A Literature Review

On
The Indian Dairy Industry
As part of Research done for the Summer Internship Project

To be Submitted to
PROF. SURESH A. S.

Presented by:
Anindya Biswas
1527605, M1

Literature Review on the Indian Dairy Industry

The Agriculture is one of the rapidly developing industries in India contributing to around
17.95% of the countrys GDP in 2013-14, Of this the Livestock sector which includes the
dairy industry as well contributes to around 3.88% (National Accounts Statistics-2015;
Central Statistical Organisation; GoI, 2014).
Over the span of the last few decades, India has risen from the rank of an acute milk shortage
country to a leading producer of milk with production exceeding 100 million tonnes in 2006.
The current statistics verify this fact stating that, as of 2013-2014 India has been producing
about 135.6 million tonnes of the worlds 768.64 million tonnes which is roughly around
17.64% (FAOSTAT, 2014). This has been mainly possible due the intensive efforts put
forward by GoI in schemes known as the Garibi Hatao and also the Sabka Vikas. It has also
been due to the increase in the livestock ownership specifically cattle ownership from 155.3
million in 1951 to 190.9 million in 2012 (Census, DAHD&F, & GoI, 2013).
(Dr. Dhanabalan, 2009) considers dairy to be an important aspect of how the modern rural
India has been shaping up for the past few years by helping in the development of the rural
economic conditions.
Now we shall focus on how the industry scenario is in India, and how it is affecting the
members associated with it. Currently, the milk yields are among the lowest in the world. In
2014, the average yield of a cow was 1,377 kgs per year lower than that of the average yield
from a bull which was around 1,835 kgs. The Buffalo yield has been growing at a rate of
around 1.6% for the decade 2004-14 and is almost catching up with the yield from cattle
which is growing at a rate of 2.9% over the decade of 2004 2014.
The Milk prices have been witnessing a gradual dip, because the middlemen has been paying
a reduced price to the farmers. This has happened due to the global fall in prices making
exports of Skim Milk Powder (SMP) unfeasible.
Apart from the above if we look at the market for milk by products such as butter and ghee
then we would be able to notice that the exports have risen whereas the imports have fallen
both by 9% during the decade of 2004-14. Indian butter and ghee has been able to generate
loyalty in some markets making exports independent of price fluctuations in global dairy fats
market (Dairy News India, 2016).

We must also take into account the recent trends that have impacted the dairy consumption.
The primary one of these is the increase in Indian GDP to more than 7%. Furthermore, with
more women joining the workforce, making yoghurt at home is paving the way to the
convenience of buying packed yoghurt. Also, the growing influence of the West has also
impacted the dairy sector with the growin consumption of cheese, pizza etc.
In the governence side, we could see that th GoI National Dairy Plan as well as other
initiatives have helped in the increment of the herd size as well as milk yield. Also, with the
improved focus on developing cattle genetics using indigenous elite breeds has brought into
the scenario the potential of change in the profile of the Indian Bovine Animals.
In terms of the drivers or brakes to the trade of dairy we can see few changes in the Indian
scenario as well: Low prices of the Skim Milk Powder have made the exports unviable and
has disturbed the economy of those companies who have reduced procurement prices. Also,
the lifting of the dairy quotas present in Europe may present an opportunistic seller of SMP
like India with many future prospects, thereby also increasing the global availability of SMP.
Also our neighbor, Pakistan has lowered their duty on Indian Dairy Prodcuts by 5% to 20%.
And superpower Russia, has also opened its doors to

Indian milk products. Sanctions

imposed by Europe and the USA on Russia may deliver an opportunity to Indian dairy
exporters (Dairy News India, 2016).
Looking at the price front of milk and other dairy products we can look at it from the Price
Evolution for Milk Producers from 2014 2015 perspective. Dairy milk prices rose for the
first four months and have been either stable or fell thereafter. The average rise in the prices
was around 9.6% p.a.
Milk prices started rising very steeply from the first quarter of 2009. There was some
slowdown in growth during 2010-11 but prices rose again sharply in 2011-12.
Milk prices increased at 7.4% and ghee prices by 11.95% during 2014-15 as against price rise
of 5.7% for food products in general and a fall of 2.7% for all commodities.
The likely milk price trend towards 2019: Milk prices will continue to rise. Rises of over 7%
p.a. can be expected. It is generally expected that milk prices will rise more than the rate of
inflation in India (Dairy News India, 2016).

