Indian Dairy Market – Poised for Growth
India is the world’s largest milk producer and consumer of dairy products, using up nearly 100% of its milk production. The Indian dairy industry is estimated to expand at a CAGR of 15% Year-Over-Year to reach Rs 9.4 trillion by 2020.
With demand for both cattle and buffalo milk, India’s dairy industry is uniquely positioned compared to other dairy-producing nations. The average milk yield per animal is however substantially low, with the majority of India’s milk production sold as fluid milk. Because of this, the industry is at the crossroads, holding tremendous potential for overall value-addition and development.
Latest trends in the Dairy Industry:
- Consumers are increasingly demanding dairy products with cleaner labels, value-added ingredients, sugar reductions, and much more.
- Plant-based milk, meat alternatives, and vegan offerings are becoming mainstream.
- Manufacturers are trying to enhance the nutritional profile of dairy products by adding health-enhancing ingredients. They have to find and use ingredients that can offer functionality and shelf life in the most minimalist way possible.
- Reducing waste and optimizing production. Reducing energy consumption and fuel bills.
Challenges faced by the Industry:
Shortage of feed/fodder:
With regard to the utilization of available feed and fodder, unproductive dairy animals compete in equal numbers with their productive counterparts. The total grazing area gets reduced every year due to urbanization & industrial development. This results in the shortage of feed and fodder in the context of total demand, hiking up fodder prices, and resulting in inadequate feeding. This ever-increasing demand-supply gap restricts overall milk yield. Poor quality forage and lower purchasing power of small, marginal dairy farmers and agricultural laborers engaged in the dairy industry adds to the whole conundrum.
Late maturity in the majority of Indian cattle breeds is a common problem. Cattle owners don’t have a proper and effective detection mechanism for heat symptoms during the oestrus cycle. The calving interval (the time gap between the birth of a calf and the birth of a subsequent calf from the same cow) is on the rise, reducing animal performance. Diseases causing abortion and mineral, hormonal and vitamin deficiencies lead to fertility problems, affecting the industry.
Education and Training:
Scientific education and training programs on good dairy practices is the need of the hour and could overcome critical challenges faced. They need to be effectively marketed, to boost participation in such programs. Education and training for all dairy sector employees become essential to develop a sense of ownership, and to inculcate proper knowledge of best practices. Implementing such programs in the dairy sector requires strong, relentless commitment from the management, which at times could be a stumbling block.
Veterinary health care centers are located in places that are far off and difficult to access. There is a lesser number of veterinary institutions in proportion to the cattle population, leading to inadequate health services for these animals. Irregularity in vaccination schedules and deworming programs lead to heavy mortality in calves, especially buffaloes. As stated earlier, there is a lack of adequate immunity amongst cattle, making them susceptible to diseases.
Many cattle owners do not provide proper shelters to their cattle, leaving them exposed to extreme climatic conditions and the vagaries of nature. Cattle shed and milking yards are unhygienic, giving rise to mastitis. (In this, the udder tissue or mammary glands get inflamed due to physical trauma or microorganism infections. It is the most common disease in dairy cattle in the United States and worldwide). Unhygienic milk production also leads to poor quality milk being stored and spoilage of milk and other dairy products.
Marketing and Pricing:
Dairy farmers continue to get unremunerative prices for milk production. Due to the adoption of extensive cross-breeding programs with the Holstein Friesian breed, the fat content of a cross-breed cow’s milk is on the decline. Because of this, lower prices are offered, since milk price is estimated based on fat and solid nonfat milk content. Due to a lack of proper marketing and education, commercial dairy enterprises are poorly perceived by farmers as an alternative to other livelihoods.
Low dairy penetration & high cost of milk handling and distribution:
In India, dairy penetration continues to be at low levels. Milk is mainly collected by private players and sold to private dairies or other members of the distribution channel. Milk passes through multiple levels until it reaches the pasteurization centers, thereby increasing the final retail price. There is good scope for reducing the number of agencies handling milk, to minimize the overall cost of handling.
Future in Dairy Industry: D2R & D2C business models
The milk industry in India is an extensive network of farmers, dairy cooperatives, and private players. To increase profitability levels and safeguard the industry’s future, Direct to Retail (D2R) and D2C (Direct to Consumer) or DTH (Direct to Home) business models are now gaining momentum. The largest dairy companies in the world like Dairy Farmers of America, Fonterra, Nestlé, Amul (GCMMF), and Danone all actively adopt these models.
