Making small dairy farming globally competitive: myth or reality

WOUTER KOLFF | Updated on December 29, 2014

Farmers’ livelihood: Milk is one of the allied agricultural produces that fetches comparatively higher returns, making dairy farming a lucrative option for small and marginal farmers.

Rising fodder cost, low production, poor infrastructure among major challenges

Dairy farming is an important secondary source of income for 70 million rural households in India that produce an estimated 139 million tonnes of milk annually. The country is also one of the largest consumers of milk and milk products with the industry size estimated at $70 billion. The average milch cattle holding is between 1 and 2 animals, and the milk production system is scattered over a large number of dairy farmers, producing an average of less than 4 kg milk per day.

Milk consumption is growing at around 6 per cent, outpacing the supply – with milk production growing at around 4 per cent only. With enhanced level of private sector participation, improved breeding and innovative alternative dairy farms models are being introduced in the country. The smallholder milk production system needs adequate support and strength to compete in such an evolving market as it is one of the primary livelihood sources for millions of dairy farmers.

Over the last three decades (1982 to 2012), the average productivity of Indian cattle and buffaloes has grown from 1.9 to 3.9 kg, and 3.7 to 6.2 kg per day, respectively. The average daily milk yield for crossbred cattle is better at 7.1 kg per day, but still significantly lower than the best of global standards — UK, USA and Israel are at 25.6, 32.8 and 38.6 kg per day, respectively. The cost of production for milk in India is around 30 per cent lower than major milk producing countries which amounts to a difference of $10 per 100 kg of milk production.

Furthermore, despairingly, a large share of the production in India still does not conform to domestic and global food safety standards. This is due to adulteration, lack of adequate infrastructure and inadequate awareness. India contributes about 17 per cent of the global milk production but the share in global exports is abysmally low at 0.4 per cent only.

Lack of manpower

The country also lacks trained manpower and quick service delivery for providing adequate extension and veterinary services. Artificial Insemination (AI) service covers only 35 per cent of the dairy animals. The government is supporting the industry through various schemes and programs like National Dairy Plan (NDP) which aims to increase productivity and access of milk producers to the organised dairy market with an investment of around $2.9 billion.

Small and marginal dairy farmers in India are lagging behind advanced nations with respect to cattle productivity and technological interventions towards efficient milk production systems. It is imperative that the smallholder milk production system becomes sustainable by way of well adapted crop-livestock production cycle and resilient characteristics (such as tick resistance, heat tolerance and the ability to flourish even with inadequate feeds) of indigenous breeds meeting ecological, economic and social parameters.

In order to enhance smallholders milk production system competency, concerted efforts are required for an array of parameters such as focus on productivity of the cattle, research and development towards quality and safety of milk and milk products, aggressive rolling-out innovative dairy farming models, increasing efficiency in the dairy marketing chain and efficient market access for farmers.

Additionally, dairy services including veterinary care, extension, institutional credit and risk mitigation tools are also essential for enhancing incomes of small and marginal dairy farmers.

To enhance the productivity level, better breeding infrastructure, optimum utilisation of the feed and fodder resources, better health care and enhanced farm management practices are some of the essential action points. Also, to make the production system sustainable, intensive improvements are required in indigenous breeds. Under NDP, emphasis is being given on production of high genetic merit (HGM) cattle along with import of high quality semen. At the same time, it is commendable to note that the new government has launched ‘Rashtriya Gokul Mission’ and made a modest beginning to revitalize the indigenous milk production system with an outlay of ₹500 crore, to be implemented during the 12th Plan itself.

The cost of milk production involves cost of feed and fodder, opportunity cost of family labour, healthcare and farm management cost. Indian milk producers are competitive in global space with low cost of milk production, primarily due to cheap labour. Inclusive measures for enhancing fodder and milk productivity will help in further sustaining low cost of milk production.

Availability and quality of feed and fodder is increasingly becoming a challenge due to urbanisation and shrinking natural resources. The current deficit level of green fodder and concentrates is up to the tune of 34 per cent. Further, there is a supply demand gap for quality forage seeds as well. The government has launched “Accelerated Fodder Development Program” and a sub-mission “Feed and Fodder Development” for undertaking R&D towards enhancing fodder productivity and availability along with multi–cropping systems and adopting improved farming technologies.

