The Indian Dairy Industry

Scope of the Presentation

OVERVIEW OF GLOBAL DAIRY INDUSTRY OVERVIEW OF INDIAN DAIRY INDUSTRY THE MILK SUPPLY CHAIN

ISSUES AND CHALLENGES

KEY TRENDS

SUCCESS STORIES
THE INTEGRATED DAIRY FARM CONCEPT

Global Dairy Industry An overview

MILK PRODUCTION (MMT)OF MAJOR MILK PRODUCING COUNTRIES
10.1 10.5 9.6 13.6 10 8.4 146.4

7.9

15
27.1 23.7 28.6 32.2 77.5

91.1

EU - 25
Brazil Argentina

India
China Turkey

United States of America

New Zealand Australia

Russian Federation
Ukraine Japan

Pakistan
Mexico Canada

Key products & World Market

Cow Milk
Production went up by 10 MT to 541 MT (1.8 % more than 2005) North America and South America became the potential cow milk producing countries

Buffalo Milk
Estimated production at 80 MT with more than 52 MT in India and 20 MT in Pakistan

Butter and Other Milk Fats

Major production recorded in EU countries Declining trend observed in the production due to increased consumption of low fat

products

Cheese
Production increased in EU countries (growth by more than 100,000 tonnes) Production increased in Latin America and Eastern Europe mainly to cover the demand

from home markets

Milk Powders
Slight reduction in production of WMP and SMP EU and Australia

Top Global Dairy Players

Switzerland, Private Ownership 14.7 bn USA, Private Ownership, 7 bn USA, Co-operative, 6.8 bn France, Private Ownership, 6.5 bn Denmark, Co-operative, 6.4 bn New Zealand, Co-operative, 6.3 bn France, Private Ownership, 5.7 bn USA, Private Ownership, 5 bn Netherlands/UK, Private Ownership, 4.8 bn

Global Trade Flows of Dairy Products

Producer Cost Estimate of Milk Production at Farm Level

Global Alliances

Evolution of Organised Dairying in India

1889

Establishment of military dairy farms in Allahabad, Bangalore, Ooctamund and Karnal for supply of milk and butter to defence personnel Handling of milk in cooperative milk unions in Allahabad Long distance refrigerated rail transport from Anand to Bombay a) Aarey 1950

1913

1945

Pasteurization & bottling of milk on large scale for organized distribution. 1950-63 b) Worli 1961 c) Kolkata - 1959 d) Delhi 1959 e) Madras - 1963

1951

Establishment of milk plants under Five Year Plans for dairy development all over India

Financed by the sale of gifted material by EEC through World Food Programme,. Linkage of 18 1979-80 Indias premier milksheds with consumers in India Milksheds increased to 136., with 290 outlets. 43000 milk co-operative 30000 new milk co-operatives get added, milkshed peaked to 173
1991 : Delicensing of Dairy industry, 1992: Initiation of Milk & Milk Products Order

1981-85

1985-96

Indian Dairy Industry at a Glance

Human Population: 1,094 million (70 million dairy farmers) Milk Production: 94 million tonnes/year
Cow Milk-41%

Buffalo Milk-55%
Goat Milk-4%

Average Annual Growth Rate: 4 % Per Capita Milk Availability: 240 gms per day

Milk bovine population:

Cross bred cows : 8.2 million Indigenous cows : 27.6 million Buffaloes : 33 million

Average Milk Yield Per Day:

Cross bred cows : 6.5 kg Indegenous cows : 1.9 kg Buffaloes : 4.2 kg

Indian Dairy Industry at a Glance

Cattle Feed Production (Organized sector): 2.5 million tonnes / year Market for Veterinary Pharmaceuticals: Rs 12,000 million Dairy Plants throughput: 45 million litres per day (18 %) Dairy Plants and their installed capacity: 748 dairy plants with 81.3 million litres / day

capacity
Total value of dairy products: Rs 191, 000 crores

The National Milk Grid (NMG)

Balancing of regional fluctuations in milk procurement & demand & supply gaps resulting from concentrated production of liquid milk in selected milk sheds 140 insulated rail milk tankers each with capacity of 40000 liters transport milk across long distances(2200 Kms)

Dairies in North & Western India contribute maximum to the NMG

NCDFI manages the NMG & coordinates the deficit and surplus milk & milk powder across the states