Direct to Retail (D2R): Under the D2R dairy model pioneered by Amul founder Dr. Verghese Kurien, middlemen are effectively eliminated, as companies/brands procure milk directly from farmers, pay them commensurately, process the milk, and sell to end consumers through company-owned milk parlor chains and retail stores. Examples of prominent D2R players are the dairy co-operatives and milk federations of respective states (like Mother Dairy in West Bengal, Aaarey in Maharashtra, Aavin in Tamil Nadu, Nandini in Karnataka, etc.) and private players like Heritage Foods, Creamline Dairy Products, and Schreiber Dynamix Dairy.
Direct to Consumer (D2C) or D2H (Direct to Home) – The rise of ‘Milktech’ Startups: This model has gained popularity during the recent COVID-19 pandemic, as consumers have shunned physical stores and favored direct door-delivered purchases. Prominent examples of this model include Kiaro – a Hyderabad-based app-driven organic dairy products brand, Parag Milk Foods’ ‘Pride of Cows’ in Mumbai and Pune and Milk Mantra’s Milky Moo in Bhubaneswar and Cuttack.
Disrupting the industry in recent times, new-age start-ups have changed the game. Attracting global investors, they have redefined the market by offering customized tech-focused services, with flexible options of pre-payment and long-term subscriptions.
The future of the dairy industry is D2R and D2C.In these business models, product quality is standardized and maintained in conformity with international standards and certifications, and the network farmers get a better price. With regard to the milk industry, these private players use state-of-the-art infrastructure, world-class farming practices, advanced technology, and packaging techniques.
How Industry can overcome these challenges
Dairy products are a perishable food item. Hence, they have to be refrigerated in robust cold chains and sold quickly to preserve product quality. The short time to market and the quick flow of products differentiates the milk industry from others. Time and information management is key to reducing waste and improving the quality of delivered dairy products, and this is where a lean manufacturing consultant can bring about improvements.
i) Define SOPs/ Process Automation:
Process automation is what IT systems can do to optimize and make your dairy business effective, helping to quicken internal processes by eliminating human error. This could be in the form of Artificial intelligence (AI), Machine Learning (ML), Internet of things (IoT), ERPs, chatbots, packaging & handling equipment, etc. All of these helps to save man-hours, which could be better utilized in more critical processes.
Dairy Processing Handbook (framed by food packaging major Tetra Pak) provides exhaustive, easy-to-understand guidance on dairy manufacturing processes. It explains the intricacies of modern dairy processing technology and the entire chain – i.e. pasteurization, blending, and overall UHT milk treatment to filtration, automation, service systems, and wastewater management.
Implementing a state-of-art dairy system is the dream of every dairy farm consultant. The industry continues to be plagued by the scarce availability of standardized process documents leading to lack of proper communication (internal & external), mismanagement in feed management, sanitizing practices, input vs output, waste management, manpower utilization, breed selection & tracking, value addition & dairy farm profitability. Dairy consulting services try to address all of these issues and more.
Dairy consultancy services recommend best practices for milk production and procurement, products and procedures and machinery design and maintenance support. They draw up techno-economic feasibility reports for dairy enterprises covering the while milk production ecosystem, and provide R&D assistance for product processes, quality assurance & product testing, including feed analysis and evaluation.
SOPs in Dairy Industry: Standard Operating Procedures (SOPs) in dairy are instructional roadmaps for the entire dairy’s operations. Dairy businesses worldwide widely use process automation that overcomes the shortcomings of existing methods. Dairy consultants try to ensure that SOPs and process automation covers the following facets of dairy businesses, i.e.
- General herd health management including vaccination and treatments
- Reproduction management (deliveries through timed AI protocols)
- Milking management (procedures, parlor setup, cleaning, sanitation)
- Veterinary Assistance
- Productivity management (including breed selection and tracking)
- Feed management (including newborn calves)
- Waste management (including newborn calves)
- Maintenance crew
- Organizational blueprint (including manpower utilization)
- Production and supply chain safety
- Location management (diagram or maps of where animals and facilities are located)
Initially, dairy employees are enthusiastic about process improvement measures, but their interest gradually wanes over time. This usually occurs when monitoring and feedback mechanisms are not built into the SOPs.
ii) IT System Integration of SOPs:
A strong IT infrastructure forms the core of all business processes. IT applications can significantly reduce operating costs, also boosting process accuracy and automation.
Integration of ERP with SOPs: Buyers need to know when products are available for ordering and when they will be delivered. This is where e-commerce for dairy comes in through live, interactive online sales portals that are fully integrated with the source of all business data and logic: ERP (a software-driven information system fueling all your business processes). The integration of ERP and SOP enables software programs to be designed and customized according to predefined operational procedures and business specifications. Examples of effective ERP systems for the dairy industry are SAP and Microsoft Dynamics.
