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Working paper.

DEMAND FOR MILK ANDMILK PRODUCTS IN INDIA

Rakesh Saxena

-fellows,~dstudents..

work b.efore publcation

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Working Pape.r is not to beconsideredaformai researchc ..p u b l c at io no ft he Jn st i ut e.

Insti ute of Rural Management, Anand 388001

September 1996

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DEMAND FOR MILK AND MILK PRODUCTS IN INDIARakesh Saxena

AbstractThis paper has the following objectives: (I) To assess he present market sizefor milk and various milk products in India and study the pattern of changeover time. (2) To assesshe relative sizesof regional markets for various milkproducts. (3) To review the information available on elasticity of demand anddemand projections for milk and milk products.It is observed that about three-fourth of the total milk production in India isconsumed n the form of liquid milk and ghee alone leaving a wide scope fordevelopment of other milk products. The markets for milk powders and milkfoods are higWy concentrated in the eastern region of the country which isdeficient in milk production. The markets for ghee and butter, on the otherhand, are concentrated in the northern region which is considered a surplusregion in milk production. The western and southern egions have only modestshares n the markets for theseproducts. Based on the information available onprice, cross price and income elasticities, it is expected that the demand formilk in India would grow at a rate of3.8 per cent per annumduring the nineties.

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DEMAND FOR MILK AND MILK PRODUCTSN INDIA

IntroductionThe production of milk in India during the year 1994-95 has been estimated as63.53 million metric tonnes (CMIE, 1995). Though India is the second argestmilk producing country in the world, her position in terms of per capita milkproduction is very low. Considering he per capita milk requirement prescribedby the Indian Council of Medical Researchas 220 gms per day (80.3 kgs/year),only five States, namely, Punjab, Haryana, Himachal Pradesh, Rajasthan andGujarat, havea per capita production which is above his nutritional requirement.The averageper capita production of milk in India at 70 kgs in 1994-95 s alsoshort of this requirement. On a regional basis, only the northern region has aper capita milk production which is above this requirement. However, thesufficiency in production alone cannot ensure he fulfillment of the nutritionalrequirement of milk in a market economy.People should want to buy milk andmilk products, and have the ability and willingness to pay for them. It is suchdemand on the part of consumersand he factors affecting it that are importantto understand or future planning.This paper attempts to do the following: (1) To assesshe present market sizefor milk and various milk products in India and study the pattern of changeover time. (2) To assesshe relative size of regional markets for various milkproducts. (3) To review the information available on elasticity of demand anddemand projections for milk and milk products.Market Size for Milk and Milk ProductsIn India, most of the milk has raditionally been consumed n the form of liquidmilk, ghee, curd, butter and ~weets. The product mix changed significantlyduring fifties to mid-eighties.The mportant changeswere n the form of increase .in the use of milk as iquid milk, availability of new milk products in the form ofmilk powder and cheese,and decrease n the use of milk for making ghee. It* A short version of this paper has been accepted or publication in Gupta, PR

(ed.) Dairv India. New Delhi, (forthcoming).

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appears hat improvement in transportation, storage and marketing facilitiesavailable for liquid milk, and access o technology of making new products,have reduced the need or converting milk into ghee. The utilisation pattern ofmilk has remained more or less he sameduring the last decade. t is estimatedthat presently about 46 per cent of the total milk produced in India is used asliquid milk, 28 per cent as ghee, 7 per cent as curd, 6.5 per cent as butter, 5.5per cent as khoa, 3.5 per cent as milk powder, 2 per cent as cheese,0.5 per centas cream, 0.2 per cent as ce cream, and the remaining 0.9 per cent in variousother forms.The estimates of market size for various milk products during 1994-95 havebeen given in Table-I. These estimateshave been arrived at by making use ofinformation on milk utilisation pattern, production figures and discussionswiththe experts in the area.The total market size or all milk powders ncluding baby ood hasbeenestimatedat 1,93,000 metric tonnes most of which is for skim milk powder and babyfood. These wo products account for about 70 per cent of the powder market.There is very little market for whole milk powder which has a share of onlyabout nine per cent in the powder market. The shareof dairy whiteners in theTable 1Estimated market size for various milk products, 1994-95