Now if we are to look at the strengths and weakness and the opportunites and the threats
faced in the dairy industry we could see that the scenario presented itself in the following
manner:

Strengths:

Demand profile: Absolutely optimistic.

Margins: Quite reasonable, even on packed liquid milk.
Flexibility of product mix: Tremendous. With balancing equipment, you can

keep on adding to your product line.

Availability of raw material: Abundant. Presently, more than 80 per cent of milk
produced is flowing into the unorganized sector, which requires proper

channelization.
Technical manpower: Professionally-trained, technical human resource pool,
built over last 30 years.

Weakness:

Perishability: Pasteurization has overcome this weakness partially. Ultra Heat

Treated (UHT) gives milk long life. Surely, many new processes will follow to

improve milk quality and extend its shelf life.

Lack of control over yield: Theoretically, there is little control over milk yield.
However, increased awareness of developments like embryo transplant, artificial
insemination and properly managed animal husbandry practices, coupled with
higher income to rural milk producers should automatically lead to improvement

in milk yields.
Logistics of procurement: Lack of properly constructed roads and inadequate
transportation facility make milk procurement problematic. But with the overall

economic improvement in India, these problems would also get solved.

Problematic distribution: This is mainly because dairy farmers ahave more
preference towrds the middlemen who tend to prefer instant cash than the cooperatives who have a better reach yet due to the scale of operation take around

12-15 days to realize the cash.

Competition: With so many newcomers entering this industry, competition is
becoming tougher day by day. The market is large enough for many to carve out
their niche.

Opportunities:

Value addition: There is a phenomenal scope for innovations in product

development, packaging and presentation. Given below are potential areas of
value addition:
o Steps should be taken to introduce value-added products like shrikhand,
ice creams, paneer, khoa, flavored milk, dairy sweets, etc. This will lead to
a greater presence and flexibility in the market place along with
opportunities in the field of brand building.
o Addition of cultured products like yoghurt and cheese lend further strength
- both in terms of utilization of resources and presence in the market place.
o A lateral view opens up opportunities in milk proteins through casein,
caseinates and other dietary proteins, further opening up export
opportunities.
o Yet another aspect can be the addition of infant foods, geriatric foods and
nutritionals.

Export potential: Efforts to exploit export potential are already on. Amul is
exporting to Bangladesh, Sri Lanka, Nigeria, and the Middle East. Following the
new GATT treaty, opportunities will increase tremendously for the export of agriproducts in general and dairy products in particular.

Threats:

Milk vendors, the un-organized sector: Today milk vendors are occupying the
pride of place in the industry. Organized dissemination of information about the
harm that they are doing to producers and consumers should see a steady decline
in their importance.
The Indian dairy industry, following its delicensing, has been attracting a large
number of entrepreneurs. Their success in dairying depends on factors such as an
efficient yet economical procurement network, hygienic and cost-effective
processing facilities and innovativeness in the market place.

The following literature review will touch upon the following points with respect to the
Indian Dairy Industry:

Cost and productivity in the milk Production

Characteristics of the milk producers
5

Channels of Marketing
Constraints in Milk Production and Marketing

Apart from these we will also touch upon the literature available on the rarely researched
milk products such as Ghee.

REVIEW OF LITERATURE ON COST AND PRODUCTIVITY IN THE

MILK PRODUCTION

(Chauhan, Kalra, Singh, & Raina, 2006) in their study attempted to understand the
economics involved in dairy processing for milk as well as associated dairy products which
then dictates the behavior of the Milk Producers. The study involved research around the
revenue generation of four milk products which showed that the raw material or the milk was
the major cost component, almost around 90%, followed by packaging. What came out of the
study that Ice Cream was an emerging milk product in India and this has been verified by the
fact that Ice Cream as a category has been growing at a CAGR of approximately 10%~15%
(Shukla & Sharma).
Furthermore, the same study also helped us to shed some light on the rarerly discussed milk
by-product market, Ghee. The cost division in this sector was as follows: Raw Material
( 94.01%) followed by Packaging at 3.6%, then Boiling of Cream (0.89%), Settling and
Clarification (0.74%), Storage (0.63%) and Reception of Cream (0.13%).
A study on the technical effienciences of milk production done by (Saravanakumar & K.,
2008) stated that raw materials required to produce milk for the dairy by product creation was
high, the value for green fodder and concentrate was statistically significant with a relatively
higher magnitude implying the fact that the factors have a greater and significant impact on
the crossbred cow milk production. The study indicated of the scope in the increase in milk
production by 16.32% for crossbred cows and by 14.04% for buffaloes without having to
incur any extra costs for themselves.
(Gupta, 2007) also mentioned in his study that the countrys milk production is estimated to
have touched 100 million tonnes (mt) in 2006, which is higher than the estimated 92 mt for
rice and 75 mt for wheat. In value terms, too, a kg of milk is worth more than what you and I
pay for a kg of rice and wheat. But despite all this and the fact that India is today the worlds
largest milk producer, the dairy industry is for some strange reason not considered
glamourous.
For policy makers, dairying is viewed as a subsidiary activity. This, when milk is one
product that generates cash income to farmers almost on a daily basis, unlike sugarcane or
wheat. Besides being a source of liquidity and insurance against crop failure, milk is the only
crop where the farmer realizes 60-70 per cent of consumer price - against 20 per cent or so in
fruits and vegetables.
Again, it is striking that there are no commodity futures in milk powder or ghee, whereas the
daily turnover volumes in NCDEX and MCX of guarseed, mentha oil, jeera or pepper run to
7

