haleeb industry analysis (p-1)

Table of Contents

Over view of Milk Industry................................................................................................2

Need Identification............................................................................................................5

How many companies are there?...................................................................................6

Concentration ratio............................................................................................................7

Porter five forces for Industry Analysis..........................................................................9

PEEST Analysis..............................................................................................................11

Particular laws and regulations.....................................................................................13

Rate of change of technology.......................................................................................15

Environmental factors are affecting this industry.......................................................15

Major customers of this industry...................................................................................16

Supply Chain....................................................................................................................17

Major suppliers................................................................................................................20

Problems in Supply Chain.............................................................................................21

Impacts of WTO on this Industry..................................................................................22

Sale and Profitability Trend...........................................................................................23

Important changes in this industry................................................................................26

Recommendation............................................................................................................27

References..........................................................................................................................28

Project: Milk Industry Phase 1

Over view of Milk Industry

Milk (the white gold) and its products form an integral part of human diet and provide 60% of protein and 36% of energy, in addition to vitamins and minerals. Hence we can say that the milk is the most important part of our diet as soul for the living body.

As we said above that milk is the “white gold” and it is necessary for the gold that it should be pure. So, for the gold of milk, purity is one of the essential factors.

Pakistan is the fifth largest milk producer in the world. Milk production is 28 million tonnes from 125 million heads. Milk is used for drinking, tea, desi ghee, yogurt and butter making. Milk is also used to make Khoya and different types of sweets. Milk processing companies use milk as a raw material to formulate different types of milk i.e. pasteurized milk, UHT milk, condensed milk, skimmed milk, milk powder, etc Different value added products like yogurt, ice cream, butter and cheese are also produced from the raw milk. Despite an increase in milk and meat production, the prices have moved upward abnormally.

Dairy is one of the growing segment of Livestock sub-sector and important component of Pakistan’s economy. Pakistan is the fifth largest producer of milk in the world. The per capita availability of milk at present is 185 litres, which is highest among the South Asian countries. Milk production in Pakistan has seen a constant increase during the last two decades. The production has increased from 8.918 million metric tons in 1981 to 27.031 million metric tons in 2001-02. Milk production for the year 2002-03 is estimated at 27.811 million metric tons (Economic Survey of Pakistan 2002-03).

Nature has gifted Pakistan with high yielding breeds of buffaloes such as Nili-Ravi and Kunndi which can be rightly called as the black gold and has the potential of giving over 5,000 liter of milk per lactation through efficient breeding, feeding and healthcare program. Similarly, milk yield of Sahiwal and Red Sidhi cows can be significantly increased, thus considerably enhancing the production.

The dairy industry’s main ingredient is milk, which is processed at the dairy plants to produce variety of dairy products. The average daily production of milk in Pakistan is estimated at approximately 95 million litres. Punjab is the leading province in milk production with a share of around 80%.

Out of the total production of 95 million litres of milk per day, about 55% is consumed at source in the countryside while the remaining 45% is traded in urban centers. Most of the traded milk is marketed un-processed and currently only about 2.5 to 3 per cent of the traded milk is processed by the dairy industry in Pakistan.

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Processed liquid milk in the form of Pasteurized or Ultra Heat Treated (UHT) milk is the main dairy product in Pakistan while other products include Dry Powdered Milk, Cream, Butter, Butter Oil, Yogurt, Cheese and ice cream. About one-third of the total milk production is consumed as fluid, and similar quantity for ghee preparation, while the remainder is converted into butter, cream and indigenous milk products like curd, khoya and lassi.

Presently, about 12 units in the organized sector are engaged in the production of various dairy products, with a rated capacity of 1.1 million liters per day. About 20 smaller dairy plants, with a rated capacity of about 1 million liters per day are lying closed. The entire production of these milk plants accounts for 5 percent of the annual milk production in the country (21.5 billion liters). Fifty percent of the milk processed by the plants is processed into UHT milk, 40 percent into powder milk and the remaining 10 percent into pasteurized milk, cheese, butter and yoghurt. Majority of the dairy plants are located in the vicinity of Lahore, which serves as the hub of this industry.

Most of the dairy milk plants are based in the rural areas near major cities and towns. The milk isProcured from the small farmers at their doorsteps and stored in the chilled tanks located in the rural areas.

With the establishment of milk plants, the farmer price of milk has significantly increased. In the past the farmer price was about 33 percent of the retail price of milk in the cities, now the farmer price is more than 50 percent of the retail price. The Government of Pakistan has established a Dairy and Livestock Development Board to encourage the development of the dairy, poultry and meat industries.

