International Scenario of Diary Industry

Milk is one of the most produced and valuable agriculture commodities of world. It is produced
in almost all countries and in most of them it ranks among the top five agricultural commodities
in both value and quantity. Whole fresh cow represents 82.7% of global milk production,
followed by milk from buffaloes (13.3%), goats (2.3%), sheep (1.3%) and Camel (0.4%). Milk
and diary products account for 14% of agricultural trade. Over one out of four of the 570 million
farm holdings worldwide, that is over 150 million farmers, keep at least one milk animal,
including cows, buffaloes, goat and sheep. Cows are by far the most common diary animal, with
farmers in developing countries usually keep them herds of 2 or 3 herds.
Diary sector is growing fast. World milk production is projected to increase by 177 million
tonnes by 2025, at an average growth rate of 1.8% per annum in the next ten years. Over the
same period, per capita consumption of dairy products is projected to increase by 0.8% and 1.7%
per year in developing countries, and between 0.5% and 1.1% in developed countries. Because of
the sheer growth size of the diary industry, these growth rates can produce big developments
payoffs for people’s livelihoods, for the environment and for public health. Such fast paced
growth is driven by product expansion in India, Turkey, the European Union, Pakistan, the
United States of America and Argentina but partial offset by declines in China and Ukraine,
among few others.
 This increase has come about as a result of high dairy herd numbers along with
improvement in milk collection process (India and Pakistan),
 Efficiency improvements in integrated diary production systems (Turkey),
 Increased yield per cow (the European Union and the United states of America) and
 Enhanced utilization of idle capacity and higher demand from the processing sectors and
imports (Argentina).
 Milk output declines largely stemmed from industrial restructuring processes and
downscaling of small-scale farms (China) and
 Reduced produced margins and farmgate prices (Ukraine).

Across the regions, Asia registered the highest milk output expansion by volume in 2018,
followed by Europe, North America. Milk output expanded in all other regions too, but by
smaller volumes.
World exports of Diary products expanded to 75 million tonnes (in milk equivalents), an increase
of 2.1 million tonnes, or 2.9 percent from 2017, principally coming from the United states of
America and Argentina but also India, Uruguay, and Mexico. By contrast, exports declined in a
number of countries, in particular in the Islamic Republic of Iran. Across the main dairy
products, in 2018, SMP registered the highest export expansion (+8.6 percent), followed by
butter (+7.5 percent), WMP (+1.7 percent) and Cheese (+0.8 percent). As for milk powders,
consisting of SMP and WMP, export availabilities were abundant from almost all major
international suppliers. Large stocks of SMP held by European Union, India and United States of
America also contributed to elevate global supply availabilities. Cheese exports expanded at a
slower pace in 2018 as compared to 2017 reflecting import cutback from many importers,
including Australia and United States of America.
International diary prices in 2018, measured by the FAO Dairy Price Index, declined by 4.6
percent compared to that of 2017, reflecting declines in prices of all dairy products.
Considering milk output across major regions, Asia was mainly behind the global output
expansion. Milk output expanded moderately in all the regions, including Africa, Central
America and the Caribbean, Europe, North America, Oceania and South America. In Asia, milk
output increased to 346.9 Million tonnes, up 3.9 Percentage from 2017, as output rose in India
and Pakistan.
 In India milk production increased by 5.6 percent in 2018 driven by expanded dairy
herds, and incremental but steady improvements in milk collection system and higher
productivity. However, India’s milk output growth in 2018 was slightly lower then for
preceding last two years. This resulted from limited fodder availability on account of the
below average rainfall received during the monsoon.
 Pakistan, the fourth largest milk producer in the world, has been rising at about 3 percent
in recent years. Milk output in China in 2018 is estimated to have declined by 1.1
percent. In Europe milk output increased to 226.4 million tonnes in 2018, up 0.8 percent
from 2017.
 In north America mainly, Canada and the United States of America milk output increased
to 108.6 million tonnes, an increase of 1.1 percent from 2017. Continued milk output
expansion in the United states of America though at a lower rate in 2017, resulted from
an increase in milk yield, adequate to counter a small reduction in number of cows due to
increased culling in the second half of the year.
 Meanwhile, milk output in Canada increased by 2.7 percent to 9.9 million tonnes as
investments increased in capacity and efficiency of diary operations, along with a smaller
increase in quotas for production under its supply management system.
 In central America and the Caribbean, milk output is estimated to have increased by 1.1
percent, mainly contributed to Mexico’s milk output continued to expand, and in 2018 by
1.6 percent, as diary prices remained stable and the government took further efforts to
modernize the industry.
 In Oceania, after two years of declines, milk output is increased by 1 percent in 2017/18
production cycle (June to May), further 1.8 percent from June to December in the
2018/19 production session.
 New Zealand’s milk output expanded by 4.4 percent, adequate to counter a 3.8 percent
decline in Australia. New Zealand’s output expansion benefitted from mid-temperatures
and good soil moisture,
 while Australia continued to have warmer weather conditions and water deficiencies that
led to higher feed prices and increased culling of diary Cows.

