U.G.

C SPONSORED NATIONAL LEVEL CONFERENCE

ON
EMERGING MARKETS AND THEIR EMERGENCE IN AN ERA OF
GLOBALIZATION ITS IMPACT ON INDIAN ECONOMY

September 4th 2015

Tiptur, Tumkur District

MAIN PAPER
Paper Title:
Role of Supply Chain Management in Marketing of Dairy Products
Submitted To
Department of Commerce and Management,
Pallagatti Adavappa Arts and Commerce,
First Grade College, Tiptur

Prepared By:

Ramapriya H.D

Dr. Shobarani H

Research Scholar

Assistant Professor

Kuvempu University

kadur P.G Centre

Kuvempu University

INTRODUCTION
Indian Dairy Industry

The Indian dairy industry has been through an evolution right from the British era till today.
Today, the Indian Dairy industry stands at a maximum size in the growth of food products. India
exhibits tremendous potential to further strengthen its position in the world dairy market. The
operation flood program promoted and implemented by the National Dairy Development Board
(NDDB) has been instrumental in bringing about a white revolution in India. Changing lifestyle,
feeding habits and urban culture has somewhat effected the transition of the Indian dairy Industry
into a more of a demand driven, highly diversified and exciting business proposition.
The country accounts for more than 15 per cent of worlds total milk production and is also the
worlds largest consumer base of dairy products, consuming almost all of its own milk
production. Milk is now considered not only desirable but an essential intake from the moment
the child is born. Milk has high nutritive value. The quality of milk consumed by the people has
direct effect on their physical and mental health. Hence, it is very important that controls are
affected at each stage. i e from cow to co operative and co operative dairy to consumers.
Large emerging economies eg.. India and China have complexities and face challenges that range
from development of markets to integration supplier. For firms that aspire to conduct substantial
business in such markets, complexities have to be recognized and then overcome. The challenge
is to understand the linkages between markets and the society. Role of Supplier Chain
Management is very significant in reaching customer doors. So many milk dairy Industries are
giving at most important to the supply chain management in their organizations.

Supply Chain Management Definitions

As defined by Ellram and Cooper (1993), supply chain management is "an integrating
philosophy to manage the total flow of a distribution channel from supplier to ultimate
customer".
Quinn (1997) defines the supply chain as "all of those activities associated with moving goods
from the raw-materials stage through to the end user. This includes sourcing and procurement,
production scheduling, order processing, inventory management, transportation, warehousing,
and customer service. Importantly, it also embodies the information systems so necessary to
monitor all of those activities."
Need For Supply Chain Management

Greater sharing of information between vendors and customers.

Horizontal business processes replacing vertical departmental functions.

Shift from mass production to customized products.

Increased reliance on purchased materials and outside processing with a simultaneous

reduction in the number of suppliers.

Greater emphasis on organizational and process flexibility.

Necessity to coordinate processes across many sites.

Employee empowerment and the need for rules-based real time decision support systems.

Competitive pressure to introduce new products more quickly.

The Structure of the Indian Dairy Industry

The Indian dairy industry is mainly constituted of 22 state milk federations, 110,000 dairy
cooperative societies involving more than 12 million milk producers. There are also some major
private players in the field which further improved the dairy sector of the country namely; Amul,
Britannia, Nestle, Mother dairy and Nandini etc., to name a few. The home company "Amul" is
ranked 18thin the world (IFCN, 2007), Fonterra of New Zealand being the no. one player in this
field.

According to NDDB, the dairy cooperative network includes 177 milk unions operating in over
346 districts and covering 1, 33,349 village level societies is owned by around 13.9 million
farmer members of which 3.9 million were women. The Indian dairy industry contributes about
69 per cent to the entire bulk of output from the livestock sector. The dairy sector has grown
robustly in the past years and dairy cooperatives account for the major share of processed liquid
milk marketed in the country. The organized sector still remains a minor stakeholder and handles
about 20 per cent of the milk whereas the unorganized sector still controls about 80 per cent of
the industry. The structure of Indian dairy industry, as mentioned in Figure 1, further reveals that
organized sector of Indian dairy industry comprise of private dairies, various Milk Cooperatives
Societies and Government dairies.
Share of Processing Food Category in India
The food processing sector in India covers a wide range of food items such as meat and meat
products, fish and fish products, fruits and vegetables, vegetable oils and fats, milk and milk
products, grain milling, animal feed, confectionery products, bakery products, sugar processing,
among others In food categories, major contribution comes from dairy industry which is 30 per
cent which is followed by grain based product with 26 per cent and edible oil contribute 9 per
cent which is followed by pulses, spices, fruits and vegetables, sugar and sugar based products as
shown in Graph-1.

Chat 1

SUPPLY CHAIN OF INDIAN DAIRY INDUSTRY

Supply chain in Indian dairy industry starts from supplying inputs for dairying in form of fodder,
animal feed plant, vetenery aids for the animal (cattle and buffalos), after supplying feed and
fodder to the mulch animal milk is taken out from the mulching animal on the daily basis by the
dairy farmers (large, medium and small scale farmers) which afterward is collected by the milk
collection Centre (various milk cooperatives societies). Then the milk collected by the
cooperative societies are sent to the dairy plants where chilling of milk, processing and
packaging of milk and milk product, transportation of milk and milk product is carried out.

