2.mr.sunjay,pwc

PwC - Agriculture & Natural Resources Team

FICCI – Food 3600 An overview of the Dairy Sector

Presented by

Sunjay V S

6 November 2012

PwC

6 November 2012

Scope of presentation

• Overview of global dairy sector

• Protein consumption trends

• Dairy consumption

• Supply

• Price trends

• Dairy Scenario in India

• Evolution

• Production & production systems

• Market

• Constraints

• Opportunities for investment

PwC

6 November 2012

Overview of Global Dairy Sector

1

Section 1

FICCI – Food 360 • An overview of the Dairy Sector in India

PwC

6 November 2012

Globally - consumption of protein increasing faster than population growth…

• Global consumption of protein increased from

3.7 to 5.4 lakh tonnes per day - CAGR of 2%

• Global population increased from 5.4 to 7.0 billion - CAGR of 1%

2


Section 1 – World Overview

• Increasing proportions of this growth is from animal protein

• meat - 2.9 %

• Dairy – 0.5 % increase

• vegetables, soy and fruit – 2% increase

• cereals - decreased 6.2%

22.0% 24.9%

9.8% 10.3%

16.4% 18.4%

47.6% 41.4%

4.2% 5.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1991 2011

Meat Dairy F&V Cereals Others

Global protein consumption by category: 1991 – 2011*

*Data extrapolated based on compound annual growth rate to forecast 2030 volumes Source: FAOSTAT, PwC Analysis

Demand for animal proteins likely to continue to increase faster than other categories

PwC

6 November 2012

3



3 regions are the key contributors to this rising consumption

Change in proportion of protein consumption:

Asia - increased by 4.8%

Africa - increased by 2.3%

South America - increased by 0.6%

North America - dropped by 0.8%

Europe - dropped by 6.7%

Country 1991 2011* CAGR

Asia 52.2% 57% 2%

Asia excl China 31.5% 33.9% 2%

China 20.7% 23.1% 2%

Africa 9.9% 12.1% 3%

South America 5.4% 6.0% 2%

North America 10.9% 10.1% 1%

Europe 20.9% 14.2% 0%

Oceanic 0.7% 0.7% 1%

Regional contribution to protein consumption

*Data extrapolated based on compound annual growth rate to forecast 2030 volumes Source: FAOSTAT, PwC Analysis

PwC

6 November 2012

These regions have driven growth in dairy consumption as well however, per capita consumption remains much lower than developed countries

4



Dairy consumption – kg/capita/year (milk excl butter)

6.4

32.5

36.5

51.4

75.9

100.7

202.5

219.4

253.5

China

Asia

Africa

India

World

South America

Europe

Oceania

Northern America

29.8

54.4

43.9

72.2

87.3

129.9

219.5

178.1

250.2 - 0.1%

- 1.2%

0.4%

1.4%

0.8%

1.9 %

8.9 %

1991 2009 CAGR

Source: FAOSTAT, PwC Analysis

Consumption stagnant or declining in developed countries

Growth of

Close to 3%

in Asia’s per

capita consumption

Growth of

Close to 9%

in China’s

per capita consumption

1.0%

2.9%

PwC

6 November 2012

5



Global per capita consumption estimated to be 103 Kg/year in 2011 Estimated to have grown at about 17% over the last decade

Participation in world imports (2012*)

Countries %

China 44

Algeria 24

Indonesia 6.7

Brazil 6

Russia 5.3

Total of main importers 86

* Estimates

Source: USDA (2012), PwC Analysis

Milk represents

17.5 % of

global beverage consumption

PwC

6 November 2012

World milk production expected to touch 750 MT in CY 2012 Estimated to have grown at about 2% over the last decade

6



Participation in world exports (2012*)

Countries %

New Zealand 55

EU - 27 21

Argentina 13

Australia 7.3

Philippines 1.1

Total of main exporters 97.4

* Estimates Production in million tonnes*

144 129

91 34 32 31

EU-27 India USA China Russia Brazil

1st 2nd 3rd

4th

Source: USDA (2012), PwC Analysis

PwC

6 November 2012

Prices of dairy products remain high despite increased production - due to increasing demand and higher cost of production

7



FAO – Dairy Price Index (2002-2004 = 100)

Index derived from a trade weighted average of a selection of representative internationally traded dairy products Source: FAO

• Price volatility is likely to remain in the near future

thin volumes of global milk trade

few players dominate global market

PwC

6 November 2012

Indian Dairy Scenario

8

Section 2


PwC

6 November 2012

Indian dairy sector has evolved from rags to riches ....

