UKPCS Science Life Sciences-Economic Zoology- Dairy Industry #109

Indian Dairy Industry

The country is the worlds largest milk producer, accounting for more than 13% of the worlds total milk production. It is the world’s largest consumer of dairy products, consuming almost 100% of its own milk production. There are many Opportunities And Challenges in The Indian Dairy Industry.Dairy products are a major source of cheap and nutritious food to millions of people in India and the only acceptable source of animal protein for a large vegetarian segment of the Indian population, particularly among the landless, small and marginal farmers and women. Dairying has been considered as one of the activities aimed at alleviating the poverty and unemployment, especially in the rural areas in the rain-fed and drought-prone regions. In India, about three-fourth of the population live in rural areas and about 38% of them are poor. In 1986-87, about 73% of rural households own livestock. Small and marginal farmers account for three-quarters of these households owning livestock, raising 56% of the bovine and 66% of the sheep population. According to the National Sample Survey of 1993-94, livestock sector produces regular employment to about 9.8 million persons in principal status and 8.6 million in subsidiary status, which constitute about 5% of the total work force. The progress in this sector will result in a more balanced development of the rural economy.Indian Dairy Industry 

Milk Processing

The milk processing industry is small compared to the huge amount of milk produced every year. Only 10% of all the milk is delivered to some 400 dairy plants. A specific Indian phenomenon is the unorganised sector of milkmen, vendors who collects the milk from local producers and sell the milk in both, urban and non-urban areas, which handles around 65-70% of the national milk production. In the organised dairy industry, the cooperative milk processors have a 60% market share. The cooperative dairies process 90% of the collected milk as liquid milk, whereas the private dairies process and sell only 20% of the milk collected as liquid milk and 80% for other dairy products with a focus on
value-added products.

Domestic Consumption

The huge volume of milk produced in India is consumed almost entirely by the Indian population itself, in a 50-50 division between urban and nonurban areas. Increasingly, important consumers of the dairy industry are fast-food chains and food and non-food industries using dairy ingredients in a wide range of products.


In spite of having largest milk production, India is a very minor player in the world market. India was primarily an import dependent country till early seventies. Most of the demand-supply gaps of liquid milk requirements for urban consumers were met by importing anhydrous milk fat / butter and dry milk powders. But with the onset of Operation Flood Programme, the scenario dramatically changed and commercial imports of dairy products came to a halt except occasional imports of very small quantities. In the 1990s, India started exporting surplus dairy commodities, such as SMP, WMP, butter and ghee. The Agricultural and Processed Food Products Export Development Authority (APEDA) regulated the export and import of dairy products till early 1990s. However, in the new EXIM Policy announced in April 2000, the Union Government has allowed the free import and export of most dairy products.
The major destinations for Indian dairy products are Bangladesh (23.1%), UAE (15.4%), US (15.6%) and Philippines (8.9%). In terms of products, SMP is the most important product accounting for about 63% of total export volume, followed by ghee and butter (11.7%) and WMP. Export figures clearly demonstrate that the Indian dairy export is still in its infancy and the surpluses are occasional. Indigenous milk products and desserts are becoming popular with the ethnic population spread all over the world. Therefore, the export demand for these products will increase and hence, there is a great potential for export.
On the other hand, there has been a sharp increase in import of dairy products (especially milk powders) after trade liberalisation. As per the latest report of Foreign Trade Statistics of December 2004, the imports of dairy products (milk and cream) has reached a cumulative total of 22.145 million tonnes for the period April – March 2004, as compared to only 1473 million tonnes for the same period during the previous year. The main reasons for sharp rise in imports are huge export subsidies given by developed countries (mainly the US and EU).

Key Areas of Concern in the Dairy Industry

  1. Competitiveness, cost of production, productivity of animals etc. The demand for quality dairy products is rising and production is also increasing in many developing countries. The countries which are expected to benefit most from any increase in world demand for dairy products are those which have low cost of production. Therefore, in order to increase the competitiveness of Indian dairy industry, efforts should be made to reduce cost of production. Increasing productivity of animals, better health care and breeding facilities and management of dairy animals can reduce the cost of milk production. The Government and dairy industry can play a vital role in this direction.
  2. Production, processing and marketing infrastructure If India has to emerge as an exporting country, it is imperative that we should develop proper production, processing and marketing infrastructure, which is capable of meeting international quality requirements. A comprehensive strategy for producing quality and safe dairy products should be formulated with suitable legal backup.
  3. Focus on buffalo milk based specialty Dairy industry in India is also unique with regard to availability of a large proportion of buffalo milk. Thus, India can focus on buffalo milk based specialty products, like Mozzarella cheese, tailored to meet the needs of the target consumers.
  4. Import of value-added products and export of lower value products With the trade liberalisation, despite the attempts of Indian companies to develop their product range, it could well be that in the future, more value-added products will be imported and lower value products will be exported. The industry has to prepare themselves to meet the challenges.

New Challenges of Globalisation and Trade

Liberalisation – Perspective 2010 The NDDB has recently put in place Perspective 2010″ to enable the cooperatives to meet the new challenges of globalization and trade liberalization. Like other major dairying countries of the world, the Indian cooperatives are expected to play a predominant role in the dairy industry in future as well. However, India is in the mean time, attaining its past glory and is once again becoming DOODH KA SAGAR. But, what percentage of this SAGAR is handled by the cooperatives – just a little over 7%. Since liberalization of the dairy sector in 1991, a very large number of private sector companies / firms have, despite MMPO, established dairy factories in the country. The share of the total milk processing capacity by private sector is 44% of total installed capacity of 73 MLPD (Million Litres Per Day) in the country. Therefore, the total share of the organized sector, both cooperatives as well as the private sector is barely 12%. What is, therefore, disquieting is that as much as 88% share of the total milk production is commanded by the unorganized sector – who specializes in selling sub-standard, unpasteurized milk more often than not adulterated with harmful chemicals. Besides, growth in milk production is likely to continue at the present rate of 4.4% in the near future. Who is going to handle this incremental milk? We must bear in mind is both income and price what we must bear in mind both income & price elasticity account for approximately 15% of the total expenditure of food.Demand for milk, at current rate of income growth is estimated to grow at 7% per annum. Interestingly, demand for milk is expected to grow steadily over the next two decades as the low income rural and urban families who have higher expenditure elasticity would also increase their income due to new economic environment.

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Hemant Bhatt

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