiene and clean milk production, and to adopt proper milk handling

and cleaning of tools and devices, should be implemented in rural areas.

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Productivity

The productivity of milch animals is of vital importance to dairy farmers because it has

direct influence on the costs and returns, and finally the competitiveness, of dairy farming

systems. Therefore, in order to have an exportable surplus in the long term and also to

maintain cost competitiveness, it is imperative to improve the productivity of milch animals.

It should nevertheless be recognized, as discussed earlier, that much of the returns through

smallholder dairying come in forms other than milk. A shift towards high milk productivity

may require a change in farmer objectives or incentives so that the relative value of the other

outputs is lower than it is currently.

Development of value-added products

In the changing world scenario, there is a need to develop value-added dairy products

employing modern processing methods and distribution systems, keeping in view the needs

of the domestic markets and international trade. The demand pattern is shifting towards

high-value products like cheese, butter, and ice cream. There is growing diversity in urban

food habits and resulting demand for a variety of new products. The dairy industry should

capitalize upon this situation. There is a need for the industry to strengthen the capabilities of

research institutes, since it would benefit most from the outcome of research findings.

Brand image and collaborations

Brand image needs to be projected at leading international dairy trade fairs, particularly of

those countries to which exports are targeted. Another step may be to encourage technical

collaboration and marketing contracts with leading international dairy companies.

3.8 Impacts on Household Nutrition, Women's Income and Employment, and Human Health
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The changes in the sector will likely have salubrious effects on household nutrition, women's

income and employment, and human health at large. Studies conducted in the field reveal that

about 67% of the total marketed surplus of milk comes from marginal and small farmers and

landless agriculture laborers. Even though their total milk production is small, some part of it

may be sold at the cost of their personal consumption. (distress sale) (is there data on this?

Seem quite speculative. In Kenya studies have shown that even where all milk is sold, it is

often used to buy other nutrition food in larger quantities, such as beans/legumes). As a result

of such distress sales, the reduced milk consumption may sometimes result in malnutrition

and affect human health. In other cases, particularly when women control a significant share

of the milk income, income from milk sales is used to buy higher quantities of other proteins

such as beans and pulses. Overall, the evidence suggests that market-oriented milk

production has positive health and nutrition effects in producing households, either directly

through milk consumption, or through higher incomes. When the productivity/production of

milk increases, consumption will also increase and improve the nutritional status of the

households.

Dairying is an activity in which female workers do the majority of work looking after and

maintaining animals. Thus, dairy farming provides gainful employment to women in rural

areas. In some milk sheds, women's cooperative societies have arisen in which women do

all the work (Sundaresan, 1973). Dairying can provide supplementary employment for rural

labor and help raise productivity. NDDB's Perspective 2010 seeks enhanced participation of

women in cooperatives as members and leaders because they are the major contributors to

dairying. The goal is to increase their participation in cooperatives to 50% by the end of

decade. To face this challenge, NDDB is assisting the District Unions to incorporate

appropriate and effective strategies in their plans to achieve greater participation. The

Women's Dairy Cooperatives Leadership Program (WDCLP), assisted by the European

19
Union, is one of the major initiatives to increase the membership of women. The program

also helps rural women to organize and run thrift and credit groups and other income-

generating activities (NDDB, 2001).

4. Policy Support for Development of Dairy Industry in India

4.1 Operation Flood and the National Dairy Development Board (NDDB), 1970 to 1996

Operation Flood:

The world's largest development project, it covers some nine million milk producers. Rural

processing capacity of 19.4 million litres per day (mlpd) has been created and 6.7 mlpd

equivalent of chilling capacity set up to ensure better quality milk. Milk marketing facilities of 10

mlpd have also been commissioned.

INTRODUCTION:

Operation Flood was a rural development programme started by India's National Dairy

Development Board (NDDB) in 1970. One of the largest of its kind, the programme objective

was to create a nationwide milk grid.

It resulted in making India the largest producer of milk and milk products, and hence is also called the

WhiteRevolution of India. It also helped reduce malpractices by milk traders and merchants.

20
. Operation Flood has helped dairy farmers, direct their own development, placing control of the

resources they create in their own hands. A 'National Milk Grid', links milk producers throughout

India with consumers in over 700 towns and cities, reducing seasonal and regional price variations

while ensuring that the producer gets a major share of the price consumers pay.

The bedrock of Operation Flood has been village milk producers' cooperatives, which

procure milk and provide inputs and services, making modern management and technology

available to members.

OBJECTIVES

Operation Flood's objectives included :

 Increase milk production ("a flood of milk")

 Augment rural incomes

 Fair prices for consumers

Programme implementation

Gujarat-based co-operation "Anand Milk Union Limited", often called Amul, was the engine

behind the success of the programme, and in turn became a mega company based on the

cooperative approach. Tribhuvandas Patel was the founder Chairman of Amul, while

Verghese Kurienwas the chairman of NDDB at the time when the programme was

implemented. Verghese Kurien, who was then 33, gave the professional management skills

and necessary thrust to the cooperative, and is considered the architect of India's 'White

Revolution' (Operation Flood). His work has been recognised by the award of a Padma

Bhushan, the Ramon Magsaysay Award for Community Leadership, the Carnegie-Wateler

World Peace Prize, and the World Food Prize.

21
Operation Flood was implemented in three

phases. Phase I

Phase I (1970–1980) was financed by the sale of skimmed milk powder and butter oil donated by

the European Union (then the European Economic Community) through the World Food

Programme. NDDB planned the programme and negotiated the details of EEC assistance.

During its first phase, Operation Flood linked 18 of India's premier milksheds with

consumers in India's major metropolitan cities: Delhi, Mumbai, Kolkata and Chennai.

Thus establishing mother dairies in four metros.

Operation flood, also referred to as “White Revolution” is a gigantic project propounded by

Government of India for developing dairy industry in the country. The Operation Flood –

1 originally meant to be completed in 1975, actually spanned the period of about nine years

from 1970–79, at a total cost of Rs.116 crores.

At start of operation Flood-1 in 1970 certain set of aims were kept in view for the

implementation of the programmes. Improvement by milk marketing the organized dairy

sector in the metropolitan cities Mumbai(then Bombay), Kolkata(then Calcutta),

Chennai(then Madras), Delhi. The objectives of commanding share of milk market and

speed up development of dairy animals respectively hinter

lands of rural areas with a view to increase both production and procurement.

22
Far reaching consequences

The year 1995-96 marked the termination of Operation Flood III, funded by a World Bank

loan, EEC food aid and internal resources of NDDB. At the conclusion of Operation Flood

III, 72,744 DCSs in 170 milksheds of the country, having a total membership of 93.14 lakh

had been organized. The targets set have either been effectively achieved or exceeded.

However, procurement targets could not be reached as private agencies started procuring

milk from the cooperative villages, following the new delicensing policy under the

Government's program of economic liberalization.

The conditions for long-term growth in procurement have been created. An assured market

and remunerative producer prices for raw milk, technical input services including AI,

balanced cattle feed and emergency veterinary health services have all contributed to

sustained increases in milk production. Three state-of-the-art dairies designed to produce

quality products for both the domestic and export markets have been commissioned.

While the demand for milk was rising under Operation Flood the total cattle population

remained more or less static. If milk production had to be increased

The buffalo and milk breeds of cattle had to be upgraded

Non-descript cows had to be crossbred with exotic semen to increase their milk production

to make more efficient converters of feed.

23
 largely loss-making. A lot needs to be done to strengthen such non-performing cooperatives.

