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India must standardise value chain process to bridge supply chain gap
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Wednesday, 01 March, 2017, 08 : 00 AM [IST]
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Badrinath Raghavendran
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Dairy industry
India ranks first in milk production with an estimated volume of 155 million tonnes in 2016. The dairy industry, together with its value-added products, has been growing at a compounded annual growth rate (CAGR) of 15-20 per cent since 2012.
In the early 1990s, the dairy sector was dominated by liquid milk (whose share was 80-90 per cent). The traditional value-added dairy products such as curd, ice cream, butter and buttermilk were largely unpackaged.
Ready-to-drink pouches and other value-added dairy products have changed the share of liquid milk to 70-75 per cent. The proportion of value-added dairy products has gone up to 25-30 per cent.
The value addition is mainly materialising in beverages such as flavoured milk, fermented milk (lassi/buttermilk/chhach), probiotic drinks, drinking yoghurtand some spoonable traditional dairy desserts.
These dairy beverages are gaining through research in new product development, increased stock-keeping units (SKUs) and easy conversion from unpackaged to packaged formats.
The key drivers for valueadded products are the changing lifestyles of Indian consumers looking for convenience,easy availability and flavour/taste experience fuelled by the increasing disposable income and rapid urbanisation.
These drivers demonstrate the ample scope for growth in the value-added dairy beverages segment.
Development in this area could be further fuelled with support from various quarters such as legislation and regulatory norms, packaging, dairy supply chain, technology, ingredients, etc.
Dairy infrastructure
India needs to streamline/standardise the value chain process to bridge the gap between farmers, milk processors and consumers in the supply chain.
There are over 55 million dairy farmers in the private sector or cooperative networks, with about 10 per cent as independents.
It is important to ensure that smallholder dairy producers are also a part of the standardised value chain. It will increase the growth in the overall performance of the industry.
India’s milk quality standards are low, and they need to be improved and standardised in the production level surrounding farmers such as animal feed, types of cows/breeds, facilities and methods practised for milk collection, distribution, etc.
The quality of milk must be increased to meet the global standards. Currently, issues in milk quality affects the front end of the dairy industry due to inconsistent quality, low yield of the products, and hence, low competency in high-value products such as dairy ingredients.
Dairy farmers face further constraints on energy such as lack of round-the-clock and reliable power supply, who cannot afford expensive diesel-based generators.
This poses an opportunity and need for innovations in sustainable (non-fossil/grid fuel-based) chilling facilities in villages.
Farmers should be aware and ready to use industrially suitable cow breeds. The government must take the necessary steps to ensure that cow breeds are affordable and easy to procure by farmers.
Specialised funds for cow breeding must be available so that industrially suitable cows can be supplied to the country.
The population of native or Indian milch breeds producing higher milk yields such as Gir, Kankrej and Ongole can be expanded.
These native breeds, that are accustomed to the local climate and locally available feeds (or fed by grazing in natural habitats), less dependent on industrial animal feeds (which reduces the cost to farmers), and more resistant to diseases, must be propagated and promoted among dairy farmers to protect indigenous breeds.
The Indian government has facilitated the sale of cows, buffaloes and frozen semen through a Web-based portal containing the details of animal breed, yield, price and can lead to propagation of high-quality germplasm.This portal was launched by the agriculture ministry in November 2016.
Similar initiatives are to be taken to develop digitisation of livestock comprising buffaloes, cows and milch animals by breed type, location, number of farmers, milk availability patterns, animal feed source, pollution norms, and water body sources. These open databases can help in understanding the milk supply constraints.
Cold chain
The cold chain sector in India is a combination of surface storage and refrigerated transport. Milk is a highly perishable item. Refrigeration is necessary to plug the supply chain issues in distribution of fresh milk and dairy products.
? Currently, cold chain solutions are suitable for other food and non-food products
? Transporting vegetables, fruits and other foods are different from transporting containers suitable for dairy products
? Cold chain for last-mile delivery, such as vending machines, are yet to be developed
? Creating an independent cold chain distribution network for dairy products
Of the total cold chain capacity in India, 92 per cent is being utilised for storing potatoes. Less than one per cent is being used by the dairy industry.
According to the Federation of Cold Storage Associations of India, small producers in the dairy industry do not have cold chain facilities. Only the large producers install chilling centres for captive use.
Much like independent ATM machine operators in the banking industry, an independent network of operators of chilling centres or cold chains up to the last mile is necessary to build a strong infrastructure.
Nearly 65 per cent of the total dairy farmers in the country are small herd holders. The main challenge in the development of cold chain facility for this sector is that the majority of the producers are small and scattered, hence digitisation together with cold chain infrastructure will create a good foundation for value-added dairy products.
Reefer or refrigerated trucks for bottled or packaged food products were present, and their design and innovation were developed by private players in collaboration with food and beverage manufacturers.
Key companies in automobile industry such as Tata and Ashok Leyland can provide vehicles and solutions to suit transportation needs for the dairy industry.
Product Recommended storage temperature
Pasteurised fresh whole or skimmed milk, sweet cream, flavoured milk drinks Chill (0-100ºC)
Cheese, yoghurt, milk powder Mild chill (100-200ºC)
Ice cream, butter Frozen (below -180ºC)
Sustainable energy to chill other than electricity must be developed to reduce dependence on fossil fuels and to work on extended periods in cold storage.
In developed countries, chilling facilities are present at the farmer level. There is a need to develop such infrastructurein India to prevent milk spoilage and for better microbiological quality.
