National Economic Development

Role of the Dairy Sector

Faheem ul Islam
University of Management & Technology (UMT)
& Muhammad Amir Qureshi
Learning Bridge
Significance of the Dairy Sector
Livestock and its Dairy Sector play an important role in
the economy of Pakistan and the livelihood of its people.
Livestock accounted for 55.1 percent of agriculture value
added and 11.5 percent of national GDP in 2010-11.
It is a net source of foreign exchange earnings,
constituting more than 8.5 % of the total exports.
The sector is immune from weather related problems
and thus offers prospects for consistent growth.
It is also an important source of raw material particularly
for leather, carpet and woolen cloth industries.
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Significance of the Dairy Sector
Livestock is raised by more than 8.5 million small and
landless families (45-55 million population) in the rural
areas and is their main livelihood source.
It is a form of social security for the poor, who cash it at
the time of need and it also serves as security against
crop failure in Barani (rain-fed) areas.
Dairy sector is an important component of Pakistans
economy. The value of milk alone exceeds the combined
value of wheat, rice, maize and sugarcane in the
country.
Pakistans Dairy Sector produced 46.44 million tons of
milk in 2010-11, making Pakistan 4th largest producer of
milk in the world.
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Significance of the Dairy Sector
Due to its importance Livestock sector has emerged as a
priority sector only recently on policy formulation.
Historically, Livestock has been subsistence sector
dominated by small holders to meet their needs of milk,
food and cash income on daily basis.
In the rural areas, livestock is considered as a more
secure source of income for the small farmers and
landless poors.
It has also become important source of employment
generation in rural areas engaging women.
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Significance of the Dairy Sector
The sector is mitigating income variability in the rural
areas as crop sector is more dependent on uncertain
vagaries of mother-nature.
The poverty incidence in Pakistan is determined by
income variability and thus livestock and dairy are the
best hope for poverty alleviation as it can uplift the
socioeconomic conditions of our rural masses.
The population growth, increase in per capita income,
remittances and export proceeds is fueling the demand
for meat and dairy products, hence creating sustainable
investment and income growth opportunities.
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Challenges Faced by the Dairy Sector
Despite being the most lucrative livestock product, milk
production is the least commercialized enterprise in the
agricultural economy.
The majority of national livestock herd is distributed in
small units throughout Pakistan.
About 55 million landless/small land holding farmers are
responsible for the bulk of milk production produced in
the country.
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Challenges Faced by the Dairy Sector
The data clearly depicts that most of the households
(more than 93%) raising cattle and buffaloes in the
country are smallholders (less than10 animals).
Similarly, most of the animals (67.6% cattle and 71.4%
buffaloes) are also raised in smallholding set ups.
Most of the milk produced (approximately 70%) in the
country is consumed at home. The remaining 30% is
marketed through various marketing channels. Only 3 to
3.5% of milk is processed in the country. The rest is sold
as raw milk or used in preparation of sweets or various
other traditional products.
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Challenges Faced by the Dairy Sector
Up to 70s, the dairy sector of Pakistan has mainly been
subsistence holdings with minimal trend for
commercialism and without much assistance from the
government.
Presently, dairy industry in the country is dominated by
private sector, multinationals as well as national
companies, primarily producing dairy commodity
products, mainly UHT fluid milk, milk powder and yogurt
and to a lesser extent cheese, in the country.
In spite of rapid development, the dairy sector of
Pakistan is in a transitional stage and is confronting with
numerous problems which are hindering its future growth
and development. 8
Livestock Development Constraints
Inadequate feed resources (short by 30%)
Unavailability of superior germplasm from known
source
Widespread breeding of genetically inferior livestock
Epidemics of infectious diseases
Poor marketing infrastructure
Inadequate institutional infrastructure
Outdated regulatory framework
Limited credit availability to the livestock farmers
(1/10th of agricultural credit)
Low investment by government
Challenges of Smallholders
The smallholder dairy producers are also faced with
daunting challenges in the areas of infrastructure,
financial insecurity, quality assurance, price regulation,
untrained manpower, high inflation of inputs, and
seasonality.
A fragmented farm base coupled with low productivity
makes collection practices inefficient. Access to proper
infrastructure such as cold chains is still limited and
leads to post harvest losses of up to 20% in some areas.
And, disparity between input and output prices has
inverse affects on farm profitability.
These challenges pose a serious threat to the
development of the dairy industry in Pakistan.
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Export Challenges
On export front Pakistans Dairy Sector is also falling
behind its competitors and faces significant challenges.
The production and processing sectors in Pakistan are
both highly fragmented in terms of the number of milk
suppliers and processors.
The industry is competing in international markets
against much larger enterprises that are increasing their
scale at a faster rate.
There has been significant and rapid industry
consolidation in recent years in the major dairy exporting
countries (Denmark, Netherlands and New Zealand)
where dominant players have emerged (into one in
Denmark, one in New Zealand and two in the
Netherlands).
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Consolidation in key Markets
New Zealand is most significant player in international
trade of milk with 35% share of global trade.