Product Market size(metric tonnes)

Baby food 65,000Dairy whitener 40,000Whole milk powder 18,000Skim milk powder 70,000Ghee 8,89,000Butter 2,62,000Cheese 3,100Malted foods 43,500Condensedmilk 8,150

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market is about one-fifth. Only about 16 per cent of whole milk and skim milkpowder is sold in consumerpacks; he rest is sold in bulk packs. Indian army isthe largest buyer of whole milk powder in bulk packs.The estimated market for ghee s eight to ten lakh metric tonnes. Consideringthat 28 per cent of total milk production is used or making ghee and assumingthat the average at percentage n milk is five per cent, the production of gheein 1994-95 can be estimatedat about 8.9lakh metric tonnes. Only about 10 percent of the total production of ghee s produced n the organisedsector. Similarly,the production of butter for 1994-95 can be estimatedat about 2,62,000 metrictonnes considering t has about 80 per cent fat. Only about nine to ten percentof total butter is marketed as table butter.The change n the size of market for various milk products over the years canbe assessedo a good extent by the changes n the annual production of theseproducts over the years. However, the information on production is availableonly for certain milk products being produced in the organised sector. Thisinformation is presented n Table-2.Table 2Production of various milk products in India (metric tonnes)Products 1989 1990 1991 1992 1993 19941. Milk powders 165000 155000 150000 165000 185000 195000- Infant milk powder 78108 90867 94773 75662 83347 78740- ~ers 86892 64133 55227 89338 101653 1162602. Malted food 35000 39000 41000 41300 32300 435003. Condensed ilk 7900 NA 8100 8400 7800 81504. Cheese - 2500 2500 2900 3100 3100Sources: Oyt. f India (1990-95) CMIE 1996).It appears that the size of market for infant milk powder which was risingsteadily during 1989-91slumpedheavily during 1992.This market hasrem( .inedsort of stagnated since then. On the other hand, the size of market for othermilk powders which was declining during 1989-91 has been rising steadily

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since 1992. The size of market for malted oods appears o be fluctuating around40,000 metric tonnes over the last five to six years. There is hardly any growthin the market size for malted foods. The size of market for condensedmilk andcheeseas compared to the total market for milk products is very small. Whilethe market size for condensedmilk has been sort of fluctuating around 8,000metric tonnes, the market size for cheesehas been rising slowly. Consideringthe constant sharesof ghee and butter in the utilisation of milk over the years,it may be said that sizes of their markets have been rising steadily.Share of Regional MarketsMarkets for various milk products in various regions of India have evolvedaccording to various characteristicsof theseareas ike level of milk production,food habits, income levels, etc. Based on the size of urban retail markets forvarious milk products in India, Table-3presents he estimatedsharesof regionalmarkets in 1995. The eastern egion which is too deficient in milk productionhas a large share in milk powder and baby food market. On the other hand,more than half of the market for gheeand butter is concentrated n the northernregion alone which is a milk surplus region.Table 3Shares of regional markets for various milk products in India, 1995Particulars North East West South TotalMilk powders 23.1 41.4 12.6 22.9 100.0Baby food 11.7 66.7 6.4 15.2 100.0Pure ghee 57.2 9.5 23.4 9.9 100.0Butter 52.0 21.0 17.6 9.4 100.0Trend in Prices of Milk and Milk ProductsThe market prices are an important determinant of the size of market for anycommodity. Table-4 presents the wholesale price indices for milk and milkproducts so as to take a look at the trend of their prices over the years. Theaverage wholesale price index for all commodities has also been given in thetable to assess he change n real prices of milk and milk products.