hundreds (even thousands) of crores! One reason for this image problem suffered by milk
has to do with the absence of proper databases with authentic information on the sector.
(Srikanth Reddy & Vasudev, 2006) in their study to learn the effects of seasonality on
productivity, consumption as well as marketing suprplus in the Karimnagar district of the
erstwhile Andhra Pradesh, stated that cooler weather did have an increment in milk
production as well as the an interesting fact that was noted was that marketed surplus was
more in the summer season than in the rainy seasons.
The study was also able to bring as to who were the major classes of consumers for all the
classes of farmers. These were the co-operatives and milk vending agenices who constitute
about 70% of the consumers of milk in these areas. Factors such as family size and the
education level in the family also determines the consumption pattern of milk which in turn
also determine the pattern of the surplus production and distribution of milk.
The study of effect of Geography on the livestock composition has been studied in respect to
all geographical terrains in India. In the study, (Chand & B. L., 2004) it was revealed that an
increase in buffalo population in the region while a sharp decline was observed in per cent
share of cattle in the total livestock population. The major deficiency of fodder was felt in the
case of bovine in the array region. The factors responsible for increase in buffalos population
are increasing cropping intensity and rural population density in the arid region while the
same factors resulted in a decrease in cattle population. The arid region farmers also adopted
buffalo as drought resistance strategy since unproductive buffalo can be sold during drought,
which does not affect the religious sentiments as in the case of cattle.
The study recommends storage of foliage produced in good monsoon year for use in the
deficit period. The government of India is also implementing a scheme for this region for
developing and rejuvenate the pasture land to be available on the large scale to improve the
livestock situation in this region.
Milk production and associated prices is also related with the type of cattle that the farmer is
breeding. The study (Bhowmik, Sirohi, & Dhaka, 2006) suggested that the net cost of milk
production is nearly half of the same when produced through local cattle The contribution of
technological component in higher milk production for cross breed cows is about 68 percent,
thus, propagation of crossbreeding in the region has the potential to ensure reasonable RoI.

The annual value of inputs saved in one district alone, covers 87 percent of the expenditure
on dairy development made by the state in four years. Therefore, from the planners
perspective also, it is a winsome proposition.
(Bhowmik, 2006) in his study has also mentioned that Cost and returns from milk production
were estimated separately for local and crossbred cattle. The gross cost of maintenance was
worked out as the sum of fixed and variable costs items. The net cost was arrived at by
deducing the value of dung from gross cost per milch cattle per day was divided by the
average milk yield per day of the respective breed. The net return was calculated by
deducting gross cost from gross return.
There has been research and reports made on the fact that whether the position of the firm has
any impact on the consumption and production costs associated with the dairy farming. The
study by (Chand, Singh, & Singh, 2000) revealed that the milk production in commercial
dairy herds in Bikaner was a profitable and a viale option and as such the contractual
procurement helped increase the milk production and the eventual revenue for the farmers.
However, it posed certain problems too such as the herd owners many times set their animals
free, which generally choked due to disposal of animal waste in it. These problems are
created by around 40 percent of dairy herds which are maintained inside the city. The shifting
of diary herds to the outskirts of the city can solve the problem.
We should also understand the factors which might ascertain the prices set in the market for
the milk produced and supplied. There are studies for the same. In the study (Verma, Singh,
& Raj, 1997) the research study revealed that in the lean seasons the milk supplied by
producers were of better quality at an average price of 5.68/- per liter that was sold to the
Halwai and to the vendor at 4.75/- and 4.04/- per liter respectively. The study also reported
that the milk produced and marketed by the Vijaya Cooperative had powdery smell which
used to easily get curdled compared to vendor milk and buffalo farm milk.
Consumers judged the quality of milk fat content, color and taste, thickness, freshness,
hygiene, curd formation and flavor of the raw milk. A majority of consumers, irrespective of
all income groups, considered thickness, taste curd formation to be most important factors in
judging the quality of milk. In Orissa, Omfed milk was perceived better than unbranded milk
on thickness criterion whereas it lagged behind on taste and freshness.