World trade in diary products expanded to 75 million tonnes, an increase of 2.1 million tonnes,
or 2.9 percent from 2017. The largest contribution for this year ‘s export expansion by volume
came from North America (+8.7 percent), followed by South America (+27.2 percent), Central
America and the Caribbean (+15.2 Percent). Export Expansion in Asia was limited to 0.9 percent
and that of Oceania to 0.6 percent but by contrast Africa’s exports declined by 4.8 Percent.
Diary Industry in India

Over the span of three decades, India has transformed from a country of Acute milk shortage to
the world’s leading milk producer, with production exceeding 100 million tonnes in 2006. This
phenomenal success is attributed to a government initiative known as operation Flood (1970-
1996) and its intense focus on diary development activities. In that initiative, rural milk shed
areas were linked to urban markets through the development of a network of village cooperatives
for procuring and marketing milk. And milk production and productivity were enhanced by
ensuring the availability of veterinary services, artificial insemination (AI), feed and farmer
education. The investment paid off, promoting production gains of 4-5 percent per annum.
However, that growth has slumped to less than 3 percent in recent years, raising cause of
concern. The slowdown is attributed to the decline in investment in the diary sector since the end
of the operation Flood initiative. Central and State government allocation for diary development
has diminished in the past two five-year plans.
Diary is currently the top-ranking commodity in India, with the value of output in 2004 at 1.179
billion rupees, which is almost equal to the combined output value of rice and wheat. Despite the
importance of the diary sector in overall GDP, it receives less government budgeting than the
agriculture sector. Further, there has been no concentrated investment in the development of
value-added or innovative products, nor any serious effort to support and modernize the informal
sector. In light of the increasing demand driven by the growing population, higher incomes and
more health consciousness, the slowdown in diary industry growth is severely worrisome. Based
on estimates by the national diary development Board (NDDB), the demand for milk is likely to
reach 180 million tonnes by 2022. To supply the market, an average incremental increase of 5
million tonnes per annum over the next 15 years is required- a doubling of the average
incremental rate achieved over the past 15 years.

The following characterizes India’s dairy farming and its relevance to inclusive growth:

 Small and marginal farmers own 33 percent of land and about 60 percent of female
cattle’s and buffaloes.
 Some 75 percent 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.
 Dairy provides a source of regular income, whereas income from agriculture is seasonal.
This regular source of income has a huge impact on minimizing risks to income. There is
some indication that areas where dairy is well developed have less incidence of farmer
suicide.
 About a third of rural incomes are dependent upon dairying.
 Livestock is a security asset to be sold in times of crisis.

Factors effecting Competitiveness of the dairy Industry in India

1. Demand Conditions: - Demand for dairy products in India is likely to grow significantly
in the coming years, driven by more consumers, higher incomes and greater interest in
nutrition. Consumption of processed and packaged dairy products is increasing in urban
 areas. Because of the increasing competition from private sector, several national and
international brands have entered the market and expanded consumer’s expectation of
quality- although only among a small proportion of the population. In many parts of the
country, people still prefer unpacked and unprocessed milk delivered by a local milkman
because of its taste and the perception of freshness. The price elasticity for milk is high,
thus demand for milk is very sensitive to price changes.

2. Market structure: - Until 2002, cooperatives traditionally were the dominant players in
the formal sector. With liberalization of dairy industry, private investment has increased
significantly. However, the organized sector’s share in milk procurement is very low
because a large proportion of the milk and milk products are sold through the informal
demand absorbs approximately 41 percent of the milk and milk products produced in the
country, according for about 75 percent of the marketable surplus of milk. The formal
channel, with its packaged milk and dairy products, accounts for only about 25 percent of
the marketable surplus, which is about 15 percent of production.

