Issues and Challenges of Supply Chain Management with perspective to Indian Dairy Industry.

Mr. Purushottam A Petare.

Assistant Professor, Sanjay Ghodawat Group of Institution, Kolhapur.
E-Mail:-Purudeeps@gmail.com.
ABSTRACT:

This paper take an Overview of the Indian Dairy industry as the world’s largest producer and consumer of milk products, India
represents one of the world’s most lucrative dairy markets. IMARC Group, one of the world’s leading research and advisory firms,
finds in its new report entitled “Indian Dairy Market Report & Forecasts 2012-2017” that driven by a strong growth in both urban and
rural demands, the market for milk products in India is expected to surpass US$ 163 Billion by 2017. But the main purpose of this
research paper is to study the issues and challenges of Supply Chain Management with perspective to Indian dairy industry.

This paper focus on the issue and challenges at the various levels of supply chain such as issue and challenges at front of small holder
level, issue and challenges at collection level, issue and challenges at processing level, issue and challenges at storage & logistic level,
issue and challenges at co-operative level and issue and challenges for marketing in Indian dairy industry.

KEYWORDS: India, Dairy Industry, Supply Chain Management, Issues and Challenges.

OVERVIEW OF THE INDIAN DAIRY INDUSTRY:-

As the world’s largest producer and consumer of milk products, India represents one of the world’s most lucrative dairy markets.
IMARC Group, one of the world’s leading research and advisory firms, finds in its new report entitled “Indian Dairy Market Report &
Forecasts 2012-2017” that driven by a strong growth in both urban and rural demands, the market for milk products in India is
expected to surpass US$ 163 Billion by 2017. Following are the points which take a glance of Indian Dairy Industry-

 Indian agriculture supports 17.5% of world population with 2.3% of global land and 4.2% of water.
 Livestock sector contribute 5.59% in national GDP and 36.6% of Agricultural GDP.
 In 1964-65 rice production was 39.3 MT which increased to 100 MT
 In corresponding period, milk production increased from 17 MT to 105 MT
 The livestock sector provides regular employment to 8.5% of the total workforce
 Largest livestock population: 57 % of world buffalo and 16 % of cattle
 About 70% of milk is produced by marginal farmers having 1-4 animals
 The productivity of Indian milk animal is 987 kg./ year (world average is 2200 kg.)
 Regional contribution to milk production can be seen as North (38%), South (20%), East (11%) and West (31%)
 The marketable surplus was around 50 % and out of the organized sector processed around 5 crore liter of milk per day with
equal handling by cooperatives and private dairies which is around 30 % of available surplus and which needs to be doubled
up till 2020 so as to match the demands. (1 Crore = 10 million)
 India has grown by around 3 million MT per annum till 2007 and requires growing at 5 million MT per day so as to meet the
ambitious target of around 170 million MT by 2020.
 There are around 835 organized sector dairies in India being registered under MMPO with total installed capacity of around
10 crore liters of milk per day.
 There has been a negative growth of 6.5 % in indigenous cow's population in last five years.
 There has been a positive growth of 10 % and 35 % respectively in the population of in buffaloes and hybrid cows.
 The increase in price of milk at base (Wholesale price index WPI 1993-94 as 100 )WPI as compared to other commodities
may be represented as follows : It was found to be 5.5, 4.21 and 3.5% for 1980s,1990s and from 2000-2008 respectively.
 Milk production in India has come a long way over the years from a low volume of 17mn tons in 1951 to around 116 million
tons in 2010 and is the largest producer of milk in the world.
 In 2007 around 28 cores* liters of milk was produced from 9 crore milk animals on per day basis. (1 Crore = 10 million)
 The current value of milk output from livestock at current prices is around Rs 240000.00 crore and the value of dairy
products market is around 400000.00 crore.
 There has been a decline in annual growth rate of milk production in last two decades.