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, Let us irst considerhe price rend rom 1981-82 o 1992-93duringwhich, onan average, the prices of milk and all milk products have risen. During thisperiod, the prices of baby food have grown at the lowest rate, perhaps due tostagnation of its demand as mentioned earlier. The prices of ghee have risen ata slightly higher rate as compared to that of baby food. The prices of tinnedmilk powder, skim milk powder, milk and butter have grown at a higher rate,perhaps due to their strongly growing demand. Comparing the price index ofmilk and each individual milk product with the overall price index for allcommodities, it can be seen hat only in the case of baby food the real priceshave declined over time. In caseof milk and all other milk products, the relativeprices have gone up.Table 4Wholesale price indices for milk, milk products and all commodities(1981-82= 100)Commodities 1990-91 1991-92 1992-93 1993-94 CARG(%)1981-93Milk 209.2 236.4 264.8 279.7 9.26Butter 216.7 245.6 262.6 260.2 9.17Ghee 188.7 227.2 239.1 235.0 8.25Baby food 179.6 198.5 211.4 211.0 7.04Skim milk powder 178.6 220.9 289.9 257.8 10.16Tinned milk powder 203.6 230.1 305.2 304.2 10.68All commodities 182.7 207.8 228.7 247.8 7.81CARG = compound annual rate of growth (1981-82 to 1992-93)Source: CMIE (1994).The prices of all milk products have allen during 1992-93 o 1993-94 which isindeed a rare occurrence. While such decline s only marginal in case of other.milk products, the prices of skim milk powder have declined by as much asabout 11 per cent. The price of milk has continued to rise even during thisperiod.

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Demand ElasticityDemand for milk and milk products is expected to be influenced by their prices,income and tastes of the people, prices of related goods like cereals, pulses,meat, fish, eggs, vegetable oils, and many other factors. Given a certain level ofdemand for milk or any milk product during a period, an increase in its ownprice, while other factors as mentioned above remain the same, is expected todecrease this demand. Conversely, a decrease in the price would increase thedemand, other things remaining the same. An increase in the income of peopleis expected to increase the demand for milk and milk products and vice versa.If there is a change in more than one factor that affect the demand for milk andmilk products, the actual change in demand will depend on the net impact ofthese factors. The demand for milk and various milk products can be projectedfor future by considering the expected changes in the factors that influence it.The relationship between the demand for a commodity and a factor thatinfluences it is usually expressed through the concept of elasticity of demand.The elasticity of demand with respect to a particular factor indicates thepercentage change in the quantity demanded with respect to one percent changein the level of that factor. Various studies have been done in India to estimatevarious elasticities of demand for milk and milk products. These studies aremostly based on the data collected by the National Sample Survey Organisationon consumer expenditure. Due to the limitation of data, many such studieshave treated milk and milk products collectively. There is hardly any study thathas estimated elasticities at the national level for individual milk products likeskim milk powder, ghee, butter, etc.Income and/or Expenditure Elasticity of DemandThe value of income elasticity of demand for a commodity (or a commoditygroup) shows the percentage by which the existing demand for that commodityis expected to change if the income of the present consumers changes by oneper cent. The change in both income and demand is with respect to a timeperiod. Similarly, the value of expenditure elasticity of demand for a commodityindicates the expected percentage change in the existing demand for thatcommodity if the consumption expenditure of the present consumers changes

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The value of income elasticity varies for various income groups of consumersin both rural and urban areas (Gandhi and Mani, 1995). The income elasticitiesestimated by Gandhi and Mani (1995) for various expenditure groups arepresented in Table-5. It shows that as the income level increases, the value ofincome elasticity of demand for milk decreases. The differences between thevalues of income elasticity for rural and urban areas appear to be largely due tothe differences in income levels. The income elasticity of milk will reduce toless than one, only after the per capita incomes have risen substantially.Table 5Income elasticity of demand for milk across various expenditure groupsof consumers in India, 1987-88Particulars Quin- Quin- Quin- Quin- Quin- Average

tile 1 tile 2 tile 3 tile 4 tile 5A. Rural- AMPCE(Rs) 78.73 112.13 143.90 188.49 344.49 158.10

-Elasticity 2.509 2.098 1.809 1.496 0.796 1.700B. Urban-AMPCE(Rs) 128.86 151.64 203.19 282.11 616.97 249.93