Excessive Government Interference in Decision-Making: Excessive government interventions in

the cooperatives due to vested political interests have led to massive politicization of dairy

cooperatives. These cooperatives have a very large rural base, with millions of farmers as

members, and they could play a major role during political elections. With electoral forces, and

not market forces guiding the decision- making of the cooperatives, most cooperatives have

become agencies for implementing the populist policies of the government, and thus unprofitable

and unviable business units

INTRODUCTION

Established in 1948, Indian Dairy Association (IDA) is the apex body of the dairy industry in

India. The members are from the cooperatives, MNCs, corporate bodies, private institutions,

educational institutions, government and public sector units. IDA functions very closely with

the dairy producers, professionals & planners, scientists & educationists, institutions and

organisations associated with the development of dairying in India.

HISTORY:

The IDA since has a history of around six decades now, it has had the privilege of being

headed byseveral Presidents and some of them were of national and international fame. The

luminaries like Sardar Datar Singh, Dr. K.C. Sen, Dr. Z.R. Kothawalla, Dr. D.N. Khurody,

Dr. V. Kurien, Dr. P. Bhattacharya were the past presidents of the IDA.

ROLE:

IDA has been providing a common forum to knit the dairy fraternity together and thus, over the

years, it has emerged as the reigning czarina of information. The Association is managed by an apex

policy making body called the Central Executive Committee (CEC). The CEC is headed by President

and supported by two Vice-Presidents and 19 Executive Committee Members.

The ongoing CEC is spearheaded under the dynamic leadership of Dr. N.R. Bhasin, IDA has

emerged as a platform for assimilation and dissemination of knowledge, as an important tool

24
for policy making in the dairy sector, in India! Besides, the IDA, in the recent time, has also

succeeded to focus itself at the national and international fora.

The IDA organises seminars, symposia and exhibitions on a wide range of topics catering to

various segments of professionals, scientists, institutions and organisations associated with

the development of dairying in India.

HEAD QAURTERS:

The IDA's Head Quarter is in Delhi and the zonal branches are in Bangalore, Kolkata,

Mumbai and Delhi. It has State Chapters at Gujarat (Anand), Kerala (Thrissur), Rajasthan

(Jaipur), Punjab (Chandigarh), Bihar (Patna) and Uttarakhand (Dehradun).

5.1 The National Dairy Development Board (NDDB)

It was founded in 1965 to replace exploitation with empowerment, tradition with modernity,

stagnation with growth, transforming dairying into an instrument for the development of India's

rural people.

NDDB began its operations with the mission of making dairying a vehicle to a better future

for millions of grassroots milk producers. The mission achieved thrust and direction with the

launching of ”Operation Flood", a programme extending over 26 years and which used World

Bank loan to finance India's emergence as the world's largest milk producing nation.

Operation Flood's third phase was completed in 1996 and has to its credit a number of

significant achievements.

As on March 2006, India‟s 117,575 village dairy cooperatives federated into 170 milk

unions, and 15 federations procured on an average 21.5 million litres of milk every day. 12.4

million farmers are presently members of village dairy cooperatives.

Since its inception, the Dairy Board has planned and spearheaded India's dairy programmes

by placing dairy development in the hands of milk producers and the professionals they
25
employ to manage their cooperatives. In addition, NDDB also promotes other commodity-

based cooperatives, allied industries and veterinary biologicals on an intensive and nation-

wide basis.

In short, NDDB, as a multi-sector and multi-location statutory body, has been involved in

planning, implementation, financing and supporting farmer owned, professionally managed

agricultural enterprises. It has vast experiences in supporting smallholder organisations and

facilitating their access to markets and an excellent capacity in research, training and

professional and management service

26
 INDUSTRY INFRASTRUCTURE

1. Industry Structure – Liquid Milk and Milk Products

A total of 45.7 million tonnes of milk was processed into milk products in the year 2000-

01, out of which the share of the organised sector (including all cooperatives) was an

abysmal 10%. On the other hand, 38.9 million tonnes of liquid milk was produced in India in

2000-01, out of which only 15.4% was processed, and the rest was sold unprocessed

In both the above categories we clearly see that the industry is dominated by small, informal

and unorganized dairy units. In the absence of adequate integration and economies of scale,

most of the milk and milk products are either sold unprocessed, or processed locally into low

value-added products. Such products in absence of hygiene, quality and safety are unable to

command premium prices from the consumers.

Few reasons why the informal sector is able to survive and compete in the market with

organised dairy players are as follows.

First, the informal milk vendors (colloquially referred to as dudhias) are able to work with

very low levels of investments. Thus despite low volumes, they are able to compete with the

organised players. They procure milk daily from the farmers, and supply within hours to the

nearby consumption centres (urban areas), and thus do not have to invest heavily in chilling

and pasteurizing units, unlike the case with organised players.

Second, most of the small, informal milk vendors have very small operating cycles, and are

able to turn their stocks daily and recover their money from the business. In such a scenario,

they are in a position to pay higher prices to farmers than most cooperatives and are able to

procure milk from the members of base.

27
2. Changes in the Incentive Structure of the Indian Dairy Industry

Governments' protectionist policies affect the prices received by producers, and the impact of

such policy measures is reflected in the gap between domestic prices and the world price of a

commodity. This gap shows the level of protection for the producers. It is well known that

Indian agricultural policies have been strongly influenced by the need to achieve self-

sufficiency in foodgrains since the 1960s, and in the dairy sector since the early 1970s. The

import and export of dairy products was restricted through various non-tariff measures

(NTBs) like quantitative restrictions (QRs) and canalization until the early 1990s.

Competition within the country was also restricted through industrial licensing by restricting

the entry of the formal private sector, including multi-national companies (MNCs), in the

milk processing and the product manufacturing sector. Cooperatives were given preferential

treatment for setting up milk processing plants. However, since the early 1990s, India has

embarked upon a more liberal policy framework, which was reinforced with India becoming

member of the WTO, exposing the Indian dairy sector to the world markets.

A comparison of nominal protection coefficients (NPCs) for the 1975-2000 period shows

that the level of NPCs (at the official exchange rate) for major dairy products, namely skim

milk powder (SMP), butter, butter oil and recombined milk, were well above unity for the

average 26-year period of 1975- 2000, and remained above unity even if estimates are

considered at the shadow exchange rate (Figures 1.7-1.10). The trend in the estimates of

incentive indicators is declining and estimates are much lower in the 1990s than the average

of the entire period. This temporal behavior of NPCs is somewhat similar for all products. It

is high during the late 1970s, declines during the early 1980s, again rises in the mid-1980s,

and then gradually falls, and tends to approach unity and even goes below unity in the 1990s.

It is important to note that the level of protection during the second half of the 1990s is only
28
one-fifth of the level of protection during the second half of the 1970s. The gradual

reductions in NPCs, especially after the second half of the 1980s, have been largely due to

an improvement in world prices, and partially due to the falling exchange rate of the rupee.

These results of NPCs indicate that India has not been an efficient import substituter of dairy

products, if one compares Indian dairy prices with the world prices. However, the reason for

this largely can be ascribed to the nature of world prices of dairy products, which have been

highly distorted by the large export subsidies of the EU and the US. For example, the

average export price (FOB) of SMP was about US$ 1,444 per ton in 1999; and the EU and

the US paid about US$ 867 and US$ 950 per ton, respectively, as subsidies on SMP exports,

more than 60% of the world prices (Sharma, 2001). There was some decline in the export

subsidy to comply with commitments made under WTO, but the export subsidy as a

percentage of world market prices showed an upward trend (Figure1. 11). If international

prices were not artificially depressed by the policies of the EU and the USA, protection

levels for Indian dairy products would have been much lower and even less than unity in

most of the years. The estimates of NPCs at distortion-free prices (Netherlands domestic

prices) are significantly lower, and even less than unity, in most of the cases for all dairy

products considered in the study.

