The taste of India
India is the fastest growing dairy market in the world and has become the largest global producer of milk since fiscal 2013. Domestic milk production grew at 4.3 per cent CAGR to nearly 134 billion litres in fiscal 2014, from 113 billion litres in fiscal 2010. The growth in milk production in India outpaced other large milk-producing nations such as USA and China, which grew at two-three per cent CAGR in the past five years. Milk production is growing at a rate of 4.3 per cent, while consumption is growing at five per cent – leaving a gap between supply and demand, according to a CRISIL report, 2015. In order to meet this rapid growing demand and to increase milk production in the country, the Union government has started a central scheme – National Dairy Plan – Phase I, for the period starting fiscal 2012 to fiscal 2017. The main objective of the scheme is to provide rural milk producers with greater access to the organised milk-processing sector and to bridge the gap between demand and supply of milk in the country.
According to the Annual Report of the National Dairy Development Board, India continued to be the largest milk producing nation in the world with an estimated milk production of 134 billion litres for fiscal 2014, an increase of 3.9 per cent over previous fiscal 2013. The estimated per capita availability of milk increased to 302 grams per day, which is more than the world average 294 grams per day. Additionally, per capita availability of milk in developed countries was estimated at 831 grams per day and in Asia, it was estimated at 186 grams per day. The dairy cooperatives procured about 12.5 million tonnes in fiscal 2014, as compared to 12.2 million tonnes in fiscal 2013, registering a growth of 2.5 per cent. Liquid milk marketing by the cooperatives stood at 11 million tonnes in fiscal 2014, as compared to 10.4 million tonnes in fiscal 2013, registering an increase of about 5.8 per cent. In addition, the wholesale price indices of fodder and cotton seed oil cakes increased by more than 10 per cent in fiscal 2014. In order to offset the high cost for milk production, the cooperatives paid a higher procurement price to milk producers in fiscal 2014.
The Indian states of UP, Rajasthan, AP, Gujarat, Punjab, Maharashtra, MP, Haryana and Tamil Nadu together accounted for over 75 per cent of milk produced in fiscal 2013. The per capita availability of milk was the highest in Punjab at around 347 litres per person per year in fiscal 2013. In the same period, Haryana, Rajasthan, Gujarat, AP, UP and MP were ranked among the leading states, where pare capita milk consumption exceeded the national average of 106 litres per person per year.
While the share of buffalo milk in the country’s total milk production continues to be higher (over 53 per cent in fiscal 2013), there is a growing preference for cow milk on the back of increasing health awareness and changing demographics especially in the urban areas. Cow milk contains lower fat content, as compared to buffalo milk and hence appeals to the health conscious youth population.
The International Dairy Situation, Food and Agricultural Organisation (FAO) reported 0.7 per cent increase in milk production from 762 million tonnes in 2012 to 767 million tonnes in 2013.
International prices of dairy commodities which were relatively high in the early part of fiscal 2014, declined in middle of the year but increased substantially by the end of the year. With reduced availability of milk powder stocks due to drought in the Oceania region, price of milk powder witnessed an increase of more than 40 per cent in fiscal 2014 as compared to fiscal 2013. Taking advantage of high prices and low stock levels, India exported about 0.7 million tonnes of milk including milk powder equivalent of casein.
India and the US were the leading milk producers, accounting for around 17 per cent and 12 per cent share respectively in 2012. India was the highest consumer as well with an aggregate demand (milk and milk products) of 118-120 billion litres in 2012. Other major consumers included the USA, China, Pakistan and Russia. In addition, the world largest milk exporters were: New Zealand and countries based in the EU, while the major importers were China and Russia in fiscal 2012.
Currently, about 42 per cent of the total milk produced in India is purchased by consumers directly from milk farmers in a raw form. The remaining 58 per cent goes for processing and is sold as processed milk and milk products like curd, yogurt, buttermilk, lassi, butter, ghee, ice cream, frozen desserts, cheese, paneer, khoa and milk powder (including skimmed and whole). The processed dairy industry in India was estimated to be around Rs 3,650-3,700 billion, out of which milk products accounted for around Rs 1,490-1,530 billion. Paneer and khoa (32 per cent), ghee (30 per cent) and curd products (22 per cent) account for the major portion of the milk products segment. The processed milk and milk products segment is expected to record about 12-13 per cent CAGR between fiscal 2014 and fiscal 2017. Growth will be driven by several factors such as changing lifestyle of consumers, growth in the food services industry, increasing urbanisation, rising need for convenience, better health awareness among end-users etc. Sensing higher demand for processed milk and milk products, several domestic and global players forayed into different value added segments (leading to higher margins) to gain a higher market share. While demand for processed milk grew by 5.3 CAGR in fiscal 2010 to fiscal 2014, realisations rose by about 9-10 per cent CAGR in the same period. Higher realisations could be attributed to rise in milk prices and growth in consumption of flavoured milk and tetra pack milk. As a result, the processed milk segment recorded 14-15 per cent CAGR, reaching Rs 2,160-2,170 billion in fiscal 2014, from about Rs 2,150 billion in fiscal 2010.