Chart 2
Milk Production in India
Milk Production India is increasing from last 60 years. The below chart depicts the year wise
increase in the milk production from the year 1950 -51 to 2013 -14. In the year 1950 51 the
milk production was 17 million tones, gradually it was increased year to year and in 2013 -14 it
was increased to 137.7 million tones.

160

137.7
132.4
127.9
121.8
116.4

140

120

100

92.5
80.6

80

60

40

53.9

31.6

2022
20 17

Chart 3
Milk Consumption India:

Milk Consumption in India is consumed by both rural and urban consumers. As

consumption of milk is more in urban compare to rural consumers.

Milk

consumption is increasing more from year to year both in rural and urban
consumption level. The below chart shows the percentage of liters per anum.

Rural

Urban

Chart 4

Characteristics of Indias
dairy farming and its
relevance to inclusive
growth

Small and marginal farmers own 33 % of land and about 60 percent of female cattle and
buffaloes.

Some 75 % of rural households own, on average, two to four animals.

Dairying is a part of the farming system, not a separate enterprise.

Feed is mostly residual from crops, whereas cow dung is important for manure.

Dairying provides a source of regular income, whereas income from agriculture is

seasonal.

About a one third of rural incomes are dependent upon dairying.

Livestock is a security asset to be sold in times of crisis.

Indian dairy sector has evolved from rags to riches

1940s

2013

White revolution

-Per capita

milk

availability132g/day
-Milk
rationing
and scarcity
-Dependent
on import
-High
intermediati
on

Cooperative
dairying
countrywide
milk grid
linking
producers to
consumers
Cutting out
middle men
Strengthenin
g production,
procurement
,
infrastructur
e
and
technology
transfer

-Per capita milk

availability-302
g/day
-17% of global
output
-Net exporter
-Increased
share of
producers
share in
consumer price

OPPORTUNITIES AND CHALLENGES IN INDIAN DAIRY INDUSTRY

The entire dairy Industry in India has its base in the small holders and marginal farmers. These
prime stakeholders of the entire value chain of milk are deprived of minimum resources of land,
labor, capital etc. The other issues and challenges in Indian dairy industry at the grass root levels
are given below:

Issues and Challenges at the Small holder Level

The entire dairy Industry in India has its base in the small holders and marginal farmers. These
prime stakeholders of the entire value chain of milk are deprived of minimum resources of land,
labour, capital etc. The other constraints at the grass root levels are:
Inadequate feeding of animals: With burgeoning human population, there is an increasing
pressure on the land resources for cultivation of food crops and fodder crops are not preferred.
This apart the small holders are not able to feed the animals with balanced diet of concentrates
and roughages due to lack of financial support.
More disease incidence: Small holders who are not members of cooperative societies often
get deprived of good animal health care facilities in terms of routine vaccination and
prophylactic disease prevention measures. Financial constraints generally inhibit these farmers
access to the organized veterinary services and they still rely on the quacks and conventional
treatment methods.
Low genetic potential of animals: The stock of animals even if crossbred has less
percentage of exotic genes, which lowers their milk production. There is indiscriminate artificial
insemination without proper record keeping which leads to repeated inbreeding and decreased
production potential of the animals.
Lack of chilling capacities: The farmers having high yielding varieties of the cattle and
buffalo have a different issue all together. These farmers milk their animals 2-3 times in the day
and every time they have to carry this milk to the distant collection centers where there is a
cooling facility or else the milk goes waste if there is delay.
Exploitation of farmers: Those farmers who do not conform to any of the cooperative
societies get exploited at the hands of the contractors of the private dairies with regard to
payment of exact dues as per the fat content of the milk.

 High production costs: Compared to the amount of efforts and maintenance costs being
involved in the production of milk, the farmers do not get remunerative prices due to low market
prices and lack of elasticity in the prices of milk.
Delayed payment of dues: The farmers are not only paid less according to the quality of
milk but also their payment is delayed from time to time. This comes in line with the sick and
non-performing milk cooperative unions, which pass on the perils of mismanagement and
marketing losses to these poor farmers.

Issues and Challenges at Collection Level

Milk base mainly consisting of small holders: The majority of dairy farmers being small
and marginal the average holdings of animal come to around 5 animals per farmer. This brings in
the logistical challenge of collecting milk from each farmer twice on a daily basis. The farmer
usually loses much time waiting in the queue to deposit their milk at the collection centers thus
resulting in loss of networking mandays.
Involvement of too many intermediaries: Keeping in view the large no of intermediaries
involved in the milk collection procedures the milk loses its quality in the process. This leads to
increased microbial contamination and fluctuation in the volume of the milk before reaching the
collection centers and bulk coolers.
Gaps in information: In this era of information technology, the dairy sector is unorganized
with respect to the support information. There is no record of the milk, which is being collected
from different milk producers at the collection centers. If anything goes wrong in terms of the
discovery of zoonotic disease organisms at a later stage there is no scope of backtracking to the
farmer. Though there has been a success in this regard with the e-governance project being
implemented in AMUL with the help of IIM Ahmadabad, it has not been replicated by all the
cooperative societies in the sector.