(Patil, 1981) in his study also mentions talks of the cost associated with the milk production
from normal as well as crossbred cattle and buffaloes as well. The study conducted with the
help of random sample survey of around fifty dairy farmers from eight villages in the Shirpur
tehsil of Dhule district in Maharashtra, India. The Study revealed that the total cost of
production was around 113.87/- of which the variable costs involved was around 83.76%
which came up to about 95.38/- whereas the remaining 16.24% was fixed cost roughly
around 18.49/-.
The cost of feed provided to the cows was dominating the production costs with around
73.39% (70.00/-) followed by the Labour cost at around 15.73% (15.00/-), whereas the
cost of medical treatment for the cattle was around 2.62% (2.50/-) and the interest on
working capital was found out to be 8.26% (7.88/-). Finally, it was found that milk was sold
at a price of around 9.10 per liter in the area of study.
What the study ultimately said was that dairy farming was an important source of income and
that it was more remunerative to the farmers in comparison to crop production. Milk
Production in India is the domain of small farmers in the mixed farming system. The study
suggested that the GoI should invest in teaching farmers about scientific management
systems so as to channelize the existing resources to maximize the returns from the dairy
farm.

10

REVIEW OF LITERATURE ON CHARACTERISTICS OF MILK

PRODUCERS
Just Milk Production does not dictate the state of the market, the characteristics of the milk
producers also influence the state of the market in terms of volumes produced as well as
efficeincy of the milk marketing scenario. The attempt to review literature on the above given
below is just a small example of the same.
(Waghmere & Hedgire, 2007) stated the milk productions in the country during 1950-51
was around 17 million tonnes which had reached around 78 million tonnes in 1997-98. At the
time, the study was conducted, India post producing 100 million tonnes of milk in 2006 stood
as number 1 in the ranking for countries with the most dairy produce. However, as of now it
stands at the second position. The decades following the independence of the country was
very crucial to the development of the dairy industry and it was during this period that the
Operation Flood Programme was instrumental in uplifting the standard of living of the
farmers.
(Krishnan, Nigam, & Kumar, 2008) has stated their opinion in their study that the growin
human population, rising per capita income and increasing urbanization ha lead to an increase
in the demand for dairy based as well livestock products in the developing. Though, India
stands today as the 2nd largest producer of livestock, we are still not able to meet the domestic
demand for dairy as well as livestock and it is low when compared to other developing
countries.
(Cicek, Tandogan, Terzi, & Yardimci, 2007) in their study to develop an understanding of
the socio-economic factors leading to milk production in West Turkey came up with the
conclusion that socio-economic factors may affect the cost structure in milk production.
Results showed that factors such as eucation of the milk producer, size of the milk farm, feed
procurement and consumption as well as the size of the cattle had a postive effect on the milk
production whereas the main occupation and age of the producer did not have a significant
impact. Thus they ere able to conclude that controlling the socio-economic characteristics
might lead to more profit for the farmers and also reduce the costs associated.
(Karmakar & Bannerjee, 2006) in their study revealed that due to the continuous growth of
milk at a rate of 4.4% there is an ongoing concern of who is going to handle the incremental
milk? The study stated that both income and price cosntitute about 15% of the total
11