3. Factor Conditions: -Factor conditions for dairying entail the quality of animals, human
resources and technical skills, land availability, capital, credit, infrastructure and other
inputs relevant to the value chain. The quality of animals is critical in determining its
milk productivity and hence overall production. Despite being the world’s largest milk
producer, India’s productivity per animal is very low, at 987 kg per lactation, compared
with the average of 2038 kg per lactation. The low productivity is a result of ineffective
cattle and buffalo breeding programmes, limited extension and management on diary
enterprise development, traditional feeding practices that are not based on scientific
feeding methods, and limited availability and affordability of quality feed and fodder.
Animal health and breeding services provision, veterinary infrastructure development and
vaccinations are the responsibility of the state government. These services have
traditionally been provided for free or at a very subsidized rate.

4. Related Supporting Industries: -Strong Supporting Industries are critical for the
development of any industry. In the case of dairying, National dairy Research Institute
pursues research and education in all aspects of dairying: microbiology, chemistry,
technology, engineering, animal genetics and breeding, livestock production and
management, animal nutrition, animal physiology, dairy economics and dairy extension
education. At present, there are 678 registered dairy processing units processing 12-15
percent, or 26.63 tonnes, of the milk produced in the country each year. Primary
Processing is another factor in need of critical attention to ensure the quality of milk
through the supply chain.

Performance of Dairy Sector and Industry Structure Analysis

The Dairy Sector in India has grown substantially over the years. According to NDDB (National
Dairy Development Board) data, India ranks first among the world’s milk producing nations,
achieving an annual output of 147 million tonnes during the year FY19 which is approximately
1.5 times of the US and 3 times of China.
Structure of Indian Dairy Industry

Indian Dairy
Industry

Organised Unorganised
Sector Sector

Private Milkmen/Local Self-

Co-operatives Comapnies Consumption
Vendors
10% 10% 46%
34%

The Indian dairy industry is divided into the organized and unorganized segments. The
unorganized segment consists of traditional milkmen, vendors and self- consumption at home,
and the organized segment consists of cooperatives and private 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, while 34% 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 through organized sector.

There is Immense for the organized sector to gain market share of marketable milk from
unorganized sector by introducing standardization in milk quality testing and transparency in
computing consideration being paid to farmers for their milk along with educating farmers on
best dairy and animal husbandry practices. This could also dovetail well with the shift of
consumer preference from unorganized to organized market. As per the Department of Animal
Husbandry, Dairying and Fisheries, the organized milk handling is expected to grow from 20%
at present to 50% by 2022-23.
 Indian Dairy Industry rests on four pillars
The dairy industry in India is broadly built on the four pillars, namely, Demand, Output and
procurement, Prices, and Employment.

Demand Milk Procurement

With the increase in the Population & large As the production is increasing over the years
vegetarian population, the demand for milk and matching with the demand as increase in
milk products is continously increasing and wil upcoming years. Further the agriculture sector
continue to do so in the future. With the increase in contributes to 30% of the primary GDP and the
the income, a larger proportion of the income will contribution from the dairy industry continued to
be spent on dairy products as opposed to that for be highest. Hence, in order to increase the value
other primary sector products like pulses and food of the Agriculture sector and the overall GDP,
grains. focus on the increase in the output of the dairy
sector is essential..

Price
Four Pillars
Employement
A steady increase in price of milk/ milk products
increases rural income and provides impetus for 70 to 76 million households are still dependent on
dairy farming. Dairy industry will be a driving the dairy industry especially in ther rursal areas,
factor for Governments vision of improving largely female population. Further, in INDIA,
farmer/rural income. with improved economic around40% to 50% of the cost of milkis passed on
factors and milk being an vital consumption, the farmers as against average 30% in the
consumers too have shown resilience towards the developed countries. This is a big incentive for the
upper price movement. farmers to increase the production and sale of milk.

COMPETITVE LANDSCAPE

The value-added products overall contribute to 35% of the total dairy market in India and
commodity Products together contribute to almost 65% of market share. Furthermore, within
the value added segment, largest product category is ghee, having a market share of 15% in the
overall dairy market. A key characteristic of emerging value-added products like UHT milk,
Flavoured Milk, Cheese and Whey is that 100% of these products are sold through organized
 market. The value-added Products is under penetrated, thus having tremendous scope for the
growth and its expected to grow at much faster rate as compared with the commodity market.