 Absence of a screening system: Milk before being pooled up at the collection center from
various farms and animals are not subjected to any screening for the zoonotic diseases and
adulterants and contaminants in many of the cooperative societies. This often results in spoilage
of the entire batch of the pooled milk if one of the milk cans goes undetected. Linking back to
source as such is not possible in the absence of a database.
Lack of Infrastructure: When there is a thrust on increasing the milk production, then there
should be ample amount of facilities to handle it. 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.
Manipulation of the quality of milk by the farmers: The farmers not being able to get fair
and remunerative prices for the milk often tend to give adulterated milk at the collection centers.
They often add additives to forge the fat content of the milk and get better price for the lot.
Addition of vegetable fat, animal fat, starch, etc. has been quite frequent among the farmers to
alter the fat and solid content of the milk.
Issues and Challenges at the Processing Level
Seasonality of production and fluctuating supply: India being a tropical country renders a
hot and humid climate for the animals and thus fluctuations in the milk production. There is a
flush season in the cooler parts of the year whereas the production goes down in the warmer
months. Thus, at times, the surplus of milk exceeds the processing capacity and milk goes waste
whereas on the other hand the processing capacity goes underutilized in the lean period.
Absence quality standards: There is absence of stringent quality standards like HACCP,
Codex etc. in most of the cooperative milk unions, which bars Indian dairy products for exports
into the foreign market.
Adulteration and Food safety: The most important aspect of milk processing is its purity
and wholesomeness. There has been an instance of cheap substitution of skimmed milk powder
with below standard substances, which is hazardous to health. Even though there are certain

Food safety Acts but still every other day we get to know about various tankers of spurious milk
being apprehended.
Lack of trained and skilled workers: There is lack of trained and skilled workers who can
handle the milk processing operations hygienically and safely.
Issues and challenges at the Storage and Logistics Level
Lack of cold storage facilities: Milk being a highly perishable product requires be
processing or cooling as soon as possible after milking, to prevent spoilage and contamination.
However to ensure this there is a need of refrigerated milk silos for storage which are not present
at the village levels.
Gap in the cold chain and transport facilities: There are long distances to be covered to
reach bulk milk coolers from the collection center. There is a shortage of refrigerated vans and
insulated tankers for ferrying the chilled milk to the processing plants
Issues and Challenges at the Co-operative Level
Less number of member farmers: The cooperative model though successful has not been
able to include all the farmers into the fold. There are still many potential farmers who use the
informal channel of milk sale and delivery.
Lower participation in the decision making process: There is huge government
interference in many of the co-operative federation activities, which leads to lesser say of the
farmers in many crucial issues.
Losses: Poor management of the some of the village cooperatives have led to huge losses in
the trade due to which farmers have lost faith in these entities.

 Low prices of milk: The co-operatives declare low prices for procuring milk from the
farmers, which benchmarks the prices and forces other players to sell milk at the same prices.
Inefficient services: The cooperatives have also failed in many parts of the country in
providing the basic inputs in terms of quality feed, exotic germplasm and veterinary services.
Insufficient Infrastructure: Some of the co-operatives are lacking the cooling and milk
testing facility at the village level collection centers.
Issues and challenges for Marketing
Majority of the Market is still unorganized: The milk market in India still faces the
challenge of getting organized. The unorganized market makes it competes with the organized
market in relation to prices.
Acceptability of the Consumer base: A large fraction of the consumer base in India is yet to
accept the clean and supple milk from organized dairies due higher costs. The mindset of buying
fresh whole milk from the milkman is still prevalent in the Indian consumers.
Less penetration to the rural Market: Most of the milk produced by the dairy co-operatives
goes to the urban market. The rural consumers are still dependent on the informal and
unorganized market channels.

Lack of transparent milk pricing System: There is no specific minimum support price of the
milk in the system, which makes it unremunerated for the farmers.
Conclusion
Highly competitive Indian dairy industry poses threat/challenges for the survival in the global
dairy market. There is no doubt that there is tremendous scope for the growth of the dairy

industry in the new millennium. As the market opens up, consumption trends associated with
these markets will have increasing influence on the world trade. The dairy industry in India has
been on a steady path of progression since Indian independence. It has grown from producing 17
million tons of milk in 1951 to producing 137.7 million tons in 2013-14. Today, India is one of
the largest milk producing countries in the world. This solid progress is primarily attributable to
structural changes in the Indian dairy industry brought about by the advent of dairy cooperatives.
The consumption pattern of dairy products in India is unique as compared to some of the western
countries. Milk consumption is increasing more from year to year both in rural and urban
consumption level. Despite the increase in production, a demand supply gap has become
imminent in the dairy industry due to the changing consumption habits, dynamic demographic
patterns, and the rapid urbanization of rural India. This means that there is an urgent need for the
growth rate of the dairy sector to match the rapidly growing Indian economy. The everincreasing rise in domestic demand for dairy products and a large demand-supply gap could lead
India to be a net importer of dairy products in the near future.

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