Industry Classification
Raw Milk produced on farms

Milk Retained on farms (31.9 %)

Milk Sold (68.1 %)

Organized Sector (17.0 %) Milk Products (6.4 %) Liquid Milk (10.6 %)

Unorganized Sector (51.1 %) Milk Products (31.9 %) Liquid Milk (19.2 %)

Organised v/s Unorganised Channel

Unorganised Channel

Milk Procurement , collection & transportation

Consumer

Organised Channel
Milk collection Milk Chilling Milk Distribution

Milk Procurement

Milk transportation

Milk Processing

Consumer

Industry Structure
Milk Producers Animal Health Breeding Facilities Feed and Fodder Dairy Co operative Society Direct Milk Payment Profit Sharing Dairy Products

Farmer Education Veterinary Services Feed, AI, fodder seeds

Milk Collection, Weighing, Cooling

Payments Profit Sharing Training & Supervision

Transport

District Level Co operative Union

Feed Manufacturing Semen Production Processing & Packaging Marketing & Distribution (State Cooperative Milk Marketing Federation) Dairy Products

Consumer

Anand Pattern of Co operative Dairying

Contd: Industry Structure

Producer processor linkages Markets Domestic/Exports Milk and Milk Products Wholesalers/Retailers/Private companies Consumers money Milk processing plant Payment Milk Transport Contractors Contractors Milk and Milk Products A.I, extension and veterinary services In few cases

In private dairy plants

Consumers money

Payment

Payment Subcontractor Milk

Milk

Commission Commission Agent

Payment Dairy Farmer

Milk

Payment Dairy Farmer

Dairy Farmer

Market Profile Dairy products

Organized Sector Unorganized Sector

38
98 35 5.2

210

60
20

455

62.5

160
6.3
Packaged Liquid Milk Curd & curd products Ice Cream Ghee Ethnic Sweets Cheese Butter Milk Powder

Ethnic Sweets Cheese (Paneer) Ghee

Curd & curd products Butter

200203 data

Rs in billion

Key Market Players

Player Estimated dairy sales (Rs million) Capacity million Litres/day Key markets USPs

GCMMF Nestle

28,941 1,000

6.6

National National

Strong co operative network. Initiation of Nestle Milk District model for value chain development. Process automation technologies. Latest technologies, strong sales & distribution network. ------------Latest technologies, strong sales and distribution network. -----

Mother Dairy Hatsun Agro

9,000 4,550

2 1

National for milk products, Delhi, Mumbai and Hyderabad for liquid milk Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Kolkatta Contract Manufacturing National Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Kolkatta Coastal districts of Andhra Pradesh and Hyderabad Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Nagpur West Bengal

Dynamix dairy Britannia Heritage Visakha dairy Creamline dairy Metro Dairy

3,000 3,000 2,660 2,400 1,600

1 Outsource 0.5 0.3 0.43

1,500

0.35

Milk Supply Chain An Overview

Supplementary occupation for small landholders or landless labourers.

Milk Production

70 million rural households engaged in this activity. Average herd size 2 milking animals.

Average daily milk production per herd about 4 litres.

Concentrated mainly in north and western states. Lower cost of milk production.

Milk Procurement

Farmers bring the milk to the village co operatives societies and paid

according to the quantity and fat present in the milk.

Private players depend on contractors for procuring milk from the

farmers.
Milk processing capacity has grown at a CAGR of 4 per cent over the

last 6 years.

Milk Processing

Most of the new capacity is being set up by the private sector. (63 % of

the registered units & 46 per cent of the processing capacity)

Private sector players have limited scale of production as compared to

these co operatives.
Sale & distribution of fluid milk may occur directly from the farm or the

Milk & Milk Products distribution

milk collection stations or through local distributors.

Large co operatives are beginning to expand through their own and

franchised market outlets.

