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Dairy Dynamics

Today, India is considered ‘The Oyster’ of the global dairy industry. It offers opportunities galore to entrepreneurs worldwide, who wish to capitalise on the world’s largest and fastest growing market for milk and milk products. However, the potential can be milked only if productivity and cold chain challenges are tackled By Steena Joy

Present in the human diet since 9,000 BC, animal milk is a very important source of nutrients. Thanks to Operation Flood, Dr Verghese Kurien’s ‘Billion Litre Idea’ launched in 1970, (a project of the National Dairy Development Board, which was the world’s biggest dairy development programme), India changed from a milk deficient economy to a milk surplus one. Today, the country’s dairy industry is expected to increase at a CAGR of 15 per cent between 2015 to 2020, to reach a value of Rs 9,397 billion, resulting in India overtaking the European Union to become the largest milk and dairy products producer by 2020. Additionally, on account of a steady population growth and rising incomes, milk consumption is on the rise in India. India consumed 138 million metric tonnes (MMT) of milk in the financial year 2015 and was the world’s largest
consumer of milk.

The milk economy

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Arvind Bhandari

The organised dairy sector in India has experienced strong value growth of 15 per cent per annum over the last five years in the face of price increases for dairy products which is good. India produces an estimated 400 million litres of milk per day. Of the total milk supply, merely 30 per cent is generated by the organised sector as of today, comprising mainly of co-operatives, the biggest being Amul and Mother Diary. Arvind Bhandari, general manager, dairy, Nestlé India says, “The dairy business requires scale and long term commitment. The companies have to ensure deep involvement and integration with the back-end supply chain. This is the reason for the co-operative model to dominate the dairy industry globally while private sector participation tends to be limited.”

Nestlé India is amongst the pioneers of the dairy industry for high quality milk. The company believes that quality differentiation and continuous innovation are key to growth in an environment dominated by large co-operative brands. Nestlé’s experience in Punjab, where it started developing dairy farming since 1961, is a good example where the company as well as the community benefitted because of the commitment towards creating a milk economy. This entire process required perseverance, commitment and understanding of the local economy. Nestlé’s efforts included reaching out to the community and building confidence amongst farmers. Bhandari continues, “The market for milk and dairy products in India is not homogenous. While on the one hand consumers are price conscious, on the other, there is increasing demand for premium products where consumers recognise the benefit and prefer the value addition.”

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Deepak Jain

There is all round increase in consumption of dairy products in both the urban and rural segments in the country. Deepak Jain, MD, D’lecta, an innovative dairy products and food services company, points out, “Consumer preferences are shifting towards higher value added products including flavoured dairy beverages, fermented foods, Western products like cheese and ice cream and even packaged traditional products. Most of the large dairy businesses in India have built their business on liquid milk as the principal product. But the next level of growth will come from value added products.”

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Shweta Shrivastav

Shweta Shrivastav, head of marketing, London Dairy Ice Creams confirms that the organised market is growing its share in the pie with the consumer becoming more aware and conscious of health and hygiene related issues. “This is leading to more demand for packaged and branded milk and packaged curd. Ice cream is a small part of the pie, with the premium ice cream market pegged at Rs 150-200 crore. This segment has been witnessing 15 per cent growth YOY, led primarily by disproportionate growth in the premium category,” she says.

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Devendra Shah

Devendra Shah, chairman, Parag Milk Foods, which owns the Gowardhan and Go brands, says, “We are very much focused on value added products. Our business consists of 80 per cent value added products. In the cheese category, Go Cheese has 33 per cent market share.”

Vivek Nirmal, joint MD, Prabhat Dairy, observes, “Till a few years ago, Indian households preferred to consume milk in plain liquid form and the only variants in vogue were butter and ghee. However, in the recent years there is a significant upside shift in demand as the Indian consumer has shown a marked inclination for value – added products, thanks to lifestyles shaped by Western influences, more number of working couples with higher purchasing power as also demanding work schedules that make ‘ready – to – eat’ a tailor – made easy option.”