9


Section 2 – Indian Dairy Scenario

• Per capita milk

availability – 132 g/day

• Milk rationing and

scarcity

• Dependent on import

• High intermediation

1940s

White Revolution

• Per capita milk

availability – 276 g/day

(> WHO recom.dtion)

• 17% of global output

• Net exporter

• Increased share of producers share in consumer price (<40% in Europe, USA)

2012

Cooperative dairying

countrywide milk grid – linking producers to consumers

Cutting out middle men

Strengthening production, procurement, infrastructure & technology transfer

Made dairy farming India’s largest self-sustainable rural

employment generator

PwC

6 November 2012

... making the country #1 in milk production

• Production – 123 million tonnes in CY2011 (USDA)

• Estimated to reach 170 million tonnes by 2020

• Grew at CAGR of 3.7 % in the last decade*

• Milk is India’s largest agricultural commodity

• UP contribute to about 18% of milk production

10



* 2000 to 2011 decadal CAGR estimate

Top 7 milk producing states contribute more than 65% of milk production

- UP – 18% - AP & Rajashtan – 9% each - Punjab & Gujarat – 8% each - Maharashtra – 7% - MP – 6 %

80.6 92.5

100.9 116.2

FY '01

FY '02

FY '03

FY '04

FY '05

FY '06

FY '07

FY '08

FY '09

FY '10

FY '11 (E)

123 103 91

22 31 17

Milk Rice Wheat Maize Oilseeds Pulses

Commodity wise production in million tonnes**

** Estimates, Source: GoI, USDA, Industry, PwC analysis

Milk production trends (million tonnes)

Source: GoI, PwC analysis

* DAHD Estimates, Source: GoI, PwC analysis

PwC

6 November 2012

Bovine production system dominated by buffalos with “1 to 2 animal” households contributing major share

11



• Bovine population – about 115 million

• Indigenous cows account for 40% of in-milk

population but only 24% production

• Buffalo milk - 55% of production

• Average daily milk yield/ animal – 4.4 ltrs / animal

• Wet animals – 69.3% (increased by about 12% over

the last decade)

40%

24%

14%

21%

46% 55%

0%

20%

40%

60%

80%

100%

120%

Milch Population Milk production

Pe

rc

en

tag

e c

on

trib

uti

on

Indigenous cow Crossbred Buffalo

Species wise contribution to production system

Source: DAHD, ICAR, PwC analysis

Bovine type Average daily yield/ animal (2009-10)

Indigenous cow 2.1

Crossbred 6.9

Buffalo 4.6

Source: DAHD, ICAR, PwC analysis

PwC

6 November 2012

Indian dairy market estimated to have grown by 6.8% over the last decade*

12



• Dairy contributes to 16% of consumer spend on food – 18% in Urban, 15% in rural

• Estimated value of market - INR 3.6 lakh crores.

• Driven by increasing population, life expectancy and preference for dairy products

• High value processed products estimated to be growing at 15 to 25%

• Market dominated by unorganised sector (80%)

*CSO- 1997 and 2008 census, value terms, PwC analysis

Consumer spend on food

27.5%

16.2%

15.8%

12.8%

8.1%

6.0% 6.6%

6.9%

Cereals Milk & products F&V Beverages

Edible oil Pulses & products Egg, Fish, Meat Others

45%

30%

17% 8% Others

Curd

Liquid Milk

Tea & Coffee

*Source: CSO- 2008 census, CII Dairy Industry Report, PwC analysis

Milk consumption pattern

PwC

6 November 2012

13



Milk procurement price has grown by about 2.5 times in the last decade ... trend expected to continue in the near future

184

239

337

401

470

0

50

100

150

200

250

300

350

400

450

500

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12

Average milk procurement rate (farmgate) – INR/Kg fat

*Source: GCMMFL-Gujarat Agri-convention

PwC

6 November 2012

Key sector constraints across the value chain

14



Inputs

• Breeding and Genetics resources • Availability of fodder • Labour shortage – for increased herd sizes

Product’n

• Low productivity • Low adoption of technology (such as milking equipments) • Animal health & sanitation • Finance

Processing

• Seasonality of production • Availability of homogenous quality milk /highly fragmented supply • Logistics infrastructure • Manpower

Market / Consumer

• Unorganised market • Heterogeneous consumer requirements • Lack of robust food safety standards

PwC

6 November 2012

Increasing demand and high inefficiencies across supply chain open up diverse business opportunities

15



• Intensive dairy farming / increasing herd size

• Technology and management of dairy farms

• Opportunities to standardise Buffalo rearing – unique to India

• Fodder cultivation

• Feed & Nutrition

• Breeding

• Opportunities to address “milkman at the doorstep” preference of Indian households

• Growing convenience market (packaged milk)

• Niche market for high value products – high quality ice creams, cheese etc

• Increasing preference of hygiene and food safety

• Addressing ethnic milk savouries market

• Proximity to China – leading milk importer

Supply Demand

PwC

6 November 2012

16



Policy interventions

He

rd

siz

e

Small scale

Large scale

Low High

In addition to market drivers, policy interventions could play a key role in shaping the future dairy scenario

PwC

6 November 2012

To conclude ...

On the production side

• Slow growth in productivity likely to increase demand- supply gap

• There is a need to promote interventions that would increase production efficiencies

- Need to secure availability of fodder and high quality breeds

- Promoting entrepreneurship in large herd dairy farming – through PPP

• There is increasing interest in Intensive dairy farming – increasing demand & farm gate price

On the demand side

• Indian dairy market offers diverse opportunities to tap into

• Unique nature of the market requires entrepreneurs to study it carefully before entry

17



Thank you.

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