CHAPTER II

STRUCTURE AND GROWTH OF DAIRY INDUSTRY

As discussed in the introduction that the developing countries tax

agriculture relative to manufacturing sector, while the developed

countries protect their farmers when exposing the industrialists to the

import competition. The increased protection in agriculture happens

when faster the changes in the structure of the economy from

agriculture to industrialization and faster the decline in the comparative

advantage of agriculture. Since, the present study looks at the dairy

sector at two angles, the primary milk producing sector and dairy

products manufacturing, the obvious point of analysis is to examine the

structural changes that took place in this sector over the period of time

and then, to project how these changes might alter incentives for

different interest groups. The analysis is carried out under the standard

neo-classical framework linking production, consumption and changes

in the relative price of milk and milk products.

The chapter is broadly organized into two sections. The first

section deals with structural changes in dairy sector of India. The

structural changes in dairy industry are studied under two parts

namely Pre-Operation Flood Phase and Post-Operation Flood Phase

using appropriate indicators. On the basis of structural analysis of

Indian dairy industry, testable hypotheses about the incentive structure

of milk and milk products are presented in the second section.

8

2.1. Dairy Development in India

Indian dairy industry has taken rapid strides in milk production,

processing and marketing during the last three decades. The rapid

growth m dairy industry could be achieved through effective

government interventions in output as well as input markets. The

objective of dairy development in India, was not only seen from the

point view of making the country self-sufficient in milk production and

making available liquid milk to the vast urban consumers, but also

socio-economic development of millions of rural masses. Being a

subsidiary activity to crop husbandry, dairying still largely depends on

crop residues, farm wastes etc. with a little purchased inputs.

India was the net importer of milk products till early seventies to

meet the increasing domestic demand for milk and milk products.

About 90 per cent of milk is produced in rural areas and the milk

marketing was largely controlled by private traders. The dairy farmers

were not paid reasonable price particularly during flush seasons during

which the supply of milk was high. However, the entire situation had

relatively changed with government intervention in the form of various

dairy developmental activities including the launching of world's largest

dairy development programme "Operation Flood" of 1970. Operation

Flood aimed at creating a "flood of milk" in rural areas and ensuring

better marketing/ disposal facilities for milk. Now, India ranks first in

milk production in the world with 88 million tonnes during 2003-04.

India has also started exporting milk products during nineties. With the

opening of economy during nineties, large number of private players

has also entered in this industry. Dairy development in India is broadly

looked into two phases namely Pre-Operation Flood and Post-Operation

Flood.

2.1.1. Pre-Operation Flood Phase

Since time immemorial, agriculture and dairying are interrelated to

each other. Farmers maintained milch animals to satisfy the household

requirement of milk and milk products like curd, butter milk, butter,

ghee etc. The surplus milk was sold to private traders who in turn

supplied it to the urban consumers. There existed no organized system

of milk marketing. With the government interventions through various

policies and programmes, the dairy development in India took a new

turn in which both the farmers' and consumers' interests were

protected. The dairying practice has also assumed commercial

importance. In fact, the government interventions in dairy development

can be traced to 19th century with the establishment of military dairy

farms to cater the needs of defence personnels. To gauge the milk

production potentiality m India, in 1920 the Imperial Dairy Expert

recommended that the Military Dairy Farms should follow scientific

breeding, feeding and management practices and a training centre

should be established to meet the manpower requirements for

managing the farms in scientific lines. Further, private entrepreneurs

were encouraged to set up dairy plants and produce processed milk

products like butter.

On the basis of recommendations of Royal Commission on

Agriculture (1928), the Municipal corporations m large cities

established large dairy farms near the cities to cater the urban

consumers. Subsequently, milk colonies were set up at Aarey near

Bombay, Haringhata in Calcutta and Madhavaram in Madras in late

forties. These farms were equipped with all infrastructural facilities to

maintain the milch animal in a scientific manner. The owner-producers

of dairy farms rear the milch animals and sell milk at a pre-determined

price to the milk colony. The milk colonies owned large processing

10

plants. Later on, attempts were also made to organize the production in

rural areas surrounding cities like Poona and Delhi on cooperative basis

and distribute the milk to the urban consumers. However, after the

initial success, the milk colonies could not sustain for long for various

reasons. Importantly, they failed to supply milk to the consumers, as

the rurally produced milk could reach these cities at lower price

(Khanna, 1989). The weakening milk colonies could also be attributed

to the changes in dairy planning at the national level with the focus on

rural milk production for urban market. In fact, perceiving threat to the

supply potential of the Kaira District Cooperative Milk Producers Union

(KDCMPU) due to emergence of Aarey milk colony, the influential

cooperative members exerted pressure on the government to change the

policy direction focusing on rural surplus milk production rather than

city milk production (Doornbos et al, 1990). Further, these milk

colonies were considered as the product of colonial dairy policy (Shah et

al, 1997), which did not address the producer-consumer relationship

properly.

Meanwhile, importance was also g1ven to dairy education,

research and extension activities for enhancing milk production on

scientific lines, maintaining quality of milk and milk products etc. In

this direction, the first Imperial Institute of Animal Husbandry and

Dairying was started at Bangalore during 1923. Later, it was shifted to

Karnal and renamed as National Dairy Research Institute (NDRI) in

1955. Diploma and degree courses were offered in dairying. Legislations

were brought in to maintain the quality and purity of dairy products. In

1938, Agmark Act was enacted and quality standards were laid down.

Ghee was the first commodity among agricultural commodities for

which Agmark standards were laid down. Subsequently, other dairy

products were also covered under the Agmark act.

11

As discussed elsewhere, the traditional dairy sector was

characterized by the presence of large number of private traders, local

dudhias and gowalas in the market. They supplied milk to the urban

consumers during flush season in large numbers. However, they

withdrew from the market in lean season during which milk production

was low as large percentage of milch animals go dry. This resulted in an

imbalance between demand and supply of milk during both the

seasons. To overcome this problem, based on the recommendations of

the Milk Sub-Committee of the Policy Committee on Agriculture (1950),

government decided to monopolize milk supply and distribute through

milk control board. Consequently, city milk schemes were evolved. In

1959, Delhi Milk Scheme (DMS) was set up with the main objective of

supplying liquid milk to the citizens of Delhi at reasonable price and to

provide remunerative price to the milk producers. Large processing

plants were also established to manufacture and sale of milk products

like ghee, butter, flavoured milk and yogurt as an allied activity.

Subsequently, milk schemes on the pattern of DMS were replicated in

about 100 towns by 1960 (Khanna, 1989).