Automatic chilling and refrigeration equipment and machinery based on solar energy have been developed by private players in collaboration with key dairy manufacturers.
Hatsun Agro has partnered with Promethean Power Systems and Orb energy (the solar energy-based system provider) to design and manufacture refrigeration systems with thermal batteries in off-grid and partially-electrified areas.
These innovations are the need of the hour. It is about sufficient incentives and investments into sustainable power sources, rather than exploiting fossil fuel-based power sources.
Chiller machine investments are restricted by low return on investments for individual companies, lack of technology in distribution (customised refrigerated trucks or containers), know-how of using chillers and in its implementation.
Exclusive brand outlets
Exclusive brand outlets for the dairy industry are rarely profitable due to the consumer purchase patterns.
There are various limitations such as high-infrastructure investment, rental and running costs. Aavin outlets in Tamil Nadu and several government-sponsored outlets have been developed due to focused government initiatives such as self-help groups or educated youth employment schemes.
A few successful models for running such outlets are present, such as providing franchise and distributing exclusive branded dairy products in a retail shop or supermarket.
Brand outlets with varied or extended product lines, such as an outlet with a canteen and food service, form a sustainable model.
Machinery
All the machinery utilised in current dairy processing are almost standardised and there are no breakthrough innovations required nor were any made in the past 10 years.
Development in machinery for packaging needs to be focused, mainly in the secondary packaging, such as spread cheese sold in tubes.
Innovations for packaging are still naïve and have scope in the near future. These secondary packaging can help in the distribution and display of products in supermarkets.
Value-added products
The total value-added dairy product market in India was worth about Rs 1,800 billion in 2016. This forms around 25-30 per cent of the total domestic dairy market.
The domestic demand and consumption of processed and value-added dairy products, such as butter, cheese, buttermilk/chaach, curd, flavoured yoghurts, flavoured beverages, ultra-high temperature (UHT) milk have also grown at a CAGR of 10-15 per cent in the recent decade.
The trend is visible through investments, acquisitions, capacity expansion and product launches of private and global market players in India, including Danone, Groupe Lactalis, Nestle India, Hatsun Agro Products, Prabhat Dairy, Parag Milk Foods, etc.
In India, cow and/or buffalo milk is mixed and used based on the availability of the milk in the season.
Water and fodder scarcity also affects the production and quality of milk produced and value-added dairy products.
The availability of milk and seasonal milk supply variations are managed by the private dairy companies by strategically placing their collection/chilling plants and processing plants to reduce the annual time and energy spent in the transit of milk from the farm to the plant.
India is the third largest producer of skimmed milk powder (SMP) in the world. It exports SMP to neighbouring countries, such as Bangladesh, Nepal, etc., which are milk-deficient.
Short-term oversupply, coinciding with reduced demand from China and Russia, resulted in the low prices of milk powder.
The global price and domestic availability of milk, is the deciding factor for export business. In the recent years, the domestic production costs are 18-20 per cent higher than the global prices which makes Indianon-competitive for export in the global market.
Hence, Indian dairy ingredient (milk powder) exports to milk-deficient neighbouring countries have reduced by over 30-40 per cent.
The exports of other dairy-based ingredients such as lactose from India were higher in the past only due to the deficiency in the global production.
However, the export volumes could not be sustained by the fluctuating or non-standardised quality of milk that made the dairy ingredient business unattractive to global users.
Budget: Dairy processing infra fund to build infrastructure
Union Budget 2017 has proposed a fund of Rs 80 billion for dairy processing and infrastructure development, which will be set up under the National Bank for Agricultural and Rural Development (NABARD).
According to the announcement, an initial amount of Rs 20 billion will be released, followed by remaining fund in the next three years.
This fund is the largest government investment programme in the dairy sector afterOperation flood between 1974 and 1990.
The fund can be utilised by NABARD for the modernisation and digitalisation of dairy processing, bulk milk chilling equipment, including the co-operative societies and breeding facilities.
The proposed fund will also help setting up processing facilities of milk and may, at the most, increase the capacity by five million litres per day.
The fund for digitisation can be utilised for supply chain issues such as geographic control of diseases, focused farmer assistance and creating sustainable chilling centres based on cluster of dairy farmers.
These investments are believed to create additional rural income mainly to dairy farmers, improve rural economy, and hence positively impact the revenue of the Indian dairy sector.
Value-added exports for dairy industry
The current global demand for various value-added dairy ingredients such as casein and lactose (pharma and food grades) is still present, but the problems with the quality of milk and practices in collecting and utilising milk (such as using a mix of buffalo and cow milk based on seasonal and regional availability) must be fixed.
Milk with varying levels of fat, protein and other soluble contents affects the consistency, taste and flavour profile of the value-added dairy products.
For example, fatty acid, the flavour of ghee, cheese produced from buffalo and cow milk are different from that produced from a single breed’s/species’ milk.
In other cases, the dairy export market in the European Union and the United States are highly competitive due to the high standards and quality provided by giant dairy players, like Fonterra and Irish Dairy Company.
Conclusion
Milk production and its supply chain have evolved ever since the White Revolution. However, standardisation in mulching animal breeds, improved infrastructure, facilities for dairy farmers in procurement of cow, feed, milk collection and transportation may provide ample scope to reduce microbial spoilage and enhance the quality of milk and dairy products.
Thus, the Indian dairy processing sector is in the cross junction of meeting the continuously expanding Indian consumer demands, to innovate and compete with the international standards.
(The author is managing director, First MR Business Analytics. He can be contacted at badri@firstmr.com)
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