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Dairy industry in India - Value-added offers scope
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Monday, 09 December, 2019, 08 : 00 AM [IST]
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Abhishek Saareen
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India has the highest livestock population in the world including cattle, sheep, buffaloes and goats. India’s dairy industry is considered as one of the most successful development programmes in the post-Independence period. The evolution of our dairy industry dates back to the early 1950s when the iconic Varghese Kurien laid the foundation of Amul, a co-operative model, which enabled the farmers in the Anand district of Gujarat to sell their milk at the highest possible price without interference from middlemen. This model, which empowered the farmers and converted Anand from a milk-deficient region to a milk-surplus region, became a national rage, with other states replicating it. Operation Flood has been one of the world's largest dairy development programmes.
Categorisation of packaged milk
Buffalo milk has 3.6% protein, 7.4% fat, 5.5% milk sugar, 0.8% ash and 82.7% water whereas cow milk has 3.5% protein, 3.7% fat, 4.9% milk sugar, 0.7% ash and 87% water. Packaged milk can be divided according to fat content as follows:
- Whole (full cream) milk - 6% fat
- Standardised (toned) milk - 4.5% fat
- Doubled toned (low fat) milk - 3% fat
- Another category of milk, which has a small market, is flavoured milk.
The preferred dairy animal in India is buffalo unlike the majority of the world market, which is dominated by cow milk. Loose milk has a larger market in India as it is perceived to be fresh by most consumers. In reality however, it poses a higher risk of adulteration and contamination. People in India love to drink milk. Hence no efforts are needed to make it acceptable.
Looking at the success achieved in India by adopting the co-operative route, a few other countries have also replicated the model of India's White Revolution. Over 55 per cent of the organised milk industry continues to be dominated by the dairy co-operatives.
Several brands have been created by cooperatives like Amul (Gujarat), Vijaya (Andhra Pradesh), Gokul (Kolhapur), Verka (Punjab), Milma (Kerala), Saras (Rajasthan), and Nandini (Karnataka). It's not just the global dairy companies that find India an irresistible investment destination, there are umpteen milk startups that are also making news. The likes of Tru Milk in Ludhiana, Sarda Farms and Blissfresh in
Maharashtra or Milk Mantra of Orissa, have been bold enough to get into the challenging liquid milk space.
When we talk about Indian dairy industry, liquid milk (fresh) is just one category. After from that, UHT Milk, Flavoured Milk, Curd, Flavoured & Frozen Yoghurts, Pro-biotic Products, Lassi, Buttermilk, Butter, Ghee, Paneer, Cheese, Khoya, Cream, Skimmed Milk Powder, Dairy Whiteners, Sweet Condensed Milk, Ice Cream, Milk based Frozen Dessert, Whey and Dairy Sweets make the entire elaborate portfolio of the Indian Dairy Industry.
Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu are the milk surplus states in India. The manufacturing of milk products is obviously high in these milk surplus states. Significant investment opportunities exist for the manufacturing of value-added milk products like milk powder, packaged milk, butter, ghee, cheese and ready-to-drink milk products.
Nearly 55 per cent of Amul’s revenue comes from milk and 45 per cent from other value-added dairy products like paneer, ice cream and cheese. In fact, be it ghee, cheese, butter or yogurt, Amul is the clear market leader in most value-added dairy categories. There are still limited takers for value-added dairy products such as cheese, yogurts or flavoured milk, but this is where much of the action is taking place today simply because of its higher margins, and the ability to differentiate and introduce new products.
Apart from cheese, yogurt and smoothies, many of the state-run co-operatives are also looking at traditional Indian mithais. There is a good opportunity to push healthy Indian sweets into the market. Young females who are working find it a good idea to get the yogurt or dahi from outside instead of setting it at home. Also, there is increasing emphasis on health. We are seeing preferences shifting from sugared milk drinks to probiotic beverages, chaach & even skimmed milk.
Companies are already fortifying milk with Vitamin A. Amul is aggressively throwing resources to protect its turf. But Amul is facing unprecedented challenge from all sorts of players. ITC had jumped into the fray with its Aashirvaad brand of ghee and a promise to add a lot more products. Parag Milk Foods, a Maharashtra-based milk company, raised crores to beef up its operation.
Meanwhile, Danone, Nestle and other existing private sector players are adding to their product line-ups and pushing in big money into the market while home-grown dairy cooperatives such as Mother Dairy and Nandini, among others, are also expanding their operations rapidly. And other big global dairy companies are all eyeing the market. It is an extremely attractive market, both because of its size and its potential. It is also, however, a marketplace fraught with danger that can sink even big players because of its sheer complexity.
Over the next few years, the dairy market will see the mother of all market battles as the newcomers try to take away share from Amul, Mother Dairy and the other cooperatives, which have largely ruled the roost so far. But it could also prove a graveyard for many a player, Indian and global.
Over the past few years, though, a couple of things have changed to make the market vastly more attractive to new players. One, as global dairy consumption stagnates or even dips, Indian consumption is going up. The second reason is that the Indian consumer - especially the affluent urban consumer - is consuming more value-added products, which bring in bigger profits for dairy companies than raw milk. The fact that the Indian cooperatives had largely stuck to basic milk, butter, processed cheese slices and ice cream for many decades, had left a gap in the market that allowed some of the new players to come in with new product offerings.
Since cold food supply chain is a challenge in India, Danone innovated and created products with greater shelf lives. It has introduced ambient yogurt and milk-based products with six months of shelf life. It has come up with products like lassi, smoothies & chaach, which are packaged in ultra-high temperature (UHT) packs.