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Attributes of Milk Industry

70% of milk produced in Pakistan comes from buffaloes while the rest comes from primarily from cattle. There are three generic types of milk available in the market: UHT milk, pasteurized milk and raw or unprocessed milk. The latter is the dominant milk type, owning a 90% share of the market.

Milk quality is complicated and difficult to enforce largely because of the fact that raw, unprocessed milk makes up such a large segment of the market. Enforcement is all the more difficult given that the means of delivery to the consumer is the gawallas or milkman, who rides in on a motorbike and rides away. Retail outlets would be much easier to regulate, however their share in the marketplace is minimal.

UHT and pasteurized milk pose their own peculiar quality issues. While UHT milk by very nature is made immune to many adulterations and has a long shelf life, it’s most popular form (TetraPak) is priced at two and a half to three times the price of gawalla-delivered milk—making it economically beyond the reach of the average Pakistani consumer. Pasteurized milk on the other hand has an extremely short shelf life, and the “polypack” or plastic pouches used for its packaging are susceptible to damage.

One of the most important attributes of the milk industry in Pakistan is the saturation of the UHT milk market. Existing capacity for UHT milk production is far greater than the actual production, largely because in urban centers, UHT milk is the dominant milk product for upscale consumers. The high price of UHT milk however creates an artificial ceiling for its wider dispersal.

Tetra Pak role in Dairy Industry

Tetra Pak is a Sweden based global company it is one of the world’s leading suppliers of liquid food processing and packaging systems. Tetra Pak company is also serving Pakistan since 1984 with the name of Tetra Pak Pakistan. It has been playing a vital role in the promotion of safe milk for its consumers. It supplies, processing and packaging machines to the dairy and fruit juice/drink sector and also ensure their preventive maintenance it provides packaging material based on paper, plastic(PE) and aluminum foil. This service is extends to 3 major and various minor dairies and 9 fruit juice/drink plants.

Tetra Pak follows a quality minded customer and industry oriented approach. Its efforts for quality assurance culminated in the ISO-9001 certification in 1996. The company has always plays a special emphasis on the environment and its community. By utilizing latest technologies, Tetra Pak has been successful in creating, packaging and processing systems which offers significant advantages to its customers and consumers as well as in enhancing environmental

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performance through low use of energy and resources, minimal environmental impact and compatibility with waste solutions. Throughout the years Tetra Pak has come a long way, its strides matched by significant steps taken by Tetra Pak Pakistan. These steps hope to perpetually move towards enhancing the capabilities of the industry and its customers.

Need Identification

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Need

Halla

Drink; Nutrition; for making Tea, Desert, Foods and Beverages.

Open Milk

Halla

Powdered milk Liquid milk

SkimProcessed Milk

Nido

Bottle milk

Milk

Nurpur

Poly bag

Gawala Milk

Haleeb

Everyday

Candia

Others

Nestle

Pasteurized Milk

Tetra pack

Condensed milk

Others


How many companies are there?

Dairy products such as pasteurized, UHT, condensed and powdered milk, yoghurt, cheese, butter, cream and ghee (butter oil) are being produced by 12 dairy plants located around the country, with a rated capacity of 1.1 million liters per day. About 20 smaller dairy plants, with a rated capacity of about 1 million liters per day are lying closed.

Names of companies:

1. Chaudary Dairy Ltd2. Noon Pakistan Ltd 3. Nestle Milk Pak Ltd4. Prime Dairies5. Idara-e-Kisan (Halla) 6. Am Pak Dairy 7. Royal Dairy 8. Pakistan Milk Food9. United Dairy Ltd10.Dairy King11.Butt Dairies12.Milk Ways

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Concentration ratio

Pakistan is the world’s fifth largest milk producing nation within annual milk production of approximately 28 billion liters out of this around 2% reaches the dairies and less than 1% is processed and packed the remaining 98% consists of unprocessed milk sold in shops and by ‘Gawalas’. The total share of packaged milk has grown from 0.96% to 5% in just 4 years. Processed milk has about 5 market share while rest of the market is with the informal (Dhodi) sector. The market for pasteurized milk has shown a growth trend of 3% during the last decade. Currently, pasteurized milk has created a market in big urban city like Lahore where about 50,000 liters of milk is being sold at specialized milk shops. Open pasteurized milk centers have 2.5% of market share in 2 million liters daily milk consumption of Lahore City. The market share and prices fro milk types are like this.