Essential IT SOPs necessary to control the entire diary processing system
System Maintenance SOP: This consists of system controls that ensure periodic system checks and maintenance. Thus, this SOP describes system monitoring procedures and process decommissioning systems. We have to always ensure the integrity of any data contained within these systems.
Physical Security SOP: are controls in place to secure access to building premises. It manages digital cards and codes, building alarm systems and intrusion control. It also includes environmental controls to safeguard data installation systems, i.e. the fire detection, temperature and humidity controls.
Logical Security SOP: This refers to data security protocols such as VPNs, Firewalls, and Virus protection apps. This includes password format or aging, and technical controls to improve security like password-protected screen savers.
Incident and Problem Management SOP: This takes care of the process for managing any incidents or problems related to regulated computerized systems. They typically describe how incidents and problems are recorded, analyzed, and resolved.
System Change Control SOP:Critical to the management of regulated systems, this SOP could be the most problematic of all. The system change control procedure is used during the change of any computerized component, typically using a form or template to allow the documentation of the change control. The process demands that the change rationale and steps be documented, after which a system impact assessment is carried out. A revalidation plan if any is documented, along with executable test scripts and evidence. The rollback path, review, and approval process (pre and post-execution) should be clearly defined here.
Configuration Management SOP: Often used in conjunction with change control, this SOP governs how system configurations are regulated, managed, and documented. A standard process has to be laid down so that configuration changes can be reviewed and approved.
Disaster Recovery SOP: Whenever a disaster occurs, this SOP ensures that data is properly protected and disaster recovery is carried out in a timely and controlled manner. The SOP has to clearly define a disaster and its parameters, and provide an overview of the disaster recovery plan which should be tested at regular intervals.
Backup and Restoration SOP: The final and possibly the most vital SOP is backup and restoration. The procedure should clearly outline the schema and methods used to protect data and systems. Creation, maintenance, and verification of backup jobs should be clearly defined. A restoration request process should be defined and tested periodically to ensure complete data restoration is possible. Last but not the least, long-term archiving of data should be addressed in this SOP as well.
2. Digital Sales Techniques for rapid expansion
Adopt D2R (eliminate distributors and directly reach out to Retailers)
Under a Direct to Retail D2R digital sales model, dairy companies procure milk from farmers and then use a transparent, digital selling mechanism (example: online sales portals), eliminating all middlemen. Customers can educate themselves on the go, and digitally purchase the latest dairy products through live web stores and mobile apps. Buyers can place an order at night, and fresh milk & dairy products are promptly home delivered the next day by 6 am.
Data Analytics-centric Dashboards keep up the sales momentum
Data-driven analytical dashboards provide statistical insights to customers and clients digitally, helping to drive up sales. Operational dairy processes, data, and customer information are entered into these user-friendly web platforms. There are several B2B e-commerce platforms and E-hubs like dairy.com which serve as digital marketplaces, providing dairy producers and retailers the opportunity to find new customers or deal with existing customers online.
D2C business model (via e-commerce directly sell to end consumers)
Direct to Consumer digital selling techniques give the producer greater control over the brand, reputation, marketing, and sales strategy. Additionally, it helps the milk producer to remain agile, directly engaging, and continuously learning from customers. Here, digital advertising in interactive social media channels is the norm, i.e. Facebook marketing, Instagram and YouTube video ads, and customer-created marketing content (which in turn spurs them to make online purchases).
By integrating your e-commerce solution with ERP, you can improve your sales standing. Real-time product and logistics data (like current and future inventory) are displayed in your web store, and all processes and data can be effectively managed from one centralized location. This automatically helps to meet and generate current and future buyer demand.
What does the future hold? Dairy E-Commerce set to rule the roost
Tech-backed milk and milk-product delivery platforms are likely to grow even further over the next few years. Leading players will focus on delivering an enriching shopping experience through one consolidated umbrella app. These platforms will go all out to stock and deliver milk, milk products, vegetables, groceries, and other everyday essentials, including niche, premium products like camel milk which are rapidly gaining in popularity.
Growth Opportunities multiply post COVID-19
The massive rise in internet penetration and the recent COVID-19 pandemic has presented huge growth opportunities for digital sales of dairy and milk-based products. Fulfillment options such as click and collect and on-demand delivery has grown exponentially, as every consumer is now ordering fresh perishables online daily. All this is leading to a self-sufficient and viable dairy ecosystem, which is a win-win proposition for all. Hopefully in the next two decades, as the market becomes more defragmented, supply chains strengthen and innovations rise, India would transform into a global dairy superpower with dairy production at its peak.