- Elasticity 1.479 1.375 1.188 0.979 0.481 1.057AMPCE = average monthly per capita consumption expenditureSource: Gandhi and Mani (1995).Milk and milk products have a higher income elasticity as compared to theother food products in both urban and rural areas. It implies that the demandfor milk and milk products will grow relatively faster with an increase in theconsumer income (Jain et. al., 1992; Gandhi and Mani, 1995). In this context,Table-6 provides the information on the shares of various ,food items in totalconsumer expenditure over the years. It can be observed from this table thatwhile the cereals and pulses have dominated the share in the expenditure onfood items, their share in the same has been declining sharply over time in bothrural and urban areas. This is due to the low expenditure elasticity of cerealsand pulseswhich hasbeenestimated t 0.49 for rural areasand at 0.19 forurban areas (Jain et. al., 1992).

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, On the contrary, he shareof expenditure n milk andmilk productshasbeen,in general, rising over time in both rural and urban areas. t is difficult to explainsuch changes on the basis of the estimates of income elasticities alone. Theestimate of income elasticity for urban areasby Jain et. al. (1992) at 0.61 is toolow to explain the above rise in urban areas. Similarly, the estimate of incomeelasticity for rural areasby Gandhi and Mani (1995) at 1.7 appears o be toohigh to explain a marginal rise in the share of milk and milk products in ruralareas.We find that the shareof expenditure on meat, fish and eggs has also increasedslightly over time. The expenditure elasticity of meat, fish and eggs has beencollectively estimated at 1.18 for rural areasand 0.54 for urban areas Jain et.al., 1992). It is interesting to note that the share of meat, fish and eggs in thetotal consumer expenditure has risen in urban areas despite the value ofexpenditure elasticity being much less than one. This is perhaps due to thechanging tastes of urban people in favour of such items. Gandhi and Mani(1995) have estimated he income elasticities of demand separately or meat,fish and eggs by using the 1987-88 data on consumer expenditure. Theirestimates of income elasticities for meat, fish and eggs are 1.094, 1.693 and0.933 for rural areasand as 0.388,1.268 and 0.640 for urban areas espectively.That is, within livestock products used or food, milk and eggs have he highestincome elasticities n both urban and rural areas.Table 6Shares of food items in total consumer expenditure (%)

Cereals & pulses Milk & milk prod. Meat, fish & eggs Total foodYear Rural Urban Rural Urban Rural Urban Rural Urban1970 44.4 26.3 8.6 9.5 2.9 3.6 73.6 64.41977 37.6 24.4 7.5 9.5 2.7 3.5 64.4 60.01983 36.2 22.9 7.5 9.2 3.0 3.6 65.5 59.1'87-88 30.5 18.4 8.7 9.5 3.2 3.5 63.8 55.988-89 30.5 19.2 8.9 10.0 3.5 4.0 63.9 57.189-90 28.7 17.9 9.7 9.9 3.6 3.8 64.3 55.2Source:Jain et. ai. (1992) & NSSO 1991.1992).

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Due to the relatively faster growth of demand or milk and milk products withthe rising consumer ncome, it is expected hat milk and milk products wouldultimately dominate the food items in terms of per capita expenditure. It hasbeen shown by Gandhi and Mani (1995) that, in urban areas, he average percapita expenditure on livestock products has almost equalled the average percapita expenditureon cerealsby 1989-90. t canbe observed rom the consumerexpenditure data acrossvarious ncome groups hat the expenditureon livestockproducts has also exceeded he expenditure on cereals n top income groups ofrural areas (NSSO, 1992).In order to explore the relative importance of 'cereals and pulses' and 'milkand milk products' in future with the rising consumer ncome, Table-7 presentsthe information on the monthly per capita expenditure or some ncome groupsin urban and rural areas. t can be seen rom this table that the urban consumersin the monthly expenditure classesof Rs 596 and Rs 1157 per capita spendmore on milk and milk products than on cerealsand pulses. The samemay beexpected as he income of rural consumersand ower income urban consumersrise to similar levels.Table 7Monthly per capita consumption expenditure in India, 1989-90