Market Shares and Prices for Milk Types

Market Share of Packaged Milk Industry:

The processed fluid milk is the sterilized long life Ultra Heat Treated (UHT) and short life Pasteurized milk. The processed milk is sold in 250 ml, 500 ml, and 1.0-litre packages. These packages are mainly tetra pack, sachet and pouches. The total volume of milk sold is about 0.139 million tons per year or about 0.5% of total fluid milk consumption. The milk is consumed mainly in urban centers of Lahore, Rawalpindi, Islamabad, Peshawar, Multan, Faisalabad, Hyderabad and Karachi. The packaged milk market is estimated at 200 million liters valuing over Rs 6 billion. The industry has been growing at a robust rate of 20 per cent during the last four years. The packaged milk market is dominated by Nestle (Milk Pak Brand) and Chaudhry Dairies Limited (Haleeb Brand) with market share of 44 per cent and 39 per cent respectively. Other brands include Halla by Idara-e-Kissan with a market share of 5 per cent, Candia 4 per cent and Dairy Queen 4 per cent. The 250 ml pack size enjoys the highest volume share with over 49 per cent followed by the 500 ml pack with a market share of 24 per cent. The pie chart

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below gives a break up of market share of various brands for the 250 ml, 500 ml and 1000 ml pack sizes:

Breakup of market share of various brands for 250 ml, 500 ml and 1000 ml pack sizes

Market Share of whole packaged milk with respect to size:

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Porter five forces for Industry Analysis

Intensity of rivalry:

The major competitors in the milk industry are Haleeb and Nestle Milk Pak and Halla We can say that Nestle is a major rivalry of Haleeb and Haleeb is the major rivalry of Nestle Milk Pak as their market shares are high than other companies. The target market of all these companies is same and to attract their target market they make strategies and due to theses strategies the competition is becoming tough. And all the companies are trying to get more market share against their competitors.

Threat of New Entrance:

In this industry entry barriers are high for the new entrants; it is much difficult to enter in the market because the companies who have already big shares in this market can easily defeat the new and infants competitors. Another threat for new entrants is that they cannot survive in the market because the existing leading companies have strong brand name and it will take a long time for new entrance to make their brand image. The one of the threat in entrance is the need of high budget for starting the project or installing a plant for processing milk unit, the total cost of the project is estimated, by Smeda, to be about Rs 2.94 million, out of which the capital cost of the project is Rs 2.67 million. Total infrastructure cost of 13 thousand sq ft would be about Rs 842,388. The high budget is also required for advertisement and creating awareness in public so these are the great threat for the new entrance. For the new Entrants there is another threat of Technology because for UHT milk new entrants should make their UHT plant which is the expensive deal.

Threat of Substitute products:

The substitute of processed milk or pasteurized milk is gawala Milk. Even now almost 95% to 98% population is using gawala’s milk. We can say that Gawalas are the biggest threat in shape of substitute. Processed milk/UHT milk, Pasteurized, powder milk and Gawala milk are the substitute of each other.

Threats of buyer bargaining power:

The buyers of mostly milk companies are mainly distributors. These distributors buy the products from manufacturers and sell it to the Retailers. The bargaining power of distributors is high because distributors are the only medium through which companies reaches to the retailers. And distributors are outsiders they are not the part of milk companies but nestle is now creating strategic relationship with its supplier.

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The buyers of tetra pack milk have a bargaining power in such a way like they can buy open milk which have relatively low price than the tetra pack milk. As there is no such difference in the prices of tetra pack or UHT milk so buyer of these brands can change their decision only on the basis of good quality offered by some brand.

Threats of supplier bargaining power:

The one of the supplier of Tetra Pak tetra pack milk industry is Packages Company who supplies the Tetra for the packaging of Milk. As Packages is providing a major material in shape of Tetra Pak, so due to this reason it has also high bargaining power. The other reason of higher bargaining power is that Packages is the only industry in Pakistan who is providing tetra Pak. So it means there is a threat for milk industry as they have low bargaining power and there is an opportunity for new investors to invest their money in the Tetra pack industry.