SUPPLY CHAIN MANAGEMENT WITH PERSPECTIVE TO DAIRY INDUSTRY OF INDIA:

Our country has a rich tradition in dairying since the time of Lord Krishna. Dairying has been inherent and non separable in Indian
culture, for centuries. Milk and milk products have always been an integral part of our consumption habits. In the vast field of animal
Husbandry, the contribution of dairying has been most significant, in terms of employment, as well as income generation. In post-
independence India, co-operative dairying has been one of our great successes, having a profound impact on socio-economic
development of rural areas.

India stands first in world milk production with a share of about 14 per cent in world milk production. Milk has achieved a unique
status in terms of its output value exceeding Rs. 1,00,000 crore and has made a rapid stride both in terms of number of milk producers
and quantity of milk produced. In India, dairying is the important subsidiary occupation in rural areas, next to the
main occupation of agriculture. Livestock sub-sector alone contributed to 4.22 per cent of the total value of GDP (Gross Domestic
Product). The development of dairy industry in India is well known all over the world as one of the most successful development
programmes in the globe known as white revolution. Dairy farming is visualized by the farmers in the country as part of an integrated
agricultural system where dairy and agriculture complement one another.

The milk production in India was 17 million tons in 1950-51. This could meet only 25 per cent of the domestic demand; the remaining
75 per cent of the demand was met by importing the milk solids. The production was stagnant for two decades till 1970, with annual
growth rate of milk production of one per cent. Thanks to the vision and foresight of Dr. Kurien, in 1970 NDDB (National Dairy
development Board) launched “Operation Flood Programme” with objective of ending milk famine in the country and turning
farmer’s cooperatives into a powerful catalyst for transforming India into a major milk producer in the world. Further, by providing
milk producers a remunerative price round the year, milk production in India touched 74 million tons in 1997. By the year 2006, India
has emerged as the largest milk producer with a production of 100.9million tones. This is as a result of
India’s “White Revolution” in milk production.

The first phase of “Operation Flood Programme” was between 1970 and 1981 and it laid the foundation for modern dairy industry in
India. There was a self-sustaining growth of producer’s controlled dairy co-operatives. The second phase was in action during 1981 to
1985, which established 136 milk sheds and captured markets in 290 cities and provided 4.9 billion finance. The operation flood had
completed third phase on 31 March, 1994 by capturing 500 cities with a population target of 300 million customers.

When the third phase was over, the following benefits had reached the small dairy farmers.
1. Sustained increase in production (4-5% growth/annum) raising the per capita availability of milk to nearly 220 grams.
2. Dependence on commercial imports of milk powder ended.
3. Marketing mechanism improved and providing assured market outlet for milk producers and quality milk for consumers.
4. The quality of milk animals improved. At the end of operation flood-II, 72,744 dairy co-operative societies in 170 milk sheds
of the country having a total membership of 93.14 lakh has been organized.

The Operation Flood Programme launched another massive programme called “Technology Mission on Dairy Development (TMDD)”
in June 1989. The objective of TMDD was same as that of Operation Flood Programme’s objectives.

For the success of a dairy industry/firm efficient supply chain management is a prerequisite. Thus, the supply chain performance of the
processing units is a deciding factor. Milk supply chains are more concerned with controlling of milk quality and supply
Fluctuations which are unique to this sector. Perishable goods like milk require a time efficient supply chain. This perishable factor
can affect the milk supply chain. Supply chain management has seen as a source of gaining competitive advantage in the business
world.
Due to pressures from increased competition resulting from globalization of supply, processing and distribution networks, high levels
of service expectations and competitive pricing, the supply chain management has become more important.

The Indian supply chain for milk products is affected by abnormal wastage and poor handling. The wastage occurs because of multiple
points of handling. Shortage of cold storage facilities and refrigerated transport equipment lead to inefficiencies in handling milk
products. There is a compelling requirement for appropriate infrastructure for storage and transportation such as temperature
controlled warehouses and vans. By practicing improved supply chain management practices, there will be significant reduction in the
wastages of milk and milk products which in turn will benefit both the farmers as well as the consumers by means of increased returns
and decrease in price respectively. Given the fragmented nature of the milk supply chain, few companies have access to capital and the
ability to invest in supply chain.
SUPPLY CHAIN OF THE INDIAN DAIRY INDUSTRY:

