Indian dairy sector on a road to resilience
India is the leading producer and consumer of milk across the globe. The Indian dairy sector is divided into the organized and mostly unorganized (75%). There is a need for investment, especially for the small and marginal dairy farmers to catalyze Indian dairy production and exports.
- India has the largest bovine population of over 300 million, producing 198.4 million tonnes of milk in 2019-20. Despite COVID-19 induced restrictions, the organized sector is projected for a 5-6% growth i.e. Rs 1.5 lakh crore sectoral revenue generation in 2021-22, as per CRISIL.
- In the previous year 2020-21, the VAPs (value-added products) and sales dropped due to pandemic-induced restrictions. However, continuity of food delivery and increase in household consumption has led to a surge in demand for VAPs and liquid milk in 2021-22. This shall also lead to increased procurement prices.
- Though there is a marginal increase in the export value from the previous year, India has managed to secure an export value of Rs 1,358.29 crores of dairy products for the year 2020-21, with the biggest market for Indian dairy products being the UAE.
- There is a need for investment for educating and training dairy farmers and provide better infrastructure for collection, transportation, and processing of milk to augment milk productivity and maintain its quality.
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India has been a leading producer and consumer of dairy products across the globe for decades. With over 300 million bovines and producing over 198 million tonnes of milk in 2019-20, the Indian dairy sector exhibits strong growth potential. This is supported by a study by the National Dairy Development Board (NDDB), which expects the demand for milk and milk products at a pan India level to be 266.5 million metric tonnes in 20230.
With COVID-19 induced restrictions, however, the organized dairy sector was adversely affected in the last fiscal- growing by a meager 1% – the lowest in a decade. However, the sector bounced back with the organized businesses projecting a robust growth of 5-6% i.e., 1.5 lakh crore sectoral revenue generation in 2021-22, as per a report by CRISIL. This is due to the robust demand revival for value-added products (VAP) and liquid milk. India is undegoing a transition from production of plain milk to VAPs and an unorganized/local to more organized market. With increasing population, higher disposable income, higher per-capita consumption, larger vegetarian population, demand for hygiene, etc., the demand for VAPs and milk is bound to increase.
The catapult effect
In the last fiscal, the VAP market dipped by 3%, due to the pandemic-induced restrictions that impacted restaurants, hotels, and café segments (contributing 20% to the organized sector revenue). In addition to this, the demand recovery in certain VAP categories such as lassi, buttermilk, flavoured milk, and ice cream that are in high demand during summers, was delayed due to prolonged restrictions. Anuj Sethi, Senior Director, LCG-Rating Corporate Sector, CRISIL Ratings Limited, explains:
Dairy sector faced challenges in sale of cold value-added products (VAP), such as ice-cream, flavoured milk, buttermilk, and lassi during both first and second wave of the pandemic. On the milk procurement and distribution side, there have been no major challenges with adequate supplies. Sales of liquid milk have also not been materially impacted, as it is an essential commodity, though supplies to the HoReCa (hotels, restaurant and café) segment got impacted during both legs of the pandemic.
However, in the current fiscal, the VAP market is expected to surge by an estimated 7%, spurred by demand for ghee, butter, cheese, and milk powder. Similarly, the sales of liquid milk dropped to 3% last year, as compared to the expected 5% this year. The demand for VAP products and liquid milk is expected to surge by continuing food delivery and growth in household consumption.
As a result, milk procurement prices are expected to rise by 5-7% in 2021-22. A steady rise in the procurement prices would not only enhance the profitability of the organized sector but also increase the income of the unorganized sector affiliated to rural areas. This is to incentivize farmers for taking better care of the cattle leading to higher milk production.
During the COVID-19 pandemic, India managed to export dairy products worth Rs 1,358.29 crores (US$ 0.18 billion) in 2020-21, a little more than 2019-20 (Rs 1,341.03 crores) to more than 110 countries as per Agricultural and Processed Food Exports Development Authority (APEDA).