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PEEST Analysis

Political Factor: Pakistan has great resources but there is a need of the best utilization of these resources. In milk industry there is lot of potential but due to negligence and lack of focus on the milk industry by Government of Pakistan results into less production than its capacity. So there is opportunity for milk industry that they can produce more according to their capacity it will not only fulfill the local needs but it will also increase the exports. But now a day certain steps have been taken from the government like…

The Livestock and Dairy Development Department (LDD):

It’s the step from Punjab Government for the improvement of dairy industryThe Livestock and Dairy Development Department has been set up under the Government of Punjab. Its basic objective is to provide better opportunities for livestock production so as to contribute towards poverty alleviation and rural development. The department provides services in the following field:

Animal Health Coverage Artificial Insemination Services Poultry Research Animal Breed Maintenance & Improvement

But still there is a need of more help from government; there is a need of high involvement of government, have a good control on milk prices as they are increasing day by day, more management, research work and new techniques should be introduced to the industry. Small loans are also provided to the farmers from the Government. The one thing that is under consideration of Government is copying the Indian plan that is a new breed of cows than with in a period of about four to five years Pakistan can increase production by 100%. The price structure of raw milk is highly unreasonable. It provides little or no incentives to the farmer. Like other agricultural crops, the government should also fix support price of the raw milk if the government will not do so then the farmer will not be able to improve the methods of quality milk.

Economic Factor: In spite of having a large population of LIVESTOCK, the country is spending some $40 million annually on the import of formula milk only, which is the highest amount spent by any country in the world on this particular commodity. Pakistan is spending $6 m on import of powder milk.

Livestock is an important sector of agriculture in Pakistan. It accounts for 39 percent of agricultural value added and about 9.4 percent of the GDP. Its net

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foreign exchange earnings, in 2001-02, were its 51.5 billion, which was 12.3 percent of the overall export earnings of the country.

Environmental Factor:

The major environmental problem of the dairy industry is wastewater, while solid waste, soil pollution and noise pollution are potential aspects of environmental pollution. Wastewater generation at a dairy industry is characterized by very large volumes of discharge besides the pollution loading from various dairy processes. Estimates show that the proportion of the waste discharge at a typical dairy industry per unit of processed milk ranges from 12:1 to 24:1. This is a very high figure considering the typical ratio of 3:1 in cleaner factories in the developed countries. In modern plants this ratio gets as low as 1:1. The one environmental factor which is normally being neglected is the unhygienic living conditions for the people, farmers or suppliers of milk who are living with animals. The material which use for packaging should be “Food Grade” so that it will not harmful for the health of people.

Social Factor:

Milk consumption patterns have shown a steady shift towards packaged milk as more people to realize its health and packaging benefits. The total share of packaged milk has grown from 0.96% to 5% in just 4 years, indicating that consumers are now becoming more health conscious. So this is an opportunity for new companies to enter in a market. Some people still like to buy open people because they think that it is pure and may be due to its taste as opposed to the taste of packaged milk and due to it being a habit for generations.

Changing life styles have also influenced innovative variations in packaged milk such as low fat, skimmed and flavored milk. Weight conscious people and those suffering from ailments such as Diabetes etc. prefer other varieties such as skimmed milk. Packaged milk has clearly surpassed open milk in its advantages and should be encouraged more so that people realized its benefits and switched to a healthier lifestyle.

Technological Factor:

Technology causes a tremendous change in this industry. It’s because of technology that new product like Powder milk, UHT milk, pasteurized milk have been introduced in this industry. The main supplier of milk is in rural areas and the shelf life of milk is short so supplying of milk in its good and fresh condition in urban areas it is a difficult task. Now there are specialized vans to keep the milk fresh during travel. Packaging is also one of the parts of the technology it not only enlarges the shelf life of milk but also keeps the milk fresh and free from bacteria.

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Particular laws and regulations

Existing Legal Framework for Milk Industry:

Legislative and regulatory measures that affect the milk market in Pakistan are dictated primarily by the Pure Food Rules of 1965, the similarly constructed Cantonment Pure Food Rules of 1967 (for military areas), and interestingly parts of the Pakistan Penal Code of 1860.

Salient features of laws that govern the milk industry include16:

• All vessels containing any kind of milk intended for sale, distribution or storage must be labeled appropriately and visibly. In particular, metallic vessels (which are the means by which Gawalas transport and deliver milk) must have a clear and distinct label attached to the vessel. Section 18 of the Pure Food Rules, 1965.

• Imperfect enameling, imperfectly tinned vessels are illegal, as is the use of vessels that are at any time during the supply chain exposed to hazardous conditions, liquid or gaseous. Section 19 of the Pure Food Rules, 1965.

• Milk from animals with any sort of disease is unlawful, as is milk drawn from animals within 30 days prior to or ten days after parturition. Section 20 of the Pure Food Rules, 1965.

• Any person with infectious or contagious diseases is disallowed from milking animals, working at a dairy farm, handling milk during transportation, or handling any vessel meant to be used for the storage or transport of milk. Section 21 of the Pure Food Rules, 1965.

