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  • Budget to have multiplier effect on dairy industry

    The dairy co-operative sector is happy with the announcement of Rs 8000 crore fund for dairy sector in the union budget 2017-18. It is expected to help set up processing facility for additional 500 lakh litre milk per day. It was the demand of the dairy sector as the existing infrastructure had become obsolete. The co-operative sector did not have funds to invest. The infrastructure created during the Operation Flood movement had become 30 to 40 years old, according to RS Sodhi, managing director at Gujarat Cooperative Milk Marketing Federation (GCMMF). 

     

    While the GCMMF, which markets the Amul brand of dairy products, took its turnover of Rs 8,000-23,000 crore (figure of FY16) just about six years, its procurement too grew by 91 per cent in the last six years. GCMMF would invest Rs 5,000 crore to set up 10 processing plants that would take its processing capacity to 3.2 million LPD from 2.3 million LPD.The Union Budget announced creation of Dairy Infrastructure Development Fund of Rs 8000 crore over next three years with Nabard. In the first year, the government announced to give Rs 2000 crore for creation of the fund.This is a huge investment and will help create an additional rural income of Rs 50,000 per annum and will have a multiplier effect on the rural economy and the dairy sector. India is world's largest milk producer and co-operative sector commands a major share in the dairy industry of the country.

     

    The dairy processing infrastructure fund under NABARD will create an additional milk processing capacity of 500 lakh litres per day. This will lead to 50 per cent increase in income of dairy farmers annually.The government’s focus is on implementation of a cashless economy which supports long-term economic growth. Therefore, all eyes were on the budget for clarity on taxation policy and regulatory issues, and norms for support of cashless economy. Dairying in India is not just an economic activity. It is an integral part of its society, its culture. No other industry can claim to touch lives of millions of farmers-- more than half of them landless. Given market access and remunerative prices to farmers, dairy can become a potent tool for equitable growth and income distribution. Genuine impetus to the dairy sector leading to its growth will lead to that elusive balanced and inclusive growth where our villages progress alongside urban India.

    Milk is now the largest crop of India and milk products are the primary source of protein for nutritional development of population. India is the largest producer of milk. The Indian dairy industry presently contributes about 15% to the total milk production of the world. Dairy Industry in India presents a plethora of opportunities. Earlier, the industry was dominated by co-operatives but since last 20 years with the entry of private players, we have seen a sharp rise in demand for milk and milk products.
    The private sector has overtaken the cooperatives today. The overall industry is underdeveloped and extremely fragmented. Private Sector is now willing to further speed-up its investment in Indian dairy industry but an extremely poor state of farmers and no incentive for private dairy to develop farmers is becoming a real hurdle. A subsidy on purchase of milk from farmers under cashless conditions should be initiated to bring double advantage in terms of supporting farmers from vagaries of monsoon and also bringing economy to cashless.  


    In order to maintain quality, longer shelf life and to keep it fit for human consumption, proper packaging of milk products is essential. Packing of milk products should also be construed as processing for preservation and the packaging industry should be exempt from all duties like excise, CST, Octroi etc.
    When there is a thrust on increasing the milk production, there should be ample amount of facilities to handle it too. There is a dearth of required infrastructure of chilling plants and bulk coolers due to which so much of milk goes waste due to spoilage. Bulk Milk Coolers cover long distances to and fro from the collection centre. There is a shortage of refrigerated vans and insulated tankers for ferrying the chilled milk to the processing plants. Government shall create a fund to support these activities by subsidizing this investment to a large extent for economic growth of the country.Nabard has hailed the increased focus dairy sectors in the Budget which has hiked the corpus of long term irrigation fund by another Rs 20,000 crore, taking the total fund size to Rs 40,000 crore.

     

    Nabard has always been opining that development of dairy is critical to bringing sustainability to agriculture. There are millions of examples where farmers have shown their ability to manage inclement weather and market vagaries by investing in dairy as an alternate mode of income.

     

    The dairy cooperative network includes 254 cooperative milk processing units, 177 milk unions covering 346 districts and over 1,55,634 village-level societies.

    The budget said the government will support Nabard for computerisation and integration of all 63,000 functional primary agriculture credit societies (PACS) with the core banking system of district central cooperative banks. This will be done in three years at an estimated cost of Rs 1,900 crore, with financial participation from state governments.Milk and dairy products industry has been seeing some of the most frenetic activity over the past couple of years. Multinational and Indian corporate giants have jumped into the market. Start-ups have cropped up. Fund raising is taking place at a frenzied pace, both from the equity markets and via private equity funding. And new products and innovations are being launched fast and furious. Meanwhile, the 800 pound gorilla in the market - the Rs 31,000 crore Amul (2015/16), is managed by the Gujarat Cooperative Milk Marketing Federation (GCMMF) - is aggressively throwing resources to protect its turf. It wants to hit Rs 65,000 crore in revenues by 2020.

     

    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.

    As the Rs 4 lakh-crore Indian dairy industry catches the fancy of corporate giants, the sector is estimated to see investments worth Rs 9,000-10,000 crore over the next five years.The value of dairy industry at the retail level is Rs 4 lakh crore. The share of the organised industry is approximately 30 per cent and is growing at a robust rate of 15 per cent per annum. The value added segment is the major driver of this growth with around 18-20 per cent growth. Curd, lassi and butter milk are growing at around 18 per cent while the smaller categories like flavoured milk, yoghurt and cheese are growing upwards of 20 per cent per annum.


    Increasing organised activity in Indian dairy and direct processor-farmer engagement will entail significant investments in creating capacities for milk procurement, milk handling and product manufacturing.

    Investments in the dairy business will broadly range between Rs 9,000 crore and Rs 10,000 crore in the next five years. The major share of the investment will be for creating infrastructure at farm for collection and storage of milk. Analysts feel that the companies investing in the dairy sector will also look to expand beyond their regional base. Innovation and technology focus will be important for them to cater to emerging consumer trends, either by developing new products or creating a unique positioning in existing product categories. This will help them differentiate from the competition in the market with positive impact on the margins.

    Mahindra, for example, has started with 2,000 farmers and claims that it ensures that the milk collected reaches the processing plant in the shortest possible time. Mahindra’s poly-pack milk will be followed by value-added products like ghee, curd, lassi and butter milk.FMCG major ITC has forayed into dairy with Aashirvaad Svasti pure cow ghee. ITC has set up a dairy plant in Munger.
     

    According to the National Dairy Development Board and Crisil research estimates, India produces around 3.80 million litres per day (LPD) of milk, accounting for a fifth of global output. About 40 per cent of this is retained by producers (farmers) for household consumption. Another 41 per cent share is with the unorganised segment. The remaining 19 per cent is procured, processed and sold through organised dairies.Given the rising demand for branded products and investments being made by organised sector players, Crisil believes the share of organised segment will increase to about 25 per cent by fiscal 2018. The volume of milk processed from the organised sector is expected to grow 13 per cent annually by FY2018, way ahead of a five per cent annual growth for the industry at large.

    Cooperatives, however, have a strong presence and hold over the Indian dairy market, and can pose a challenge for the growing corporate dairies when it comes to milk procurement.