Innovative models

Low scale of production, rising cost of feed, fodder and labour, inadequate logistics infrastructure such as roads, power and cold chain, and inconsistent as well as low quality of raw milk are some of the major challenges faced by smallholder dairy farmers. Inclusive dairy farming models need to be introduced in order to curb these challenges.

Models like large scale dairy farms with ownership of cattle remaining with the farmers, model where large scale dairy farm is the hub & satellite farms are spokes, medium scale dairy farms with anchor processors, community dairy farms with ‘cow hostel’ models are some innovations which may give dairy farming system the required scale and at the same time integrate the small and medium dairy farmers. Public – private partnership (PPP) models need to be developed for the areas which are yet to be sufficiently attractive for private investments. Milk is one of the allied agricultural produces that fetches comparatively higher returns, making dairy farming a lucrative option for small and marginal farmers. This has been achieved by transparent pricing model in the system, especially by large cooperatives, which is now being followed by private sector.

But further interventions are required with respect to creation of supporting infrastructure like cold chain network at the farm level which can result in a win-win arrangement for the farmers, agents and processors as well.

Institutional arrangements such as Farmer Producer Companies (FPOs) should be encouraged to increase bargaining power of the farmers. Under NDP, village level infrastructure will be created for milk procurement along with testing equipments for further strengthening the supply chain.

On-farm technical trainings and extension services should be enhanced including trainings on veterinary health care, clean milk production, improved feeding practices involving local feed resources, better breeding and animal husbandry integrating the helpful traditional practices. Regional Feed-Fodder banks needs to be encouraged for milk production in summer months when most Indian cattle and buffaloes go dry.

Private participation

This can be achieved by efficient fodder production through farm mechanisation and making silage. Baled silage and dry haylage (Lucerne) should be made available across the country throughout the year and especially in summer months. Private sector participation in extension services should be aligned with the public schemes and market-led practices should be encouraged to increase resilience in the smallholder dairy farming ecosystem. Along with the above mentioned essential parameters, deliberate efforts are required for establishing PPP for regional animal breeding centres for supply of climate resilient and quality animals for a particular agro-climatic zone and feed-fodder systems available locally. The government should further focus on promoting vigorous animal husbandry activities by bringing it under the CSR1 ambit.

Further, there is a dire need to create a robust veterinary services network where services reach the consumer unlike human health service where it is the other way round. Institutional credit in the dairy production system may be intensified as dairy is one of the remunerative activities where cash flows are fairly positive for farmers. The “Pradhan Mantri Jan Dhan Yojana” can play a pivotal role in achieving this target.

Progress of the Livestock Insurance Scheme has not been very encouraging. Cattle insurance should be structured more efficiently, involving product innovations and effective delivery through farmer organisations.


Traditionally, co-operatives have been the major procurement and processing agents in the country working in tandem with smallholder dairy farmers. Private sector participation has induced efficiencies and investments in the milk supply chain by standardizing quality and stringent measures.

But smallholder dairy farms have not been able to keep pace with these requirements. With changing dietary preferences and lifestyle, it is essential to revamp the vitality of smallholder dairy farms. The road ahead for the small and marginal dairy farmers is quite challenging and innovative measures in farming models, technology and value addition are required for adapting to evolving scenarios pertaining to scalability and quality.

While creating an efficient supply chain network through investment in infrastructure will take its own time, we can enhance our global competitiveness by sustaining the cost of milk production, augmenting R&D towards rise in milk and fodder productivity, improving quality and adopting innovative farming models. Linking the production system to the consumer demand, better quality and processed products require a robust value chain, strong research and technology infusion for productivity enhancement and risk mitigation. These strengths can be further leveraged with a balanced growth of crop-livestock production system making globally competitive smallholder dairy farming a reality.

The writer is the Strategic Global Advisor of YES Bank

Published on December 29, 2014

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