Dairy sector: Indian economy’s milch cow

Milk is the largest crop in India in terms of value—at `6.5 lakh crore, it’s more than the total value of paddy and wheat put together

At the recently concluded annual session of the International Dairy Federation’s World Dairy Summit in the scenic city of Daejeon in South Korea, India was the toast of the world. From a largely captive market—despite being the world’s largest milk producer—the country is emerging as a major exporter now, with production poised to outstrip domestic consumption soon.
Brimming with evident pride, India’s representative to the conference RS Sodhi, the managing director of the Rs 40,000 crore Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF)—the cooperative dairy giant better known by the name Amul—exults, “India’s decadal milk production growth, pegged at 4.8% CAGR, is twice that of global milk production, which is growing at 1.8% CAGR. In the past five years, this has improved even more to 5.4% CAGR.”
While world milk production during 2017 stood at 849 MMT (million metric tonnes) or 232 crore litres per day, India alone accounted for almost 20% of this, at 174 MMT, followed by the US with 97.7 MMT. Going ahead, India’s milk production is expected to outperform global production and grow to 185 MMT per annum, and surpass the EU to emerge as the largest dairy producer by 2020.
“Milk,” informs Sodhi, “is the largest crop in India in terms of value; it’s valued at around Rs 6.5 lakh crore, which is more than the total value of paddy and wheat put together. It is contributing around 26% to total agriculture GDP.”
He adds that, over the next five years, “while the projected net additional volume that will be generated by all dairy-producing countries will be around 25 MMT per annum, India will add 32 MMT additional volume annually.” Also, with nearly all neighbouring countries from Nepal to Bangladesh to Pakistan and even China facing the spectre of milk deficiency, India is poised to reap huge dividends with increasing milk production, enabling it to emerge as a large milk exporter in the not-too-distant future. “Although dairy exports from India were negligible till a few years ago, given that the country produces largely buffalo milk and that indigenous value-added products are considerably different from those in developed countries, mounting deficiency in these countries has opened up new vistas. We are also investing considerably in creating value-added products more in sync with the requirements of developed countries, which will contribute significantly to our export earnings,” Sodhi says.
What is more significant, however, is the fact that the dairy industry is expected to overtake the information technology sector as the largest employment generator. Over the next decade, the sector is expected to generate 2 crore jobs annually, asserts Sodhi. “But while the IT sector is largely an urban employment generator, dairy will provide employment in rural areas,” he says. Ballpark calculations indicate 11,000 people are gainfully employed in procurement, processing and packaging of 1 lakh litres of milk. And a staggering 6 crore rural households in India depend on dairying for livelihood and income, more than 70% of which are small and marginal farmers and landless families.
Small wonder, then, that the dairy farming industry is expanding exponentially, with the number of new local and regional players swelling rapidly. The fact that large metropolises have as many as 30-100 dairy brands each is a clear indicator of how the sector is being milked for profitability by the private sector. Quips Sodhi, “Because it is lucrative, more and more people are taking to dairy farming.” Domestic consumption is on the rise, largely on the back of improving affordability, changing eating habits thanks to increasing health and quality consciousness, and an increase in consumption of value-added products with per-capita milk availability pegged at 370-gm per person, per day—way ahead of the world per-capita milk availability of around 260-gm per person, per day. Not surprisingly, profit margins in the milk business are currently mouthwatering. In Maharashtra, for instance, milk is selling at around `42 per litre, though procurement prices from farmers are just half of that!
Sniffing unprecedented windfall gains, many global players are making a beeline for India, through the inorganic route, committing big investments in value-added dairy products. Both national and international players are entering the dairy industry, attracted by the size and potential of the Indian market. The focus is on value-added products such as cheese, yoghurt, probiotic drinks, etc. Innovative products are also being routinely introduced, taking into account the specific requirements of Indian consumers as well as the export market. These players are improving their milk procurement network, which is further facilitating the development of the dairy industry in India. Looking forward, the market is expected to reach a value of Rs 18,599 billion by 2023, exhibiting a CAGR of 15% during 2018-23. A recent CRISIL report predicts a 50% faster growth in the value-added products sector in the coming years, and suggests that such products would clock 14-15% annual growth over the next three fiscal years. It concludes that value-added product revenues will continue to benefit from rising urbanisation.
The report, based on case studies of 100 dairy firms which together account for over 60% of the sector’s revenue, also forecasts a healthy future for the sector overall, with a steady growth in milk sales.
Although competition is tough, fleet-footed firms like GCMMF are pulling all stops to ensure they retain their top position. “Our mantra is to constantly increase procurement, processing capacity, distribution network and supply-chain efficiency,” the GCMMF MD elaborates. Today, 18 member unions of Gujarat covering all 33 districts are procuring 210 lakh kg milk per day, from 36 milk producer members from more than 18,600 village dairy cooperative societies. GCMMF achieved sales turnover of `29,225 crore during 2017-18. Cumulative and unduplicated turnover of GCMMF and its member unions is more than Rs 41,000 crore.
The government, too, has introduced various schemes and initiatives aimed at the development of the dairy sector. The National Dairy Plan (Phase I) aims to improve cattle productivity and increase the production of milk, expand rural milk procurement infrastructure, and provide greater market access to farmers.
Sodhi feels a lot more can be done to improve the viability of the sector. “We need more policies to motivate and incentivise farmers who are getting a really raw deal. The glut in the milk sector is a bane for them, with procurement prices becoming increasingly non-remunerative for them. Further, the state and central governments need to increase budgetary allocations for the animal husbandry sector to increase milk yield,” he says.
He adds that dairy analogues are also creating unhealthy price competition, “making it difficult for us to sell our dairy products. This affects the livelihood of dairy farmers because if we sell our products at a low price (on a par with the analogues), we will not be able to pay adequate prices to our milk producers,” he rues.
GCMMF has made several representations to the FSSAI to curb the use of analogues and formulate rules for them. It has also suggested draft rules for packaging and labelling dairy products. Ultimately, as Sodhi sums it up succinctly, “to earn more, you need to give more—both to your suppliers and consumers.” That’s the only way the dairy sector will continue to be the Indian economy’s milch cow.