3. Impact of Likely Changes on the Structure of the Production and Processing Sectors

As discussed earlier, the majority of livestock in India is still kept by smallholders and is

mainly fed on crop by-products. Most milk is consumed, sold locally, or sold to informal

traders, with only a relatively small share passing into the formal organized milk marketing

channels. In the formal channels, the entry of the private sector including multinational

companies (MNCs) was restricted in milk processing and product manufacturing through the

Industrial Licensing Act regime up to the early 1990s and through MMPO until March 2002.
29
However, as we enter the new millennium, many changes are expected in the production and

processing sectors as the formal sector's share grows in response to changes in demand,

consumer tastes, and consumers' willingness to pay for quality. The projected impact of these

changes on the structure of dairy production and processing are:

Increase in crossbred population and herd size

The figures given in earlier sections clearly reveal that the population of crossbred high-

yielding animals is increasing at a faster rate than local cattle. If this trend continues, milk

production will increase significantly. The studies have also revealed that as production of

milk increases, the marketed surplus of milk also increases. The higher the procurement, the

lower the cost of producing the product, which will make the product competitive and

remunerative. With the entry of the private sector into milk processing, the average herd size

may go up because the private sector would like to reduce transaction costs in milk

procurement, and therefore may promote large dairy farms.

Clean milk production

To compete in the world market as well as the domestic market, and to meet international

quality standards, it is highly desirable to produce clean milk under hygienic conditions,

which considerablyincreases the shelf life of the product.

4. Increase in scale and scope of operations in the milk processing sector

It is expected that with the opening up of the milk processing sector to private companies, the

dairy industry will undergo major changes in terms of scale of operations and scope of

production. In order to achieve economies of scale, existing plants will expand their capacity

and large new plants will be set up in the processing sector. The dairy sector will link and
30
converge with other food and fibre sectors. Information technology and biotechnology will

become an integral part of the value chain.

The product mix will also undergo some changes responding to changes in lifestyle, income

levels, food habits, convenience, etc. These changes will, however, be determined by changes

in demand for products linked to the formal sector.

5. structural Changes in Milk Production, Procurement and Marketing

With the growth in demand and production, the protectionist policies of the 1970s and 1980s,

followed by the economic policies of trade liberalization during the 1990s, the Indian dairy

sector witnessed some marginal structural changes in milk production, processing, and

marketing.

Among milch cattle, the population of low-yielding nondescript milch cattle showed a

considerable decline, while the population of crossbred milch cattle exhibited a sharp

increase, indicating farmers' preference for crossbreds for milk production. The marked shift

in the sex composition of both the breeds of cattle in favor of females highlighted the

declining importance of draft animals and the increased importance given to milk production.

By and large, buffaloes continued to be the predominant milch animals contributing to milk

production in India. The northern and western parts of the country have a predominance of

buffaloes in milk production, while the eastern and southern parts are predominantly cow-

milk-producing regions. In the southern region and parts of northern India, the crossbred

population is on a steady rise, contributing to milk production. With regard to management

practices, owing to diminishing common property resources and pastures, the grazing of

animals is on the decline and stall-feeding is on the rise. With regard to reproductive
31
management, natural services are declining and artificial insemination is becoming popular in

cattle and buffaloes. Along with rural dairy farming, urban and peri-urban dairy farming is

being taken up to cater to urban milk demand through the informal market. The urban and

peri-urban dairy farming involves rearing of crossbred cows and high-yielding buffaloes

maintained on purchased feeds and fodders install-fed conditions, and following most of the

modern dairy farming practices.

This sub-sector has been contributing to milk production in selected areas of the country. But

growing environmental concerns and health consciousness might impose checks on their

extension and intensification and need to be investigated thoroughly.

In the formal sector, the industrial structure that emerged as a result of Operation Flood

involved an organized sector consisting of dairy cooperatives, government milk schemes, and

formal private processors. The informal sector, largely untouched, continued to be composed

of small traders (dudhias, local halwais), urban milk producers, and intra-village trade

directly from producers to consumers. Although dairy cooperatives comprise the single

largest formal organization in terms of market share, they are engaged in active competition

with the informal sector in small towns and peri- urban villages and with some private

companies in urban milk centers. The share of the organized sector in total milk procurement

has increased over a period of time and is further expected to rise in the new economic

environment of liberalization and globalization. The repeal of industrial licensing under new

economic policy provided opportunity for private entrepreneurs and multinational companies

to invest in new processing capacities.

The share of organized sector in total milk procurement has increased from 3.68% in 1961 to

about 10-12% in the mid-1990s (Table 1.11). These estimates are not very reliable, due to

poor information for the unorganized sector and those plants below 10,000 litres per day

capacity. Within the organized sector, the share of cooperatives is higher than private

companies. The total milk procured by the cooperative sector has increased from 2,562
32
thousand kg per day in 1980-81 to 16,504 thousand kg per day in 2000-01 (Figure 1.13). The

share of the western region was highest (47.85%) followed by southern region (3.75%) and

lowest in the eastern region (3.89%). Among the states, the procurement by cooperatives is

highest in Gujarat (4567 thousand kg/day) followed by Maharashtra (2,979 thousand kg/day),

and low in the eastern states like Bihar (330 thousand kg), Orissa (94 thousand kg), and West

Bengal (204 thousand kg). The number of dairy cooperative societies has also increased

significantly from 13,284 in 1980-81 to 96,206 in 2000-01 (Figure 1.14). The number of

farmer members has risen from 1.7 million to 10.7 million during the same period (Figure

1.15). The Anand pattern multi-tier cooperatives have strong backward linkages with the

farmers and collect milk from rural producers through village dairy cooperative societies

(Figure 1.16). The majority of private processors depend on contractors (through informal or

formal contracts) and traders to procure milk from farmers . The private sector has the

advantage of flexibility in pricing and in business policy decisions.

TRADE IN DAIRY INDUSTRY

Dairy has long been a highly regulated industry in India and in many other countries.

However, in the early 1990s, the Indian dairy industry entered a period of domestic and trade

policy reforms. Two major policy events - 1991 macro-economic reforms and the 1995

Uruguay Round Agreement (URA)

- represented a significant modification of previous policies by opening up markets and

limiting government restrictions. Although the extent to which such efforts would be carried

forward in future policies (e.g., the next rounds of WTO negotiations) of the developed

countries like the EU, USA, Japan, and Canada is uncertain, these changes retain significant

potential to influence world dairy trade. The political importance of the dairy sector in most

countries has resulted in a plethora of government interventions in dairy production,

marketing, and trade. In addition to trade and domestic policy reforms, technological

developments in the dairy and food processing industries will take on a greater importance in
33
coming years.

Despite being the largest milk producer in the world, India is a minor player in the global

trade of dairy products. The country was primarily an import-dependent country until the

early 1970s, and most of the demand-supply gap of liquid milk was met by importing

butter/butter oil and milk powders under food aid programs as gifts. The share of skim milk

powder and butter oil imports in total milk throughput declined from about 41% during the

mid-1960s to less than 1% during the early 1990s (Figure 1.19). This transition of the Indian

dairy industry from a position of net importer to that of surplus was induced by strict import

controls, growth in domestic production, and the efforts of Operation Flood and other dairy

development programs. India started exporting surplus dairy products such as milk powders,

ghee, butter, and cheese in the 1990s, however, the exports are negligible compared to both

domestic production and international trade. The exports and imports of most dairy products

were regulated through the Agricultural and Processed Food Products Export Development

Agency (APEDA) and the National Dairy Development Board (NDDB) until the early 1990s;

however, steps to liberalize dairy trade were initiated in the mid-1990s when imports of milk

powder and butter oil were de-canalized and de-licensed. In the new Exim policy announced

on March 31, 2002, the government removed all restrictions on the import and export of all

dairy products (Economic Times, 2002).