• Pasteurization parameters, including a minimum heating of 143 degrees Fahrenheit for at least 15 seconds, and immediate cooling to 4 degrees Fahrenheit. In addition a ceiling on the coli forms count of 10 per ml. Section 22 of the Pure Food Rules, 1965.

• Sterilization parameters, including heating to 212 degrees Fahrenheit, passing of the Turbidity Test, and preparation under air-tight conditions. Section 22 of the Pure Food Rules, 1965.

• Detailed lists of equipment and processes required for approval by the government to operate milk processing plants. Section 23 of the Pure Food Rules, 1965.

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• The prohibition of using, or keeping at a retail premises any items that can be used to adulterate milk, including skimmed and condensed milk. Section 31 of the Pure Food Rules, 1965.

• Provisions and process for executing the Turbidity Test by government functionaries on milk. Appendix I of the Pure Food Rules, 1965.

Enforcement of Existing Laws:

The enforcement of the legal parameters within which milk must be produced, stored, transported and sold is, by very nature of the market structure, nearly impossible. With 90% of the milk sold through Gawalas on motorbikes, the transaction costs of enforcing these laws on even a sampling of Gawalas would be astronomical. The existing enforcement infrastructure consists of the provincial health departments, and the local government responsible for the area in which milk is sold. This in itself is indicative of the need for long overdue reforms in the administrative structure relevant to food standards and grades enforcement. Other key issues that make the enforcement of these laws difficult include:

• Lack of transparency in the system. There is no mechanism for the public to be aware of legal proceedings against milk sellers, or the performance of government functionaries responsible for ensuring minimum quality standards.

• Physical dispersal of Gawalas, and dairy farms. The geographical diversity of the milk market is such that tracking of milk from the farmer to the consumer is nearly impossible.

• In adequate testing / laboratory facilities. Even if other conditions were conducive, the government does not have the requisite equipment or facilities to conduct milk testing, systemized or random.

• Lack of Human Capacity. Governments simply do not have the resources, either financial or human, to properly conduct testing, or to enforce milk standards at any level of the three broad supply chains in operation in the milk market.

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Rate of change of technology

In past no one think about the availability of milk in tetra pack, people have only one option to buy and that was open milk. But now Pasteurized milk, UHT milk, Tetra pack milk, are available in market so it mean now more hygienic milk is available to consumers. Now new technologies are introduced in milk industry like UHT (ultra-heat treatment) preservation of milk by raising its temperature to 132°C/269°F or more. It uses higher temperatures than pasteurization, and kills all bacteria present, giving the milk a long shelf life.

Due to tetra pack technology the shelf life of milk is increased so now people can enjoy the taste of milk for a long time. The means of supplying milk is also changes like in past there was no system of special vans and refrigeration system for supply to keep the milk in best and good fresh condition.

The technology is also changed for the advertising like milk companies are showing there ad campaigns in television. Some milk companies broadcast their whole process on TV to create awareness in people about the UHT milk or Tetra Pack milk like the advertising campaigns of Nestle and Haleeb. Some of the leading companies (like Nestle and Haleeb) in milk industries are also using web for their products advertisement.

Environmental factors are affecting this industry

One of the environmental factor that are affecting this industry is the production (supply) and consumption (demand) for milk and milk products in Pakistan are characterized by conflicting seasonal fluctuations. Milk production is at its maximum during the period between January and April and at its minimum during May–August when fodder is limited. Milk consumption is at its peak in summer. At this time, because of the warmer ambient temperatures, people increase their milk intake and consume a greater range of dairy products including ice cream and yoghurt. The demand of the milk is high than its supply so there is a need to improve the production of milk in processing unit and also in the production of raw milk.

There is a need of high involvement or support from government sector to increase the productivity of this industry. Private sector should be more encouraged to develop production, processing and marketing enterprises. Government is supporting this industry like dairy breeds may be imported duty free and credit is available through the Agriculture Development Bank of Pakistan (ADBP).Growing prices of the milk is also one of the important factor and the prices of packaged milk is even more high than that of open milk but still the market or processed milk is increased than the past due to the health conscious behavior of people.

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Major customers of this industry

Milk is the important part of human diet it contains and provides essential 60% of protein and 36% of energy, in addition to vitamins and minerals. It is used by the consumer in several ways like for tea making, for deserts making, drink, other foods and beverages. There is no restriction of age, gender and location for the milk’s customers as every one can drinks milk or it is for every one. But customers vary at the brand level and milk type for example the customers of Haleeb are different than that of Halla on the other hand the customers of baby’s powder milk are different than that of powder which is used for tea making.