Considering the higher growth potential, the private companies have been adding capacities in
the value-added product categories since past five years such as cheese, curd, Flavored Milk,
along with addition in the milk procurement capacities. The private players are also investing in
brand building exercises and animal to add more B2C business in their Portfolio.

COMPANY NAME FUTURE CAPEX BRANDS CAPEX AMOUNT

PLANS ( RS. CRORE)

HERITAGE FOODS Addition in the existing HERITAGE 70 to 75

LTD. capacities in curd and (For FY 18)
whey products
segement.
GUJARAT Addition capacities in AMUL 3000
COOPERATIVE cheese and chocolates. UPTO 2020
MILK MARKETING
FEDERATION LTD.
Kwality LTD. Addition capacities in Dairy Best 520
value-added product (For FY18 and mid
categories like cheese, FY19)
paneer etc.
PRABHAT DAIRY Upgradation of plant Prabhat 64.50
LTD. and machinery. (For FY18)
Government Initiatives
Government of India is making efforts for strengthening the dairy sector through various Central
Schemes such as “National Programme for Bovine Breeding and 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 provision of Rs.1,800 crore for
implementation during 12th Plan.

Actual implementation of National Performance for Bovine Breeding has been initiated from
2014-15. Till November 2016, 27 projects from 27 states with the total 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 of the project including funds released under the
Rashtriya Gokul 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 has approved 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 to 2016-17. 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 and Rs.164.97 crore is the contribution of Implementation Agencies
implementing sub projects. This will prove beneficial to the dairy and livestock
production 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, the deductions 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 cold chain facility.

Technology Changes in Dairy Farming

Technology joins hands with Dairy farming; to measure physiological, behavioral, and
production indicators on individual animals to improve management strategies and farm
performance, it is called “Precision Dairy Farming.”

In Precision Dairy Farming, technology is used for;

o Daily milk yield recordings,

o Milk component monitoring (e.g. fat, protein, and SCC),
o Pedometers,
o Automatic temperature recording devices,
 o Milk conductivity indicators,
o Automatic estrus detection monitors, and
o Daily body weight measurements.

Game-changer in Dairy Farming

Product Lifecycle Tracking

Since the margins for milk processors are higher in case of value-added products,
tracking the lifecycle of milk, to the market and the quantity that comes back -
within expiry range - can make a big difference. Milk that gets returned from the
market while still within the expiry range can further be converted to products
like, ghee, paneer, buttermilk, curd, etc. which reduces the losses significantly and
also adds to the margin. Enabling tracking of the product lifecycle, like tracking
the retailers who are carrying products which are about to reach expiry and
collecting them in a timely manner, through an alert system can make great
difference.

Vision and mission of Amul

Vision:- Amul vision is to provide more and more satisfaction to the farmer, employees and
distributers.

Mission:- we at GCMMF ( Gujrat Co-operative milk marketing federation) endeavor to satisfy

the taste and nutritional requirements of the customers of the world, through excellence in
marketing by our committed team, Through co-operative networking, we are committed to
offering quality products that provide best value for the money.

Key Success Factors –

1. The Amul Girl (The Amul Advertising Campaign)

The Amul girl is the advertising cocept used by the company to promote the brand. The
brand has been cleverly using the cartoon figure in its longest running ad campaign.
This increases the brand recall value for Amul. Hence, the Amul girl advertising
campaign is often described as one of the best Indian advertising concepts.

2. Innovation
Amul has constantly been innovating be it launching new products, creative marketing
campaigns or challenging traditional societal trends to come up with better ones.
In the 1960’s, Amul became the first brand in the world to make skimmed milk powder
from buffalo milk. Also with its three-tiered cooperative structure, Amul changed from
traditional operations to a more cost-efficient and effective structure.

For its continuous innovation, the brand won the “CNN-IBN Innovating for Better
Tomorrow Award” and “World Dairy Innovation Award” in the year 2014.

3. Strong Brand
Amul follows the Branded House Architecture way, wherein whatever they promote;
they promote it under one common brand name – Amul. The prime focus is on
promoting the parent brand rather than individual products which helps them gain more
brand visibility and results in lesser marketing and advertising costs.

4. Efficient Supply chain

Amul follows a three-tier cooperative structure which consists of a dairy cooperative
society at the village level that is affiliated with milk unions at the district level which in
turn is federated to a milk federation at the state level. Milk is collected at the village
dairy society, procured and processed at the district milk union and marketed at the
state milk federation.

