U.G.C SPONSoRED NATIONAL level conference onEMERGING MARKETS AND THEIR EMERGENCE IN AN ERA OF GLOBALIZATION ITS IMPACT ON INDIAN ECONOMY

September 4th 2015 Tiptur, Tumkur District

MAIN PAPERPaper Title:Role of Supply Chain Management in Marketing of Dairy ProductsSubmitted ToDepartment of Commerce and Management,Pallagatti Adavappa Arts and Commerce,First Grade College, Tiptur

Prepared By:

Ramapriya H.D Dr. Shobarani HResearch Scholar Assistant ProfessorKuvempu University kadur P.G Centre Kuvempu University

INTRODUCTION

Indian Dairy Industry

The Indian dairy industry has been through an evolution right from the British era till today. Today, the Indian Dairy industry stands at a maximum size in the growth of food products. India exhibits tremendous potential to further strengthen its position in the world dairy market. The operation flood program promoted and implemented by the National Dairy Development Board (NDDB) has been instrumental in bringing about a white revolution in India. Changing lifestyle, feeding habits and urban culture has somewhat effected the transition of the Indian dairy Industry into a more of a demand driven, highly diversified and exciting business proposition.

The country accounts for more than 15 per cent of worlds total milk production and is also the worlds largest consumer base of dairy products, consuming almost all of its own milk production. Milk is now considered not only desirable but an essential intake from the moment the child is born. Milk has high nutritive value. The quality of milk consumed by the people has direct effect on their physical and mental health. Hence, it is very important that controls are affected at each stage. i e from cow to co operative and co operative dairy to consumers. Large emerging economies eg.. India and China have complexities and face challenges that range from development of markets to integration supplier. For firms that aspire to conduct substantial business in such markets, complexities have to be recognized and then overcome. The challenge is to understand the linkages between markets and the society. Role of Supplier Chain Management is very significant in reaching customer doors. So many milk dairy Industries are giving at most important to the supply chain management in their organizations.

Supply Chain Management DefinitionsAs defined by Ellram and Cooper (1993), supply chain management is "an integrating philosophy to manage the total flow of a distribution channel from supplier to ultimate customer".Quinn (1997) defines the supply chain as "all of those activities associated with moving goods from the raw-materials stage through to the end user. This includes sourcing and procurement, production scheduling, order processing, inventory management, transportation, warehousing, and customer service. Importantly, it also embodies the information systems so necessary to monitor all of those activities."Need For Supply Chain Management Greater sharing of information between vendors and customers. Horizontal business processes replacing vertical departmental functions. Shift from mass production to customized products. Increased reliance on purchased materials and outside processing with a simultaneous reduction in the number of suppliers. Greater emphasis on organizational and process flexibility. Necessity to coordinate processes across many sites. Employee empowerment and the need for rules-based real time decision support systems. Competitive pressure to introduce new products more quickly.

The Structure of the Indian Dairy Industry The Indian dairy industry is mainly constituted of 22 state milk federations, 110,000 dairy cooperative societies involving more than 12 million milk producers. There are also some major private players in the field which further improved the dairy sector of the country namely; Amul, Britannia, Nestle, Mother dairy and Nandini etc., to name a few. The home company "Amul" is ranked 18thin the world (IFCN, 2007), Fonterra of New Zealand being the no. one player in this field. According to NDDB, the dairy cooperative network includes 177 milk unions operating in over 346 districts and covering 1, 33,349 village level societies is owned by around 13.9 million farmer members of which 3.9 million were women. The Indian dairy industry contributes about 69 per cent to the entire bulk of output from the livestock sector. The dairy sector has grown robustly in the past years and dairy cooperatives account for the major share of processed liquid milk marketed in the country. The organized sector still remains a minor stakeholder and handles about 20 per cent of the milk whereas the unorganized sector still controls about 80 per cent of the industry. The structure of Indian dairy industry, as mentioned in Figure 1, further reveals that organized sector of Indian dairy industry comprise of private dairies, various Milk Cooperatives Societies and Government dairies.

Share of Processing Food Category in India

The food processing sector in India covers a wide range of food items such as meat and meat products, fish and fish products, fruits and vegetables, vegetable oils and fats, milk and milk products, grain milling, animal feed, confectionery products, bakery products, sugar processing, among others In food categories, major contribution comes from dairy industry which is 30 per cent which is followed by grain based product with 26 per cent and edible oil contribute 9 per cent which is followed by pulses, spices, fruits and vegetables, sugar and sugar based products as shown in Graph-1.

