Undisputed leadership

The dominant positioning of dairy in India’s food production basket is evident by the repeated assertion of Prime Minister Narendra Modi in the recent past that it has now become bigger than the wheat and paddy business in the country. “Today, India is the world’s largest producer of milk. When the livelihood of crores of farmers depends on milk, India produces milk worth Rs8.5 lakh crore annually; many people, including big economists, do not pay attention to this… even the turnover of wheat and rice is not equal to Rs8.5 lakh crore,” the prime minister said while addressing a gathering at Diyodar in Banaskantha district after inaugurating the new dairy complex of the Banas Dairy in April this year.

And at the Dairy Summit, he once again emphasised this point before the foreign delegates, pointing out that dairy is not merely any other business but rather part of the basic DNA of a transforming India. “Unlike other developed countries of the world, small farmers are the driving force of the dairy sector in India. India’s dairy sector is characterised by ‘production by the masses’ rather than ‘mass production’. Most farmers associated with the dairy sector in India have either one animal, two cattle or three cattle. Due to the hard work of these small farmers and their livestock, India today is the largest milk producing country in the whole world.” 

Statistics underline India’s supremacy in dairy in no uncertain terms. Production has escalated and resulted in various socio-economic changes as well. A movement that had started with Operation Flood in the 1960s, spearheaded by the legendary Verghese Kurien and consolidated by the constitution of the National Dairy Development Board (NDDB) has created an ecosystem which comprises a vast galaxy of cooperatives, private firms and millions of farmers, bringing them together in a business which is beneficial for all. 

As per ICRA’s annual report on the Indian dairy sector released late last year, the country is a clear market leader in global milk production, accounting for 22 per cent of the global milk production in FY2022. India’s milk production rose by 5.7 per cent to 198 million metric tonnes (MMT) in FY2020 and is estimated to have grown by 5 per cent to 208 MMT in FY2021. Around 1950, India was producing 17 million tonnes and this grew at a slow pace for the first two decades after independence. But since 1971, there has been a tremendous decadal jump. 

Globally, in terms of the nearest rival in volume production, the second slot goes to the EU region which contributes 20 per cent of the global output while the US occupies third slot at 11 per cent market share. India has witnessed a healthy CAGR of 6 per cent over FY2013-2020 supported by government initiatives for the dairy sector, increasing the bovine population and yields and capacity addition by organised players to expand the milk production network and penetration, says the report.

Out of the total milk produced in the country, 45-47 per cent is consumed by families of the producers while the remaining is sold in the market. Cow’s milk is the dominant variety of total milk production, accounting for a hefty 80 per cent.

Another analysis points out that India leads the world dairy sector with a 6 per cent growth which is three times the global growth, along with per capita availability of 427 grams per day. In India, milk is mainly produced by small and marginal dairy farmers with an average herd size of 2-3 animals and the country has a diverse genetic pool of magnificent indigenous cattle and buffalo breeds – 193 million cattle and about 110 million buffaloes, the largest genetic pool in the world.

The presentation made by the NDDB chairman Meenesh Shah at the summit specifically underlined the socio-economic growth dimensions of the dairy business. 

The sector provides direct employment to more than 80 million rural households. More importantly, distribution of animals is more equitable than that of agricultural land. Marginal and small farmers constitute 81 per cent of rural households. But while they own only 58 per cent of the total agricultural land nationally, their ownership of total female bovines is much higher, at 82 per cent. Analysts point at the healthy competition in the organised sector (accounting for 26 per cent of the output).

The country today boasts of a slew of very strong regional brands – both cooperatives and private firms. Brands like Amul, Nestle and Mother Dairy enjoy a national presence. Nandini (also called the Amul of South India), Aavin, Hatsun, Verka, Saras, Sudha, Milma, Vita, Gokul, Heritage, Dodla Dairy, Gyan Dairy, Paras Dairy, etc are some noted brands with specific regional strongholds in the country. The bigger private brands and cooperatives also enjoy healthy collaboration wherein the former contracts the latter for regular supplies and ensures that collection centres, etc are close to production points. 