The city milk schemes, however, proved unviable after initial

years of their functioning. The milk schemes could not compete with

local traders who supplied milk directly to the consumers during lean

season. Further, the schemes were controlled by the government. The

liquid milk was sold at lower (subsidized) prices. The unions had no

freedom in deciding the milk pricing policies when the price shot up in

the market. Imbalances in the supply and demand persisted, as there

were wide fluctuations in the supply of milk from traders. This led to

the rationing of milk supply to the consumers. Hotels and restaurants

were banned using liquid milk; instead use of milk powder was

encouraged. The government imported milk powder to meet the

12

increasing demand for subsidized milk. India imported huge amount of

milk powder from New Zealand till mid-fifties. Later, USA emerged as

competitor to New Zealand imports. However, imports from USA

declined sharply after 1966 due to depletion of surplus stock. It was

also the time during which surplus stocks of butter and skim milk

powder started accumulating in European Economic Community, which

came in again handy for the government to import the cheaper milk

powder and butter oil and to recombine them into liquid milk and sell to

the urban consumers. The government realized that import of milk

powder was cheaper than locally produced milk. However, the

dependence on import of milk powder and failure to provide

remunerative prices to the dairy farmers was detrimental to the

development of dairy sector in the country.

It is clear from the above discussion that the India's Pre­

Operation Flood dairy policies were aimed at meeting consumer's

demand in the urban areas by establishing procurement, processing

and marketing facilities. The policies did not pay much attention to the

plight of dairy farmers who were exploited by private traders. The milk

producers were not assured of remunerative price till the advent of

"Operation Flood" which was launched during 1970. The dairy farmers

received only 50 per cent of lean season's milk price during flush

season. Thus, till the end of 1960s, the dairy policies were largely aimed

at protecting the urban consumers' interest.

There were other dairy development programmes launched before

the start of Operation Flood to augment milk production in the country.

The Key Village Schemes (KVS) was introduced during first five-year

plan, which aimed at supplying stud bulls to upgrade the indigenous

cows and buffaloes. The Intensive Cattle Development Project (ICDP)

13

was formulated during third five-year plan with the objective of

increasing milk production rapidly in the rural milk sheds. Technical

inputs and service packages were given to the farmers under this

programme. However, these programmes failed to create any significant

impact on milk production. The government had also established milk

product factories and cattle feed plants during different plan periods.

Private entrepreneurs were encouraged to set up milk plants by issuing

licenses. In 1962, Government of India constituted a working group to

study development of dairying and animal husbandry through

cooperatives. It had recommended that at least 50 per cent of the milk

product factories should be in the cooperative sector and remaining in

the private sector.

Further, on observing the success of Kaira District Cooperative

Milk Producers Union (KDCMPU), the Government of India realized that

dairy development through cooperatives would be the best course of

action to increase milk production in the country. Operation Flood (OF)

was launched in 1970 to lay foundation for a modern dairy industry by

creating Anand pattern Dairy Cooperative Societies evolved in the Kaira

district of Gujarat during 1946. The popular name AMUL (Anand Milk

Union Limited) of KDCMPU was established at Anand in Kaira district.

Initially, Amul's success led to the formation of similar cooperative

structures in other districts of Gujarat and later spread to other parts of

the country. Originally, the Anand pattern milk producer's cooperative

organizations consisted of two-tier structure namely the village societies

and a district union. Later, it was converted into three-tier structure

with a federation at the state level. There is also a body at the national

level called National Cooperative Dairy Federation (NCDF), which

coordinates the activities among the state federations to ensure that the

milk supply is balanced across the country throughout the year. The

14

logic of this arrangement was to have all the functions relevant to the

dairy sector performed within the cooperative framework and hence

eliminate the potentially exploitative role of commercial intermediaries

(Doornbos and Gfrisch, 1994). To replicate the Anand Pattern of Dairy

Cooperatives, National Dairy Development Board (NDDB) was formed in

1965 at Anand, Gujarat.

2.1.2. Post Operation Flood Phase

To solve the problem of urban milk supply, the policy planners realized

that the idea of milk colonies would not form a viable solution. Further,

the dairy cooperatives in villages near the cities were considered not to

be feasible due to the fierce competition form private traders (Doornbos

et al, 1990). Consequently, the world's largest dairy development

programme was started in India with launching of "Operation Flood

(OF)" during .1970. The objective was to replicate the Anand pattern of

dairy development throughout the country. OF was originally

formulated as a milk marketing project aimed at enabling the modern

dairies to capture commanding shares of the liquid markets in the

country by creating a 'flood' of milk in rural areas. Later, the goal of OF

was broadened to include to make improvements in the standards of

dairy farming. This could be achieved by the introduction of improved

method of breeding, feeding, health care and other management

practices (Singh and Singh, 1998). NDDB was the planning agency of

the whole OF programme and it provided technical expertise in building

Anand Pattern Dairy Cooperative Societies in the country. The Indian

Dairy Corporation (IDC) was established in 1970 to handle and disburse

the operation flood funds. However, based on recommendations of Jha

Committee, IDC was merged with NDDB in 1987.

15

The first phase of operation Flood was started in 1970 and ended

1n 1981. The objective was to create a flood of milk in rural areas by

linking India's 18 best milksheds with the milk markets of the four

metropolitan cities of Delhi, Mumbai, Calcutta and Madras. Later, the

number of milksheds to be covered extended to 27 districts. The funds

for OF-I were generated by the sale of donated stocks of butter oil and

skim milk powder (SMP). The butter oil and skim milk powder were

recombined into liquid milk and sold in the market. The sale proceeds

were handled by Indian Dairy Corporation, a financing agency for OF

programme to create basic infrastructure needed for dairy development.

The dairy food as aid commodities was freely obtained from surplus

stocks of European Economic Community (EEC). India received about

1,26,000 tonnes of SMP and 42,000 tonnes of butter oil through World

Food Programme (WFP) of Food and Agricultural Organization for

financing the programme.

The second phase, OF-II was started in 1979 when the OF-I was

under way, and ended in 1985. The aim was to bring much wider areas

of India within its range. For OF-II, the dairy food aid was directly

received from European Economic Community and World Bank. The

EEC donated about 1,86,000 tonnes of SMP and 76,000 tonnes of

butter oil. The World Bank provided about US$ 150 million in the form

of soft loans. The major achievement of OF-II was the establishment of

the National Milk Grid (NMG) to connect the rural milksheds to the

major urban demand centers. The National Milk Grid was meant to

even out the inter-regional variations and seasonal fluctuations between

the demand and supply of milk.

The Operation Flood III began in 1985 and concluded in 1996.