Chat 1

SUPPLY CHAIN OF INDIAN DAIRY INDUSTRY

Supply chain in Indian dairy industry starts from supplying inputs for dairying in form of fodder, animal feed plant, vetenery aids for the animal (cattle and buffalos), after supplying feed and fodder to the mulch animal milk is taken out from the mulching animal on the daily basis by the dairy farmers (large, medium and small scale farmers) which afterward is collected by the milk collection Centre (various milk cooperatives societies). Then the milk collected by the cooperative societies are sent to the dairy plants where chilling of milk, processing and packaging of milk and milk product, transportation of milk and milk product is carried out.

Chart 2Milk Production in India Milk Production India is increasing from last 60 years. The below chart depicts the year wise increase in the milk production from the year 1950 -51 to 2013 -14. In the year 1950 51 the milk production was 17 million tones, gradually it was increased year to year and in 2013 -14 it was increased to 137.7 million tones.

Chart 3Milk Consumption India: Milk Consumption in India is consumed by both rural and urban consumers. As consumption of milk is more in urban compare to rural consumers. Milk consumption is increasing more from year to year both in rural and urban consumption level. The below chart shows the percentage of liters per anum.

Rural Urban Chart 4

Small and marginal farmers own 33 % of land and about 60 percent of female cattle and buffaloes. Some 75 % of rural households own, on average, two to four animals. Dairying is a part of the farming system, not a separate enterprise. Feed is mostly residual from crops, whereas cow dung is important for manure. Dairying provides a source of regular income, whereas income from agriculture is seasonal. About a one third of rural incomes are dependent upon dairying. Livestock is a security asset to be sold in times of crisis.

Indian dairy sector has evolved from rags to riches

1940s 2013

OPPORTUNITIES AND CHALLENGES IN INDIAN DAIRY INDUSTRY

The entire dairy Industry in India has its base in the small holders and marginal farmers. These prime stakeholders of the entire value chain of milk are deprived of minimum resources of land, labor, capital etc. The other issues and challenges in Indian dairy industry at the grass root levels are given below:Issues and Challenges at the Small holder Level The entire dairy Industry in India has its base in the small holders and marginal farmers. These prime stakeholders of the entire value chain of milk are deprived of minimum resources of land, labour, capital etc. The other constraints at the grass root levels are: Inadequate feeding of animals: With burgeoning human population, there is an increasing pressure on the land resources for cultivation of food crops and fodder crops are not preferred. This apart the small holders are not able to feed the animals with balanced diet of concentrates and roughages due to lack of financial support.

More disease incidence: Small holders who are not members of cooperative societies often get deprived of good animal health care facilities in terms of routine vaccination and prophylactic disease prevention measures. Financial constraints generally inhibit these farmers access to the organized veterinary services and they still rely on the quacks and conventional treatment methods.

Low genetic potential of animals: The stock of animals even if crossbred has less percentage of exotic genes, which lowers their milk production. There is indiscriminate artificial insemination without proper record keeping which leads to repeated inbreeding and decreased production potential of the animals.

Lack of chilling capacities: The farmers having high yielding varieties of the cattle and buffalo have a different issue all together. These farmers milk their animals 2-3 times in the day and every time they have to carry this milk to the distant collection centers where there is a cooling facility or else the milk goes waste if there is delay.

Exploitation of farmers: Those farmers who do not conform to any of the cooperative societies get exploited at the hands of the contractors of the private dairies with regard to payment of exact dues as per the fat content of the milk.

High production costs: Compared to the amount of efforts and maintenance costs being involved in the production of milk, the farmers do not get remunerative prices due to low market prices and lack of elasticity in the prices of milk.

Delayed payment of dues: The farmers are not only paid less according to the quality of milk but also their payment is delayed from time to time. This comes in line with the sick and non-performing milk cooperative unions, which pass on the perils of mismanagement and marketing losses to these poor farmers.

Issues and Challenges at Collection Level

Milk base mainly consisting of small holders: The majority of dairy farmers being small and marginal the average holdings of animal come to around 5 animals per farmer. This brings in the logistical challenge of collecting milk from each farmer twice on a daily basis. The farmer usually loses much time waiting in the queue to deposit their milk at the collection centers thus resulting in loss of networking mandays.

Involvement of too many intermediaries: Keeping in view the large no of intermediaries involved in the milk collection procedures the milk loses its quality in the process. This leads to increased microbial contamination and fluctuation in the volume of the milk before reaching the collection centers and bulk coolers.

Gaps in information: In this era of information technology, the dairy sector is unorganized with respect to the support information. There is no record of the milk, which is being collected from different milk producers at the collection centers. If anything goes wrong in terms of the discovery of zoonotic disease organisms at a later stage there is no scope of backtracking to the farmer. Though there has been a success in this regard with the e-governance project being implemented in AMUL with the help of IIM Ahmadabad, it has not been replicated by all the cooperative societies in the sector.