Imports of milk powder and butter oil as percentage of milk throughput, 1965-66 to

1993-94

34
Share of major dairy products in India's exports of dairy products during 2000-01

35
Trends in imports and exports of dairy products in India: 1990-2000

36
Commercial imports of dairy commodities were significant until the early 1970s, comprising

of about 50% to 60% of throughput, but declined significantly in the 1980s and 1990s.

However, the imports of milk powders and butter/butter oil increased substantially in the late

1990s, mainly due to low import duties on these two products as a commitment under the

WTO Agreement. India is among the few countries who has low bound rates of duty for

major dairy products like milk powders, butter, butter oil, and cheese (15-40%) as opposed

to relatively high tariffs (100-150%) on less sensitive products like milk, cream, butter milk,

and yoghurt (Figure 1.22). The small flow of cheap imports in the second half of the 1990s,

mainly due to low import tariffs on the milk powders and other major dairy products, may

have hurt some segments of the domestic industry, but was negligible in scale compared to

the overall domestic market. Although imports of cheese are still low, they grew at a rapid

rate during the 1990s.

37
 INVESTMENT IN DAIRY INDUSTRY:

The dairy industry plays an important role in the socio-economic development of India. The

dairy industry in India is instrumental in providing cheap nutritional food to the vast

population of India and also generates huge employment opportunities for people in rural

places.

The Department of Animal Husbandry, Dairying, and Fisheries, which falls under the central

Ministry of Agriculture, is responsible for all the matters relating to dairy development in the

country. This department provides advice to the state governments and Union Territories in

formulating programmes and policies for dairy development. It also looks after all the

matters relating to production and preservation of livestock farms (cattle and sheep). To keep

focus on the dairy industry a premier institution known as the National Dairy Development

Board was established. This institution is a statutory body that was established in 1987. The

main aim to set up the board was to accelerate the pace of dairy development in the country

and attract new investments.

India is a wonderland for investors looking for investment opportunities in the dairy industry.

The dairy industry of India holds great potential for investment and promises high returns to

the investors.

What does the Indian Dairy Industry has to Offer to Foreign Investors?

India is a land of opportunity for investors looking for new and expanding markets. Dairy

food processing holds immense potential for high returns. Growth prospects in the dairy

food sector are termed healthy, according to various studies on the subject.

38
The basic infrastructural elements for a successful enterprise are in place.

 Key elements of free market system

 raw material (milk) availability

 an established infrastructure of technology

 supporting manpower

An entrepreneur's participation is likely to provide attractive returns on the investment in a

fast growing market such as India, along with an export potential in the Middle East,

Singapore, Malaysia, Indonesia, Korea, Thailand, Hong Kong and other countries in the

region.

Among several areas of potential participation by NRIs and foreign investors, the following

list outlines a few promising opportunities:

Biotechnology:

1. Dairy cattle breeding of the finest buffaloes and hybrid cows

2. Milk yield increase with recombinant somatotropin

3. Recombinant chymosin, acceptable to vegetarian consumers

4. Dairy cultures, probiotics, dairy biologics, enzymes and coloring materials for food processing

5. Fermentation derived foods and industrial products alcohol, citric acid,

lysine, flavor preparations, etc.

6. Biopreservative ingredients based on dairy fermentation, viz., Nisin, pediococcin,

acidophilin, bulgarican contained in dairy powders.

Dairy/food processing equipment:Potential exists for manufacturing and marketing

of cost competitive food processing machinery of world-class quality.

Food packaging equipment:Opportunities lie in the manufacturing of both machinery and

packaging materials that help develop brand loyalty and a clear edge in the marketing of

dairy foods.
39
Distribution channels:For refrigerated and frozen food distribution, a world class cold

chain would help in providing quality assurance to the consumers around the region.

Retailing:There is scope for standardizing and upgrading food retailing in major

metropolitan cities to meet the shopping needs of a vast middle class. This area includes

grocery stores of European and North American quality, warehousing and distribution.

Potential for investment in the dairy industry

Some areas of Indian dairy industry can be toned up by the evocation of differentiated

technologies and equipment from overseas. These include:

1. Raw milk handling: The raw milk handling needs to be elevated in terms of

physicochemical and microbiological properties of the milk in a combined manner.

The use of clarification and bactofugation in raw milk processing can aid better the

quality of the milk products.

2. Milk processing: Better operational ratios are required to amend the yields and

abridge wastage, lessen fat/protein losses during processing, control production

costs, save energy and broaden shelf life. The adoption of GMP (Good

Manufacturing Practices) and HACCP (Hazard Analysis Critical Control Points)

would help produce milk products adapting to the international standards.

3. Packaging: Another area that can be improved is the range of packing machines for

the manufacture of butter, cheese and alike. Better packaging can assist in retaining

the nutritive value of products packed and thus broaden the shelf life. A cold chain

distribution system is required for proper storage and transfer of dairy products.

4. Value-added products: There's vast scope for value-added products like desserts,

puddings, custards, sauces, mousse, stirred yoghurt, nectars and sherbets to capture

the dairy market in India.

The Indian dairy industry has aimed at better mananamegemt of the national resources to

enhance milk production and upgrade milk processing involving new innovative
40
technologies. Multinational dairy giants can also make their foray in the Indian dairy

market in this challenging scenario and create a win-win situation for both.

41
 SWOT ANALYSIS OF INDIAN DAIRY INDUSTRY

Strengths:

 Demand profile: Absolutely optimistic.

 Margins: Quite reasonable, even on packed liquid milk.

 Flexibility of product mix: Tremendous. With balancing equipment, you can keep

on adding to your product line.

 Availability of raw material: Abundant. Presently, more than 80 per cent of milk

produced is flowing into the unorganized sector, which requires proper

channelization.

 Technical manpower: Professionally-trained, technical human resource pool, built

over last 30 years.

Weaknesses:

 Perishability: Pasteurization has overcome this weakness partially. UHT gives milk

long life. Surely, many new processes will follow to improve milk quality and extend

its shelf life.

 Lack of control over yield: Theoretically, there is little control over milk yield.

However, increased awareness of developments like embryo transplant, artificial

insemination and properly managed animal husbandry practices, coupled with higher

income to rural milk producers should automatically lead to improvement in milk

yields.

 Logistics of procurement: Woes of bad roads and inadequate transportation

facility make milk procurement problematic. But with the overall economic

improvement in India, these problems would also get solved.

 Problematic distribution: Yes, all is not well with distribution. But then if ice

creams can be sold virtually at every nook and corner, why can‟t we sell other dairy
42
 products too? Moreover, it is only a matter of time before we see the emergence of a

cold chain linking the producer to the refrigerator at the consumer‟s home!

 Competition: With so many newcomers entering this industry, competition is

becoming tougher day by day. But then competition has to be faced as a ground

reality.

The market is large enough for many to carve out their niche.

Opportunities:

"Failure is never final, and success never ending”. Dr Kurien bears out this statement

perfectly. He entered the industry when there were only threats. He met failure head-

on, and now he clearly is an example of „never ending success‟! If dairy

entrepreneurs are looking for opportunities in India, the following areas must be

tapped:

 Value addition: There is a phenomenal scope for innovations in product

development, packaging and presentation. Given below are potential areas of

value addition:

 Steps should be taken to introduce value-added products like shrikhand, ice creams,

paneer, khoa, flavored milk, dairy sweets, etc. This will lead to a greaterpresence and

flexibility in the market place along with opportunities in the field of brand building.

 Addition of cultured products like yoghurt and cheese lend further strength - both in

terms of utilization of resources and presence in the market place.

 A lateral view opens up opportunities in milk proteins through casein, caseinates

and other dietary proteins, further opening up export opportunities.

Yet another aspect can be the addition of infant foods, geriatric foods and nutritionals.