The focus of OF-III was to establish viable and self-sustaining farmer

16

owned and controlled cooperatives by consolidating the extensive milk

procurement, processing and marketing infrastructural facilities created

under OF-I and OF-II programme. The successful implementation of

Operation Flood programmes at different phases made India self

sufficient in milk production. However, there are contradictions in the

literature ascribing the contribution of operation flood for increasing

milk production in the country. Some scholars have given OF most of

the credit for growth in milk production, while others argued that in

addition to OF, a combination of factors such as assured procurement

prices for producers, technical progress and the increased availability of

fodder were crucial. A detailed survey of literature in this regard is

available in Kumar (1997).

Meanwhile, an Integrated Dairy Development Programme (IADP)

was launched during the eighth plan. IADP was intended to accelerate

dairy development in non-Operation Flood, hilly and backward areas.

The project was continued in the ninth plan as a centrally sponsored

scheme. The objectives of IADP were similar to other dairy development

programmes as providing technical input services to increase milk

production, creating procurement, processing and marketing facilities,

ensuring remunerative prices to the milk producers etc. About five

lakhs families were benefited under the scheme and 6600 village level

dairy cooperative societies were set up till March 2001 (Government of

India, 2003).

With the successful completion of the Operation Flood

programmes, the National Dairy Development board (NDDB) has drawn

a Perspective Plan, 2010 in consultation with state federations and

unions. The objective of the plan is to raise milk procurement and

increase cooperative share in marketing of milk and milk products

17

through strengthening cooperative business, production enhancement,

assuring quality and building a national information network. The

perspective plan states that liquid milk procurement by cooperatives

should be increased to 33 per cent of the marketable surplus in

Operation Flood areas which constitutes about 80 per cent of the total

liquid milk produced in the country. It means the liquid milk

procurement has to be quadrupled by the year 2010. Further, the

cooperatives market shares in metros has to be increased to more than

60 per cent by trebling fluid milk marketing by 2010.

It is evident from the above discussion that massive efforts have

gone to develop the Indian dairy sector which are visible in terms of

increased milk production and dairy processing facilities, improved

market access, availability of quality veterinary inputs etc. However, it

is important to examine India's dairy development experience relative to

rest of the economy and the world to ensure whether structural change

is consistent with the theory. That is, in a developing country like India

dairy farmers are taxed by keeping the domestic prices of milk below

the international level while the manufactured milk products are

protected against the international competition. Different dairy

development indicators such as share of milk output in GDP, changes

in dynamics of livestock population, milk yield, milk production: and

consumption pattern and the progress of dairy cooperatives have been

used to study the structure of dairy sector.

2.1.2.1. Dairy Sector in the National economy

Milk is the largest farm commodity contributing to gross national

product followed by rice. India has achieved quantum jump in milk

production over the period of time. The milk production during 1980-81

was 32 million tonnes increased to 88 million tonnes during 2002-03

18

(Table 2.1). The contribution of milk group to the growth of agricultural

output, livestock output and GDP is substantial. In fact, the share of

value of milk output in total agricultural output showed increasing

trend overtime. The milk group dominates the total value of output from

livestock accounting for more than 65 per cent. The dairy sector

contributed around 6 per cent to total GDP till nineties and it declined

marginally thereafter ..

Table 2.1. Importance of Dairy Sector in the National Economy

Year Milk production % share of milk in (million tonnes) Agriculture Livestock GDP

output output 1980-81 32 12.64 61.76 5.65 1985-86 44 14.90 64.09 6.10 1990-91 . 54 15.30 65.43 5.56 1995-96 66 16.73 66.01 5.29 1999-00 78 17.34 68.32 4.90 2001-02 85 17.83 67.27 4.78 2002-03 88 19.61 67.53 4.78

Source: Economtc Survey and Natwnal Accounts Statistics (varwus tssues)

2.1.2.2. Compositional Changes in Livestock Population

India possesses the largest livestock population in the world. The

composition of livestock population has not undergone much change

over time (Table 2.2). India's livestock population is dominated by cattle

followed by goats· and buffaloes. In absolute terms, the cattle

population, including indigenous and cross bred, increased from about

176 million in 1961 to 205 million during 1992. According to estimates

of 1997 census, the cattle population, however, has decreased to 199

million. Further, the percentage of cattle population in total livestock

population has declined from 52.36 in 1961 to 40.97 in 1997. Similarly,

the per cent cattle in total bovine population have also declined from

77.43 to 68.81 during the same period. However, buffalo population has

19

increased steadily across different inter-census periods in India. The

buffalo population in total bovines has increased from 22.58 per cent

during 1961 to 31.11 per cent in 1997. On the whole, the total bovine

population has shown increasing trend across different inter-census

periods.

Table 2.2. Trend in All India Livestock Population

(Million numbers) Species 1961 1966 1972 1977 1982 1987 1992 1997 Cattle 176 176 178 180 193 200 205 199 Adult female cattle 51 52 53 55 59 62 64 64 Buffalo 51 53 57 62 70 76 84 90 Adult female buffalo 24 25 29 31 33 39 44 47 Total bovines 227 229 236 242 262 276 289 289 Sheep 40 42 40 41 49 46 51 58 Goat 61. 65 68 76 95 110 115 123 Horses& Ponies 1 1 1 1 1 1 1 1 Camels 1 1 1 1 1 1 1 1 Pigs 5 5 7 8 10 11 13 13 Mules 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 Donkeys 1 1 1 1 1 1 1 1 Yak 0.0 0.0 0.0 0.1 0.1 0.0 0.1 0.1 Total livestock 335 344 354 369 420 445 471 485 Poultry 114 115 139 159 208 275 307 348 Source: Livestock censuses, Directorate of Economics and Statistics

The composition of adult female cattle population has changed

over time (Table 2.3). The cross breeding technology was introduced in

India during 1970s to upgrade the indigenous cattle population. The

exotic breeds like Jersey, Holstein Frieshein etc. were used to crossbred

with desi cow to get high quality breeds, which produces more milk

than indigenous cows. Holstein Freishein were used where adequate

fodder was available, while Jersey was used in the places where fodder

was scarce. Thus, as a result of introduction of crossbred technology,

there are some visible changes in the dynamics of female cattle

population. The share of cross bred female cattle population has

20

l . ,/) -

-

increased from 4.98 per cent in total female cattle during 1982 to 14.35

per cent during 1997. The milch buffaloes population showed

increasing trend across different inter-census periods. The population of

milch buffalo was about 30 million in 1982 increased to 43 million in

1997.

