The dairy industry is one of the most important constituents of agriculture and animal husbandry sectors in India. It is a source of income for millions of rural households. Justifiably, it holds a vital position in India’s economy map. Operation Flood, popularly known as White Revolution of India, a project launched by India’s National Dairy Development Board (NDDB) in 1970 brought a major transformation in this industry. It was an economic milestone that aimed to connect milk producer directly with consumers, establish a fair price mechanism, provide quality and value to consumers and aid in the development of dairy farmers across India. This project also acted as a launch pad for the Indian dairy industry to commence its footprints in the global markets. In the following years, the Indian government introduced various schemes to strengthen the production, procurement, processing and marketing of dairy industry.
Challenges : While the Indian dairy industry has capitalized immensely on Operation Flood and government efforts, it has still not reached the desired potential due to the following challenges.
Unorganized Supply Chain : The dairy industry is predominantly unorganized. Only 14% of the milk produced in the country is procured by co-operatives and private companies (organized) while 32% is sold by milkmen and local vendors in the unorganized market and 54% is used for self-consumption. The producers/vendors in the unorganized market are unwilling to sell milk outside their comfort areas, partly due to lack of resources and partly due to lack of supply chain infrastructure. Also, since milk is a perishable product, it creates major challenges in logistics pertaining to sourcing, processing, warehousing and distribution to other parts of the country for even the organized sector.
Quality Aspect : While the Food Safety and Standards Authority of India (FSSAI) has laid down standards of quality for milk and milk products, there are still concerns on the available products and their acceptability towards adhering to standards. As per the latest survey by FSSAI, around 90% of products are found safe. Nevertheless, there remain doubts in the minds of consumers on the quality aspect.
Underdeveloped Facilities for Quality and Hygienic Livestock Management: In spite of being home to the largest livestock population in the world, India’s livestock management is below par than other countries. There is a shortage of organized space and shelter to horde milk-producing animals. The veterinary infrastructure is also poorly developed.
Fodder and Water Scarcity : Animals need dry or green fodder throughout the year but the scarcity of fodder and water adversely impacts their overall milk production and productivity. The scarcity can be attributed to three main factors – the area of natural grassland pastures are decreasing rapidly; the crop residues are increasingly being diverted to be used as fuel wood in industrial uses; and a majority of farmers do not build any fodder reserves to sustain during the extreme climatic conditions like drought or floods.
Lack of Cold Chain Infrastructure : Milk is a perishable and temperature-sensitive commodity. It requires uninterrupted cold chain storage and transport facilities to retain its purity and freshness as well as prevent bacterial spoilage. There is a dire need of low cost technology for chilling milk at farm level and insulated vehicles for transportation. Due to poor cold chain facility, huge amounts of milk end up being wasted. Currently, cold chain infrastructure is almost non-existent with only limited options available. In fact, The National Centre for Cold Chain Development (NCCD) has identified a gap of 3.2 million MT in cold storage capacity in India (comprising all perishables).
Opportunities: The above challenges are certainly hampering the growth of the Indian dairy industry, but let’s take a look at the positive side. All these challenges actually translate into opportunities because the future of this industry is quite bright if we look at the numbers:
The market size of the Indian dairy industry stood at Rs. 9,168 billion in 2018.
In the same year, India also became the leading milk producing country in the world, accounting for 19 percent of the global market share.
It is estimated that the dairy industry will grow at 14.8 percent CAGR to attain Rs. 2,458.7 billion value and become the largest dairy producer in the world by 2023.
The dairy industry is also set to witness Rs. 130-140 billions of investment in the next two years.
The dairy sector is expected to generate 1.2 crore new jobs in a few years.
The size of organized dairy market is Rs. 1 lakh crore and growing at 10%.
India’s cold chain market is expected to reach Rs. 470 billion by 2022.
These numbers clearly indicate that the dairy industry can flourish by leaps and bounds by leveraging on the following opportunities:
Catering to Demand and Consumption: India is the largest milk-consuming country in the world. Currently, the per capita milk availability is 370 gram per person which surpasses world per capita milk availability of 260 gram per person. The demand for milk and related products is expected to rise driven by increasing population, higher income leading to more spending power, heightened interest to experiment with new foods and increasing health consciousness. The share of milk and milk products in the monthly per capita food expenditure of Indian customers is rising steadily. The rise in the demand for milk spells good times for the dairy industry ahead.
Entrepreneurship : An increasing number of startups have emerged in the Indian dairy industry paving the way for organized supply chain management, higher product quality, product diversification, food safety, innovative livestock breeding and maintenance practices, nutritious fodder for livestock, dairy technology and professional marketing. Dairy entrepreneurship is still in the nascent stage, but it has tremendous potential to take the dairy industry to new heights.
Technology Innovations : Many private companies, co-operatives and startups are relying on new-age technologies such as artificial intelligence, advanced analytics and Internet of Things to improve milk production, find anomalies in milk production, reduce milk wastage, monitor health of livestock, predict weather conditions, develop last mile logistics infrastructure and digitize the operations. While these technologies are still not accessible and affordable for milk producers and vendors in rural areas, it is only a matter of time that they embrace these with industry and government support.
Product Diversification: An increasing number of Indians are now demanding Value-Added Dairy Products (VAP) such as UHT/flavoured milk, cheese, flavoured/frozen yoghurt, ice-creams, butter, buttermilk, milk shakes and baby foods for their deliciousness, superlative edge to balanced nutrition, power of real ingredients and larger shelf life than raw milk. There is also a huge demand for these products in retail food chains, fast food outlet and coffee shops. These products have higher margins and offer around 20% higher revenues as compared to regular dairy products such as liquid milk, ghee, paneer, etc. VAP market currently account for 8-10% share of the unorganized dairy sector but it is estimated that it will witness 6-8% YOY growth and capture 20% of the market share by 2021. It is also expected that VAP market will grow 50% faster than the entire dairy sector fuelled by factors such as rapid urbanization and increase in number of women in the workforce due to which they wouldn’t have much time to make curd, butter, etc. from milk at home. There is also the fact that certain dairy beverages are more affordable and healthier than carbonated drinks and packaged fruit juices. In the coming years, the dairy industry will capitalize on product diversification for growth.
Government Initiatives: The Indian government has been making fruitful efforts to uplift the dairy industry through schemes such as the National Dairy Plan (Phase 1), National Programme for Bovine Breeding and Dairy Development and Dairy Entrepreneurship Development Scheme. It has also provided income tax deductions related to cold chain facilities. There is no doubt that the Indian dairy industry is poised to tap its full potential. In the coming years, it will create level-playing fields for all industry players and benefit customers in terms of quality and prices, eventually creating a win-win situation for all stakeholders.
(The author is a freelancer. Views are his own)