VADP outpacing liquid milk 

There is a popular saying within the dairy industry – business comes of age when your consumers begin to eat rather than drink milk. The meaning is simple. As global experience shows, the dairy market is believed to skip to a different stratosphere when value added products become as robust as liquid milk since this results in more margins to producers and sellers. The EU’s share in production, as an analyst points out, may be lower than that of India. But in a cumulative sense, the output value is higher. 

The good news for India is that its VADP segment has begun to show robust growth trends, outpacing the usual uptick in the plain, vanilla, liquid milk business segment. According to the NDDB chairman’s presentation made at WDF, the growth jump in the sales of some value-added products has been astonishing in 2021-22 as compared to the previous year of 2020-21. 2021-22 was the year when the world at large had begun coming out of Corona and there was a tremendous surge in the demand for products, considering the perception about their immunity boosting attributes.

The growth rate of liquid milk (maintaining a CAGR trajectory of 5-6 per cent before the Corona years) had almost doubled, shooting up to 13 per cent. But that of popular value-added products was much higher – cheese (27 per cent), flavoured and frozen yoghurts (18 per cent), butter and ghee (11 per cent), probiotic dairy products, cream (17 per cent), whey (22 per cent) and ice cream (17 per cent). And considering the demand trends, the growth in these segments in the near to medium run is expected to continue – 20 per cent or even more.

The NDDB paper points to a host of triggers for the projected jump in specific value-added segments. For instance, future growth in the cheese market will be driven by the growth in the HORECA segment and increase in Quick Service Restaurants. Health considerations will propel Gen Z consumers to show a preference for probiotic dairy, yoghurt, whey, milkshake, and flavoured milk. Flavoured milk and its widespread availability, has already begun giving tough competition to other beverages such as aerated soft drinks. 

Experts also point to the fact that VADP’s growth in the recent past has been higher than expected. And the big boys of the game seem to be making the most of this emerging opportunity.

“VADPs, which form around 34-36 per cent of the organised Indian dairy industry revenues, witnessed a YoY growth of 18-20 per cent in FY22 according to the ICRA sample set of four large private dairy companies. This was driven by demand recovery across both retail and institutional segments. Due to the early onset of the summer season and the limited impact of the third wave of the pandemic, growth in the VADP segment was higher than ICRA’s estimate of 13-15 per cent,” Sheetal Sharad, Vice-President and Sector Head, ICRA, said recently after the research agency issued a report on the recent performance of the Indian dairy sector in August. 

Players in the industry confirm that aligning with VADP is now the leading motive of all organised players who are well established in the market. “Our current VADP portfolio comprises over 20 per cent of our total output. We are looking at doubling this ratio in the not-so-distant future,” says a senior official of Sudha Dairy, a Bihar based leading dairy cooperative which is rapidly expanding in neighbouring states.

Hyderabad-based Sid’s Farm is another case in point. The six-year-old firm predominantly deals in probiotic milk. “Even as the price of our milk is slightly higher, I am noticing a growing demand. A clear trend for everybody in this business now is to move beyond simple liquid milk and make a mark in VADP where competition even at the regional level will become stiff more rapidly than you would expect,” says Kishore Indukuri, Founder and CEO, Sid’s Farm. 

Soaring ambition 

Having reached a comfortable leadership position in the global dairy business and now developing strength in milk derivatives, the government is convinced that this is an opportune moment to proceed to the next level. “We should aim to become a reliable supplier of milk to the entire world. Our product should be good in quality and cost-competitive,” Union Home Minister Amit Shah said at the World Dairy Summit while emphasising that the strong cooperative structure which dominates the Indian dairy landscape, is a huge asset and the government plans to give it a further boost.

 “In countries around the world, farmers get only 40-50 per cent of the profits from milk production in the dairy industry, but in India, dairy cooperatives deposit 70 per cent of the consumer price in the bank accounts of the milk producing farmers, which is a great achievement. We have two-lakh villages where dairy cooperatives are functional. We want our dairy cooperatives to further expand and include two-lakh more villages in the coming years,” he further added.

As per an estimate, the total milk output in India would shoot up to around 600 million tonnes in the next 25 years from the current level of 210 million tonnes.

Analysts will tell you that the government’s big-ticket ambition is not impractical. The ‘direct payment to farmers’ (mostly as members of cooperatives) mechanism has turned out to be a huge asset in endearing the diary business to farmers. 