According to a recent consumer preference survey (CPS) of 2004 conduct simultaneously by the students of Leading Business Schools in Karachi and Lahore, 80% of people surveyed confirm that they drink Milk regularly. The survey sample included a cross section of socio-economic groups. Some 65% of the respondents were females and 69% were in the 18 th to 35th age groups. Of total respondents 46% were students. The survey team focused more on females as it is the female in the family that generally makes purchase decision and manages the family’s kitchen. The consumer preference survey shows that 89% of the people in cities consider packaged milk as safe for consumption. Where as only 34% respondent considered loose milk as safe. More than half the respondents (56%) actually preferred UHT Milk. The total share of packaged milk has grown from 0.96% to 5% in just 4 years. The consumption of milk is high in rural areas than in urban areas.

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Supply Chain

Raw liquid milk supply structure:

To ensure regular supply of fresh milk to consumers and milk processing units, different supplier systems are being employed for marketing of milk produced under various production systems. These systems mostly involve several intermediaries who form important components of the supply chain.

The Rural Milk Traders known as Katcha Dodhis, (‘Dodhi’ is the common title given by villagers to middlemen of milk sector). Highway Collectors known as Pacca Dodhis, Rural Vendors/ Processors, Urban Wholesalers, Shopkeepers/processors, Commission Agents and street or door to door vendors are the intermediaries involved in supplying of milk. It is estimated that around 50 percent of the milk produced is consumed as fresh milk in rural areas. Presently, about 42 per cent or 11.35 million tons of raw milk is supplying annually through different marketing systems.

Rural Milk Traders

The rural milk traders or Katcha dodhis are the most important middlemen in the milk supply chain. They use cycles or motorcycles carrying three to four milk canes and collect around 50 litres of milk from small milk producers on daily basis. The Katcha dodhis mostly operate independently but a few also supply milk to the highway collectors or Pacca dodhis.

The Katcha dodhis traditionally collect milk by volume using their own measures (more often cans of various capacities). The milk supplied by the producers is undiluted but the Katcha dodhis in turn add water or ice to lower the temperature and prevent milk from deterioration thus resulting in increase in milk volume by at least 10 per cent.

Highway Milk Collectors:

The highway milk collectors or Pacca dodhis operate along the main roads where they have established collection points to obtain their supply of milk from the Katcha dodhis. The Pacca dodhis imply traditional ways of checking the volume and quality of milk. The milk is either tested visually or with fingers for fat/ solid-not-fat contents and the agreed price is paid if the quality of milk meets the requirements of Pacca dodhis. In some cases, cream separation and coagulation tests are also carried out for ascertaining the fat and total solids contents.

The Pacca Dodhis either use their own vehicles or the public transport (in case of smaller dodhis) for supplying milk to urban vendors/ processors in towns. As

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Pacca dodhis do not possess chilling facilities, they usually add more ice or preservative like hydrogen peroxide to ensure safety of the milk bound for long distances. The clients of Pacca dodhis include individual contractors, milk shops and dairy plants. Many highway milk collectors are also engaged in fresh cream marketing and supply it to ice cream, ghee and butter manufacturers. The ice added to the milk by both Katcha and Pacca dodhis not only reduces the original fat and solid-not-fat contents but also increases their margins.

The highway milk collectors have assumed a more important role as suppliers after the emergence of modern dairy plants in the country. Most of the milk processing plants now procure major portion of their requirement from the highway milk collectors. The raw milk supplied by the private milk collectors nevertheless passes through stringent quality testing and is priced according to the fat contents. However, dependence on milk collectors poses difficulty during lean production periods when they demand high price in the wake of supply gap. The milk processing plants thus find it unaffordable to buy milk at higher prices during the lean period for they have to factor in the cost of processing, packaging, transportation, distribution and advertisement to their final product.

Milk Collection Centres:

To eliminate reliance on third party milk supply, major dairy plants are now opting for self-collection system. Leading dairy processors have started establishing milk collection centers to improve the quality and volume of raw milk through efficient handling and safe transportation of milk to their plants. Some dairy plants have started to equip milk collection center with chilling units and use refrigerated road tankers for bulk transport from the centers to the plants. This system has enabled the producers as well as Katcha dodhis to directly deliver milk to the centers.

Milk Retailers:

Milk retailers are the final middlemen in the raw milk marketing chain. In urban centers, the milk retailers not only play the important function of milk distribution but also transform milk into yogurt (dahi), yogurt drinks (Lassi ) and a simmered sweetened concentrate called khoia used in sweet dishes and ice cream.

