The global dairy sector is currently going through a period of turbulence. Slowing demand from China, Russia’s trade embargo and the removal of EU milk quotas, resulted in a period of excess supply and low prices. Despite this, the long term outlook for the sector remains positive. Rising populations and changing diets are increasing demand for dairy. As incomes rise and nations become increasingly urbanised, individuals tend to receive more of their calories from proteins (including dairy) as opposed to basic carbohydrates (mostly grains). Global demand for dairy is expected to increase by 2.5 per cent per annum to 2020, largely driven by increasing urbanisation and rising incomes in emerging markets.

At the producer level, emerging technologies and the ‘datafication’ of agriculture are providing farmers with the potential to obtain quantifiable information to continuously measure and monitor farm operations and react accordingly. Farmers who can complement these technologies with suitable operational and commercial practices could see profitability increase significantly. Thesetechnologies can also help farmers expand production in a profitable and sustainable manner which is particularly important in the volatile post-EU quota era.

Evolving consumer trends such as the demand for healthy and ‘clean label’ products, increased demand for ‘functional foods’ and the growth in protein consumption will drive innovation in the sector. While having strong technological capabilities is key to taking advantage of these trends, it is not sufficient. The ability to identify and exploit consumer insights from local markets is also vital in generating increased value for consumers and higher margin products for producers. These products must also be delivered in a safe and secure manner. The dairy industry has seen a number of scandals in recent times, and firms must take measures to ensure that their supply chains are as secure as possible in order to maintain their customers’ trust. New technologies such as blockchain, a distributed and publicly accessible ‘ledger’ which records transactions in a tamper and revision-proof way, could potentially be used to track what goes into a product and who handles it along the way.

A number of trends such as the growth of a healthy snacking culture, higher food consumption outside of the home and the growth of online and mobile shopping are changing the way food is being bought and consumed. Dairy is at the forefront of these trends as a convenient and relatively cheap source of protein. Retailers must adapt to these trends through better use of technology and data to target customers with tailored offers and ensure that they can match supply and demand in smaller stores through better inventory management.

India is the largest producer of milk in the world. The milk revolution ("Operation Flood"), started by NationalDairy Development Board (NDDB) in 1970, transformed India from being milk deficient to the largest milkproducer in the world. The Indian Dairy industry is at the verge of another revolution, moving towards increasedcontribution from various milk products. The industry in India is aggressivelytransitioning from just plain vanilla loose/ pouch milk to value-added products (VAP) market and fromunorganized/local to more of an organized and branded market. The shift fromunorganized to organized market and from liquid milk/ powder to value-added dairy products will provide longtermgrowth visibility to the organized dairy sector. The value added products though capex-intensive inthe initial phase, will improve the margins and return on investments over long run for the companies in thesector. The demand for value-added products will be driven by changes in macro-economic factors like increasein urbanization, nuclear families, working women and improved per capita spending.

The Indian dairy industry is divided into the organized and unorganized segments.The unorganized segment consists of traditional milkmen, vendors and self-consumptionat home, and the organized segment consists of cooperatives andprivate dairies. As per the Annual Report for FY17 of Dept. of Animal Husbandry,Dairying & Fisheries, Ministry of Agriculture & Farmers Welfare, GOI, co-operatives &private dairies still procure only about 20% of the milk produced in the country, while34% is sold in the unorganized market and about 46% is consumed locally. However,in most of the developed nations, 90% of the surplus milk is processed throughorganized sector.

There is significant potential for the organized sector to gain market share of marketable milk from unorganized sector by introducing standardization in milk qualitytesting and transparency in computing consideration being paid to farmers for their milk along with educating farmers on best dairy and animal husbandrypractices. This could also dovetail well with the shift of consumer preference from unorganized to organized market. As per the Department of AnimalHusbandry, Dairying and Fisheries, the organized milk handling is expected to grow from 20% at present to 50% by 2022-23.