Milk prices are expected to rise by 7-8 per cent CAGR over the next three years, primarily driven by an increase in fodder prices, which in turn are expected to be driven by a similar rise in minimum support prices of key crops. Overall, the segment is expected to grow by 12-13 per cent CAGR in terms of value, from fiscal 2014 to fiscal 2017 to reach Rs 3,090-3,100 billion.
Stepping in to bridge the gap between demand and supply of milk in India, Prabhat Dairy Limited is launching its public issue of shares priced at between Rs 140 to Rs 147 per share, aggregating up to Rs 3,000 million from August 28, 2015 to September 1, 2015. Sarangdhar R Nirmal, Founder and Chairman, PDL, said nine lakh litres of milk is being procured by them daily from various towns in and around Maharashtra for their plant in Ahmednagar district, besides fodder for the milch cattle being grown by them.
Vivek Nirmal, CEO, PDL, said the company has started with producing 400 litres and had in 2006 begun to study various business models across the globe. “We found there was a huge vacuum for a premium dairy ingredients player and we decided to fill this gap while also building on our own consumer brands. Our cheese plant is the third largest in India. Our milk production is highly fragmented and we are procuring 8,50,000 litres milk from 75,000 dairy farmers daily, while our catchment area is among the largest cow milk belt in India with 450 collection centres, 85 plus bulk milk coolers and 15 milk chilling plants. However, the biggest challenge facing us today is that we cannot have legal enforcement with these farms. Our B2B business contributes to 75 per cent of our <g data-gr-id="161">revenue,</g> while our B2C business brings in about 25 per cent of the rest. Cadbury makes milk chocolates and we have developed the milk products for them. Later, Cadbury was taken over by Kraft and our company became the first plant to be appointed by them. We intend to be major suppliers of “whey” to industries as this is in big demand. We have partnered with Mother Dairy to
manufacture <g data-gr-id="281">its</g> ice creams.”
Describing Prabhat Dairy Ltd as an integrated milk and dairy products company in India catering to institutional and retail customers, he said: “The company has established large automated production facilities with advanced equipment at Shrirampur (Maharashtra) and at Navi Mumbai with an aggregate milk processing capacity of 1.5 million litres per day as of June 30, 2015. We produce fresh, dry, frozen, cultured and fermented dairy products including pasteurised milk, flavoured milk, sweetened condensed milk, ultra-pasteurised or ultra-high temperature (UHT) milk, yogurt, dairy whitener, clarified butter (ghee), milk powder, ingredients for baby foods, lassi and chaas. We have recently added production capacities for several new dairy products including cheese, cottage cheese (paneer) and shrikhand and will commence production of these products in fiscal 2016.”
“In the relative absence of large-scale cattle breeding and dairy farming operations in India, we believe that our milk procurement model and relationship with milk farmers and registered milk vendors – through continued engagement, knowledge and infrastructure support – has enabled us to contain raw milk costs and ensure supply of quality raw milk. In addition, we have also introduced automated milk testing facilities that provide transparency to the pricing of milk purchased by us. We supply quality cattle feed to farmers to improve milk yields. Our marketing efforts have enabled us to receive the award for “Asia’s Fastest Growing Marketing Brands – FMCG Sector” at the World Consulting and Research Corporation leaders summit in 2014.”
“Our company sells products under retail consumer brands as well as ingredient products or as co-manufactured products to a number of institutional and multinational companies. Our integrated business model encompasses almost all aspects of the dairy industry value chain, including cattle feed supply, engaging with farmers on cattle health and milk production, procurement of raw milk, and the production, supply and sale of a range of processed milk and dairy products. We believe that our integrated business model enables us to leverage the dairy industry value chain, ensure efficiency in costs and operating margins and exercise more control over the production process, resulting in quality products.”
He said the company produces a range of milk and dairy products. “The specialty ingredient products include nutrition supplements and formulations for baby food, sweetened condensed milk, partly skimmed milk, skimmed milk powder, skimmed milk preparations, full cream milk powder and specialty milk powder for various reputed consumer product companies including Mondelez India Foods Private Limited (formerly Cadbury India Limited) and Abbott Healthcare Private limited. Co-manufactured products include specialty milk powders, curd (dahi), clarified butter (ghee), dairy whiteners, yogurts, processed and concentrate milk, and ice creams for various institutional customers including Britannia Industries Limited, <g data-gr-id="153">Motner</g> Dairy Fruit & vegetable Private Limited and heritage Foods Limited.”