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Supply Chain

Channels of Milk Flow in Pakistan

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Supply Chain for UHT Milk and Pasteurized Milk

Supply Chain for UHT Milk Supply Chain for Pasteurized Milk

Major suppliers

The journey of milk from the dairy farmer to the consumer in Pakistan can take one of three general routes. The most common is through the “gawalla” or milkman, who delivers milk to consumers. Milkmen in Pakistan deliver raw or unprocessed milk that is often adulterated. The second means of milk reaching the consumer is through retail outlets that sell open milk. Both these means of delivery comprise what can broadly be referred to as the informal milk sector. In the formal sector, milk is processed through one of two methods: UHT (ultra heat treatment), or pasteurization.

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Problems in Supply Chain

Problems in the supply chain of milk industry of Pakistan are……..

Milk factories of Pakistan have the capacity for processing 74 million tons per year but they are working at 27 million tons. The demand of milk is increasing and its supply is short so there is a need to increase the production of milk according to its capacity or meet the demand. The one of the reason is availability of milk is not sufficient for them to work.

On of the problem in the supply for UHT milk is as to produce the UHT milk or whole milk powder it requires high quality milk in all respects. Disagreeable practices used by milk vendor causes huge loss in processing the product.

The prices of the raw milk are also increasing day by day.

The one problem in supply chain of processed milk industry is only around 2% of total production of milk reaches the dairies and less than 1% is processed and packed the remaining 98% of total production consists of unprocessed milk sold in shops and by ‘Gawalas’.

As cities have grown and now there is no allowance of having animals in the cities for milking so now it becomes difficult to supply raw milk to the Milk companies or directly to the customers. Milk is a costly product to store and transport due its short shelf life. In normal temperatures untreated milk spoils in 4-5 hours. During the heat season this time is even less.

The conditions of roads from village to cities are also pathetic, so it will affect the supply of milk as it will long time to transfer.

The ice added to the milk by both Katcha and Pacca dodhis to keep it cool and fresh not only reduces the original fat and solid-not-fat contents but also increases their margins.

To supply the raw milk in a good and best quality to the milk processing unit there is a need of special vans to keep the milk fresh during travel. But the chilling vans also require high cost.

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Impacts of WTO on this Industry

Through WTO it is possible of having a free trade between the countries. On one hand WTO has created an opportunities for industries but with these opportunities there are certain threats. Because due to the trade competition becomes high and companies have to increase their quality of product.

As far as the export of the milk industry is concerned there are some milk companies like Nestle and Haleeb which are doing exports of dairy product in different countries like Afghanistan, UAE, UK, USA, Sri Lanka, Malaysia, Bangladesh and Central Asian States. But through WTO’s agreement it will possible of having easy and free trade then before. The capacity of milk production is high but due to mismanagement and improper utilization of sources we cant full fill the local needs so if Government focus on this industry it can easily fulfill not only the local demand but also make the country to export so that will be the opportunity for milk industry.

One of the problems in Pakistan that is being faced by this industry is that the import of the powder milk is increasing as Pakistan is spending $6 million annually on this import. And now a day this is the major issue that is raised by the different dairy companies in Pakistan, these companies are trying to convince the government that the import of powder milk should be banded.

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Sale and Profitability Trend

If we analyze the sales and profitability of the leading brands in this industry we will analyze that they are increasing. But it’s obvious the major sales and profitability are divided amongst the leading brands like Nestle, Haleeb, Halla and e.t.c.

So it means that the companies are growing their sales and profitability, the consumption of processed milk is also increasing by 4.5% or more people are switching towards the packaged milk. So there is an opportunity for new companies to come in this market but with the improvement in their supply chain or having their own milk farms and better management to minimize the threats of this industry.

Below is graph of the sales and profitability of Nestle which is one of the leading brands of this industry.

Growth in Sale

Profit % of Sale

4.90%4.10%

5.50%

6.90%

0.00%

2.00%

4.00%

6.00%

8.00%

1999 2000 2001 2002

Years

In m

illio

n o

f R

up

ee

s

23

57556575

80049222

0

2000

4000

6000

8000

10000

1 2 3 4

Years

In m

illio

n o

f R

up

ee

s


Total Market Growth

The milk consumption is growing at a growth rate of 4.5% per annum, while milk production is growing at 4% per annum. Below we calculate the projected production and projected consumption on the basis of growth in production and consumption.