Top 10 export markets for India’s dairy exports
|Country||Qty (in MT)||Exports (US$ mn)|
Source: APEDA (April-February 2020-21)
UAE remains the biggest market for Indian dairy products, accounting for US$ 35.43 million worth of dairy products followed by Bangladesh, the US , Bhutan, and Singapore.
COVID-19 has adversely affected employment opportunities in the Indian dairy sector, especially for the migrant workers since they were forced to move back to their homes in the rural regions. This has created uncertainty amongst the inter-state migrants due to the lack of employment prospects in villages. Further, prices of items like cheese, butter, paneer and skimmed milk powder (SMP) stooped as shops, restaurants and hotels remain closed, causing a slump in demand.
In addition, the sector is grappling with several other inefficiencies. Despite having the largest bovine population, the milk production per animal is significantly low as compared to other dairy-producing countries like the US and the UK. India’s productivity per animal is very meagre, at 987 kg per lactation, compared with the global average of 2 038 kg per lactation. This is due to ineffective cattle and buffalo breeding programmes, limited extension and management on dairy enterprise development, traditional feeding practices that are not based on scientific feeding methods, and limited availability and affordability of quality feed and fodder. Moreover, a major portion of the produce is consumed domestically (the majority being liquid milk).
Further, the Indian dairy sector is fragmented, with 3/4th of the farmers belonging to the unorganized dairy sector, belonging to the rural sector. It ha a huge untapped potential since many farmers do not have steady market linkages and access to technology, thereby leading to certain challenges. The sector can also benefit from a coherent policy governing the quality of animal feed.
Dairy farmers lack awareness when it comes to using scientific and healthy animal husbandry practices. Small and marginal farmers indulge in malpractices such as feeding low-quality fodder, using unsterile equipment for artificial insemination, failure to provide timely veterinary services, etc. There is a need for imparting knowledge and training the dairy farmers for this purpose.
The sector is also plagued by a lack of infrastructure for the collection, transportation, and processing of milk. Most of the cold storage facilities are either located a few hours away from the dairy farms or lack the proper electricity grids required to support the cold storage. The quality of milk deteriorates, till the time it reaches the ultimate customer.
Keeping this in view, the Government of India has taken initiatives to support the Indian dairy sector by extending schemes such as the Dairy Processing and Infrastructure Development Fund till 2022-23. It has also approved the Animal Husbandry Infrastructure Development scheme with budget allocation of Rs 15,000 crore. Production Linked Incentive Scheme for Food Processing Industry has also been cleared to beat the pandemic blues.
Meanwhile, the State Governments can promote the dairy business by facilitating the cooperative model in these regions and channelizing milk procurement. They can channelize funds from different Central Government schemes like Dairy Processing and Infrastructure Development Fund (DIDF), Dairy Entrepreneurship Development Scheme (DEDS), and the Supporting Dairy Cooperatives and Farmer Producer Organization (SDCFPO). To address the issue of farmers facing financial problems during the pandemic, a special drive was organized to distribute Kisan Credit Cards (KCCs) to dairy farmers of milk cooperatives.
These initiatives have played a significant role not only in boosting the Indian economy by increasing the dairy production and exports, but also by providing an essential means of livelihood to millions of dairy farmers, reducing rural poverty, empowering rural women, providing a regular source of income for rural households, and ensuring food security.
But enhancing investment in the sector can prove to be a promising ray of hope to help the sector not just survive but to attain a robust growth. According to media reports, private investment is much less compared to that made by the government. Atul Chaturvedi, Secretary, Department of Animal Husbandry & Dairying said recently that investments made in this sector can give better returns than manufacturing or services. The government is already taking measures such as vaccinating animals to eradicate diseases and planning to tag cattle with a unique identity for traceability purposes to enhance investment opportunities in the sector.
Some of the key areas for investment could be upstream & downstream supply management and milk processing opportunities. Through convergence of these public and private initiatives, the sector is poised for a robust double digit growth.