43
  Export potential: Efforts to exploit export potential are already on. Amul is

exporting to Bangladesh, Sri Lanka, Nigeria, and the Middle East. Following the

new GATT treaty, opportunities will increase tremendously for the export of agri-

products in general and dairyproducts in particular.

THREATS:

Milk vendors, the un-organized sector: Today milk vendors are occupying the pride of place

in the industry. Organized dissemination of information about the harm that they are doing to

producers and consumers should see a steady decline in their importance.

Conclusion of SWOT analysis

The study of this SWOT analysis shows that the „strengths‟ and „opportunities‟ far outweigh

„weaknesses‟ and „threats‟. Strengths and opportunities are fundamental and weaknesses and

threats are transitory. Any investment idea can do well only when you have three essential

ingredients: entrepreneurship (the ability to take risks), innovative approach (in product lines

and marketing) and values (of quality/ethics).

The Indian dairy industry, following its delicensing, has been attracting a large number of

entrepreneurs. Their success in dairying depends on factors such as an efficient yet

economical procurement network, hygienic and cost-effective processing facilities and

innovativeness in the market place. All that needs to be done is: to innovate,

convertproducts into commercially exploitable ideas.

MARKETING STRATEGIES OF DAIRY INDUSTRY

44
Marketing may be defined as "the performance of all business activities involved in the flow

of goods and services from the producer to the consumer".

This implies that there are several categories of key players in the marketing chain each with

its own vested interests. Consumers want to get what they need at the lowest price possible.

producers on the other hand are interested in getting the highest possible return for their

milk. Between them, there are market intermediaries or middlemen who perform various

marketing functions such as transportation or retailing. Their interest is to make the highest

profit possible from their particular business operation.

The milk marketing channel

A study of the milk marketing system in Kenya has shown that there are at least 8 different

marketing channels as shown below:

Milk Marketing Channels Number of

intermediaries

Producer-consumer 0

Producer-milk hawker-consumer 1

Producer-processor-consumer 1

Producer-processor- retailer-consumer 2

Producer-dairy co-operative -processor- retailer consumer 3

Producer-milk transporter-processor - retailer-consumer 3

Producer-milk trader-processor-retailer-consumer 3

Producer-dairy coop - milk transporter-processor-retailer- 4

consumer

The number of intermediaries involved will have a bearing on both producer and consumer

45
milk prices. The shorter the channel the more likely that the consumer prices will be low and

the producer will get a higher return

Marketing Channels for Milk and the Role of the Informal Sector

Like nearly all developing countries, India has co-existing "organized" and "unorganized"

sectors for the marketing of milk and dairy products. Sometimes called the "informal"

sector, the unorganized sector may be more usefully thought of as the traditional milk

market sector, comprised of the marketing of raw milk and traditional products such as

locally manufactured ghee, fresh cheese, and sweets. The organized or formal sector is

relatively new in historical terms, and consists of Western- style dairy processing based on

pasteurization, though adapted to the Indian market in terms of products. In some cases the

traditional sector is quite well organized, with a complex net of market agents, and shows

variation in numbers of and roles of market intermediaries. It may also be relatively

formal, in that market agents may pay municipal fees and have vendor licenses, albeit not

specifically registered for the dairy trade. The reasons underlying the existence of a large

informal or traditional sector are the same as found in other countries: consumers are

unwilling to pay the additional costs of pasteurization and packaging, which can raise retail

prices by over 100%, and consumers often regard raw milk and traditional products

obtained from reliable vendors as of better quality than formally processed dairy products.

It should be noted that, unlike some countries, the Indian government has generally adopted

a laissez-faire approach to the informal sector, which has allowed it to expand with the

growth in demand, and serve both small farmers and resource-poor consumers. It is useful

to get an overview of the broad aggregate of this sector and understand the type of

"informal sector" which competes with the organized sector (cooperatives and modern-

style private factories) in the field of processing, procurement, and marketing of milk and

other dairy products. Of the estimated milk production during 1999-2000 of about 78

million tons of milk, the organized sector, primarily through the dairy cooperatives and

organized private dairies, handled 10- 12% of the total milk production, or 15% of the
46
marketed surplus, and the rest finds its way into India's large, complex, highly differentiated

traditional private trade in milk and dairy products (see Figure 1.6). The share of the

organized sector in total procurement has increased from about 3.7% in the early 1960s to

about 12% in the mid-1990s. There are large regional variations in the types of operators

and their operating procedures. Cooperative milk marketing has a relatively strong hold in

the states of Gujarat, Rajasthan, Maharashtra, Tamil

Nadu, and Karnataka, yet is subservient to unorganized sector. Dairy cooperatives have a

particularly low profile in the eastern and northern parts of the country. By and large, the

informal sector comprising private milk vendors,

traditional dudhias/halwais, and others continues to have the lion's share of the procurement and

marketing of milk in India. This situation is unlikely to undergo a major shift, given

consumer preferences. The informal sector is a large employment provider and has

traditionally offered a wide range of services to households and institutional consumers. In

metro cities - Delhi, Mumbai, Chennai, and Kolkatta- the introduction of bulk vending

machines has given a strong advantage to cooperatives. With more focus on global trade and

quality standards, the organized sector (cooperatives and the private sector, including

multinationals) can be expected to play a greater role than at present. At some point in the

future, it might handle about 25-30% of the total milk produced in the country, yet leaving

the major share of milk procurement and marketing to the informal sector.

This will require an increased willingness by consumers to pay for the additional

processing. Hence, the informal sector has a major potential role to play in milk

procurement and marketing in India. In recent years, added emphasis has been given to

clean milk production and ensuring quality standards as per international norms, which

calls for greater responsibility, particularly on the part of informal sector, in meeting the set

quality standards.

47
 Figure Relative shares of main milk marketing channels in formal and informal

markets in India

As % of marketed surplus of milk:

Formal: 15%; Informal/traditional: 85%

Source: Dairy India (1997)

48
Marketing and Pricing of Milk and Milk Products

The price of a product in the market is an important factor influencing consumer demand.

Hence to be marketable, a dairy product must be competitively priced. This implies that the

costs involved in raw material procurement, processing, packaging, storage, marketing and

distribution must be kept as low as possible. generally the price of a dairy product will involve

the following costs:

a. Cost of raw milk

b. Cost of raw milk collection and transportation

c. Cost of processing

d. Cost of packaging

e. Cost of marketing and distribution

f. Taxes and tariffs

g. Profit margins at each stage of the marketing channel (Collection, Processing and

marketing margins)

49
In order to arrive at a realistic costing of a product, all those elements involved at each stage

must be carefully calculated on a unit basis. This is known as Cost Accounting. The table

below shows some of the essential cost elements:

Market function Cost

element

1. Raw milk procurement Cost of raw milk; labour; materials etc.; collection

margin

2. Transportation Transport cost; labour; materials and equipment;

transport margin

3. Processing Raw materials; machinery and equipment;

labour; packaging; energy; taxes; marketing and

distribution; processing margin

4. Marketing and distribution Transport; labour; materials; rent; retail margin

The cost can be broadly categorised as fixed costs and variable costs. Fixed costs include

things like depreciation of equipment and buildings while variable cost include direct

expenses such as raw material; marketing expenses; overhead costs

Marketing Information System and Research

Information is required at all levels in the marketing channel. Before you decided to process

and market any dairy product, it is important to know the potential market for each particular

product. This is important to enable the processor to know which types and when, where and

how much of each product to manufacture and market. It is very crucial because unless

goods can be supplied in the right form, place and times, consumers may not be able to buy.
50
This then requires securing and utilising market information.

Marketing information should address the following:

 Area to be covered

 Price information (Price variations, price for premium quality discount price etc.)