(in Rupees)Rural Urban

Exp class Av Exp C & P M&MP Exp class Av Exp C & P M&MP-0- 65 57.51 30.12 0.40 0- 90 75.46 30.67 3.5195-110 102.29 44.45 5.12 135-160 148.27 45.93 12.81125-140 131.85 48.77 9.50 185-215 199.65 53.59 18.07160-180 169.85 56.58 14.40 255-310 280.05 55.56 31.95215-280 242.27 60.63 28.25 385-520 441.18 61.58 52.18280-385 310.72 62.56 45.82 520-700 596.29 61.33 64.20385- 585.31 80.11 59.10 700- 1157.30 73.20 78.57All 189.46 54.33 18.35 298.00 53.19 29.53Exp= Expenditure,' Av= Average,' C&P= Cereals & pulsesM&MP= Milk & milk productsSource: NSSO (1992)

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Own Price Elasticity of DemandThe own price elasticity of demand or milk and milk products in India has beenestimated as -1.404 for rural areasand as -0.535 for urban areas (Jain et. al.,1992). t shows hat a one per cent ncreasen the price of milk and milk productswill reduce he demand or milk andmilk productsby 1.404 per cent n ruralareasand by 0.535 per cent n urban areas.Conversely,a one per cent decreasein the price of milk and milk products will increase he demand for milk andmilk productsby 1.404per cent n rural areasandby 0.535 per cent n urbanareas.The absolute value of own price elasticity being greater than one for rural areasmeans hat a decrease n the prices of milk and milk products will increase hetotal expenditureon milk and milk products n rural areas.Conversely,an ncreasein the prices of milk and milk products will reduce he total expenditure on milkand milk products in rural areas.That is, with a given level of income, the shareof milk and milk products in the total consumerexpenditure would rise with adecrease n the prices of milk and milk products and would decline with anincrease n the prices of milk and milk products.In urban areas, he demand or milk and milk products is highly price inelastic.There will not be much change n the quantity demanded n response o changesin the prices of milk and milk products. Therefore, an increase n the prices ofmilk and milk products in urban areaswill result in an ncreasedexpenditure onmilk and milk products. On the other hand, a decrease n the prices of milk andmilk products will decrease he expenditure on milk and milk products. It isjust the opposite of what was discussedabove in case of rural areas. Suchchanges n the total expenditure n rural and urban areaswould have a significantbearing on the profitability of milk producers.Cross Price Elasticity of Demand .The demand for milk may also be influenced by the changes n the prices ofrelated commodities. The magnitude of such nfluence s expressed hrough thevalues of cross price elasticities. There is very little information available onthese elasticities. Table-8 presents some nformation available on cross price

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elasticities of demand or milk and milk products with respect o prices of someother food items. One can see that all the cross price elasticities, except theones with respect to prices of edible oils, are negative. The absolute values ofall the crossprice elasticities,except he oneswith respect o pricesoffoodgrains,are quite low.Table 8Cross price elasticity of demand for milk and milk products

With Respect to prices of Urban Rural1. Cereals & pulses -1.195 -0.8572. Edibleoils 0.226 0.0473. Meat, fish & eggs -0.241 -0.0624. Sugar -0.116 -0.1175. Other foods -0.636 -0.098Source:Jain et. al. (1992)The changes n the prices of cerealsand pulseshave a strong impact on demandfor milk and milk products both in rural and urban areas. f the prices of cerealsand pulses go up by one per cent, the demand or milk and milk products isexpected to decline by 1.195 per cent in urban areasand by 0.857 per cent inrural areas. As noted earlier, the share of expenditure on cereals and pulses ntotal per capita expenditure is quite high in both rural and urban areas. Anincrease n the prices of cerealsand pulses s therefore expected o reduce thereal income of both rural and urban people significantly. The impact of suchreduced real income perhaps plays an important role in reducing the demandfor milk and milk products whenever here is a rise in the prices of cereals andpulses.Demand ProjectionsThe future projections of demand or milk in India have been based mainly onthe estimatesof income elasticity. Such projections have gnored the own priceand cross price elasticities. They have also used a constant value of incomeelasticity for successive earsassuming hat the value of income elasticity wouldnot changewith rising incomesover the years.For example,Mishra and Sharma