Projections of Processed Milk Production and Consumption Up to 2004-10

In million of liters

YearProjected production

(million letter)Projected Consumption

(million letter)Aver.1995-

03 15495.2 15601.52004 16115.0 16303.62005 16759.6 17037.32006 17429.9 17803.92007 18127.1 18605.12008 18852.2 19442.32009 19606.3 20317.32010 20390.6 21231.5

Graphical analysis

0.010000.020000.030000.040000.050000.0

ProjectedConsumption(million leter)

Projectedproduction(million leter)

As the graph shows that there is gap between demand and supply so there is opportunity for new companies to enter in this market. As our projected consumption of processed milk is increasing so it means the market is increasing

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so there is a need to increase production. Even now or presently there is a gap between supply and demand, one of the reasons is the inefficient working in processing units as they are producing less than their capacity(current production is 27 million and current capacity is 74 million). So it means that if new investors come in this industry with good infrastructure and with good management they can increase the production and improve the whole process. The growth in the consumption of milk i.e. 4.5% also shows that the market is increasing and with the increase in market opportunities are also increasing. The demand for liquid milk and dairy products in Pakistan will definitely continue to increase, the most important reason being growth of the human population. Other variables influencing demand are the growth of personal incomes and the evolution of prices. Obviously risk is involved in every business, but risk minimization is possible. In the future the market or opportunity of the process milk is high for pasteurized milk than the UHT milk because of the low processing and packaging costs could compete more efficiently with unprocessed milk. The main cause of the high price of UHT is its packaging material but if duties on import of finished paperboard cartons should be reduced and more plants should allowed to produce the packaging material that will reduce the cost of the processing plant for UHT milk or create attraction/opportunity to invest.

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Important changes in this industry

Certain changes have taken place in the milk industry like………

The one of the major change in this industry is the technological change as pasteurization of milk, UHT, Tetra Pack and e.t.c.

Price of the milk is increasing as from 20 to 25. The total share of packaged milk has grown from 0.96% to 5% in just 4

years. Foreign exchange earnings, in 2001-02, were its 51.5 billion, which was

12.3 percent of the overall export earnings of the country. More people are switching towards packaged milk, UHT milk and

pasteurized milk so this creates opportunity for new companies to come in market.

Now some companies are having there own forms for milk production. The capacity for processing in milk companies is 74 million tons per year

but they are working at 27 million tons. Participation of Punjab government in dairy industry as the establishment

of The Livestock and Dairy Development Department (LDD). On the import of powder milk the yearly spending is $6 million which is not

in the favor of government and also for the companies who are producing the powder milk.

There are people who are becoming conscious about their weight and diet prefer to have a low fat and skimmed milk.

To eliminate third party from supply chain some leading milk processing plants are establishing their own milk collection centers.

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Recommendation

During the flush season, when milk supply is abundant and demand is low, excess milk could be converted into dry milk powder which could help to alleviate the problem of importing dry milk and the locally produced powder could be used to overcome shortage of milk during periods of low supply and high demand.

Companies should have there own milk collection centers or have some contractual agreements with the supplier to over come the certain problems in supply chain.

There is a need of developing a kind of training institute, as there is no specialized dairy training facility available in the country. Except for a few academic courses in Agriculture University.

Like other agriculture crops, Government should also fix support price of the raw milk, unless a realistic and balanced support price of milk is not fixed, our farmer will not be able to invest more to improve the quality and production. So it will help in controlling price also.

More loan facilities should provide for this industry.

Duties on the import of finished paperboard cartons should be reduced and more plants should be allowed to produce the packaging material.

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References

Reference from newspaper:

Article “Milk Dairy Industry” by Dr. Mujib Siddique Article “Improving Marketing System of Milk in Punjab” by Qamar

Mohyuddin & Mukhtar Ahmad Wahla

Article “Tetra Pak role in dairy industry” DAWN 18 August 2001

Article “Milking milk” DAWN The Nation 12 November 2001

Reference annual report:

Annual report “Milk pack" 1999, 2000, 2001, 2002.

References from website:

www.cdl.com.pk www.tatrapack.com

http://www.expertsadvisorycell.org/EAC_Publications/ DigestofIndustrialSectors/Industrial%20Digest%202004/Dairy/DAIRY%20PROFILE.pdf

http://www.regoverningmarkets.org/docs/Pakistan_report_final.pdf

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http://www.regoverningmarkets.org/docs/Pakistan_report_final.pdf

http://www.expertsadvisorycell.org/EAC_Publications/DigestofIndustrialSectors/Industrial%20Digest%202004/Dairy/DAIRY%20PROFILE.pdf



http://www.tatrapack.com/

http://www.cdl.com.pk/

haleeb industry analysis (p-1)

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