Table 2.3. Compositional Changes in Adult Female Cattle and Buffalo

(Million numbers)

Species 1982 1987 1992 1997 Indigenous cattle

In milk 24.83 26.94 27.55 27.36 Dry 26.28 25.03 24.45 22.51

Milch animals 51.10 51.97 52.00 49.87 % of milch animals 95.02 92.67 89.98 85.65 Crossbred cattle

In milk 1.76 2.88 4.01 5.92 Dry 0.92 1.24 1.78 2.43 lA Milch animals 2.68 4.11 5.79 8.36 ' / ', ... >.~-··

% of milch animals 4.98 7.33 10.02 14.35 J/ ~-/ Buffalo \! FJi

1?:\ In milk 18.00 23.15 25.89 28.41 \ ~"~

Dry 12.05 12.74 14.38 14.32 l~""i Milch animals 30.05 42.73

'-.:.., 35.89 40.28

Source: Livestock censuses, Directorate of Economics and Statistics

It is clear from the Table 2.3 that even after three decades of

introduction of cross breeding technology in India, the proportion of

cross bred milch cattle remained low as compared to indigenous cattle.

This raises the question with respect to the effectiveness of

crossbreeding technology to upgrade indigenous cows. Crossbreeding of

non-descript buffaloes with high yielding native breeds did not receive

much attention as crossbreeding of indigenous cows. However,

buffaloes continue to dominate the milk production scene in the

country. The share of buffalo milk in total milk production is higher

than cows over the period of time (Table 2.4). Buffaloes contribute more

than 50 per cent of total milk production while cows contribute around

21 TH 381.417 E:/85 In

IIII!!III!I!I/!U!fWU~!~~III!I!IJ!II!II!

40 per cent. Thus, upgrading of non-descript buffaloes should have

received as much attention as cattle. Unlike, cross bred cows, upgraded

buffaloes can perform well under different climatic conditions prevailing

in the country.

Table 2.4. Share of Cow and Buffalo Milk in Total Milk Production

Year Cow Buffalo Goat Total 1990-91 41.23 53.16 5.61 100 1991-92 41.35 53.16 5.49 100 1992-93 41.99 53.56 4.45 100 1993-94 41.83 53.67 4.50 100 1994-95 41.64 53.99 4.36 100 1997-98 40.38 53.67 5.95 100 1998-99 40.38 53.58 6.04 100 1999-00 41.69 53.99 4.32 100 2000-01 40.89 53.88 5.24 100 2001-02 40.89 53.79 5.32 100 2002-03 40.17 53.98 5.84 100 Source: Basic Ammal Husbandry Statistics (varwus Issues), Government of India

One of the problems plaguing the Indian livestock sector is low

yield of milch animals. This is also one of the impediments to augment

the milk production in the country. As shown in Table 2.5, the average

milk yield of indigenous cow is around 2 kg/ day. But they are large in

numbers. The average milk yield of cross bred cows is 6 kg/ day, yet

they are small in number. This explains, why the share of cow milk in

total milk production is lower. The average milk yield of buffalo is about

4kg/ day. Interestingly, milch buffaloes population is increasing across

different census periods and are gaining popularity among dairy

farmers. However, the government policies do not give as much

importance to buffalo development as cattle. The productivity of

buffaloes in terms of milk is quite comparable with cross bred cow in

Haryana, Kerala, Rajasthan and Punjab states (Table 2.6). The average

milk yield of buffalo is the highest in Punjab followed by Haryana, West

22

Bengal and Kerala. Similarly, the average milk yield of cross bred cows

is the highest in Punjab followed by Gujarat and West Bengal. The

indigenous cows in Haryana give the maximum average yield of 4.22

kg/ day. The milk yield differential of various species in different states

can be attributed to various factors such as breed quality, availability of

fodder, health care facilities etc.

Table 2.5. Average Milk Yield Per Animal in Milk (Kg/dav)

Year Indigenous cows Crossbred cows Buffalo 1990-91 1.29 4.19 3.37 1991-92 1.46 4.25 3.51 1993-94 1.66 5.65 3.57 1994-95 1.69 5.81 3.65 1997-98 1.83 6.36 3.83 1998-99 1.89 6.46 3.91 1999-00 1.89 6.43 3.96 2000-01 1.92 6.44 4.05 2001-02 1.91 6.44 4.09 2002-03 1.90 6.52 4.12 Source: Basic Ammal Husbandry Statlstlcs (varwus Issues)

Table 2.6. Regional Differences in Milk Yield Per Animal: 2002-03

(Kg/day) States Indigenous cows Cross bred cows Buffalo Andhra Pradesh 1.96 6.95 3.20 Bihar 1.72 5.53 3.45 Guiarat 3.15 8.02 3.97 Haryana 4.29 6.80 5.96 Himachal Pradesh 2.05 3.37 3.17 Karnataka 2.14 6.00 3.14 Kerala 2.55 6.90 6.16 Madhya Pradesh 1.68 5.86 3.33 Maharashtra 1.45 6.85 3.56 Orissa 0.50 5.24 2.40 Punjab 2.38 8.56 6.67 Raiasthan 2.78 5.42 4.20 Tamil Nadu 2.55 6.15 4.11 Uttar Pradesh 2.37 6.64 4.20 West Bengal 1.93 5.68 5.27 Source: Basic Animal Husbandry Statistics (2004), Government oflndia

23

2.1.2.3. Milk Production and Consumption Pattern

The government interventions through various forms, expertise role of

National Dairy Development Board (NDDB) and responsive farmers to

adopt the new technology made the country self-sufficient in milk

production. The growth in milk production was 3.37 per cent per

annum during 1970-71 to 1979-80 (Table 2.7). It has increased to 5.62

per cent during 1980-81 to 1989-90. Some scholars argued that the

higher growth in milk production during 80s was due to the realization

of fruits of Operation Flood started in 1970s, while others contradicted

this viewl. However, the annual compound growth in milk production

during 1990-91 to 2002-03 had declined to 4.21 per cent. During the

last three decades, i.e. from 1970-71 to 2002-03, the growth in milk

production sustained at around 5 per cent per annum. The remarkable

growth in milk production can be attributed to the successful

implementation of Operation Flood programmes at different phases

combined with other favourable factors such as technology, inputs etc.

The growth in milk production across different states showed

wide variations. Only Uttar Pradesh recorded negative growth in milk

production during 1970s. However, the growth in milk production in

Uttar Pradesh has jumped to 5.80 per cent, 5.21 per cent during 1980s

and 1990s, respectively. Due to quantum jump in milk production in

Himachal Pradesh during late seventies, the growth was the highest

(22.15) during 1970s. The similar reason can also be attributed to

higher growth in Kerala. During 1980s, the growth in milk production

was the highest in Karnataka followed by Tamil Nadu. Karnataka and

Jammu and Kashmir recorded the growth rates of 8.99 per cent and

6.03 per cent, respectively during nineties. On the whole, Himachal

1 For detailed literature review see Kumar (1997).

24

Pradesh (8.85 per cent) and Jammu & Kashmir (7.53 per cent)

registered higher growth in milk production during 1970-71 to 2002-03.