expenditure of food. Thus as the demand for milk is increasing with higher price being set,
the economic factor of the ountry would also affect the purchase and expeniture elaticity of
the consumers as well as producers who would then increasr their expenditure elasticity to
meet the new demand and consumption.
(Ramakrishnappa & Rao, 2006) in their study to understand the role of the GoI in the
development of dairy farming as an industry in Rural India opioned that the development is
positive and significant as the state has been known to contribute towards various aspects of
dairy farming such as prouduction, marketing and processing of the dairy products in the
market which in turn was a major incentive and motivation among the socially and
economically deprieved classes to take up dairy farming as an occupation. The study found
that the microfinance scheme has positive impact on income and employment generation, and
has improved the natural resource management options thereby changing the perception
towards milk production as an revenue generating source.
(Dutt, 2001) in his study opinioed that the cattle and buffalo milk production was an integral
part of the rural economy and that it contributed substantially to the family income. One of
the major reasons that the rural farmers are more to taking up dairy farming as an occupation
is also the that apart from milk and its by products being used for consumption, cattle as well
as buffaloes can be used for other purposes such as transport and agricultural operations as
well. This draught animal power which is valued at 4,000.00/- - 95,000.00/- million is
something that is not calculated into the actual cost of outputs from the dairy farming.
Although due to mechanization there has been a significant reduction in the amount of
draught animal power the requirement for draught animal power is here to stay. Large
increase in milk production has been due to increase in numbers and change in composition
of cattle population mainly due to increase in number of crossbreds.
(Saxena, 2002) in his study opioned that the milk production in India, is characterized by a
large number of milch animals, large number of milk producers, mixed farming and low
productivity of milk per animal. The study focuses only on bovine milk production as it
accounts for about 96 per cent of the total milk production in India. The analysis of the prices
of cow and buffalo milk are very different due to the different fat content.
The environmental impact has been assessed in two steps: (1) inventory analysis and (2)
impact assessment. Under the first step, an inventory has been taken of raw materials and

12

associated emissions. The impact of these raw materials and emissions has been assessed
under the second step.
The raw materials used by cattle and buffaloes are divided into two categories, namely (1)
concentrates and (2) roughages. The roughages are sub-divided further into green fodder and
dry fodder. The emissions of methane associated with bovine milk production take place
mainly at three stages, namely (1) enteric fermentation, (2) manure management, and (3) use
of dung as domestic fuel. The study has used IPCC guidelines and is based largely on the
secondary data available from various sources.
Apart from the external socio-economic factors there are certain other factors also that are
unique to each individual dairy farmer. In their study, (Rawal & Vikas, 2001) has revealed
that the economic background in India among the rural farmers varies from individual to
individual and as such comparison among caste, education and land holding pattern among
farmers when studied showed that a large proportion of the households were backward, not
educated enough and also did not have enough land which was owned by the landlords and
thus they were not able to participate in dairying.
A recent study also showed that inequality on land ownership, caste, illiteracy and undemocractic functioning of the cooperatives are the main barriers to entry in the dairy market
and these are most distinguishable characteristics of the Indian dairy producers.
(Bohr, Singh, Kumar, & Singh, 2012) in their study has also stated their opinion that daiy
farming is an integral part of the rural communities. Rural communities fondly relish dairy
products. Apart from the fact that the livestock provides dairy, the dairying also provides
handsome economic returns as well as employment opportunities. In Uttaranchal mountains,
dairying is especially a promising economic activity for smallholders who constitute the
majority of farming communities in the region.
Smallholder dairy farming isincreasingly gaining importance as a source of family income in
mountain areas for quite some. However, contributions of smallholder dairy farming accrued
to the community and farming system are still not well recognized. Indias emerging as the
top milk producer in the world is largely due to smallholder, rather than intensive, dairy
farming linked with the marketing system.

13

Furthermore, the study also highlighted how the nature of milk by products such as ghee is in
the mountainous rural comunities wherein whatever ghee has been produced by the farmer is
rarely ever sold outside. Rather it is consumed within the community itself.
(Hegde, 2001) in his study to understand the challenges in the Indian dairy scenario pointed
out that there is very little breathing time for the farmers given the challenges that they face
during dairy farming and how they import dairy and dairy products under WTO. As such our
farmers are not well aware as well as well equipped to solve these issues in time and as such
they continue to pile up.
The study suggested some measures to counter these issues increasing the productivity of
our livestock by providing better fodder, by adding value to the produce and as well as
reducing the intermediary agencies we would be reducing the time-to-market as well as
reducing the costs associated with the milk production.
The quality of the milk should be of international standard which can be improved through
screening of the livestock against important diseases and maintaining clean surroundings in
the dairy farm. Finally, the policy of producing low fat milk for general consumption while
the high fat buffalo milk can be supplied to a selected category of customers interested in
high butter fat.
We need to discuss with the farmers and understand their problems and solve them at the
earliest. Surely, we also need to strengthen our farmers associations to acquire new
technologies understand the milk marketing scenario at the international level and find
suitable solutions. With that we hope that the task is within our reach for solving.