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Vivek Nirmal

He adds, “Dairy is an extremely attractive market, both because of its size and its potential. It is also, however, a marketplace fraught with danger that can sink even big players because of its sheer complexity. Over the next few years, the dairy market will see the mother of all market battles as the newcomers try to take away market share.” Prabhat is an integrated milk and dairy products company with two manufacturing facilities having a processing capacity of 1.5 million/ litres a day.

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Jehangir Lawyer

Jehangir Lawyer, director, Fortune Gourmet, a leading importer and distributor of specialty foods including cheese, believes that the industry offers enormous opportunity for entrepreneurs to capitalise on. “As the existing industry is unorganised, someone who can fill the gaps can grow very fast in this segment. There is huge need at the moment to change the scenario in its functioning and to modernise so we can have optimum results with the milk and cattle we have. There is great potential for new comers looking at the increasing demand and market size but the complexity of this market has to be managed or it can even drown you,” he says.

The challenges

Though India may boast of one of the world’s largest cattle population, the average output of an Indian cow is significantly lower compared to its American counterpart. How then can dairy companies source quality milk? The key will be to support farmer – driven dairy farming with downstream companies playing the anchor role to involve service providers such as those supplying feed, genetics, healthcare and equipment. Nirmal agrees, “Whether it is an animal or a human being, for a better output one definitely needs to eat nutritious, healthy food. Even the environment needs to be good and friendly. Good veterinary doctors are required. Everything matters! If one wants even a glass full of quality milk then the cattle needs to be taken care of like a small baby. Do we have that kind of grassy open land for cattle to graze and enjoy? Are they taken care of well? For all this to happen one has to take a conscious effort. At Prabhat Dairy’s Shrirampur plant  you will see the cows grazing happily. The farmers are trained and well – equipped. We are the only company that has gone ahead with artificial insemination for the cows!”

Shah feels that the issue is not healthy cows but milk yield per animal which is very low. “The main reasons for the low yield are: Lack of use of scientific practices in mulching, inadequate availability of fodder in all seasons and unavailability of veterinary health services. “We at Bhagyalakshmi Dairy Farm, a wholly owned subsidiary of Parag Milk Foods, are working on the cow comfort technology which includes, music for cows, dry mat for sitting, 24×7 RO water, water sprinklers for cooling, total meal ratio according to age, lactation etc. This has shown results and we believe that ‘Happy cows give better milk’. All these practices we are showcasing to the nearby farmer community to create awareness about the same.”

Lawyer feels that the very reason is the way we feed our cattle. “We need to educate the farmers and provide them with proper training on how to raise cattle and what to feed them or where the cattle should graze. In the West, raising of cattle is given huge importance,” he cites.

Despite being the world’s largest producer, the dairy sector in the country is plagued with various challenges like shortage of fodder, dismal transportation facilities and a poor cold chain infrastructure. Nirmal laments, “The way milk is produced, packaged and marketed is, yes, a matter of concern and is indeed ironical that the numero uno status in production offers a sharp contrast to the mediocre methods of production that still prevail across the country. Of course the trend is changing but at a slow pace. The main concern however is the cold chain facilities We as a major player in the industry expect radical change. If this scenario does not change then India will have to slide down from the numero uno position.”

Jain has a different viewpoint. “For many decades, India has consistently delivered around 4.5 per cent annual growth in milk production. This is roughly three times the world average. This growth could not have come if the country had not tackled the challenges. Yes, much more needs to be done and these challenges could restrain further growth. Personally I feel fodder and water availability are the bigger challenges to growth,” he avers.

Any large dairy player in India requires setting up a supply chain for consistent supply of quality milk. Dairy companies have to set up infrastructure at the village level for collection of milk. Jain adds, “Their role does not end at that – they will also have to work with the farmers for increasing milk production and productivity and  provide training/ incentive for clean milk production.”