From 1961 when there were 168 dairy companies
operating under the Dairy Board, the industry underwent
an extensive period of consolidation throughout the
1970s, 1980s and 1990s. By 1981 there were 42 dairy
companies operating in New Zealand, in 1998 there
were nine, reducing to four in 2001.
Today one company, Fonterra, holds a dominant
position in the dairy industry, processing approximately
95% of total New Zealand milk supply.
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Thrust of Governments
Livestock Policy
In order to speed up the pace of development in
livestock and its Dairy Sector, the overall thrust of
Governments livestock policy is to foster private sector-
led development with public sector providing enabling
environment through policy interventions and capacity
building for improved livestock husbandry practices and
supply chain management.
The emphasis is on improving per unit animal
productivity and moving from subsistence to market
oriented and then commercial livestock farming in the
country to meet the domestic demand and surplus for
export.
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Thrust of Governments
Livestock Policy
The objective is to exploit the potentials of our livestock
and its sectors and use it as engine for economic growth,
livelihood development and food security for the country
leading to rural population empowerment and rural
socioeconomic development /uplift.
On the other hand, in recent years, the private corporate
sector has demonstrated keen interest by investing
heavily in dairy processing. The government and donors
have also been providing unprecedented assistance to
the private sector.
However, most of this support is targeted to the medium
and large scale dairy farmers, which only represent a
small portion of the milk producers. 14
Government Policy Needs to Focus
on Smallholders
According to the Livestock Census held in 2006, among
the 8.4 million reported dairying households, 51% own a
herd size of just 1-4 animals.
Another 28% households maintain herd sizes of 5 to 10
animals. Whereas, only 14.23% of the herd sizes are
composed of 11 to 50 animals.
Only 6.72% of the farms in the country come under the
large category where more than 50 animals are kept.
The small size and scattered nature of the farms leaves
a big question mark about farm economics and how to
implement better technology for the 70% of smallholding
farmers in Pakistan
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Government Policy Needs to Focus
on Smallholders
To ensure rapid development of the countrys dairy
sector, it is important that critical support is provided to
the promotion of smallholder producers.
Key issues for promoting smallholder based dairy
development would be to organize farmers, integrate
production with marketing, enhance access to credit,
upgrade milk marketing chains through adoption of
modern technology, enhance market information, and
improve farm profitability.
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Need for a Two-Tiered Action Plan
In Pakistan, a two-tiered action plan is required: to
develop systems, which provide profitability for the
smallholder and maintain quality through the
supply chain, while assisting the development of
larger scale commercial farms.
We believe the co-existence of both kinds of farms is the
reality of dairying in Pakistan and development efforts
must provide solutions for both smallholders and
commercial farmers.
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Lessons can be Learnt from
International Success Stories
Despite dairy farming being a by-product of
cropping, many small farmers around the world have
self-selected themselves into dairying and have been
able to improve their economic status.
This has been proved by three country experiences
namely China, India and Kenya - in these countries
smallholding farmers have benefited substantially by
dairy farming.
Many small farmers secure reasonable returns in
dairy farming; resulting in the economic uplift of rural
areas.
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The Chinese Model of
Dairy Farm Development
The Chinese model of farm development may provide a
good example for Pakistan.
Milk production in China is very diverse. There are large
farms, usually owned by dairy processors that utilize
some of the latest management, feeding, and
milking technologies.
These large dairy farms do not, however, account for
the bulk of milk production in China.
Smallholding production co-exists with large farms.
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The Chinese Model of
Dairy Farm Development
In China, either small farmers bring their cows to the station or
the cows are housed near the milking facility to allow cows
managed by households to be milked by machine and have
the milk go directly to a refrigerated bulk tank.
There are also a growing number of medium-sized
specialized household farms with 200-1000 cows. These are
often private farmers within reasonable transportation
distances from major consuming areas. These farmers also
have mechanized milking, cold storage, and highly productive
animals (5000-7000 liters/head/year).
Hand milking and un-refrigerated milk collection continues,
but less and less of the resulting milk is making its way into
urban areas and into the processing sector.
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Kenyas Dairy Sector Success
By most accounts the dairy sector in Kenya has been a
long-term success story. In many respects it can be
viewed as a classic new agriculture case.
It is smallholder based, integrated with the private sector,
commercially oriented, and with wide pro-poor benefits.
More than 600,000 small-scale farmers produce milk,
using dairy cows of improved breeds.
Annual net earnings from milk sales are estimated at US
$370 per year per household.
Those holding between one and three cows produce 80
percent of Kenyas milk, and the poorest group earn
around half of their income from milk sales.
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Kenyas Dairy Sector Success
Success of course does not appear overnight, and a
longer history of politics and policy is needed to put
things in context.
A smallholder focus; strong political backing across
regimes since independence; a focus on high potential
areas with sound market infrastructure; long-term state
support for productivity improvement and veterinary
care; effective and consistent donor support for the
sector; attractive to private investment, with substantial
markets nearby in Nairobi; effective farmer unions and
groups, with good political connections, able to lobby for
their interests
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Success of Dairy Farmers
Cooperative in India
Amul has become a household name in India. It is
managed by the Gujarat Cooperative Milk Marketing
Federation (GCMMF), which is jointly owned by nearly
3.1 million milk producer families. More than 70% of
whom are small, marginal farmers and landless laborers
and include a sizeable population of tribal folk and
people belonging to the scheduled castes.