Table 2.7. Compound Annual Growth Rate in Milk Production in Different States in India

(Per cent) State 1970-71 to 1980-81 to 1990-91 to 1970-71 to

1979-80 1989-90 2002-03 2002-03 Andhra Pradesh 3.22 2.85 3.75 3.82 Bihar 2.50 5.28 2.83 3.24 Gujarat 1.36 5.28 3.54 4.11 Haryana 4.29 3.65 3.24 4.82 Himachal Pradesh 22.15 5.98 2.49 8.85 Jammu &Kashmir 4.41 8.45 6.03 7.53 Karnataka 3.35 9.17 8.99 6.32 Kerala 10.65 6.31 4.68 7.26 Madhya Pradesh 3.82 7.64 2.37 4.96 Maharashtra 4.15 7.58 3.94 6.66 Orissa 2.83 4.73 5.83 5.55 Punjab 5.05 4.55 4.36 4.89 Rajasthan 3.88 3.24 4.12 3.75 Tamil Nadu 7.42 8.86 3.67 5.74 Uttar Pradesh -0.19 5.80 5.21 4.13 West Bengal 4.47 7.67 2.59 5.47 India 3.37 5.62 4.21 4.73 Source: Department of Ammal Husbandry and Drurymg, Mm1stry of Agriculture.

With mcrease m milk production, the per capita availability of

milk has also shown increasing trend over time. The growth in

population during nineties was around 2 per cent per annum. But, the

milk production grew at an annual rate of about 4 per cent, which led

to rise in per capita availability of milk in the country. The per capita

availability of milk increased from 176 gms/ day during 1990-91 to 230

gmsjday during 2002-03 in India (Table 2.8). Infact, the per capita

availability of milk in India has surpassed the nutritional requirement

of 220gms/ day recommended by the Nutritional Advisory Committee of

the Indian Council of Medical Research (ICMR). Although, there exists

25

wide variations in the per capita availability of milk across different

states in India, by and large, it has increased over the period of time.

Punjab and Haryana ranked first and second, respectively, in the per

capita availability of milk during the periods under study. The per

capita availability of milk in Punjab was 895 gms/ day and in Haryana,

it was 647gmsjday during 2002-03. Orissa recorded lowest per capita

availability of milk with 68gmsjday during 2002-03. Further, there

exists disparity in consumption of milk in rural and urban areas. The

per capita availability of milk in rural areas was 121 gms/ day against

400 gms j day in urban areas (Dairy India, 1997).

Table 2.8. Per Capita Availability of Milk by States

(Gmsjday) State 1990-91 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Andhra Pradesh 125 167 185 192 194 209 231

Bihar 100 98 121 119 80 88 92

Gujarat 236 290 290 297 280 317 321

Haryana 575 630 623 631 614 645 647 Himachal Pradesh 308 314 347 349 335 341 339

Karnataka 146 216 233 241 233 249 229

Kerala 160 204 221 227 219 234 203

Madhya Pradesh 197 194 262 261 211 240 236 Maharashtra 131 161 168 168 162 172 172

Orissa 41 53 58 66 64 69 68 Punjab 715 861 883 902 854 892 895

Rajasthan 273 348 356 367 353 376 368 Tamil Nadu 167 185 199 210 211 219 198 Uttar Pradesh 193 221 238 243 223 241 245 West Bengal 118 123 125 123 116 120 120

India 176 207 213 217 220 225 230 . .

Source: Department of Ammal Husbandry and Datrymg, Mmtstry of Agnculture .

Unlike in developed countries, consumers in India mostly prefer

milk in liquid form to value added products. About 39.3 per cent of milk

was consumed as milk beverages such as tea, coffee etc. during 1951

increased to 45.2 per cent, 46 per cent and 45.7 per cent during 1961,

26

1985 and 1995, respectively (Table 2.9). The trend shows that, by and

large, the preference for liquid milk consumption is increasing over

time. Ghee is an important cooking medium in India. However, the

amount of milk utilized for ghee making shows decreasing trend. About

39.3 per cent of milk was utilized for ghee making during 1951,

declined to 31.8 per cent, 28 per cent and 27.5 per cent during 1961,

1985 and 1995, respectively. Butter and curd are important parts of

Indian dietary system. The amount of milk utilized for making butter

remained almost constant during the last four decades. However, the

amount of milk utilized for preparing curd has declined over the period

of time. The milk used for making khoa has increased from 4.4 per cent

during 1951 to 5.5 per cent and 6.5 per cent in 1985 and 1995,

respectively. The others category included cheese, cream, Ice- cream

etc. The quantum of milk utilized for preparing cheese, cream, Ice

cream has also increased over time.

Table 2.9. Pattern of Milk Utilization in India

(Per cent) Items 1951 1956 1961 1966 1985 1995 Milk beverages 39.3 39.1 45.2 44.5 46.0 45.7 Ghee 39.3 40.0 31.8 32.7 28.0 27.5 Butter 6.0 6.1 6.4 6.3 6.5 6.5 Curd 8.8 6.8 8.1 7.8 7.0 6.9 Khoa 4.4 4.4 4.7 4.9 5.5 6.5 Others 2.2 3.6 3.8 3.8 7.0 6.9 Source: National Comm1Ss1on on Agnculture (1976), Part VII and Drury lnd1a (1992, 1997)

The demand for milk and milk products are income elastic in

nature. As income increases, the consumption expenditure on milk and

milk products also increases. The dominant component of milk and

milk products group is the liquid milk. It is evident from the Table 2.10

that the consumption of milk and milk products in urban areas has

27

increased over time. In urban areas, the annual per capita consumption

of milk and milk products was about 40 Kg during 1977-78 increased

to 68 kg in 1993-94 and then to 72 kg in 1999-00. However, the per

capita consumption has declined marginally in rural areas during the

recent periods. The consumption pattern of meat, egg and fish showed

increasing trend both in rural and urban areas.