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(1990) have estimated the demand for milk in India by considering theexpenditure elasticity of demand as 1.188 and the annual growth in privateconsumption expenditureas 4.2 per cent. That is, the demandhasbeenprojectedto grow at a compound rate of about five per cent per annum. Patel (1993) hasprojected the demand or milk with an annualcompound growth rate of 5.2 percent by using the income elasticity as 1.3 and he rate of growth in gross nationalproduct as our per cent. The figures of projected demandby Patel (1993) havebeen presented n Table-9 for some years. Such projections should ideally beclose to the actual domestic production of milk, if it is the main source ofsupply. One can see hat the projected figures of demand or various years haveturned out to be quite close to the actual production of milk in those years.However, the projections would have beenmademore accurately f the changesin the price of milk and in the prices of closely related commodities were alsotaken into account.Table 9Projection of annual demand for milk in IndiaParticulars 1990-91 91-92 92-93 93-94 94-95Production of milk (mmt) 53.9 55.7 57.8 60.2 63.5Projected emandmmt)* 54.1 57.0 60.0 63.1 66.4WPI offoodgrains (1981-82= 100) 179.2 216.4 242.4 260.3 -Corrected demand projection (rnrnt) - 55.9 58.1 60.2 62.5WPI = Wholesaleprice index,. mmt = million metric tonnes* Source: Patel, R.K. (1993)The price index of milk with 1981-82 as the baseyear shows that the nominalprice of milk has ncreasedat an annual compound rate of 8.5 per cent during1981-82 to 1990-91. During the sameperiod, the nominal prices of foodgrainshave ncreasedat an annualcompound rate of6.7 per cent. An annual ncreaseof6.9 per cent per annum n the prices of all commodities as a whole during the ..sameperiod indicates hat while the relative price of milk has slightly increased,the relative prices offoodgrains have actually declined. f the prices of milk andfoodgrains are adjusted for the overall inflation, one finds that while the realprice of milk has ncreasedat an annualcompound rate of 1.516 per cent duringthe above period, the real prices of foodgrains have declined at an annual

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compound rate of 0.215 per cent during the same period. These changes can beincorporated into the projections of demand for milk by using the estimates ofown price and cross price elasticities.As seen earlier, the price elasticity of demand for milk and milk products hasbeen estimated as -0.535 for urban areas and as -1.404 for rural areas. Usingthe average per capita monthly expenses on milk and milk products in urbanand rural areas, and the proportion of urban population as 25.7 per cent, theprice elasticity of milk can be calculated at the all India level as -1.077. Similarly,the rural and urban cross price elasticities of milk with respect to foodgrainprices can be aggregated as -0.984 at the all India level. The net elasticity ofmilk can be calculated as shown below by taking into account the changes inmilk prices, foodgrain prices and income with respective elasticities.Net elasticity = (1.3 x 4) + (-1.077 x 1.516) + (-0.984 x -0.215)= 3.78The values of demand estimated by taking the annual compound growth rate as3.78 per cent with base year as 1990-91 have been presented in Table-9. Onecan see that the corrected projections of demand for milk for various years aremuch closer to the actual production of milk in the same years. Using the samerate of growth, the annual demand for milk can be projected at 64.9, 67.3,69.9,72.5 and 75.3 million metrictonnes for the years 1995-96, 1996-97, 1997-98, 1998-99 and 1999-2000, respectively. Such projections can be furtherimproved by sharpening the accuracy of various elasticities and changes invarious factors like prices, income, etc.