The greatness of this model lies in the fact that Amul was the first company to follow
this model, and it was replicated all over the country under Operation Flood in the
1970’s. The model ensures that there’s efficiency and swiftness in operations.

5. Diverse Portfolio of Products

With its diversified product portfolio, Amul has been able to cater to the needs of all the
segments. From kids to teenagers, men to women, calorie conscious to health conscious,
the company has ensured that it launches products for every segment. Providing value
and benefits to its target segment, Amul has been able to build a strong brand
association with its customers over the years.

Salient Portions of Organizational Structure of Amul

Amul has a co-agent structure with a mix of polished skill. In the corporate type of an association
the shareholders are non-participative individuals while in this shape the individuals are the
participative proprietors of the association.
There are basically three tiers structures of AMUL cooperative viz.
1. The village society-acquisition unit
2. The union which is the processing unit
 3. The federation which is the marketing and advertising unit all being an establishment in
itself.

The establishments at every level have the obligation of natural and between institutional
linkages and commitments which give feeling of reason and headings in the exercises. To deal
with these units proficiently the pioneers felt a need of the experts. These experts have a chain of
command like that of the corporate structure with the overseeing executive as their head. The
Managing Director of every one of these units is selected by the governing body. The governing
body includes the ranchers individuals who originate from the particular social orders. In this
way, at every level the choice making lies in the hands of the makers just, which give them a
sentiment proprietorship to them.
FORMAT FOR QUATERLY REVIEW MECHANISM FOR TRACKING THE PERFORMANCE...
There are various review mechanism for tracking the performance. Some of are as follows:

1) PAST PERFORMANCE DETAILS:

Quaterly performance can be reviewed by checking the past perfrmance details.this allows
the managers and employees to review achievements and sucesses and put the current
performance in context.it also shows how they have performed against their role
profile,and sets objective for the year.

2) FEEDBACK MECHANISM:

This is also good measure to review the performance. This is for capturing the 360 degrees
feedback on an employee’s performance.

3) INCREASE/DECREASE IN SALES:

Quaterly performance can be tracke by reviewing the increase/decrease in sales in last

quaters.This is also a best measure to indentify the performance.For example: Amul
brand,reported a 13 percent increase in turnover at RS 33150 crore in 2018-2019,driven by
a strong groeth in volume. the company posted a turnover of RS 29225 crore in 2017-2018
4) QUALITY MANAGEMENT SYSTEM INITIATIVES:

Quality management id another measure to review the performance.Quality management

initiatives which have proven to be effective elsewhere to create a culture of transparency,
openness and leadership in the organization. From the strength of Total Quality
Management initiative Amul went on to implement Quality Management System of
International Standard. Amul has been the first dairy in India to get accredited with
certification of ISO 2200:2005 & ISO 9001 for its operations and plants. Further Amul has set
an example that village Dairy Co-operative Societies could also achieve this milestone as
these societies are accredited with ISO 9001:2000 – a remarkable achievement in the
history of India.
5) FOOD SAFETY POLICY:

AMUL, are committed to produce safe and wholesome food to continually remain as the
market leader by providing food products delighting customer expectations and bestow
safety. We strive to achieve this by, Improving raw milk quality, Applying innovative
technology for manufacturing food products, Employing quality and food safety
management practices to, manufacture food products in a eco-friendly environment,
Meeting applicable statutory and regulatory requirements, Effectively communicate and
constantly improve professional skills of employees emphasizing continuous improvement
of quality and food safety issues.

6) HYGIENIC AND CLEAN MILK PRODUCTION DRIVE:

Performance can ne measured by providing hygienic and clean milk production drive.The
primary village dairy co-operative societies operate every morning and evening for the
village farmers. Milk delivered by a producer is measured and a sample is drawn for a
quality-testing. Each centre is equipped with an electronic milko-tester for testing quality of
milk, automatic weighing machine for weighing of milk with data processing facilities

7) BULK MILK CHILLERS:

As a part of Amul’s quality movement Bulk Milk Chillers are introduced at primary village co-
operative society level. This system has drastically improved the microbiological quality of
milk, therefore better return to farmers and good quality of products to consumers. Special
trainings are imparted to dairy co-operative personnel for better management of Bulk Milk
Chillers

8) RATINGS AND SCORES:

For measuring the performance assign ratings to team’s performance and a good
performance management tool will allow the business to customize these options to fit in
with their existing performance scoring process.