Most of India’s supply-side constraints are disturbing with the poor per cow production, average infrastructure and logistical arrangements. Nirmal opines, “Exacting excellence in production is the need of the hour to be able to meet the fast-growing demand; especially for value – added milk-based products like curd, butter milk, lassi, processed cheese, butter and flavoured variants.”

Shah affirms that the Indian dairy industry is moving in the right direction. “To some extent through government support, we have already overcome the challenges. Today, a large number of small and marginal farmers are involved in dairying. The entire focus is on enhancing the per capita productivity.  The challenge for any brand is to increase distribution, create value offerings for the consumer and constantly reinvent and innovate to create a differentiator,” he says.

The retail bandwagon

Industry observers believe that the most important thing to do is educate the individuals involved in the supply chain, from the milkman to the retailer. Lawyer is sure that, “If we can make the chain stronger it will give great outcome; it is very necessary that at all levels, the hygiene and cold chain is maintained. We are seeing changes in the transport system these days which will continue to get better day by day.”

There are also retail obstacles. Asit Roy, vice-president, Prabhat Dairy notes, “Making a presence in retail is not easy due to the cold chain facilities not being available across India. One can survive only if they are big players who have plants across India or else a tie-up with local players. Also, retail infrastructure cannot support this industry due to space constraint of cold chain products. However, the next big market is long life packaging of all milk by-products which would add life to the industry.”

Shrivastav adds, “While dairy sub-categories like milk, curd etc are planned purchases, ice cream is largely an impulse product. So presence in outlets in the vicinity of the consumer is an important task. Distribution thus becomes key in driving the business. Being present across A-class General Trade and the entire universe of Modern Trade is the first step to getting the brand close to the consumer. Modern retail particularly has been the driving force for premium brands like London Dairy since this is where the consumers come, not just for a product but for an experience.”

Future flow

Per capita consumption of milk in India is still one-third of the Western countries. There is definitely further potential for growth. Jain forecasts, “Prices of dairy products will remain high due to sustained strong domestic demand. Although the international dairy market prices have fallen, their impact on local Indian market is minimal due to  import tariffs that provide a measure of protection to the domestic industry.”

Lawyer is of the opinion that the market will continue to grow at least 20 per cent every year, but feels that with the competition in the market and big players getting more organised and even bigger, prices will not increase much. Shah says that volumes have been growing four per cent plus every year and he expects the market  to grow at the same pace, with prices in the longer term moving in the line of inflation.

The dairy sector would continue to see investments by both the cooperative sector and the private sector. Large corporates like ITC, Godrej Group and Mahindras have also recently invested in the dairy sector. “Almost all the existing large players in the cooperative and private sectors are pursuing large investment programmes. A few companies have also raised money from the stock market to fund their expansion plans,” informs Jain.

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Industry analysts feel that private equity investments and mid – sized companies going public could be the trend. Investing in technology could go a long way in milching this cash cow. “This industry is looking at finer technological advancements in milk procurement, farming techniques, distribution network and value added product manufacturing in this industry. We as a industry welcome innovation,” asserts Nirmal.

Shah believes that the emerging digital era holds great promise for the dairy industry. “Digital technologies help identify gaps in existing products, develop new and innovative ways of product usage and packaging, and pave the way for venturing into newer markets. Using Big Data and analytics, companies can perform real-time sales analysis to understand consumption patterns, which can help modify production and marketing strategies to achieve better results at optimum costs.” He adds, “Mobility solutions can help dairy players immensely improve the customer experience by providing a real-time connect between the companies and the consumers. This can be leveraged to capture customer preferences and demands, thus helping in developing breakthrough products. Digital space also helps in marketing of the products.”

Like in the past, the government’s role is very crucial for the future roadmap. Jain reiterates, “The government has to re-look at its policies for the dairy sector. Instead of simply promoting growth of milk, we have to promote growth coming from increased animal productivity.  Also, many countries do not allow imports of Indian dairy products. The government has to lobby with these countries for removal of non-tariff barriers. Wherever the concerns are genuine, we should set up a task force to tackle the problem.”

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