Milk Supply Chain Cost Structure

Milk Production Milk Production Cost Rs 7.90 per litre

Milk Procurement

Cost of milk collection borne by the milk producers Rs 0.37 per litre Cost of milk collection borne by the co operatives Rs 0.34 per litre

Milk Processing

Cost of milk collection borne by the milk plant Rs 2.62 per litre

Milk & Milk Products distribution

Cost incurred in distribution of milk Rs 0.25 per litre

Milk Value Chain Price Structure

Marketing Price Rs. 14.56[3%]
Retailer Expenses 0.13 Retailer Profit 0.3

Processing Price Rs. 14.13[25%]

Collection Cost of Co-Operative Society 0.34 Profit of Co-Operative 0.34 Collection Cost of Dairy Plant 2.02 Profit of Dairy Plant 0.97

Procurement Price Rs.10.46[18%]

Cost of milk Collection 0.37 Producers Profit 2.19

Production Price Rs. 7.9 [54%]

Regulatory Framework
Act/Law MANDATORY REGUALTIONS What the Act/Law envisages

Milk and Milk Products Order, 1992

Mandatory registration of all the dairies handling 10,000 litres of milk per day or milk products containing milk solids exceeding 500 tonnes per year.
Mandatory Act ensuring the quality and safety of the foods marketed in the country.

Prevention of Food Adulteration Act, 1954

Standards of Weights and Measures Act, Governs sale of packaged commodities and provides for 1976 and Standards of Weights and mandatory registration of all packaged products in the Measures (Packaged Commodities) country. Rules, 1977 Export (Quality Control and Inspection) Facilitation of export trade through quality control and inspection Act, 1963 before the products are sold to international buyers. Pollution Control (Ministry Environment & Forests) of No objection certificate mandatory from the respective State Pollution Control Board for all dairy plants.

Regulatory Framework
VOLUNTARY STANDARDS What the Act/Law envisages Agriculture Produce (Grading and Grading and standardization of agriculture and allied Marketing) Act, 1936 as products amended in 1986 (AGMARK) Bureau of Indian Standards (BIS), Standardization and certification systems in the food 1986 sector

OTHER REGULATIONS
Consumer Protection Act, 1986 Insecticide Act, 1968 Infant Milk Substitute, Feeding Bottles and Infant Foods (Regulation of Production,

Supply and Distribution) Act, 1992 & Rules, 1993 amended in 2003.
Environment Protection Act, 1986
Industrial License Foreign Investment

Milk and Milk Products Order

Amendments in Milk and Milk Products Order, 1992
Provision of assigning milkshed removed. Sanitary, hygienic condition, quality and food safety to be covered under registration. Flexibility in inspection of dairy plants. Granting of registration in 45 days instead of 90 days. Registration power of State registering authority raised from 1.00 LLPD to 2.00 LLPD.

791 units with combined capacity of 982.30 LLPD registered in Co operative, Private and Government sector as on 31.3.2006 (provisional figures).

Government Initiatives
Centrally sponsored Dairy Development Schemes Scheme Intensive Dairy Development Programme Purpose Milch cattle development, improvement in milk production, procurement, processing and marketing of milk in hilly and backward areas. Infrastructure development for the production of quality milk and milk products across the milk supply chain. Organised development of dairy and poultry sector. Proposed Modifications Would be implemented as Dairy Development in Low Milk production potential areas and the funding for the project will be from Dairy Venture Capital Fund. Scheme applicable to the deserving unions which are not financially strong to allocate the resources for infrastructure development. The funding of the project will be form Dairy Venture Capital Fund. Poultry component will be separated under the scheme and a new revolving fund will be started for the dairy sector. Purchase of milch animals will be excluded under the scheme. Assistance to co - operatives Revitalize sick dairy unions Scheme will be discontinued.

Strengthening Infrastructure for Quality and Clean Milk Production

Venture Capital Fund for Dairy/Poultry sectors

The Food Safety and Standards Act, 2006

The Integrated Food Law passed by Government of India (to be enforced by the proposed Food Regulation Authority) will govern all matters pertaining to food safety and standards, regulations and enforcements. This law will replace all other laws thereby providing uniform and integrated approach towards effective implementation of food laws. To be introduced as The Food Safety and Standards Act 2006, the integrated law will be governed by the Food Safety and Standards Authority of India. Under the bill, on and from the date of commencement of this Act, the Milk and Milk Products Order, 1992 issued under Essential Commodities Act, 1955 shall be deemed to be the Milk and Milk Products Regulation, 1992 issued by the Food Authority under this Act. Necessary Amendments have also been made in Infant Milk Substitute, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 & Rules, 1993 amended in 2003.