 Number and type of consumers (market segmentation)

 Current and future product supply levels

 Type and number of competitors

In the absence of comprehensive marketing information system such as is the case in many

developing countries it may be necessary for each individual processor or through their

organisation to organise the gathering and dissemination of such information. Short market

survey and/or Consumer studies are useful tool for gathering such information.

Feasibility Study for Milk Marketing and Processing

Before one decides to invest in the business of milk marketing and/or processing one should

carry out a feasibility study to establish the economic viability of the planned business. this

should include a realistic business plan.

The essential elements of a feasibility study should include:

 Establish the amount of milk produced, both in the morning and evening, at the

proposed site, throughout the year

 Identify the current market outlets available for milk products in the area

 Determine the average fresh milk and various milk products prices being charged

by local producers.

 Test various product samples for taste to determine acceptable products being

produced in the proposed area

 Locate sources of energy (fuel-wood, charcoal, electricity, etc. and water)

51
 Determine the capital investment required (be sure to include land, building,

equipment and power).

 Draw up a clear business plan that will establish the viability of the proposed milk

marketing or processing enterprise.

52
 RESEARCH AND DEVELOPMENT

THE ADVANCEMENTS THAT DAIRY INDUSTRY HAS DEVELOPED

TILL NOW.

 Embryo Transfer (ET) technology allows the multiplication of elite livestock breeds

at a much faster rate than any other option available

 In the past 30 years, the annual production of compounded feed has gone up to 3

million tonnes from 40,000 tonnes

 New types of feeds have been developed, to improve the nutritive value of the

traditional cattle diet.

 Indigenous remedies, based on herbal and ayurvedic formulations, are also being

used extensively for disease control and as feed supplements/additives and as

yield boosters.

 From an insignificant 200,000 liters per day (lpd) milk processing in 1951, the

organized sector is presently handling some 20 million lpd in over 400 dairy

plants.

 The Government of India, realizing the importance of animal genetic resources, has

established the National Bureau of Animal Genetic Resources (NBAGR) at Karnal,

Haryana, in 1984.

Outlook for Technological Development and Spin-offs of Other Developments on the

Indian Dairy Industry

In light of the fast-changing global trade regime, the outlook for technological development

in dairy sector appears to be bright. In order to tap the global dairy market to India's

advantage, better scientific management of dairy animals in terms of breeding, feeding, and

health care must take place. More concentrated milk production and milk sheds may

develop, and efforts for clean milk production and good health care of animals may occupy

special significance.
53
General developments in terms of quality of life, greater literacy, higher per capita income,

and more industrialization and employment opportunities will have positive spin-off effects

on dairy development. Until now, dairying has been concentrated in rural areas as a

supplementary or complementary enterprise, and commercial orientation is missing. With

technological development and the evolution of high-yielding crossbred cattle, the outlook is

changing. Populations of high- yielding crossbred cows and buffaloes will primarily

concentrate in peri-urban and progressive rural areas. Biotechnological applications for

enhancing the productivity of milch animals will receive greater importance. Crossbred cow

farms in Bikaner and Jodhpur in Rajasthan are being replicated at many other places. The

quality of milk produced by these dairy farms is being utilized in the production of various

indigenous milk products likeRasogulla, Gulab Jamun, Raj Bhog, Chum-

Chum etc. These products, produced in a large number of milk product factories located in

the area, are being exported to various parts of India and even to countries like Nepal and

Bangladesh.

The Indian dairy industry will focus on value creation through an integrated approach to the

market and the development of a range of products and production methods. This will

involve a focus on market trends, competitiveness, technological clustering, spin-off

industries, convergence of technologies and markets, and sustainability issues. The strategic

objectives will be to provide range of products, suited to the increasing and changing

structure of demand, which enhance health and well-being. New product innovations will

be required that respond to changes in food habits, lifestyle, and design; as will sustainable

dairy production systems (socially, economically, and environmentally); food safety and

quality; market access; animal health and welfare issues; and a focus on vertical integration

of the value chain

54
 ENVIRONMENT AND DAIRY INDUSTRY

Issues, Constraints and Policy Strategies for Environmentally Sustainable Growth in

the Indian Dairy Sector

There is a range of ways in which the dairy sector contributes to changes in the global

environment, such as contributions to greenhouse gas emissions (e.g., methane and nitrous

oxide), effects on biodiversity, etc. Massive demand of the growing urban populations for

milk and dairy products often causes environmental degradation when mixed farming

systems decline and traditional farming is disrupted. The population explosion combined

with poverty leads to poor management of livestock, which damages natural resources

further. Overgrazing and deforestation due to ranching have degraded extensive land areas

and adversely influenced biodiversity in many parts of the world. High animal concentrations

in and around urban centers pollute the land and water through wastes from animal rearing

and processing-related activities. Rising human needs for milk and other livestock products

have placed the environment in conflict with livestock.

In the traditional smallholder dairy production system, a diverse and wide variety of feed

resources such as crop residues, agro-industrial wastes and by-products, and pasturelands are

used. The scope for increasing the conventional feed resources is limited, and grazing lands

are being converted into croplands to grow food crops. The indigenous breeds of dairy

animals, developed to cope with difficult environments and climatic stress, cannot match the

demands for higher production. Therefore, the policy of the government has been to

introduce exotic breeds to achieve higher productivity in a short time. More external market-

purchased inputs are needed to obtain higher returns from high-yielding animals, and milk

production is becoming increasingly crop-based. Increased attention to the livestock-

environment interaction is thus of critical significance for sustaining the resource base.

55
Pollution from livestock systems can affect water supplies, the atmosphere, and the food

chain directly, by the transmission of toxins and diseases through animal products. It is not

surprising that developed countries are experiencing serious problems of livestock pollution,

while in developing countries, pollution is less of a problem because of the small units, low

stocking rates, and subsistence nature of production systems. In developed countries,

nutrients are generally in oversupply; but in most areas of developing countries there exist

chronic nutrient and energy shortages. The resulting strong demand for fuel and manure turns

the wastes into valuable assets like dung cake and manure. However, pollution of the food

chain is a major issue and nutrients, feed additives, hormones, and veterinary drugs used in

excessive quantities can contaminate the food chain. Even when wastes are collected and

utilized, significant leaching into air, water, and the ground occurs. Pollution of the

environment from ammonia volatilization from intensive dairy production systems can add to

nitrate pollution of water supplies and may contribute to the problem of acid rain. Methane

release from ruminants is also a potential factor in global warming. Dust within livestock

buildings and feed preparation areas can cause respiratory problems for livestock and

humans, and it can also be the carrier of disease organisms and toxic substances. Gaseous

emissions and odors are of concern to the neighboring populace.

Pollution problems mainly arise through the increased intensity of production, and the

reversal of this trend could combat this. However, this may be unrealistic in the face of

increasing demand for livestock products. Recycling of animal wastes and wastes in the

processing sector through technical innovations could markedly help pollution control. One

method of controlling pollution from livestock systems is through legislation. The principle

of "polluter pays" is now widely accepted, with a mechanism for imposition of financial

penalties for any breach of law. The laws must set detailed standards for permitted pollution

levels of a wide range of substances, and must include specifications for buildings and

equipment with respect to waste disposal and contaminants. However, more important is the
56
implementation of these rules and regulations, which is missing.

Impact of Rural and Peri-Urban Dairy Production Systems on Human Health and the

Environment

The rapidly increasing demand for dairy products in urban areas has given rise to haphazard

growth of production centers in peri-urban areas that are essentially detached from their

supporting land base. This has led to animal concentrations that are out of proportion with

the feed supply capacity of the local land and waste disposal facilities. Foul odors usually

emanate from animal wastes, if not treated or disposed of properly, leading to air pollution.

Animal wastes also contaminate soil and groundwater.