Dairy industry in India grew at a CAGR of approximately16% in the last 5 years ending 2016, and milk production has grown at a CAGR of 5%. The total production of milk and dairy products in India is expected toincrease from 147 MMT in 2015 to ~190 MMT in 2021, and total consumption of milk and dairy products is expected to increase from 138 MMT in 2015 to ~200MMT in 2021. India’s dairy industry is expected to maintain growth at a CAGR of 14% to 15% over 2016 to 2021. The growth would be primarily driven byincrease in the demand for value-added milk products. Value-added products are expected to grow at 19%-20% and liquid milk is expected to maintain growthrate of 3%-5%. This will prove beneficial to the organized sector and prove a catalyst in the shift of the industry from unorganized to organized players.

Government of India is making efforts for strengthening the dairy sector through various Central Schemes such as "National Programme for Bovine Breedingand Dairy Development" and National Dairy Plan (Phase-I).

  • • The restructured Scheme National Programme for Bovine Breeding and Dairy Development (NPBBDD) was launched in 2014 with the budget provisionof Rs.1,800 crore for implementation during 12th Plan.
  • • Actual implementation of National Programme for Bovine Breeding has been initiated from 2014-15. Till November 2016, 27 projects from 27 states with thetotal project cost of Rs.1,077.83 crore have been approved, and out of this, amount of Rs.332.91 crore has been released to the states for implementation ofthe project including funds released under the RashtriyaGokul Mission.
  • • In order to meet the growing demand for milk with a focus to improve milk animal productivity and increase in milk production, the Government hasapproved National Dairy Plan Phase-I (NDP-I) in February 2012, with a total investment of about Rs.2,242 crore to be implemented from 2011-12 to2016-17. As per the NDDB report, total fund utilization till September 2016 has been Rs.945.25 crore out of which Rs.780.28 crore is NDP-I grant andRs.164.97 crore is the contribution of Implementation Agencies implementing sub projects. This will prove beneficial to the dairy and livestockproduction in the coming years as it will improve productivity and cattle numbers.

Furthermore, the following incentives have also been provided by the Government in relation to cold chain facilities:

  • • Section 80-IB of the Income Tax Act provides deductions in respect of profits from industrial undertakings related to Cold Chain. For the first 5 years, thedeductions are @ 100% and then @25/30% for next 5 years.
  • • Under Section 35-AD of the Income Tax Act 1961, deduction @ 150% is permitted for expenditure incurred on capital investment in setting up a coldchain facility

Major competitors in the market include Amul, Mother Dairy, Nestle, Danone, Kwality, Hatsun Agro, Heritage Foods, Paras Dairy, Parag Milk Foods, Creamline Dairy, Aavin, and Nandini. Trends supporting market growth include:

  • • Steady expansion of the organized sector
  • • Opportunities to differentiate basic products
  • • Urban consumer preference for convenient, healthy yet indulgent products that increase premiumization
  • • User disposition toward the taste of dairy-based health products despite the availability of several non-dairy substitutes
  • • Demand for and hence opportunity to create new categories in functional products and single serving units; and
  • • High acceptance of new brands in the wellness and premium segment, which enables easy market entry for new players.
  • • Uttar Pradesh is the largest milk producing State in India. In 2015-16, the State produced 26, 387 thousand tonnes of milk contributing to 18% of the total milk production in India.
  • • The State has the highest number of adult female bovine population among all Indian states.
  • • Uttar Pradesh has over 24.5 million adult female cows and buffaloes.
  • • The State has the second highest cattle population and highest buffalo population in the country.
  • • The per capita milk availability in the state has increased from 310 grams per day in 2011-12 to 335 grams per day in 2015-16.

