|The dairy industry in India is banking largely upon milk procurement to ensure raw material for the next phase of growth in branded milk and value-added products in this sector.|
Both, existing entities and new corporate entrants with deep pockets have initially focused on strengthening procurement of milk from farmers.
Mahindra and Mahindra recently launched 'Saboro' brand liquid milk pouches in Madhya Pradesh to mark its entry in the sector. The company has a plan to expand its milk business on other parts of the country in a phased manner and other dairy products, too.
"Our future plans hinge on creating a large sourcing base and providing extraordinary quality. We have our operations in Indore and in the coming years will expand to other locations. Our investments will depend on the arising opportunity and we will take decisions on a case to case basis," said Ashok Sharma, the conglomerate's chief executive for the venture.
The organised dairy industry has seen strong growth in the past decade, mainly driven by the formalisation of perishable milk categories such as milk, curd and paneer from loose to packed formats, coupled with strong growth in value-added segments like cheese, yoghurt, baby food and ice-cream. According to a recent Rabobank study, the value-added segment is expected to increase market share in the organised dairy market from 23 per cent in 2014-15 to 30 per cent by 2019-20.
This segment handles 26 per cent of the milk produced in India, of 37 million tonnes a year, expected to be 60 mt in five years, with 35 per cent share in milk. Private dairy companies that capture 60 per cent share of the organised segment will continue to grow faster than co-operatives.
"We are also witnessing a trend of large-scale dairy farms with modern equipment emerging all over the country," said Sharma. The Indian dairy industry is large and widely distributed, with millions of small producers.
The entry of large players will accelerate the process of change to the organised sector, by creation of better supply chains, better quality inputs and advice to farmers. This will help farmers to get more for their output and customers to have better quality of milk.
"With some of these dairy companies expanding to new regions, procurement is becoming more critical. Direct milk sourcing is increasing in order to improve control over supply, with more capital being invested in connecting directly to the farmers. This is mainly to set up village collection points and bulk chilling centres, which ensure consistent supply of milk through the year," said Shiva Mudgil, analyst at Rabobank.
Godraj Agrovet, agricultural division of Godrej Group, has strengthened its presence in the dairy sector by acquiring additional stake in Creamline Dairy Products. "Procurement of good quality milk will be the ingredient for success in the organised large sector. Most players will backward-integrate into farming by having close contractual arrangement with big dairy farmers with 50-100 animals. We strongly believe that 200-500 is too big a size for a farm, considering the labour situation and fodder challenges in rural areas," said Balram Yadav, managing director at Godrej Agrovet.