Traditionally, milk production activities in India have been closely integrated with crop

production. However, environmental problems escalate with the scale and intensity of

operations, ranging from the least worrisome in traditional systems to highly threatening in

large-scale farms. Pollution problems in rural areas are internalized, as the small amount of

waste produced is utilized in the form of fuel and/or organic manure to improve the soil

fertility for crop and fodder cultivation. In industrial production systems, a huge quantity of

waste is generated that is generally not treated before disposal. It would not only require

careful planning but also large capital investment to create the necessary infrastructure for

waste treatment and economic disposal.

Establishment of commercial dairy farms adjoining urban areas may create several social

problems. The growth stimulus coming from strong demand for livestock products is not

transmitted to the rural areas, where it could encourage broader development and more

equitable wealth distribution. Small producers find it difficult to compete with large

commercial units. Milk production in rural areas generates supplementary income and

employment opportunities, which are adversely affected by the growth of peri-urban dairy

farms. Notwithstanding constraints and threats posed by the growth of peri- urban dairy
57
production centers, there are many qualitative and quantitative benefits of this structural

change in that huge dietary improvements are observed from the regular and cheap supply of

high quality milk and dairy products to urban people. In addition, benefits include the

generation of employment and the provision of a profitable business to people engaged in the

profession.

The threats, weaknesses, strengths, and opportunities associated with peri-urban dairy farms

calls for a comprehensive analysis and subsequent actions to be taken by planners and policy-

makers. Recently, the Government of India decided to relocate dairy farms from the urban

centers (Delhi) to rural areas to alleviate the problem of environmental pollution and waste

disposal. However, weak infrastructure and processing facilities, poor hygienic conditions,

and lack of regulatory mechanisms in rural areas are limiting factors for the orderly growth of

dairy industry

58
 QUALITY CONTROL

Milk testing and quality control is an essential component of any milk processing industry

whether small, medium or large scale. Milk being made up of 87% water is prone to

adulteration by unscrupulous middlemen and unfaithful farm workers. Moreover, its high

nutritive value makes it an ideal medium for the rapid multiplication of bacteria, particularly

under unhygienic production and storage at ambient temperatures. We know that, in order for

any processor to make good dairy products, good quality raw materials are essential. A milk

processor or handler will only be assured of the quality of raw milk if certain basic quality

tests are carried out at various stages of transportation of milk from the producer to the

processor and finally to the consumer.

WHAT IS MILK QUALITY CONTROL?

Milk quality control is the use of approved tests to ensure the application of approved

practices, standards and regulations concerning the milk and milk products. The tests are

designed to ensure that milk products meet accepted standards for CHEMICAL

COMPOSITION AND PURITY AS WELL AS LEVELS OF DIFFERENT MICRO-

ORGANISMS.

WHY HAVE MILK QUALITY CONTROL?

Testing milk and milk products for quality and monitoring that MILK PRODUCTS,

PROCESSORS and MARKETING AGENCIES adhere to accepted codes of practices

costs money.

The reasons are:

i) To the Milk Producer.

The milk producer expects a fair price in accordance with the quality of milk she/he produces.

ii) The Milk Processor.

The milk processor who pays the producer must assure himself/herself that the milk

59
received for processing is of normal composition and is suitable for processing into

various dairy products.

iii) The Consumer.

The consumer expects to pay a fair price for milk and milk products of acceptable to

excellent quality.

iv) The Public and Government Agencies.

These have to ensure that the health and nutritional status of the people is protected from

consumption of contaminated and sub-standard foodstuffs and that prices paid are fair to

the milk producers, the milk processor and the final consumer.

All the above-is only possible through institution of a workable quality testing and assurance

system conforms to national or internationally acceptable standards.

60
 FUTURE SCENARIO

2016: Possible production scenarios for

the U.S. dairy industry

Jim Austin, Business Strategist & Dairy Industry Consultant, forProgressive Dairyman

Every industry faces periods of growth and contraction. Less frequent are those instances of

fundamental change: airline deregulation, hospital DRGs, Japanese automobile

manufacturing in the

U.S. and more recently the decline in urban home values. Oftentimes, as with U.S.

manufacturing of Japanese cars , the beginnings of these tectonic shifts may be hard to

discern. Other times, such as the 1973/74 oil embargo, the impacts are sharp, highly visible

and wrenching.

The U.S. dairy industry is facing significant challenges. In the past, when production

increased and consumer demand did not at least keep pace with such growth, whole-sale

prices fell, often sharply. Today herd populations, milk per cow and milk prices are all

increasing faster than per capita milk consumption – which, given past relationships, would

appear to be unsustainable. Counterbalancing these historic trends are increasing milk-

derived exports, greater by-product (such as cheese, yogurt and whey) production and rapidly

increasing input costs.

So the question remains: Are we entering a new period of market dynamics for dairy, or

simply experiencing a short reprieve before the fundamentals “kick back in”? While not

definitive, at a recent industry meeting of major producers, nearly 40 percent indicated they

expected a “dairy depression” within the next five years.

61
The typical way to deal with such uncertainty is to focus on what one knows: current

operations and “looking to the past” for indications of the future. Thus the increasing

sophistication – especially in managing operations – typical of most dairy operations today.

The problem comes when the changes experienced are totally new, unexpected or arising

with such rapidity and force that the past is of little guide to the future. In such instances, new

tools and frameworks are required.

Scenario planning is aptly suited for such analyses as it does not start from today and project

forward. Rather, scenario planning seeks to develop several reasonable but sufficiently varied

“stories” of the future, thereby “bracketing” the range of possible eventualities. From these

futures, we ask, “What will it take to succeed across scenarios?” Because even in the worst

situation someone wins. What are the likely changes or building blocks we must invest in

today to prosper tomorrow? In this way we negate “narrow frames” – assuming that by

changing only a few variables one can encompass rapidly changing futures – as well as the

tendency to project past trends forward as somehow indicative of all the complexities that

truly dynamic systems can create.

62
Four scenarios of the U.S. dairy industry in 2016

This project began in 2006 with a series of workshops attended by more than 100 dairy

producers (large and small), manufacturers, veterinarians and various government and

educational stakeholders. The workshops developed a draft set of future scenarios that were

then refined in subsequent industry conferences and meetings. We adopted 2016 as being

far enough from the present to enable significant changes, but not so distant as to be

tangential to current dairy operations.

As a first step, we gathered a long list of potential future “forces” or “value drivers” that

had been or were likely to be critical in supporting the growth and profitability of this

market. We then split these forces into trends versus uncertainties, as shown below.

Assumptions about how various uncertainties play out is what differentiates the scenarios.

Scenario A: Dairy DepressionTo create the actual scenarios, we crossed two summary

uncertainties impact of technology and consumer attitude/perception – to create the 2 X 2

matrix shown in Figure 1. Each axis represents an uncertainty range. After ascertaining the

plausibility of each combination (i.e., matrix cells), we explored what the future might look

like in each cell when considering the remaining uncertainties, all against the common

backdrop of the main trends identified earlier. The range of individual uncertainties, as well
63
as the varied interplay across these uncertainties, is what drives the distinctions between

scenarios. While 2016 will not look exactly like one of these four scenarios, the wide range

depicted here will likely capture the potential dairy industry environments that could

plausibly face industry players then. Against these scenarios, readers should test their own

views and business assumptions for future success.

Scenario A: Dairy Depression

Dairy products have become passé. Lack of innovation and poor consumer demand pushed

the U.S. dairy industry to the brink of financial disaster. Demand is down as other beverages

such as calcium-

64
fortified drinks are stealing market share. Within a commodity market, low-cost global

competitors are competing aggressively in the U.S. Given a depressed economy and low milk

prices, the dairy industry does not have the capital to reinvest in facilities and technology.

This has dampened innovation further, deepening a long-term cycle of decline.