Milk Supply Chain Issues & Challenges

Production Procurement Processing Marketing Exports

Low productivity ofMarket Linkage milch animals. Lack of quality control and monitoring Infrastructure & mechanism across the value chain Logistics
Milk processing
Milk procurement Milk Production
Issues and Challenges

Milk Supply Chain Issues & Challenges

Production Procurement Processing Marketing Exports

Market Linkage Marketing & Distribution

Milk processing
Milk procurement Milk Production
Issues and Challenges

Milk Supply Chain Issues & Challenges

Production Procurement Processing Marketing Exports

Exports Marketing & Distribution

Milk processing
Milk procurement Milk Production
Issues and Challenges

Milk Supply Chain Issues & Challenges

Production Procurement Processing Marketing Exports

Exports Marketing & Distribution

Milk processing
Milk procurement Milk Production
Issues and Challenges

Milk Supply Chain Issues & Challenges

Production Procurement Processing Marketing Exports

Exports Marketing & Distribution

Milk processing
Milk procurement Milk Production
Issues and Challenges

Milk Supply Chain Key Trends

Production Procurement Processing Marketing Exports

Market Linkage Cross bred technology. Mechanization and automation. Infrastructure & Organized feed compounding. Logistics

Milk processing
Milk procurement Milk Production
Key Trends

Milk Supply Chain Key Trends

Production Procurement Processing Marketing Exports

Bulk Milk Coolers for efficient cooling and storage. Automatic milk collection centers at cooperative level. Interlinking of cooperatives with intermediary chilling Market Linkage centers.
Marketing & Distribution

Milk processing
Milk procurement Milk Production
Key Trends

Milk Supply Chain Key trends

Production Procurement Processing Marketing Exports

Emerging technologies like microwave processing, membrane technologies, bactofugation etc. Process automation including packaging for traditional dairy products due to enhanced demand.
Exports Marketing & Distribution

Milk processing
Milk procurement Milk Production
Key Trends

Milk Supply Chain Key Trends

Production Procurement Processing Marketing Exports

Convenience packaged dairy products in offing like single serve cheese portions etc. Milk vending machines at dairy parlours.
Exports Marketing & Distribution

Milk processing
Milk procurement Milk Production
Key Trends

Milk Supply Chain Key Trends

Production Procurement Processing Marketing Exports

Low quality and hygiene standards. Lack of expertise in international marketing of dairy products. Huge domestic demand leading to limited surplus for exports.
Exports Marketing & Distribution

Milk processing
Milk procurement Milk Production
Key Trends

Huge Unrealized Potential in Ethnic Dairy Products Segment

Burfi Peda Gulab jamun kalakand Khurchan Dharwad Peda Kunda

Rasgola Sandesh Pantua Rasmalai Cham Cham

Khoa

Kulfi

Rabri

Basundi
Kheer

Heat Desiccated Products

Payasam Phirni

Channa
Acid Heat Coagulated Puddings/ Deserts

Channa Murki

Ghevar

Milk

Rajbhog

Paneer
Fat Rich Products Cultured Products

Sevian Sohan Halwa Gajar Ka Halwa Cashew Burfi Dahi Mishti Dahi Lassi Chhach

Channa Podo

Ghee

Butter

Malai Shrikhand

Key trends Skewness towards Consolidation

Consolidation through global alliances is expected to result in :
Restricted access to the 94 per cent of the world dairy market and dealing with the suppliers

that could service the dairy companies globally are the most important driving factors driving the acquisition of dairy companies already working in protected markets, and the alliances with them in joint ventures Global partnerships are the result of formation of management and financial linkages by dairy companies across the regions Such global partnerships can result in mutual benefits by exchanging the expertise in the fields of dairy production, processing, marketing and distribution

Strategic Alliances in Indian Dairy Industry

Britannia Milkman Fonterra had the expertise in the product development, strong R & D set up to assist in product innovation, product improvement and cost reduction with strong market learnings. On the other hand, Britannia had a strong distribution network

50% Britannia

50% Fonterra Co operative group

Dabon International Limited, Bongrain International is the market leader in ten countries including France and Germany, the worlds largest dairy markets

50% Dabur

50% Bongrain International S.A.S of France

Tone up the marketing strategies, adoption of latest technology for improving quality as well as product diversification

49% Kerala Cooperative Milk Marketing Federation (MILMA)

51% Mother Dairy Foods Private Limited