“It often happens that you set up a collection centre with a specific time-bound target in some place. But your target would be met much before the deadline. The dairy farmers in the location would buy more animals the moment they know that their incremental sales are assured,” points out Meenesh Shah. Bankers, including the new age fintech firms confirm that when it comes to lending to rural enterprises, the exposure to the dairy sector is the highest.

“We have been operating in the rural pockets of five states in the country for the last six years and have lent to the tune of Rs300 crore so far. Out of this, the share of the dairy sector is a hefty 65 per cent. From our experience, I can tell you that dairy is the leading business in rural India,” observes Mayur Modi, CEO, Moneyboxx Finance. 

Analysts point to a slew of policy provisions which are in place to usher in the next version of the white revolution. These include – National Livestock Mission (launched in 2014 to ensure breed development, feed and fodder development); National Disease Control Programme (with an allocation of R13,330 crore to save animals from diseases by vaccination between 2020-24); Rashtriya Gokul Mission (encouraging artificial insemination in 600 districts for better bovine breeding); easy capital access to the cooperatives by way of a dedicated Dairy Infrastructure Development Fund and allowing dairy farmers to take advantage of the benefits of the Kisan Credit Card Scheme.

Dairy industry stakeholders point to another interesting trend which is playing out in the marketplace – the increasing competition among states to emerge as new dairy powerhouses in a structural sense. While Gujarat may appear to be the dairy capital of India, in terms of output it is fifth (UP, Rajasthan, MP and Andhra Pradesh produce more).

But through better cooperative management and collaboration among the key stakeholders, it appears to be leading the show. Marketmen say some other states are now trying to expeditiously build scale in the organised dairy business. A proof of this trend became apparent from a comment by Yogi Adityanath, Chief Minister of UP at the Summit. “UP is determined to give a major push to dairy cooperatives. In 2019, we created Balinee Milk Cooperative which has turned out to be a major success benefitting 41,000 farmers in 795 villages who are producing 1.35 lakh litres daily. We have planned similar clusters in five more places,” he said. 

In addition, NDDB on its part is now involved in giving a big-ticket push to micro units called MPOs (milk producing organisations) at several pockets in the country, not to forget scores of cooperatives in different states. Some of the MPOs facilitated by it have begun turning heads with their operational excellence. Shreeja (Tirupati), Sakhi (Alwar), Asha (Udaipur), Paayas and Maahi in Gujarat are some noted emerging entities (mostly governed by women) under the MPC programme. 

Based on these equations, industry leaders are forecasting a massive jump in the dairy business. “As per a research paper, there has been a steady upward movement in the prices of milk in recent years – the average retail price of liquid milk in the country has moved up from Rs43.4 per litre in Q1, FY19 to Rs50.5 in Q4,FY22. In the same period, the procurement price went up from Rs25.8 to Rs34 per litre,” says NDDB chairman Shah.

“The way I look at the long-term trend, India’s share in the global dairy output may well shoot up to over 40 per cent by the time we celebrate our 100th independence anniversary. By then, 80-85 per cent of our consumption would be domestic and we would be exporting the remaining,” underlines R S Sodhi, MD of Amul, the flagbearer of India’s organised dairy business which is now earning (Rs60,000 crore) more than the leading FMCG brands in the country. 

The challenges

There is a long list of structural and operational challenges which, as research analysts point out, industry players will have to grapple with. These include: chronic scarcity of fodder and higher feed prices, milk quality issues, inadequate cold chain and high transportation costs, lower milk productivity of indigenous cattle, etc. The emergence of the climate change issue as the major concern of the century could be another spoiler as there are empirical studies in the West observing that rise in temperatures affects animal productivity.

“The main challenge for the Indian dairy sector would be to increase productivity to reduce cost. We will need to bring in more supply chain efficiency. In dairy, after milk production, there are two kinds of serious cost heads – energy and packaging. Our processing plants will have to be more energy-efficient and closer to consumption centres,” Sodhi underlines.

Industry stakeholders are, however, confident these issues will be deftly handled, given the government’s favourable policy approach, the new growth momentum created by the VADP segment and better collaboration across the value chain.