In turn, GCMMF is an aggregation of over 15,700 village
dairy cooperative societies and 15 district cooperatives.
The brand is an unqualified success, with an annual
revenue of Rs8,000 crore in 2009-10, and a daily milk
procurement exceeding 9.4 million litres.
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Success of Dairy Farmers
Cooperative in India
The Amul Model is a three-tier cooperative structure.
This structure consists of a Dairy Cooperative Society at
the village level affiliated to a Milk Union at the District
level which in turn is further federated into a Milk
Federation at the State level.
The above three-tier structure was set up in order to
delegate the various functions, milk collection is done at
the Village Dairy Society, Milk Procurement &
Processing at the District Milk Union and Milk & Milk
Products Marketing at the State Milk Federation.
This helps in eliminating not only internal competition but
also ensuring that economies of scale is achieved.
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Success of Dairy Farmers
Cooperative in India
GCMMF now has the largest milk handling capacity in
Asia and largest Cold Chain Network.
48 Sales offices, 5000 Wholesale Distributors, 700,000
retail outlets and export to 41 countries.
Indias National Dairy Development Board has exported
the GCMMF model to other states.
Today, over 100,000 village dairy cooperatives federated
in 177 milk unions and 15 federations lend substance to
the term operation flood, which revolutionized milk
production and distribution in India over 25 years.
GCMMFs three-tier cooperative structure can provide
insights for developing smallholder focused action plan
in Pakistan.
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GCMMF - Village Dairy Cooperative
Society (VDCS)
The main functions of the VDCS are as follows:
Collection of surplus milk from the milk producers of
the village & payment based on quality & quantity
Providing support services to the members like
Veterinary First Aid, Artificial Insemination services,
cattle-feed sales, mineral mixture sales, fodder &
fodder seed sales, conducting training on Animal
Husbandry & Dairying, etc.
Selling liquid milk for local consumers of the village
Supplying milk to the District Milk Union
Thus, the VDCS in an independent entity managed
locally by the milk producers and assisted by the District
Milk Union.
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GCMMF - District Cooperative Milk
Producers Union (Milk Union)
The main functions of the Milk Union are as follows:
Procurement of milk from the Village Dairy Societies of
the District
Arranging transportation of raw milk from the VDCS to
the Milk Union.
Providing input services to the producers like Veterinary
Care, Artificial Insemination services, cattle-feed sales,
mineral mixture sales, fodder & fodder seed sales, etc.
Conducting training on Cooperative Development,
Animal Husbandry & Dairying for milk producers and
conducting specialized skill development & Leadership
Development training for VDCS staff & Management
Committee members.
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GCMMF - District Cooperative Milk
Producers Union (Milk Union)
Providing management support to the VDCS along with
regular supervision of its activities.
Establish Chilling Centers & Dairy Plants for processing
the milk received from the villages.
Selling liquid milk & milk products within the District
Process milk into various milk & milk products as per the
requirement of State Marketing Federation.
Decide on the prices of milk to be paid to milk producers
as well on the prices of support services provided to
members.
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GCMMF - State Cooperative Milk
Federation (Federation)
The main functions of the Federation are as follows:
Marketing of milk & milk products processed /
manufactured by Milk Unions.
Establish distribution network for marketing of milk &
milk products.
Arranging transportation of milk & milk products from
the Milk Unions to the market.
Creating & maintaining a brand for marketing of milk
& milk products (brand building).
Providing support services to the Milk Unions &
members like Technical Inputs, management support
& advisory services.
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GCMMF - State Cooperative Milk
Federation (Federation)
Pooling surplus milk from the Milk Unions and
supplying it to deficit Milk Unions.
Establish feeder-balancing Dairy Plants for
processing the surplus milk of the Milk Unions.
Arranging for common purchase of raw materials
used in manufacture / packaging of milk products.
Decide on the prices of milk & milk products to be
paid to Milk Unions.
Decide on the products to be manufactured at various
Milk Unions (product-mix) and capacity required for
the same.
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GCMMF - State Cooperative Milk
Federation (Federation)
Conduct long-term Milk Production, Procurement &
Processing as well as Marketing Planning.
Arranging Finance for the Milk Unions and providing
them technical know-how.
Designing & Providing training on Cooperative
Development, Technical & Marketing functions.
Conflict Resolution & keeping the entire structure
intact.
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Concluding Remarks
Pakistans Dairy Sector holds great promise for national
economic development, export growth, food security,
poverty alleviation and economic engagement of women.
The Dairy Sector, in recent years, has witnessed
vigorous Government interest and private sector
investment.
In spite of rapid development the Dairy Sector remains
largely fragmented, dominated by scattered
smallholders.
A two-tiered action plan is required to engage and
provide profitability for the smallholder while assisting
the development of larger scale commercial farms.
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Thank You