Table 2.10. Consumption Pattern oflmportant Commodities in India

(Quantity in Kg/ person /annum) ~terns Rural Urban

1977-78 1987-88 1993-94 1999-00 1977-78 1987-88 1993-94 1999-00 Rice 86.5 88.1 85.4 81.0 67.6 68.1 64.2 62.5 Wheat 49.4 61.6 53.5 53.9 64.6 60.4 57.4 55.4 Coarse cereals 56.7 29.8 24.1 17.7 14.8 10.6 7.7 7.1 Total cereals 192.6 179.5 163.0 152.6 147.0 139.1 129.3 125.0 Pulses 8.7 11.5 9.2 10.1 11.7 12.2 10.5 12.0 Milk&milk 24.6 58.0 51.4 50.5 39.7 64.9 68.3 72.4 ;products Edible oils 2.7 4.3 4.6 6.0 4.8 6.8 6.3 8.6 Vegetables 24.7 50.8 53.2 66.0 39.7 66.4 63.1 70.0 Fruits 2.6 10.3 9.8 17.0 5.9 18.8 20.1 19.0 Meat, egg, fish 2.7 3.3 4.1 5.0 4.8 4.9 6.3 6.8 Sugar and gur 13.5 11.0 9.2 10.1 17.1 12.3 11.8 12.0 Source: NSS Reports (various rounds), Government of India

Despite the fact that demand for milk is increasing overtime, the

growth in pnce of liquid milk is less than the manufactured dairy

products. This might be due to the deliberate decision of the

government to keep the liquid milk price at low level to appease the vast

urban consumers. It is evident from the Table 2.11 that price of liquid

milk has not increased as much as its manufactured products during

the last two decades. The compound annual growth in wholesale price

of liquid milk was 7.97 per cent, while it was 8.90, 8.57, 8.59 and 7.70

per cent for SMP, baby food, butter and ghee, respectively during 1981-

82 to 2002-03. However, there are differences in the growth rates of

wholesale price of milk and milk products during the sub-periods.

28

Table2.1l.Compound Annual Growth in Wholesale Price of Dairy Products (Per cent)

Periods Food Milk Skimmed Milk Baby Food Butter Ghee Articles Powder (SMP) (All Kinds)

1981-82 to 1990-91 7.54 8.57 8.91 6.62 9.63 7.72 1991-92 to 2002-03 7.33 6.62 7.19 10.40 6.38 5.39 1981-82 to 2002-03 7.44 7.97 8.90 8.57 8.59 7.70 Source: Index numbers of wholesale pnces m India (varwus Issues), Office of the Economic Advisor, Ministry of Industry.

2.1.2.4. Dairy Processing and Marketing in India

Table 2.12. Trends in Number of Factories and Milk Processing Throughput in India

Year Number of Per factory Milk processing Throughput as% of factories employment throughput total milk production

(million litres I day) 1961 44 78 1.7 3.1 1972 136 119 3.5 3.8 1982 270 137 5.0 5.0 1987 357 149 10.1 8.0 1·993 513 133 16.0 10.0 2000 835 67 27.1 13.0

Source: Annual Survey of India (Factory sector), Drury India ( 1997) and Basic Animal Husbandry Statistics, Government of India.

As it can be understood from the above discussion that India achieved

remarkable growth in milk production over the last three decades at

around 5 per cent per annum. From the early stages of dairy

development attempts were also made to develop processing facilities

giving various incentives. However, it is discernible from the Table 2.12

that the processing facilities have not grown as much as the milk

production. Only about 13 per cent of total milk produced is handled in

organized sector, which includes cooperative, government and private

plants, while the rest is handled in traditional sector. The milk

processing throughput in the organized sector showed increasing trend,

however the rate of increase is minimal. However, with the opening of

dairy industry as part of economic reforms of nineties, the number of

29

dairy plants increased substantially in recent periods. The economic

reforms, in fact, provided a level playing field for both cooperatives and

private players in the processing sector. In spite of this, it is shocking to

observe that size of employment in dairy products factories is very small

and it is showing by and large, declining trend overtime.

The number of private dairy plants registered under MMPO is

increasing over time (Table 2.13). The number of dairy plants under

cooperative sector increased from 194 to 232 between the periods May-

1996 to March-2004, with the addition of only 38 new plants. In

contrast, the number of private dairy plants increased .from 250 to 468

during the same period with the addition of about 218 new plants. The

compound annual growth for private sector is 7.21 per cent against

2.01 per cent in the cooperative sector. The huge increase in private

dairy plants can be attributed to conducive policy environment created

by opening of dairy sector to private players, increase in foreign direct

investment etc. About 79 new private dairy plants have come up in

Uttar Pradesh between May-1996 to March-2004. Similarly, about 46

new private dairy plants had been set up in Maharashtra against 28

new plants under cooperative sector. The growth in total capacity

created between May-1996 to March-2004, was 4.26 per cent per

annum.

30

Table 2.13. Number of Dairy Plants, Statewise, Registered* Under MMPO (Capacity: Lakh Litres/Day)

States Cooperative Private Others Total Total Capacity May-96 Mar-04 May-96 Mar-04 May-96 Mar-04 May-96 Mar-04 May-96 Mar-04

Andhra Pradesh 13 10 12 16 1 0 26 26 42 37 Bihar 6 7 0 1 0 0 6 8 5 5 Gujarat 17 16 2 11 7 4 26 31 73 101 Haryana 5 5 34 34 2 2 41 41 46 30 Himachal Pradesh 3 3 2 2 0 0 5 5 4 4 Kama taka 12 16 4 22 1 1 17 39 25 40 Kerala 10 11 0 9 2 2 12 22 6 11 Madhya Pradesh 8 10 3 16 2 0 13 26 19 26 Maharashtra 29 57 43 89 38 31 110 177 102 172 Orissa 8 5 0 1 0 0 8 6 2 2 Punjab 12 12 21 34 0 0 33 46 46 53 Rajasthan 12 17 8 10 0 0 20 27 20 26 Tamil Nadu 22 25 3 20 1 0 26 45 24 67 Uttar Pradesh 31 31 115 194 0 1 146 226 118 155 West Bengal 2 2 3 3 2 2 7 7 11 13 India 194 232 250 468 65 48 509 748 559 814 All India CAGR (%) 2.01 7.21 -3.31 4.37 4.26 *Includes both central and state regtstration Source: Basic Animal Husbandry Statistics (2002 & 2004), Government of India

31

Table 2.14. Estimated Annual Production of Milk Products in Organized Sector in India

(000' tonnes) Year Milk powder & Condensed Milk Cheese Malted milk

Baby food & Ghee food 1975 34 9 - 14 1980 76 21 - 25 1990 155 78 2 39 1991 150 78 3 41 1992 168 83 3 43 1993 185 88 3 32 1994 195 83 3 44 1995 200 9 4 48 1996 210 9 4 53 1997 215 8 5 55 1998 222 9 5 65 1999 225 11 5 66 2000 230 12 8 67 2001 235 12 8 68 Source: Drury Ind1a ( 1982) and Annual Report (2003), Department of Food Processing, Ministry of Agriculture, Government of India.