    Source: Dairy Fest Event, U.P

  • • As on 2016-17 Uttar Pradesh dairy Industry is equipped with:
    • • 6,739 milk cooperative societies
    • • 520 BMC units with capacity of 912 KL
    • • 3.5 lakh kg per day of milk production as on 2016-17
  • • The National Dairy Plan has been introduced in eight districts of Uttar Pradesh namely – Meerut, Ambedkarnagar, Lucknow, Bijnore, Gonda, Farrukhabad, Barabanki and Faizabad.The plan is expected to encourage the State to introduce scientific measures to increase milk production.

Milk Production in Uttar Pradesh by Cattle population

Consumption Pattern of Milk and Other related products in Uttar Pradesh:

Production Patterns for Different Dairy related Products

  • A. Demand & supply side advantages
    • • Uttar Pradesh is home toone of the highest number of vegetarian population in India. Dairy products being a high source of protein for vegetarians, there is a huge demand for dairy and dairy products in the state.
    • • The huge demand for milk and milk productsin the state provides opportunity for right mix of milk business as well as value-added products minimizing working capital investments and maximising the return ratios
    • • Increasing per capita income with higher expenditure on milk and milk products opens value of opportunity for investment and expansion across value chain.
    • • Stronger profit margins and lower investments in working capital by directly sourcing milk from farmers.
    • • The poorly penetrated market provides plethora of opportunities for distribution channel expansion.
  • B. Infrastructure –

    New Green Field Plants & Refurbishment of Old dairy Plants within the State:

    S.No Project Name Expected Cost (INR Crore) Name of the manufactured products in the unit
    1. Varanasi Plant with capacity of 4 lakh litre production 152.49 Packed milk,Paneer, SMP
    2. Meerut Plant along with UHT and with capacity of 4 lakh litre production 172.56 Packed Milk, Ghee, Cream, Curd, Chach, SMP
    3 Lucknow Plant with capacity of 3 lakh litre production 117.43 Packed Milk, Paneer, Yogurt, Ghee, Kho
    4 Bareilly Plant with capacity of 1 lakh litre production 76.25 Packed milk, Yogurt, Ice-cream
    5 Gorakhpur Plant with capacity of 1 lakh litre production 60.09 Packed Milk
    6 Firozabad Plant with capacity of 1 lakh litre production 60.88 Packed Milk, Khoa
    7 Muradabad Plant with capacity of 1 lakh litre production 61.29 Packed Milk, Ice-cream, Yogurt
    8 Kannauj Plant along with UHT and with capacity of 1 lakh litre production 148.52 Cow milk, Ghee, Khoa, Chena, white butter, UHT
    9 Faizabad Plant along with UHT and with capacity of 0.5 lakh litre production 65.04 Packed milk, Fino pack milk
    10 Kanpur Plant with capacity of 1 lakh litre production and 20 metric ton of powder plant 152.75 Packed milk, Ghee, Paneer, White-butter, SMP
    10 Kanpur Plant with capacity of 1 lakh litre production and 20 metric ton of powder plant 152.75 Packed milk, Ghee, Paneer, White-butter, SMP
    Total Value (INR crores) 1067.30
    S.No Project Name Expected Cost (INR Crore) Name of the manufactured products in the unit
    1 Refurbishment of Jhansi Dairy Plant 14.87 Packed milk, Curd
    2 Refurbishment of Noida Dairy Plant 22.83 Packed milk
    3 Refurbishment of Alligarh Dairy Plant 45.92 Packed milk, Curd, Lassi
    4 Refurbishment of Allahabad Dairy Plant 12.85 Packed milk
    Total Value (INR crores) 96.47
  • C. Highlights of Key Government Schemes:
    • a. The Industrial Investment & Employment Generation Policy 2017 aims to promote export of processed milk and dairy products; promote valueaddition in the state; protect seasonality of the dairy sector units; exempt mandi fees ondairy processors not utilising mandi facilities; and promote private investment ininfrastructure & industrial park development.
    • b. Schemes Operated at State level

      i. Strengthening of handling facilities at the village level (Establishment of Automatic Milk Collection Units and Bulk Milk Coolers)-

      • Data Processing Milk Collection Units (DPMCUs) will be installed in the State, at village level Dairy Cooperative Societies.This would ensure scientific weighting of milk &it’s testing.

