IMPACT OF GLOBAL ACTIVITIES ON INDIAN DAIRY BUSINESS
India is highest milk producer in the world, not on the basis of per animal productivity, but on the basis of total liters of milk production in India. Means per animal production in India is still very low. The average per day per animal (cross bred cow) milk production is about 7-8 liters, buffalo about 5 liter, indigenous cows about 2 liters and other animals (generally goats) less than 1 liter. These figures are against a common feeling of Indian entrepreneur, who feels that the average per cow/buffalo per day milk yield is higher, example 18-20 liters. To our knowledge many of the organized farms (Govt. or Private owned) maintain per cow per day milk yield average at about 8-10 liters per day (herd average about 2400-3000 liters).
To keep serving the future demands of Indian market, it is required to increase per day per animal (cross bred cow) 12-15 liters, buffalo 10 liters, indigenous cows 4 liters and goats (including sheep) 1.5 liters. If that is to be achieved, all actions boils down to the better nutrition to the dairy animals, which despite several existing Govt. schemes, looks impossible, as the most developed states like Haryana, Punjab and western UP has only 5% allocation of land for fodder production. By the passage of 10 years the availability of grazing lands has depleted, which is affecting the better nutrition to dairy animals along with reduced herd rearing of sheep.
In past decade, due to lack of common available nutritional resources, lack of availability of area-specific computable ration, lack of water resources for irrigation, lack of good drinking water for animals, high cost of concentrate- leading to the high cost of animal feeding, the scenario in Indian Dairy business is not very stable. Currently the large dairy houses are taking surge, while the medium and small dairy houses are finding it difficult to thrive.
Further to the dismay, a recent study showed that there is a definite link between “global developments” in dairy industries and “slowing-down” of small-scale dairy business in India (Quote: the report of “Centre for Agroecology, Water and Resilience (CAWR) at Coventry University, UK during 2015-16, which has been quoted in the article of Jitendra in Agriculture section of the site “Down to Earth”, dated Oct, 20, 2018). The said article establishes a relation between Global activities and Indian marginal farmers’ dairying. Even ILRI indicates that the procurement prices in India has slummed due to global developments in dairy industries.
Indian market shows that there is cut-throat competition between dairy institutions to sell best products at low costs (consumers have become more quality & price conscious than earlier days). The dairy houses to maintain their margin untouched, generally reduce the procurement prices of raw milk, which eventually causes the elimination of small milk processors from markets, beside encouraging adulteration at collection level by milk collectors & traders to keep their margins intact. In the process the effect travels down to the small, marginal and landless milk producer, who lives under great stress and finally leaves the animal keeping.
The last nail in the coffin is due to the minimal exports of dairy products from India, mainly due to the glut in western market, bad quality of Indian dairy products and food safety issues. The quality standards in western countries are much higher compared to the Indian quality standards. The above phenomenon is supporting the large dairy business houses and multinational dairy industries to thrive by procuring large amount of raw material at low costs, investing huge funds to upgrade their processing facilities, churn-out good quality value added products for Indian market with added flavors & colors, earn huge margin (on per liter of milk handling basis), invest more in marketing, advertisement & other tools and further invest their margins into their businesses. This cycle continues, despite of high import tariffs ranging from 30-70% on various dairy products.
In India Dairy business has been established through an inclusive development program called “Operation Flood” in phases, from 1970 till 1996, which is based on “small herd small volume” model, however, for any processing facility to run in profit, optimum capacity utilization is a must. Currently the Dairy business is taking a leap to another level, where “quality of milk & milk products” has taken a priority, over all other aspects including the volume. The “Quality” aspect has reached to the top generally due to increased awareness in consumers. The efforts of FSSAI (Food safety and Standards Authority of India ) has provided the Dairy business a sharp turn towards its new era. It is becoming difficult for small milk processor to match the cost and quality of dairy products with large Dairy houses or multinationals. It is basically due to the money power of big large Dairy houses and multinational dairy industries, the small India milk processors are being pushed out of race, as they can’t invest so much into processing facilities to maintain quality at comparable costs.
Quote:
CRISIL studied 100 dairy companies, accounting for around 60 per cent of the organized segment’s revenue. With steady growth in milk sales, the sector should see revenue of Rs 7,500 billion by 2020-21, from Rs 5,700 billion in 2017-18, it says.
Gujarat Co-operative Milk Marketing Federation (GCMMF), which sells the Amul brand of dairy products, has announced Rs 50 billion of investment to be completed by 2022 on processing capacity and distribution. Increasing demand at home and from Indians abroad has helped its turnover reach Rs 295 billion for FY18.