Highlights

• Negative consumer attitudes about dairy products

• Lack of innovation

• Little investment in the industry

• Depressed dairy economy makes it hard to attract skilled labor

• More restrictive regulation for local producers

• More open to international markets and foreign competition.

Drivers: How we got here

Rising public distrust

There is broad public distrust of the safety of all technologies, as well as specific concerns

about the wholesomeness of milk. This has led to declining demand for dairy products.

Restrictive regulations

Local and state requirements, designed to protect residential neighborhoods from the

environmental effects of large farms, have slowed the creation of large-scale dairy

operations, similar to the regulation of swine farms in Florida. At the same time, price

controls and supports are relaxed.

Agri-terrorism

A major agri-terrorism act in the poultry industry has affected the entire agricultural sector.

The incident, the poisoning of chickens in a large Pennsylvania farm, resulted in a sharp

drop in sales of all large-scale agricultural products. Led by the Department of Homeland

Security, the incident also led to tighter restrictions, including employee background checks,

reducing the supply of labor and increasing operating costs.

65
Scenario B: All bagged up and nowhere to go

This is the age of techno-cows and mega dairies. Consolidation leads to a dramatically

smaller industry of large producers. New technologies support unprecedented efficiency and

productivity.

Highlights

• More industry consolidation leads to large-scale, efficient production systems, using new

technology

• Cows are producing more and living longer

• Increased R&D leads to increased markets for milk products

• More intrusive federal regulation tied to Homeland Security

• Shortage of skilled labor

• Consumers are skeptical about technology and production.

Drivers: How we got here Technological breakthroughs

Investments in fighting bioterror and preparing for global pandemics have led to major

breakthroughs in animal science. Advances in genetic engineering and automation have led

to significant improvements in milk production.

The rise of mega dairies

While technological advances have increased efficiency, they have also raised the cost and

complexity of participating in the industry. Immigration restrictions have limited access to

cheap unskilled labor, putting small farms at a further disadvantage. This has led to rapid

industry consolidation and the emergence of mega dairies. The efficiency of large producers

and new technologies have driven down milk prices to decade lows: $12.05 per

hundredweight.

Public backlash
66
Increased public attention with farm consolidation and mega dairy farming practices has

naturally led to the identification of new problems, including questions about the long-term

health effects of dairy products. PETA gains its first seat in Congress. The industry has

become much more susceptible to fads and targeted (online) protests.

Scenario C: American Gothic

America is in love with the farm and dairy products. Technology has only made moderate

advances, and dairy products still have a very basic and wholesome image. Continued studies

about the health benefits of dairy have led to increasing demand which sustains higher milk

prices. However, consumers are very concerned about the application of technology to

farming; organics are the fastest growing segment. Higher input costs, more stringent

environmental regulations and renewed calls for “small is beautiful” have reduced industry

profit margins, especially among large-scale producers. Farming may be returning to its

traditional, family roots.

Highlights

• Consumer desire for simpler, more traditional farming leads to decreased investment in technology

• Consumer demand for dairy products remains strong with confirmation of health benefits

• Consolidation increases as some states aim to offset declining margins

• Increased demand and low stocks lead to lower import barriers.

Drivers: How we got here

Declining technology investments

With several recent new television shows on the glories of small farms, as well as the

rising environmental concerns spearheaded by former Vice President Al Gore‟s book on

global warming, An Inconvenient Truth, the public wants – and is willing to pay for –

organic, smaller-lot, specialty products. Stock market shares in Whole Foods are

booming.

Dairy consumption increases

While consumers are wary of technology, they are positive about dairy. A series of studies
67
in The New England Journal of Medicine and Lancet have touted the benefits of dairy in

preventing not only osteoporosis, but also heart disease and even some forms of cancer.

Product and marketing innovations, from packaging to new products, has also helped

increase demand. This public interest and government regulations sustain higher prices:

milk rises to $26.00 per hundredweight.

Increased global competition

Under pressure from the WTO, global trade restrictions are relaxing, making it easier for

international competitors to enter the United States. While technologies for improving

production may lag, advances in transportation and processing make it easier for distant

markets to compete. Supportive domestic regulations, particularly those related to pricing,

have helped to keep the increased competition from eroding pricing and this has allowed

U.S. firms to compete at home even as they concede overseas markets.

Scenario D: Field of dreams

It is a bold new world in the dairy industry. Consumer acceptance and rapid scientific

advances have led to fundamental breakthroughs in genetic engineering and other areas.

Genetic selection helps reduce health problems and improve production. The industry has

become high-tech, with tremendous improvements in both quality and efficiency. The

majority of farm by-products are used for energy generation (on the farm and supporting

local power grids). Consumers are expanding milk consumption, driven by the proliferation

of new products, leading to higher prices. Aging boomers look to dairy for its health benefits;

youth have (re) discovered dairy milk as “cool.” In this “field of dreams,” if you build it, they

will come.

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 CONCLUSION

Nutritional value: Dairy products are a significant source of essential nutrients like calcium,

protein, vitamins, and minerals, which are important for bone health and overall well-being.

Economic contributions: The dairy industry plays a vital role in many economies, providing

jobs, income, and supporting rural communities. It contributes to the agricultural sector's

growth and stability.

Food security: Dairy products are a staple in many diets worldwide, providing a reliable and

accessible source of nutrition for populations.

Innovation and diversity: The dairy industry has continually evolved to meet consumer

demands by introducing new products, such as lactose-free and plant-based alternatives,

catering to various dietary preferences and needs.

Negative aspects:

Animal welfare concerns: The dairy industry has faced criticism regarding animal welfare

practices, including confinement, separation of calves from their mothers, and use of growth

hormones. These practices have raised ethical concerns and prompted calls for improved

animal welfare standards.

Environmental impact: The dairy industry is associated with significant environmental

issues, such as greenhouse gas emissions, water pollution, deforestation, and land

degradation. Large-scale dairy farming contributes to climate change and resource depletion.

Health considerations: While dairy products offer important nutrients, they may also pose

health risks for individuals with lactose intolerance, allergies, or certain medical conditions.

Additionally, excessive consumption of high-fat dairy products can contribute to obesity and

cardiovascular diseases.

Sustainability challenges: Meeting the increasing global demand for dairy products puts

pressure on natural resources, including water and land. Sustainable practices, such as

reducing emissions, optimizing resource use, and promoting regenerative farming, are

necessary to address these challenges.

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 REFERENCE

Food and Agriculture Organization of the United Nations (FAO) - Dairy:

http://www.fao.org/dairy-production-products/en/

The FAO provides extensive resources on global dairy production, including statistics,

reports, and publications covering various aspects of the industry.

International Dairy Federation (IDF): https://www.fil-idf.org/

The IDF is a leading global organization for the dairy sector, offering scientific expertise,

industry insights, and technical resources related to dairy production, processing, and

sustainability.

Dairy Farmers of America (DFA): https://www.dfamilk.com/

DFA is one of the largest dairy cooperatives in the United States, representing dairy farmers

and providing information on dairy farming, products, and industry news.

Dairy Australia: https://www.dairyaustralia.com.au/

Dairy Australia is the national industry association representing dairy farmers in Australia.

Their website offers information on dairy farming practices, research, market trends, and

industry sustainability.

European Dairy Association (EDA): https://www.euromilk.org/

The EDA represents the European dairy industry and provides resources on topics such as

milk production, nutrition, food safety, and sustainability.

"Milk: The Surprising Story of Milk Through the Ages" by Anne Mendelson: This book

explores the history, culture, and evolution of milk and the dairy industry, offering a

comprehensive understanding of the industry's development.

"Dairy Processing and Quality Assurance" by Ramesh C. Chandan, Arun Kilara, and

Nagendra P. Shah: This textbook covers various aspects of dairy processing, including

quality assurance, product safety, and technological advancements in the industry.

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