Incidentally, the entire global dairy sector is currently bearing the brunt of inflationary pressure (in many developed markets, prices are rising as a result of energy costs) and the scene is no different in India where the leading players have increased prices three times since the beginning of the year. As per a research paper, there has been a steady upward movement in the prices of milk in recent years – the average retail price of liquid milk in the country has moved up from Rs43.4 per litre in Q1, FY19 to Rs50.5 in Q4,FY22. In the same period, the procurement price went up from Rs25.8 to Rs34 per litre.

And, according to a global expert who participated in the World Dairy Summit, the cost pressure will continue to mount in the medium run due to geopolitical reasons as well as additional expenditure which the sector may have to bear as a consequence of shifting to sustainable farming modalities – this will act as an antidote to the climate change effect. And this would be a sweeping trend. The message Indian consumers can take from this is: get ready to pay more to relish the offerings of White Revolution 2.0 in the coming years.

 “We are chasing new goals” 

Business India caught up with NDDB Chairman Meenesh Shah on the sidelines of the World Dairy Summit last month in Greater Noida. He explained the different dimensions of the new growth wave for the Indian dairy sector. Edited excerpts… 

The stakeholders who have gathered here are convinced that the growth momentum in the Indian dairy sector will get more robust in the medium to long term. But in your reckoning, what could be some unforeseen spoilers? 

A strong unforeseen spoiler I could think of is the younger generation deciding not to participate in animal husbandry practices and businesses. So, you need to convince them and make them aware that it is a profitable activity. You have to tell them it can be pursued like any other white-collar job. 

Have you noticed some preliminary trends pointing in the direction of the apprehensions you have expressed? At the grassroots level? 

We keep on carrying out different surveys from time to time. And this is a trend which has been noticed. 

In your presentation here at the summit, you have pointed at regulatory challenges and issues in the professional management of dairy businesses. What are your precise concerns? 

These challenges are specific in the context of cooperatives. People working in the dairy sector are aware of it; professional management is a must. If you don’t have the right people in the right positions, it will become difficult to run the operations in a way that is sustainable and profitable. We have seen some states which have just passed on orders to ban recruitment for a few years. You can’t run your organisation without qualified people in crucial positions like marketing manager or processing manager.

Another challenge which I find becoming quite pertinent now is the reforms in the cooperatives. Cooperatives are a state subject and there are divergent views between some states and the Centre in terms of future reforms for the sector. We all have to sit together and decide which reforms are good for the sector. If there are differences in opinion on issues like procurement procedures, purchases made in the cooperatives, or recruitment in the right positions, etc they need to be resolved in the interest of the success of the cooperatives. 

You spoke about the value of the dairy business in India more than doubling in the next 5 years – from Rs13 lakh crore now to Rs30 lakh crore by 2027. Will the inflationary pressure resulting in higher prices for the consumer play a role in this? 

It would mainly be volume enhancement driving that kind of growth. It will also be because of the change in products because you will have more value-added products in the portfolio. And, of course, the third will be inflation and increasing prices. But I think an increase in prices will be a small component as compared to the growth in milk production and also a change in the product portfolio. 

NDDB has been at the fulcrum of the dairy industry’s growth in this country for the last five decades. Now we are talking about White Revolution 2.0. How do you envisage your role in it; how would your future actions be different from what you have done in the past? 

It won’t be radically different but I strongly believe that change is the only constant factor. What we have achieved is history. You simply can’t rest on your past laurels. We have new goals now. We want to reach out to more farmers and help them beyond dairy. We now want to help them develop expertise in multiple commodities. In the past, we were involved in edible oil in a big way.

We were atmanirbhar in it at one point in time and now we are exporting 60 per cent of our requirements. NDDB clearly can have a role here. Our new approach is simple: whatever we have learnt in the dairy value chain – based on that learning we are trying to develop similar expertise in other commodities as well. 

We have unmatched strength in liquid milk production. Could we have similar global positioning in value-added products as well at some stage? 

Why not? There is no doubt in my mind that it will happen. If you look at Mozzarella cheese, we can develop expertise here because it is made of buffalo milk and India is blessed with buffalos. 

Do we have new milk clusters coming up in different pockets in the country? 

Yes, it is a continuous process. What we have also noticed is that once you provide markets to farmers, they immediately increase their production. This is a very encouraging sign.