After acquisition of Reliance Dairy to boost geographical reach, Heritage Foods plans a big expansion in North India. Heritage has also acquired Shah Motilal Foods, based in Telangana, and Vaman Milk Foods, based in Punjab, for Rs 120 million and Rs 200 million, respectively. It now has a big capital expenditure (capex) plan, with expansion planned in segments such as curd, cheese and yogurt.
We observe a huge investment coming in from big dairy houses and multinational dairy industries in India, says Dilip Kumar Jha, in his article of July 12, 2018 in Business Standard (see quote above & Ref: https://www.business-standard.com/article/markets/dairy-sector-to-see-rs-140-billion-investment-in-3-years-crisil-118071200009_1.html), which presumably will change the face of Dairy Industry in coming fiscals.
Quote:
Global crisis, local impact
The global slump in skimmed milk powder (SMP) prices since 2015, according to the report, is a result of China and Russia stopping import of SMP. It created glut in the EU and sent ripples in the global market. The situation worsened after April 2015 when the EU scrapped its milk quota, which regulates the production of milk and control its overproduction. The increase in production of milk in these countries has affected export of SMP from India.
The Indian dairy companies had attempted to dispose of SMP stocks in domestic market after recombining it with butter fat and converting it back to liquid milk. It led to slump in procurement price of milk in domestic market.
Butter fat, which is needed to make milk from SMP, was imported in a large amount at a cheap rate from the EU and the US in 2014-15. The imports of subsidized butter fat into India rose from 25,000 kg in April 2014 to 704,167 kg in November 2015. Meanwhile, India’s export of butter fat reduced from 2 million kg in January 2014 to around zero in March 2016.
The availability of this milk further depressed the procurement prices. This development was ignored by the Indian government, and import was allowed without additional regulation.
These low global prices then affected Indian exports of SMP, in turn affecting domestic markets;
(1) In 2013-14, India exported nearly 1.3 lakh tones of SMP valued at Rs 2,717.56 crore.
(2) During the fiscal year 2014-15, barely 30,000 tones of SMP were exported.
(3) In April 2015, SMP was being sold by private dairies at Rs.180 per kg, compared to Rs. 270 in April 2014.
This happened despite relatively high import tariffs4 (ranging from 30-70%) on all dairy products. (Ref book “The milk Crisis in India” the story of numbers published by “Center for Agroecology, water and resilience”, Coventry university, UK)
Less money from milk is pushing small dairy farmers in debt. While this trend is global, Indian farmers have not received any support from the government even as their counterparts in the EU and USA have. (ref: https://www.downtoearth.org.in/news/agriculture/locally-driven-markets-are-an-answer-to-the-global-milk-crisis-58901
The article by Jitendra further explains the sequence as how the crisis started by China & Russia, resulted into glut of SMP in Indian market and how it has affected the Indian Dairy Industry, which looks convincing (refer the quote above). Though the report is based on an old study, however, I believe that still the gloomy situation of small size dairy industry continue.
When I say that still the gloomy situation of medium sized dairies continues, I quote the recent example of Maharashtra, where Shri Nanda Kasabe reports in his article in Financial Express on May 3, 2019 that Dairies in Maharashtra has reduced the procurement price by Rs 2/= liter, due to the huge back log of subsidy amount to the tune of about 100 crores to be paid by Govt. of Maharastra to the Dairies. (Ref : https://www.financialexpress.com /industry/dairies-in-maharashtra-to-reduce-procurement-prices-by-rs-2-per-litre/1566401/). Also refer the following quote;
Quote:
Says Mr Prakash Kutwal, (secretary, Maharashtra Milk Producers and Processors Welfare Association, tells to “The Indian Express” on the issue of plastic use in Dairies. written by Partha Sarathi Biswas, Pune Jan 13, 2019) :-
“The dairy sector in Maharashtra has been plagued by low prices, prompting farmers to take to the streets in protest. Dairies are now gearing up for a procurement price war as skimmed milk powder and white butter prices have improved in the international market”.
“Dairies then decided to revert to Rs 20 per litre base price that is continuing for now. This will soon change, given the sudden jump in SMP prices in the global market. Rate of SMP that was Rs 120 per kg has now gone up to Rs 200 per kg. Similarly, white butter prices have increased to Rs 240 per kg. As SMP export is viable once again, farmers will get good prices. I won’t be surprised if procurement prices go up to Rs 25 to 28 per litre again”. Ref: https://indianexpress.com/article/cities/pune/maharashtra-government-dairy-industry-milk-subsidy-5535982/
However, there is a ray of hope that situation in Indian Dairy industries would improve looking to the recent shine in SMP and white butter prices.
The writer of this article is Dr PK Shrivastava, retired officer from National Dairy Development Board, and now a freelance “Dairy Business Consultant”, located at Bangalore Email:pkshrivastava54@gmail.com contact: +919448768472