ISSUES AND CHALLENGES OF THE INDIAN DAIRY INDUSTRY WITH RESPECT TO SUPPLY CHAIN
MANAGEMENT:

In India, rural households consume almost 50 percent of India’s total milk production. The remaining 50 percent of milk
production is sold in the domestic market. Of the share of milk sold in the domestic market, almost 50 percent is used as fluid milk, 35
percent is consumed as traditional products (paneer cheese, yoghurt and milk based sweets), and 15 percent is consumed for the
production of butter, ghee, milk powder and other processed dairy products (including baby foods, ice cream, whey powder, casein,
and milk albumin). The organized dairy sector consumes 15% of India’s total milk production, which it uses primarily for the
production of liquid milk, butter, cheese, and milk powder. Although some traditional products are manufactured by the organized
sector, this market is dominated by the unorganized sector. As a result, organized sector Indian style paneer cheese production is only
estimated to be 22,000 metric tons. To this diverse consumption pattern is attached a fairly complex supply chain model in the Indian
Dairy Industry. If we try look at it separately for the unorganized and organized section of the dairy industry then it is would be rather
easier to understand the intricacies of the entire trade.

Supply chain of the unorganized market: The unorganized dairy market in India is about 80% and still the dudhaiya and halwai
dominate this section of the market. In this traditional system the milk produced is directly sold to the consumers at the farm .The
other mode is that milk is collected by the milkman from the farmers and then supplied to restaurants or halwai for further processing
from whom the consumers take the value added processed milk products. These milkmen also sell and supply milk directly to the
consumers at their door steps.

Supply chain of the unorganized market: The organized sector basically pertains to the dairy cooperatives and private and Govt.
dairies which procure process and market milk and milk products. In this channel, the milk produced is deposited by the farmers in the
collection centres at the village level and then this milk is pooled and transferred to the chilling centres and bulk milk cooling units
where the milk is cooled to 4°C. Then it is filled into insulated tankers and transported to the processing plants where the milk is tested
and transferred into milk tankers. This milk received is then processed into various categories of liquid milk and value added products.
Then the packaged milk is transported to the milk parlors or retail outlets from where it reaches the consumers. In case of the value
added milk products having longer shelf life, they are transported to the distribution centres and carrying and forwarding agent(C& F
agent). The C&F agent then supplies the required amount of stock to the various retail outlets and milk parlors from where consumers
can buy the products.

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 stocks of animals even if cross-bred have 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 centres 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 gets 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.

 Lack of trained and skilled workers: There is lack of trained and skilled workers who can handle the mik 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, so as 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 centre. 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 govt. interference in many of the co-operative
federation activities which leads to lesser say of the farmers in any 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 centres.

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 unremunerative for the farmers.

CONCLUSION:

Milk supply chains are more concerned with controlling of milk quality and supply fluctuations which are unique to this sector.
Perishable goods like milk require a time efficient supply chain. This perishable factor can affect the milk supply chain.
Supply chain management has seen as a source of gaining competitive advantage in the business world. Due to pressures from
increased competition resulting from globalization of supply, processing and distribution networks, high levels of service expectations
and competitive pricing, the supply chain management has become more important in recent years.
For the success of a dairy industry/firm efficient supply chain management is a pre-requisite. Thus, we have to focus to overcome the
issues and challenges in front of Indian dairy industry.

REFERENCES:

1. IAI vision 2020 1st International Symposium on Future of Indian Dairy Industry,1-2 December 2011, NDRI, Karnal, Haryana

2. Public Private Partnership in Indian Dairy Industry Initiating White Revolution - II May 2010.

3. Website- http://www.dahd.nic.in/dahd/default.aspx, Department of Animal Husbandry Dairying & Fisheries, Ministry of

Agriculture Govt .of India.

4. Website-http://www.indairyasso.org, Indian Dairy Association, India.

5. http://cms.iuf.org/sites/cms.iuf.org/files/Indian%20Dairy%20Industry.pdf.
6. Report on the Indian Dairy Industry, http://www.rncos.com/Press_Releases/Indian-Dairy-Industry-Analysis.htm