Summary and ConclusionsThe demand for milk and milk products in India is largely in the form of liquidmilk and ghee as about 74 per cent of the total milk produced in the country isconsumed in the form of these two commodities. Other traditional milk productslike curd, butter and khoa use up another 19 per cent of the total milk production.There is relatively much less demand for products like milk powders, cheese,ice cream, etc. This is quite in contrast with the demand for milk and milkproducts in the international market. It is cheese hat dominates the internationalmarket in milk and milk products. Various types of cheese constitute about 40

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per cent of the total international market in milk and milk products in valueterms. Another 43 per cent or so of the international market in milk and milkproducts is commanded by milk powders and butter in terms of value (FAO,1993). Low domestic demand and high international demand for cheese makesit a highly exportable milk product.There is a clear regional dominance in terms of domestic demand for certainmilk products. While the markets for milk powders and milk foods are highlyconcentrated in the eastern region of the country, the markets for ghee andbutter are highly concentrated in the northern region of the country. The westernand southern regions have modest shares in the markets for these products.The market prices of milk and all milk products except baby food have risenduring the last decade and a half at a rate higher than the general inflation ratein the economy. That is, milk and milk products have become costlier in relationto other products in general.Milk and milk products have an income elasticity of more than one at the allIndia level. The share of milk and milk products in the consumer expenditureon food items has, therefore, been rising over time with increasing consumerincome. However, as the consumer income grows, the income elasticity ofdemand for milk and milk products is expected to decline. The value of incomeelasticity for milk and milk products is higher in the rural areas due to the lowerconsumer income in these areas as compared to urban areas. The demand formilk and milk products is therefore expected to expand faster in rural areas ascompared to urban areas with the increasing consumer income. Among thelivestock products used for food, it is milk and eggs that have the highest incomeelasticities in both urban and rural areas.The demand for milk and milk products is quite sensitive to their prices and theprices of cheaper food substitutes like cereals and pulses. Such sensitivity is .higher in the case of lower income groups. An increase in the prices of 'milkand milk products' and' cereals and pulses' has an adverse impact on demandfor milk and milk products.

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It is expected that the demand for milk will grow at an annual compoundgrowth rate of about 3.78 per cent during the nineties. That is, the demand ormilk would exceed75 million metric tonnesby the year2000. However, heactual market size s to be determinedby both demandand supply forces. If theproduction does not keep pace with this demand, he imbalancewill result in ahigher increase in the prices of milk and milk products than what has beenassumed or demand projection. There is a need to update the estimates ofdemand elasticities by pooling the time seriesand cross sectional data availableon consumerexpenditureon one handandby fitting the models hat give variableelasticity rather than constant elasticity on the other.

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ReferencesCentre for Monitoring Indian Economy (1994). "Trends in Inflation", Economic

Intelligence Service, April.Centre for Monitoring Indian Economy (1995). "Production of milk", Economic

Intelligence Service, September.Centre for Monitoring Indian Economy (1996). "India's industrial sector", Economic

Intelligence Service, January.FAO (1993). FAO Yearbook: Trade. 1992.46. Food and Agriculture Organisation ofthe United Nations, Rome;Gandhi, V.P. & G. Mani (1995)."Are livestock products rising in importance? A studyof the growth and behaviour of their consumption in India", Indian Journal

of Agricultural Economics, July-September,283-93.Government of India (1990-95). "Milk and milk products", Annual Renorts. 1989-90to 1994-95. Ministry of Food Processing ndustries, New Delhi.Jain, D.K.; T. Kesavan & H. Jensen (1992). Food Demand Anal~sis in India: AnAnnlication of Almost Ideal S~stem. National Dairy Research Institute,Kamal.Mishra, S.N. & R.K. Sharma (1990). Livestock Develonment n India: An Annraisal.Vlkash Publishing House, New Delhi.National SampleSurvey Organisation 1991). "Results of consumerexpendituresurvey

(all India): NSS 44th round (July 1988-June 1989)", Sarvekshana,XIV(3):Issue 46, January-March.National Sample Survey Organisation (.1991). "Results of the fourth quinquennialsurvey on consumer expenditure (sub sample I): NSS 43rd round (July1987-June 1988)", Sarvekshana, XV(I):Issue 48, July-September.National Sample Survey Organisation (1992)."Results on the third annual survey onconsumerexpenditure~d employment-unemployment: SS 45th round (July1989-June 990)",Sarvekshana, VI(I):Issue 52, July-September. .Patel,R.K. ( 1993).Present tatusandpromise f dairying n India", ndian Dairyman,45(7),276-308.

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