As explained elsewhere, the milk consumption pattern in India is

skewed towards liquid milk both in rural and urban areas. Most of the

milk procured by cooperatives and other agencies, is sold as liquid milk

and very little percentage of milk is converted into western type milk

products like skim milk powder, whole milk power, cheese etc. Table

2.14 presents the estimated annual production of western type milk

products in India. The production of milk powder and baby food

increased over the period of time. Condensed milk and ghee production

increased tremendously in the early nineties, but declined sharply

during late nineties. The malted food production, mostly used as baby

food increased from 14 thousand tonnes during 1975 to 68 thousand

tonnes in 2001. The data presented in the Table 2.14 is complementary

to the information given for milk utilization pattern in India. However,

the developed countries experience shows, with the change in per capita

33

income and life style the consumption of value added dairy products

increases, while the preference for liquid milk decreases.

According to National Council of Applied Economic Research

(NCAER) study on a base line survey of the Operation Flood milksheds

during 1988-89, about 35 per cent of milk produced is retained for

household consumption. The remaining 65 per cent is the marketable

surplus for milk producers. This proportion almost remained same

overtime across different regions. However, the recent estimates of

NDDB indicate that, of the total marketable surplus only 20 per cent is

handled in the organized sector and the rest in the traditional sector.

Even after three decades of dairy development through cooperatives, the

traditional sector continues to play a major role in the marketing of

milk. Since, reliable information about the role played by this sector is

not available, whatever the data available pertaining to cooperative

sector is presented here.

Table 2.15 shows compound annual growth in dairy cooperative

societies in various states of India. At the all India level, the number of

dairy cooperative societies increased at the rate of 8.31 per cent per

annum during 1985-86 to 1990-91. Though, the growth in dairy

cooperative societies declined during 1992-93 to 1997-98, yet the

growth rate during 1997-98 to 2002-03 was 5.94 per cent per annum.

During nineties, i.e. 1990-91 to 2002-03, the Anand Pattern Dairy

Cooperatives increased at the rate of 4.18 per cent per annum. It is the

period during which major reforms like Milk and Milk Products Order

(MMPO), decanalising of dairy products were introduced. The growth in

dairy cooperative societies was the highest ( 11.84 per cent) m

Maharashtra during 1990-91 to 2002-03. Except Haryana, almost all

the states recorded positive and higher growth during late eighties

34

compared to early nineties. The decline in the establishment of dairy

cooperative societies during early nineties across different states can be

attributed to strict licensing procedures and allotment of milksheds to

dairies as stipulated in MMPO, 1992. Barring some states like Andhra

Pradesh, Gujarat, Himachal Pradesh and Tamil Nadu registered

negative growth rates during 1997-98 to 2002-03, other states such as

Maharashtra, Kerala, Rajasthan, Uttar Pradesh, Haryana and Bihar

showed higher positive growth in the number of dairy cooperative

societies during the same period. All the states showed positive growth

in dairy cooperative societies with Maharashtra recording highest ( 11.84

per cent) during 1990-91 to 2002-03.

Table 2.15. Compound Annual Growth in Dairy Cooperative Societies Across Different States in India

(Per cent) 1985-86 to 1992-93 to 1997-98 to 1990-91 to

States 1990-91 1997-98 2002-03 2002-03 Andhra Pradesh 8.58 -0.14 -0.40 0.41 Bihar 14.87 4.62 7.93 5.70 Gujarat 3.77 2.68 -1.74 0.84 Haryana 2.41 3.74 8.55 1.72 Himachal Pradesh 16.47 6.54 -1.54 0.94 Karnataka 11.68 4.61 2.83 4.05 Kerala 13.69 3.62 15.59 9.78 Madhya Pradesh 11.10 3.40 1.31 2.02 Maharashtra 11.62 5.65 22.16 11.84 Orissa 15.90 8.56 3.18 6.01 Punjab 6.94 1.43 2.85 1.82 Rajasthan 5.47 2.52 9.09 4.42 Tamil Nadu 6.74 -0.13 -0.85 0.68 Uttar Pradesh 16.32 8.27 8.54 6.84 West Bengal 3.62 3.52 6.64 4.23 India 8.31 3.47 5.94 4.18 Source: NDDB Annual Reports

35

Table 2.16. Compound Annual Growth in Cooperative Member Producers Across Different States in India

_(Per cent) 1985-86 to 1992-93 to 1997-98 to 1990-91 to

States 1990-91 1997-98 2002-03 2002-03 Andhra Pradesh 14.91 1.94 1.02 2.41

Bihar 35.37 6.58 8.40 6.54 Gujarat 6.19 3.07 2.26 2.93 Haryana 3.76 1.25 4.81 1.11 Himachal Pradesh 11.20 0.00 2.53 0.48 Karnataka 16.06 4.80 2.52 4.40 Kerala 20.65 8.32 10.20 9.66 Madhya Pradesh 7.81 3.45 0.42 4.06 Maharashtra 4.72 3.57 5.15 5.00 Orissa 26.86 10.84 4.56 7.93 Punjab 6.59 2.24 2.17 2.38 Rajasthan 8.80 1.96 5.30 3.35 Tamil Nadu 16.91 1.39 -0.12 1.39 Uttar Pradesh 13.19 6.39 5.22 5.78 West Bengal 3.34 7.29 11.24 7.37 India 12.07 4.25 4.27 4.36 Source: NDDB Annual Reports

The compound annual growth in cooperative member producers

is given in Table 2.16. Despite the dominance of dudhiyas, private milk

vendors and the emergence of large number of other private dairies

during nineties, the increase in cooperative dairy farmer members was

high during 1990-91 to 2002-03. All the states showed positive growth

in member producers in dairy cooperative societies during 1990-91 to

2002-03. Except Tamil Nadu, which registered negative growth during

1997-98 to 2002-03, all the other states showed positive growth during

different sub-periods.

In order to maintain quality and other hygienic conditions, the

Milk and Milk Products Order (MMPO), 1992 imposed strict licensing

procedures for setting up dairy plants. The order contained allotment of

milksheds to the dairies. The MMPO was amended in 2002 in which the

licensing procedures for setting up of dairy plants were relaxed and the

36

provision of milksheds was done away with. In this context some argue

that cooperatives are losing its ground to the private players. The

private dairies encroach upon the milksheds reserved for cooperatives

earlier. The private companies are promoting their brand names in an

innovative way to capture the urban market. In some of the

metropolitan cities, the consumers prefer private dairies liquid milk to

cooperatives. The private dairies and dudhyias supply milk at the

doorstep of the consumers. One such cooperative losing ground to the

private companies can be noticed in Chennai. Though, the price of

liquid milk sold by a private company under the brand name of

"Arokya" is higher than cooperatives "Aavin" milk, the city consumers

prefer to buy "Arokya" milk. It is because of the reason that the required

quantity of milk is not available at the cooperative milk vending booths.