The most impressive launch from the Danone has been ready-to-eat-custard. Though the company is yet to be profitable in India, value-added, in fact, is the place where the bulk of the innovations and new product launches are taking place. Nestle, the largest and oldest private milk player in India, has recently launched Greek yogurt, Nestle-a+ Grekyo. Greek yogurt, which is a super concentrated yogurt, is a fledgling category in India and is stocked by premium retailers. It is priced considerably higher than other yogurts. In fact, it is value-added dairy products that sell more in modern retail stores.
Despite being the world’s largest producer, the dairy sector is by and large in the primitive stage of development and modernisation. Though India may boast of one of the world’s largest cattle population, the average output of an Indian cow is significantly lower compared to its American counterpart.
The main reasons for the low yield: Poorly developed cold chain infrastructure; Unavailability of veterinary health services; Inadequate availability of fodder in all seasons; Lack of use of scientific practices in milching; Poor quality of fodder; Poor transportation facilities.
Fortunately, there is huge demand in the market. With the sustained growth of the Indian economy and a consequent rise in the purchasing power during the last two decades, more and more people today are able to afford milk and various other dairy products. This trend is expected to continue.
Processed Dairy Products
Cheese
Cheese is becoming a popular item in the menu of all relatively affluent families. Slowly but surely, it will penetrate into the rural markets. The organised cheese market including its variants like processed cheese, spreads, mozzarella, flavoured cheese, is valued at billions. The market for cheese cubes, slices and tins is also growing subsequently. Gujarat Cooperative Milk Marketing Federation (GCMMF) with the Amul brand continues to be the main operator in the branded cheese market in India. It pioneered the market for processed, branded cheese. All over the world, cheese is made from cow milk.
Notably GCMMF developed the technology to make cheese from buffalo milk. Britannia Industries joined the fray in the cheese market in mid-1990s. Britannia's cheese is sold in tins in the form of cubes, and in individually wrapped slices in packs of fives and tens.
Foreign brands in India compete with well-established players such as Amul, Britannia's Milkman and Dabur’s Le Bon, enjoying substantial market shares in the overall Indian cheese market. The US-based Philip Morris, which brought in its Kraft cheese brand earlier, has gained a significant presence in the market. The rest of the market is spread among Verka, Nandini, Vijaya and Vadilal. Dabur claims more than two dozen different varieties of cheese under Le Bon brand.
Butter
Most Indians prefer to use homemade white butter (makhan) for reasons of taste and affordability. Most of the branded butter is sold in the towns and cities. The major brands are Amul, Vijaya, Sagar, Nandini and Aarey. Amul is the leading national brand while the other players have greater shares in their local markets. The latest entrant in the butter market has been Britannia. The entry of new players and increased marketing activity is expected to expand the market.
Dairy Whiteners or Milk Powder
Milk powder is mainly of 2 types - Whole milk powder; Skimmed milk powder.
Whole milk powder contains fat, as distinguished from skimmed milk powder, which is produced by removing fat from milk solids. Skimmed milk powder is preferred by diet-conscious consumers. Dairy whiteners contain more fat than skimmed milk powder but less compared to whole milk powder.
Dairy whiteners are popular milk substitute for making tea, coffee etc. The penetration of these products in milk abundant regions is driven by convenience and non-perishable nature (longer shelf life) of the product. Nestle, Amul, Britannia, Parag, Vijaya, Mohan, Nova and so on have been seen in the marketplace with their whiteners. These are available mostly in pouches and tetra packs.
To impart a longer shelf life, aseptic technology is used to pack creamer. It is packed in small cups ready to be poured into a cup of tea or coffee. Creamer is fresh milk with increased fat content (upto 12%) and is aseptically packed after undergoing Ultra Heat Treatment (UHT) at 1,400 degree celsius. In addition to domestic consumption, the whiteners/creamers find a high level of institutional acceptance, especially by railways, hotels and restaurants, airlines, hospitals and nursing homes and corporate offices. The potential for exports, especially to neighbouring countries and the countries in the Middle-East, the Gulf and Africa, also exist and could be exploited.
Value addition in milk powder - Infant Foods
Nestle is the market leader in the segment. This is a category where brand loyalties are very strong as mothers want the best for their babies. Heinz is the only other significant competitor to Nestle in this segment. Wockhardt is a relatively new entrant with its First Food brand. In infant formula also Nestle's Lactogen formula and Lactogen standard formula are the leading brands. Other brands are Heinz's Lactodex Farex, Wockhardt's Raptakos, and Amul's Amulspray.
Condensed Milk
Condensed milk is a popular ingredient used in home-made sweets and cakes. Nestle's Milkmaid is the leading brand with more than 55% market share. The other competitor is Amul.
Potential for further growth
Today, India is 'The Oyster' of the global dairy industry. It offers opportunities galore to entrepreneurs worldwide, who wish to capitalise on one of the world's largest and fastest growing markets for milk and milk products. Be it investors, researchers, entrepreneurs, or the merely curious – Indian dairy sector has something for everyone. India has the potential to become one of the leading players in milk and milk product exports. There is a vast market for the export of traditional milk products such as ghee, paneer, shrikhand, rasgullas and other ethnic sweets to the large number of Indians scattered all over the world.
Following factors can play a major role in making India a leader in the export market of dairy products:
Improving Quality: Significant investment has to be made in milk procurement, equipments, chilling and refrigeration facilities. Also, training has to be imparted to improve the quality to bring it up to international standards.
Low Cost of Production: Due to low labour cost, cost of production of milk is significantly lower in India.
Better Productivity: It is imperative to improve productivity of Indian cattle to maintain cost-competitiveness and surplus quantities.
Locational Advantage: India is located amidst major milk-deficit countries in Asia and Africa like South-East Asian nations and Gulf countries.
(The author is executive director,Trident F&B Consultants Pvt. Ltd. He can be contacted at abhishek@tridentfb.com)
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