      • Bulk Milk Coolers will be set up in the clusters of 5 to 10 milk societies.

      ii. E-Governance (Information Technology and Computerization)-

      • A software has been developed for the purpose of monitoring the Nutrition Mission Program under ICDS.

      • Vehicle Tracking System & real-time Online Monitoring for DBT of milk price to the farmers’ bank accounts.

      iii. Loan Scheme for the strengthening of PCDF (Pradeshik Cooperative Dairy Federation) -

      Anchor Dairies are being established and modernized under the scheme consolidation of PCDF.

      iv. Establishment of Milk Powder Plant in Kanpur-

      Financial sanction of INR 41.00Cr has been released for the establishment of a Modern Dairy plant in Kanpur.

      v. Loan to PCDF for establishment of Cow Milk Plant in Kannauj-

      An amount of INR140.36 Cr has been released for the year 2015-16 to establish the Cow Milk Plant with a handling capacity of one lakh litres per day.

    • c. Key Schemes Operated at District level

      i. Strengthening, reconstruction and expansion of Dairy federations/ committees to provide financial assistance to milk unions/ societies through workingcapital, administrative grant, propulsion charges, head load grant and other requirements are provided for operation of milk cooperative societies.

      ii. Technical Investment Program (District Plan) for milk producers providing access to technical investment facilitiesin the form of grant

      iii. Farmers training program by State Dairy Federation - Staff/ Milk Producers are trained for successful implementation of the various programs/ initiatives taken by the Dairy Development Department.

  • a. Opportunities in dairy processing

    • Processing -

    Large scale units to process milk into various forms can reap the benefits of growing consumerism in the state. Manufacturing units supporting specialized dairy-related activities such as cheese slicing, cheese packaging, butter printing and dicing lines also holds great potential.

    • High Valued Milk Products

    like cheese, condensed milk, spray dried milk, flavoured yoghurt etc. offers attractive investment potential.

    • Packaging & Preservation:

    The unorganised and unpenetrated market offered by the sector, traditional packaging, innovative packaging like PET /HDPE packs and preservation resulting in increased the shelf life offers immense potential.

    • Distribution and Marketing:

    The industry is still predominantly unorganized with only 20-30% of milk production being routed through the organized channel in the state signalling the scale of opportunities available in distribution and marketing.

    • Cold chain logistics and storage equipment –

    The state offers opportunities in bulk milk tanker transport equipment, milk chilling equipment for milk collection centres, milk chilling tanks for the processing industry etc. Next generation solutions like IT enabled automatic milk collection units with bulk milk coolers penetrating deep down the value chain is another attractive opportunity for investments in the state.

    • Technology transfer and product development –

    The state offers multiple opportunities for transfer of technologies for improved production, laboratory analyses and knowhow to develop new products.

  • b. Opportunities in dairy farm production

    • Fodder production farms -

    High prices for fodder and fertile soils create opportunities for specialized farms that grow fodder crops such as alfalfa and maize.

    • Supply of concentrates -

    The increase of improved breed of dairy cows offers the need for more use of concentrates produced by feed mills.

    • Artificial insemination -

    The need for superior genetics and exotic breeds, excellent opportunities for Artificial Insemination organisations start servicing, research and providing high quality genetic materials in the state.

    • Animal Feed:

    The deficit for green fodder, dry fodder and concentrates at the National level was 63%, 24% and 76% (2010 data) respectively.

  • c. Credit & Insurance:

    Thousands of farmers who contribute in production of milk have small landholding and are part of informal sector. Given the high demand of milk and milk products, there is an opportunity for credit and insurance industry to facilitate business development.

  • d. Research and Development:

    Opportunities for research and development exits in product development, quality up-gradation, testing technology, artificial insemination and production methods.