14

REVIEW OF LITERATURE ON CHANNELS OF MARKETING IN THE

DAIRY INDUSTRY
Distribution and the time-to-market is an important feature in a market where the product is
as volatile as milk as it tends to start ferment very soon. The following setion will thus try to
review the literature available that highlights issues that can be classified under this category:
(The India Post, 2008) has stated that in todays market the demand for value added milk
products has seen an incremental double digit increase. At the time of the study, India seemed
to be just at the optimum level of balancing the demand and supply. Today the scenario is a
little different. We are at a stage where we have a global recognition of being one of the
worlds leading dairy producers, yet we are not capable enough to meet our own domestic
demands sufficiently.
Any increase in milk production is dependent on the farm gate price received by the producer.
Farm gate prices have increased by more than 50% in the last three years. Focused efforts
would be required on two fronts increasing farm size as well as on increasing the productivity
of the farm animals.
Annual milk production in India was at 100.9 million tones in 2006-07 and was growing at
4% per annum. The market for liquid milk, as well as value-added dairy products, is still
largely dominated by the unorganized sector. India has an insignificant share of the global
dairy trade, less than 1%, despite being a leading producer of milk.
(Rangaswamy & Dhaka, 2008) in their study to analyze the effectiveness of the marketing
efforts of milk and the milk products market by the dairy cooperatives vis a vis private sector
dairy farms, said that the marketing cost for toned milk was same for both the cases, whereas
the marketing costs was higher in the co-operative for satndardized milk, full crem milk and
flavored milk.
The study revealed that the marketing costs was less for milk products such as butter and
ghee in a co-operative plant and that exept toned milk all dairy products earn more margin in
a private sector dairy firm suggesting that the marketing effeciency of a co-operative was in
general less than that of a private sector firm. The study has observed that value addition in
15

dairy products should be done without compromising the quality and consumer-oriented
market research and development should be accorded greater attention.
(Kamat, 2008) has stated a similar opinion saying that the success of dairy industry does not
lie alone in the fact that the dairy production units are in private public or co-operative sector.
In his opinion the industry should look forward to a market-oriented approach and there is a
great underlying need to institutionalize the milk trade stage from production to marketing.
(Sharma, Saxena, & Das, 2007) in their study reaffirmed that the Dairy Indsutry is indeed
one of the backbones for growing India. Theire study was related to the study of the
inefficiences in the dairy practices of the Uttaranchal Co-Operative Dairy Federation Ltd
(UCDFL). The study revealed that UCDFL is focused mainly on the marketing of liquid milk
and not on the diversification of dairy products which was the order of the day.
The study revealed that insufficient margins caused dairy agents to move to working in
private dairy farms. The study has suggested that Anchal should evolve a definite policy with
regard to procurement of milk in both lean and regular periods and to sustain its members,
incentive package should be provided. Anchal should find ways to establish fodder banks at
strategic locations for providing fodder during emergencies and periods of fodder scarcity.
Local sale of milk at the society level should be encouraged to increase the popularity of
Anchal brand
(Rajendran & Mohanty, 2004) in his study has opioned that the modernatiztion of the
countrys dairy industry and the ability of the country to not only meet the countrys demand
for dairy and dairy by products but also be able to invest in global opportunities as well. The
study revealed that the 80% of the milk produced by the rural producer is often handled by
the unorganized channels whereas only 20% is being handled by organized sector.
It was found that the dairy co-operatives are very a crucial member in alleviating rural
poverty by augmenting the milk production and marketing. Involvement of the
intermediairies, lack of the bargaining power of the producers, lack of proper infrastructure
facilities for collection, storage, transportation and processsing are some of the major
constraints which affect the price margins of the milk producers. Milk quality, product
development, infrastructure support development, and global marketing are found to be
future challenges of India's milk marketing.

