The Hindu Business Line : Milking benefits

Indian agriculture may be a laggard; but 2007 is likely to be a watershed year for the dairy sector. Latest projections suggest that India's milk output is well poised to top the magical 100 million tonnes mark to reach 101.9 m.t. next year, up from 98.4 m.t. this year and 95.1 m.t. of 2005. Annual production increases have been of the order of 3-4 per cent since the mid-1990s when India overtook the US as the world's single largest milk producer. Though at 4.5 per cent the dairy sector has been growing at better pace than agriculture (a paltry 2 per cent), it faces several challenges, not the least of which is the rather low per capita availability of liquid milk (220 grams per person per day). The bacterial quality of milk is suspect due to unhygienic production, handling and distribution. Coupled with low milk yield by milch cattle, fragmented nature of dairy farms denies scale economies. This makes the primary producers vulnerable to market forces. For a country fighting a serious malnutrition challenge, the dairy sector has the potential to provide considerable relief.

India's dairy cooperatives have now become growth models emulated by many developing nations. Interestingly, the Indian dairy sector is going through radical changes — product launches, brand positioning and brand extensions. The ongoing manthan — big churn — is attracting new players and investments. As production shifts from unorganised to organised, consumer delight can only increase. Although India is big, Indian companies are puny. The fact that not a single Indian entity is among world's top 20 milk companies should serve to highlight the decentralised and fragmented nature of capacities with poor scale economies. The organised sector handles less than 20 per cent of the total milk output (with the rest equally divided between the unorganised sector and farm-level retention), though as demand rises, more milk is expected to flow to it. Dairy companies are aspiring for a larger market share, expanding reach for both perishables and long shelf-life products. Contract manufacturing that is in vogue has the potential to turn into partnerships or acquisitions. Though India is unlikely to be a big global player any time soon, lowering of import barriers could impact the dairy sector. Milk/dairy sector enjoys the highest level of support (subsidy) of about $40 billion a year in OECD economies.

The ongoing structural changes — consolidation through mergers and acquisitions, joint ventures, foreign direct investment and growing organised food retail — should make the dairy sector a robust life-support mechanism for millions in rural India. Consolidation of holdings, contract farming, health management, quality control, feed and fodder supplies, supply chain management, value addition, environment and animal welfare are issues that need focused attention.

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Milk output poised to top 100 m tonnes

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