Consumers sometimes return to home without milk after standing for

hours in long queue in booths where "Aavin" milk is sold. Further, the

"Arokya" milk is available at the doorstep of the consumers. Thus, the

cooperatives should build their brand names in an innovative way and

ensure that demand for milk is met.

The impact of entry of private players and MNCs on the

performance of dairy cooperatives can be assessed on the basis of some

important factors like the share of milk procurement by cooperatives

and the share of liquid milk marketing in the major metropolitan cities.

However, non-availability of reliable data on marketable surplus of milk

across different states in India and the share of milk marketed by

private and other players put constraints to analyse the effects clearly.

The data presented in Tables 2.17 and 2.18 give an idea of growth in

milk procurement and liquid milk marketed by cooperatives. The

growth rates for milk procurement during 1990-91 to 2002-03 were

positive in all the states in India (Table 2.17). The periodwise analysis

37

showed that Andhra Pradesh and Madhya Pradesh recorded negative

growth in milk procurement during 1992-93 to 1997-98. All states

except Uttar Pradesh registered, by and large, high and positive growth

rates. The growth in cooperative milk procurement was the highest in

West Bengal followed by Bihar and Haryana during 1990-91 to 2002-

03. Similarly, except Madhya Pradesh, all the other states showed

positive growth in liquid milk marketing during 1990-91 to 2002-03

(Table 2.18). Further, only Andhra Pradesh and Tamil Nadu showed

negative growth during 1992-93 to 1997-98 and 1997-98 to 2002-03,

respectively. Rajasthan showed highest growth rate of 14.85 per cent

followed by Punjab and Maharashtra in liquid milk marketed by

cooperatives during 1990-91 to 2002-03. It is clear from the analysis

that the cooperative milk procurement and marketing are declining in

some states during recent times. The decline might have been offset by

the emerging private dairies in those states.

Table 2.17. Compound Annual Growth in Milk Procurement by Dairy Cooperative Societies Across Different States in India

(Per cent) 1985-86 to 1992-93 to 1997-98 to 1990-91 to

States 1990-91 1997-98 2002-03 2002-03 Andhra Pradesh 5.28 -3.78 5.74 2.18

Bihar 31.67 14.98 12.72 12.34 Gujarat 6.53 5.17 5.55 4.44 Haryana -10.75 8.72 13.63 12.27 Himachal Pradesh 4.94 5.92 11.03 5.62 Karnataka 11.80 6.12 8.23 7.52 Kerala 12.43 4.95 15.94 11.23 Madhya Pradesh 5.81 -1.65 9.53 1.58 Maharashtra 1.25 3.44 5.64 3.74 Orissa 35.43 10.38 6.80 8.32 Punjab -1.60 2.13 6.30 8.09 Rajasthan -11.11 14.70 13.61 10.83 Tamil Nadu 8.31 0.83 5.57 2.66 Uttar Pradesh 2.66 2.98 -0.24 4.73 West Bengal 8.24 10.99 12.94 15.52

India 7.37 5.82 8.74 7.38 Source: NDDB Annual Reports

38

Table 2.18. Compound Annual Growth in Liquid Milk Marketing by Dairy Cooperative Societies Across Different States in India

Per cent) 1985-86 to 1992-93 to 1997-98 to 1990-91 to

States 1990-91 1997-98 2002-03 2002-03 Andhra Pradesh 2.92 -1.18 6.36 3.64 Bihar 11.64 17.95 9.39 10.77 Gujarat 4.38 7.89 4.25 5.23 Haryana 6.64 2.42 10.90 2.21 Himachal Pradesh 13.40 4.10 0.00 3.24 Kama taka 14.79 7.33 2.52 4.28 Kerala 21.56 8.36 14.65 10.32 Madhya Pradesh 14.14 1.67 3.38 -0.33 Maharashtra 19.18 6.49 11.48 10.67 Orissa 52.04 5.02 4.01 4.64 Punjab 5.37 14.81 4.60 10.62 Rajasthan 8.61 16.95 14.71 14.85 Tamil Nadu 7.58 5.36 -3.83 1.23

Uttar Pradesh 24.73 2.61 2.76 1.89 West Bengal -7.79 1.68 2.29 0.62 India 13.21 6.78 5.81 5.73 Source: NDDB Annual reports

2.2. Implications of Structural Analysis

To sum up, this chapter has outlined the structure of dairy industry

providing a background for the chapters that follow. There are some

visible changes at the macro level of milk sector. India has achieved

remarkable growth in milk production moving from the state of import

dependant to self-sufficient. Milk is the largest farm commodity

contributing to the growth of gross national product. The value milk

alone contributes about 20 per cent of total value of agricultural output

in recent times. There are not many changes in the dynamics of bovine

population and their yield rates. Buffalo continue to dominate the milk

production scene contributing more than 50 per cent of country's milk

production. There are regional differences in milk production across the

country.

39

It is surprising to observe that during the last five decades, the

milk utilization pattern has not undergone much change. The

utilization pattern is positively skewed towards milk beverages rather

than value added products like milk powder, butter, cheese, ice-cream

etc. Further, the consumption of milk and milk products is declining in

rural areas, while it is increasing in urban areas. However, it is

interesting to note that, by and large, the growth in wholesale price of

milk when compared to its manufactured products is low during 1981-

82 to 2002-03. It might be due to the deliberate action of the

government to keep the price of liquid milk low compared to

manufacture products. The government's decision is based on the

premise that liquid milk is consumed by low-income groups while the

value added products are consumed by the high-income groups.

However, the important point here is that when the price of milk is

raised, it is often the better educated, politically influential urban

consumers influence or lobby the government at much lower cost than

the geographically wide spread small farmers. This happens in the

developing country like India where milk-processing sector has not

developed fully. Less than 20 per cent of marketable surplus of milk is

handled in the organized processing sector. The size of milk processing

industry in terms of employment and production is low compared to

producing sector. Further, the manufactured goods represent relatively

a small proportion of total consumption of milk and milk products.

Thus, there will be little opposition to raise the price of manufactured

products above the international prices, as it will have minimal impact

on consumers' real income, factor incomes etc.

The above drawn conclusions are based on a simple political

economy framework. Under this framework of analysis it can be

understood from the above discussion that the potential beneficiaries of

40

distortionary price policy are the urban consumers. However, a set of

testable hypotheses can be formulated which may guide the further

analysis in the subsequent chapters. It can be broadly hypothesized

that dairy producers at the farm level are taxed (receive disincentives)

and that manufactured dairy products (at processing level) are

protected (receive incentives). The government protects or disprotects a

particular sector through vanous policy measures. These policy

measures can be broadly grouped under trade policies. The next

chapter discusses the dairy trade policies of India.

41