16

(Kurup, 2003) in his study about the livestock sector in Orissa also revealed that the prices
realized by the farmers through the unorganized informal sector is around 9.50/- to 10.00/per liter whereas the prices given to the farmers from the dairy co-operatives was around
8.00/- to 8.50 thereby leading to the farmers preferring the informal sector more than the
dairy co-operatives. Furthermore, the intermediaries involved, who bought the dairy products
and milk from the farmers gave them immediate cash payments whereas the dairy cooperatives took around 12 days to 15 days to realize the cash payments.
(Samajdar & Chander, 2003) in their of the process of milk production and distribution of
the same among the forest dwellers in Uttaranchal had pointed out the fact that even if the
forest dwellers are aware of the modern technologies of milk production they are vulnerable
to exploitation from the middleman to whom they sell the milks despite the existene of the
dairy co-operatives. Thus it is that most of the times they stand marginalized and are debt
ridden.
The study thus suggested that the dairy co-operatives should take up measures to understand
as to why the forest dwellers are indifferent towards the presence of the co-operatives as mere
existence is not enough to promote a healthy relationship between the co-operative and the
forest dweller. They should also take steps to involve these classes of producers into the
social class.
(Ray & Sunil, 2000) in their study of undertsanding the dairy scenario in mainland Rajasthan
mentioned that the scenario of preference towards informal sector is not only the forest areas
or in South India it is the same in Jaipur, Rajasthan also. The price realized by samll dairy
farmers from the local vendors was around 10.00/- to 12.00/- per liter whereas the dairy
co-operatives was only able to provide them with a price of 9.00/- to 10.00/-.
Apart from this, the middlemen also deployed daily wage workers to collect milk by using
local cheap means of transport which helps them to distribute the milk to nearby villages at a
yet higher price thereby giving them a higher profit margin and reducing the bargaining
power of the organized distributors.
(Shah, 2000) in his literature mentions that the predominance of the middlemen in the dairy
sector is primarily due to the lack of the infrastructure in the co-operatives as well as their
lack of an initiative in building up a relationship to understand what either party wants.

17

He further mentions of the process of procurement by these middlemen. Generally, they

would advance cash to the needy milk producers and get their milk at a lower cost throughout
the year. It was reported that 75 percent of marketed surplus of small producers production
was cornered by them. Similar observations were reported in a study conducted in Jalgaon
and Kolhapur districts of Maharashtra.
(Fallert, Lough, & Beck, 1978) in their study to examined the major structural changes that
were happening in the marketing channel of the dairy industry. His study was focused on the
integration of the food chains into the processing and distribution of liquid milk into the
market.
Thus the major objectives of his study were 1) To understand the extent of integration by the
food chains and 2) To understand the effects caused by such integrations on a bigger level.
The survey conducted within the study showed that around 60% of the food chains were
involved in some form of vertical integration and of these 84% were initiated within the last
15 years.
Few of the major incentives for having a centralized milk buying program were lower cost
and uniform merchandising. Vertical integration leads to increased market power of food
chains and can affect both price and market structure.
The actual vertical integration of food chains into fluid milk processing through ownership of
processing facilities tends to increase the barriers to entry into a market. For processors, the
barrier is the non-availability of market outlets. For the food chain, the number of stores and
ownership of processing facilities for fluid milk necessary to compete economically may be
the barrier.

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REVIEW OF LITERATURE ON CONSTRAINTS IN MILK

PRODUCTION & THE SUBSEQUENT MARKETING
Each and every industry faces challenges from time to time and the Indian Dairy Indsutry is
no less. The following section tries to highlight and shed some light on few articles that has
researched on the constraints faced by the farmers as well as the market.
(Shisode, Dhumal, & Siddique, 2009) in their study of adoption rate of the dairy cattle
managemental practices opioned that remedial and corrective measures such as trainings,
exhibitions, posters, brain storming sessions, radio talks and programmes on the Doordarshan
would be an effective method to create awareness among dairy farmers and also help them to
adopt yet newer managemental practices for a better milk yield.
(Dhas, 2008) in his attempt to understand the dairy sector in Tamil Nadu through the help of
factors such as independence, size and the composition of the bovines mentioned that the
sector showed a differential growth pattern. Till the early 60s the bovine population showed
a steady increase which then came to a standstill till the early 80s. while the milch farm
animals showed an increase the work farm animals showed a downward trend.
The trend not only highlighted the importance of the dairy animals but showed the relative
importance of the milch and the work farm animals. The study revealed that while the agroclimatic and irrigation factors had played a major role in shaping the work animal density
during the period prior to mid-Seventies, the technological, economic and institutional factors
played a major role in recent years.
(Kathiravan, Thirunavukkarasu, & Selvakumar, 2007) in their study of cost of livestock
services in Tamil Nadu, by categorizing the farmers into the Livestock-Developed (LD) and
the Livestock-Under-Developed (LUD) categories.