Absence of a screening system: Milk before being pooled up at the collection center from various farms and animals are not subjected to any screening for the zoonotic diseases and adulterants and contaminants in many of the cooperative societies. This often results in spoilage of the entire batch of the pooled milk if one of the milk cans goes undetected. Linking back to source as such is not possible in the absence of a database.

Lack of Infrastructure: When there is a thrust on increasing the milk production, then there should be ample amount of facilities to handle it. There is a dearth of required infrastructure of chilling plants and bulk coolers due to which so much of milk goes waste due to spoilage.

Manipulation of the quality of milk by the farmers: The farmers not being able to get fair and remunerative prices for the milk often tend to give adulterated milk at the collection centers. They often add additives to forge the fat content of the milk and get better price for the lot. Addition of vegetable fat, animal fat, starch, etc. has been quite frequent among the farmers to alter the fat and solid content of the milk.

Issues and Challenges at the Processing Level Seasonality of production and fluctuating supply: India being a tropical country renders a hot and humid climate for the animals and thus fluctuations in the milk production. There is a flush season in the cooler parts of the year whereas the production goes down in the warmer months. Thus, at times, the surplus of milk exceeds the processing capacity and milk goes waste whereas on the other hand the processing capacity goes underutilized in the lean period.

Absence quality standards: There is absence of stringent quality standards like HACCP, Codex etc. in most of the cooperative milk unions, which bars Indian dairy products for exports into the foreign market.

Adulteration and Food safety: The most important aspect of milk processing is its purity and wholesomeness. There has been an instance of cheap substitution of skimmed milk powder with below standard substances, which is hazardous to health. Even though there are certain Food safety Acts but still every other day we get to know about various tankers of spurious milk being apprehended.

Lack of trained and skilled workers: There is lack of trained and skilled workers who can handle the milk processing operations hygienically and safely.

Issues and challenges at the Storage and Logistics Level

Lack of cold storage facilities: Milk being a highly perishable product requires be processing or cooling as soon as possible after milking, to prevent spoilage and contamination. However to ensure this there is a need of refrigerated milk silos for storage which are not present at the village levels.

Gap in the cold chain and transport facilities: There are long distances to be covered to reach bulk milk coolers from the collection center. There is a shortage of refrigerated vans and insulated tankers for ferrying the chilled milk to the processing plants

Issues and Challenges at the Co-operative Level

Less number of member farmers: The cooperative model though successful has not been able to include all the farmers into the fold. There are still many potential farmers who use the informal channel of milk sale and delivery.

Lower participation in the decision making process: There is huge government interference in many of the co-operative federation activities, which leads to lesser say of the farmers in many crucial issues.

Losses: Poor management of the some of the village cooperatives have led to huge losses in the trade due to which farmers have lost faith in these entities.

Low prices of milk: The co-operatives declare low prices for procuring milk from the farmers, which benchmarks the prices and forces other players to sell milk at the same prices.

Inefficient services: The cooperatives have also failed in many parts of the country in providing the basic inputs in terms of quality feed, exotic germplasm and veterinary services.

Insufficient Infrastructure: Some of the co-operatives are lacking the cooling and milk testing facility at the village level collection centers.

Issues and challenges for Marketing

Majority of the Market is still unorganized: The milk market in India still faces the challenge of getting organized. The unorganized market makes it competes with the organized market in relation to prices.

Acceptability of the Consumer base: A large fraction of the consumer base in India is yet to accept the clean and supple milk from organized dairies due higher costs. The mindset of buying fresh whole milk from the milkman is still prevalent in the Indian consumers.

Less penetration to the rural Market: Most of the milk produced by the dairy co-operatives goes to the urban market. The rural consumers are still dependent on the informal and unorganized market channels.

Lack of transparent milk pricing System: There is no specific minimum support price of the milk in the system, which makes it unremunerated for the farmers.

Conclusion

Highly competitive Indian dairy industry poses threat/challenges for the survival in the global dairy market. There is no doubt that there is tremendous scope for the growth of the dairy industry in the new millennium. As the market opens up, consumption trends associated with these markets will have increasing influence on the world trade. The dairy industry in India has been on a steady path of progression since Indian independence. It has grown from producing 17 million tons of milk in 1951 to producing 137.7 million tons in 2013-14. Today, India is one of the largest milk producing countries in the world. This solid progress is primarily attributable to structural changes in the Indian dairy industry brought about by the advent of dairy cooperatives.The consumption pattern of dairy products in India is unique as compared to some of the western countries. Milk consumption is increasing more from year to year both in rural and urban consumption level. Despite the increase in production, a demand supply gap has become imminent in the dairy industry due to the changing consumption habits, dynamic demographic patterns, and the rapid urbanization of rural India. This means that there is an urgent need for the growth rate of the dairy sector to match the rapidly growing Indian economy. The ever-increasing rise in domestic demand for dairy products and a large demand-supply gap could lead India to be a net importer of dairy products in the near future.

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