19

The team came to a realization that it was much more expensive to treat a cattle than any
other species of animals suffering from a similar medical condition. The major component of
these costs were incurred in bringing the sick animal to the public vetenary center followed
by the labor costs and the medical charges.
Although no charges were made for animal health care services rendered at public veterinary
centres, the charges in terms of imputed labour cost for bringing the animal to the centre was
incurred. Service fee accounted for more than 60 per cent of cost of treatment for home
service by a veterinarian or a para-veterinarian.
(Singh, 2004) in his research on the dairy scenario in India post delicensing by studying the
sceanrio of the dairy sector in Ahmedabad, India stating it to be one of the most comeptitive
markets to operate in. The paper studied the effects of the delicensing policies on a market as
dynamic as the Ahmedabad wherein almost there were 25 players already operating in the
city. The paper then concludes by observing and stating some important as well as decisive
steps that can be taken in order to maintain a competitive edge in the market.
(Mehta, Pancholi, & Shukla, 2004) in their study mentions the emergence of policy making
in India in the dairy sector with respect to the managemental practices post independence.
The study reveals that most of the innovations occurred in the line management practices
while staaf function was looked over. The authors of the study took upon themselves by
conducting an action research based study that realigned the importance of the satff function
and re-laid improvements that can help in creating better policies for decision making. They
were also able to develop a Mathematical Programming System (MPS) Model for staff
function, which could help the company or the industry in being able to successfully appraise
their staff and functions which in the long run can further realize and better their potentials
(Shrivastava, 2003) in his study about the impact of milk processing on income and
employment on small farms in Damoh district, Madhya Pradesh and the problems faced by
these farms and therefore to suggest measures for the same stated that the processing of milk
definitely raised the income level. The level of employment for small milk processing units
also saw a rise as compared to the non-milk processing units which sold directly to the
vendors.
However, the major problems faced by these farms were the unavailability of good quality
milch cattle, inefficient management of the feeding process, lack of a proper organized

20

market, lack of technical facilities as well as proper storage, transportation, support system
and packaging facilities.
To overcome the above the study suggested that since the processing units are being looked
after by small households thus training programs be implemented that would help these
families cope up with the external market changes such as how to manufacture low cost
packaging material as well as dairy feed formulations at the village level.
Furthermore, the study suggested that the collection centers must be set up in the form of a
dairy co-operative which goes a long way in reducing the bargaining power of the
inorganized sector or the middlemen. Sufficient financial assistance from the Government
credit agencies at cheaper rates of interest must be provided to encourage the small producers
and attention to the development of infrastructure facilities and extension activities must be
paid to.
Talking about the global dairy scenario, (Henessey & Roosen, 2003) in their study of what
are the effects of the European Union dairy Policies on price seasonality and whether or not it
was able to solve the capacity management problems for the dairy processors and producers.
The policies are that of private storage subsidies, production removals and production quotas.
The study revealed that, when cost functions are seasonal in a specified way, then arbitrage
opportunities interact with storage subsidies to reduce both price and consumption
seasonality. But production seasonality increases because storage subsidies promote temporal
market integration. Conditions are identified under which product market interventions
increase quantity seasonality.
(Janakiraman, 1990) also points out that access to scientific management processes is
highly required not only to exploit the genetic potential of the animals, but also to take care of
the animals and for the optimal usage of the resources. Government help in issues such as
feeding, breeding, housing, health management and general upkeep of the animals has helped
uplift the dairy sector a lot. However, in certain cases like the artificial insemination initiative
introduced by the Government, the rate of adoption as well as acceptance of this procedure as
against the natural breeding process has been generally low.
However, not all challenges and constraints can be resolved within the producers and some
need the intervention of the Government. In his study (Blake, 1979) talking about the
emergence of government involvement around the world in dairy sector says that, it is highly
21

necessary to define a national food policy that would put an increased focus on programs for
food production and marketing. This optimal policy will be based on targeted applied and
basic research.
The study discusses Dairy Cattle, in the context of their comparative advantage among other
livestock species for their ability to provide high quality protein in the human diet. Research
needs are suggested to supply economical milk protein by improving biomass efficiency,
economic efficiency, milk pricing, and aggregate analyses of systems of dairy production.
(Nagarcenkar, 1979) in his study about the dairy herds and the land constraints for the dairy
farmers in Bikaner City observed that most of these herds were either inside the walled city
or were existing in the nearby adjoining areas. Smaller dairy farmers converted a part of their
house into cattleshed to house the animals. No additional land was available with the dairy
owners to grow fodder for the animals. On an average, 404, 623 and 1309 sq. meters (sq.m)
area was available to maintain an average small, medium and large herd respectively. In other
words, the area allocated to each animal varied from 17 to 18 sq.m. which included the area
for feeding, milking and free movement. These areas were quite close to the recommended
floor space (15. sq.m) per animal.

22

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