India is the highest milk producer and ranks first position in the world contributing 24.
64% of
global milk production in the year 2021-22. The milk production of India has registered 58%
increase during the last nine years i.e., during the year 2014-15 and 2022-23 and increased to
230.58 Mn Tonnes in the year 2022-23. The milk production has increased at CAGR 5.85%
over the past 9 years.
The top 5 milk-producing states are: Rajasthan (15.05%), Uttar Pradesh (14.93%), Madhya
Pradesh (8.6%), Gujarat (7.56%) and Andhra Pradesh (6.97%). They together contribute
53.11% of total Milk production in the country.
India's Export of Dairy products was 67,572.99 MT to the world for the worth $284.65
Mn during the year 2022-23
The market growth in Dairy requires support of significant infrastructure investment across
processing, chilling, logistics, cattle feed etc. Further, lucrative untapped opportunities exist
in areas such as value-added dairy products, organic/ farm fresh milk and exports. To
facilitate the infrastructure growth, Central/ State Governments have released various
incentives to attract investments in this sector. Animal Husbandry Infrastructure
Development fund (AHIDF). AHIDF is one of the flagship schemes by DAHD, Government
of India whereby INR 15,000 Cr fund has been setup for offering financial support to set up
new units or expand existing units in areas of dairy processing & related value addition
infrastructure, meat processing & related value addition infrastructure and Animal Feed Plant.
The benefits available are:
3% interest subvention on loans
2-year moratorium with 6-year repayment period
INR 750 Cr credit guarantee
India is the largest producer of milk in the world. The milk
revolution (“Operation Flood”), started by National Dairy Development Board
(NDDB) in 1970, transformed India from being milk deficient to the largest milk producer
surpassing USA in 1998. The program was led by Dr Verghese Kurien, known as the Father
of White Revolution in India. The Indian Dairy industry is at the cusp of another revolution,
moving towards increased contribution from various value-added milk products. India, in its
quest to become a matured dairy industry, is aggressively transitioning from just plain vanilla
loose/ pouch milk to value-added products (VAP) market and from unorganized/local to more
of an organized and branded market. These two structural shifts from unorganized to
organized market and from liquid milk/ powder to value-added dairy products
will provide long-term growth visibility to the organized dairy
sector. The value added products will require capex in the initial
phase, will improve the margins and return on investments over
long run for the companies in the sector. The demand for value-
added products will be driven by changes in macro-economic
factors like increase in urbanization, nuclear families, increasing
number of dual income households with working women and
improved per capita spending. Most of the milk in the country is produced by small, marginal
farmers and landless labourers.
The Indian dairy & dairy products industry comprises milk and large variety of milk products
like flavoured milk, ghee, butter, curd, butter milk,
cheese, paneer, ice cream, etc. Milk consumption in India is regular part of the dietary
programme in the country as it comes with healthy nutrients such as calcium, proteins,
vitamins, phosphorus, etc irrespective of the region and hence demand is likely to rise
continuously with sustainable growth potential providing
health benefits such as maintaining normal blood pressure, strengthening bones and
providing energy, repairing muscle tissues, etc. among many others. It contributes over 20%
to the agriculture GDP of the country. India has also retained the leadership position in milk
production by producing 188 mn tonnes in FY19; accounting for about 22% of global milk
production. Hence, dairy industry has played a crucial role in the agro-based Indian economy.
Structure of Indian Dairy Industry:-
The Indian dairy industry is divided into the organized and unorganized segments. The
unorganized segment consists of traditional milkmen, vendors and self-consumption at home,
and the organized segment consists of cooperatives and private dairies. As per the Annual
Report for FY19 of Dept. of Animal Husbandry, Dairying & Fisheries, Ministry of
Agriculture & Farmers Welfare, GOI, co-operatives & private dairies still procure only about
20% of the milk produced in the country, while 32% is sold in the unorganized market and
about 48% is consumed locally. About 40% of the milk sold is handled by the organised
sector and the remaining 60% by the unorganised sector. However, in most of
the developed nations, 90% of the surplus milk is processed through organized sector. With
the increase in population, rise in per capita income, changing lifestyle, affordable
aspirational food habits, export opportunities etc., the demand for milk is expected to rise. As
per the Department of animal husbandry and dairying, it is estimated that the demand for
milk would be in the range of 200 - 210 million tonnes by FY22.
4 Pillars of Dairy Industry:-
Source : CMIE Industry, CARE Ratings
Milk Production in India:-
The dairy sector in India has grown substantially over the years. According to NDDB, India
ranks first among the world’s milk producing nations, achieving an annual output of 188
million tonnes during the year FY19 which is approximately 2 times that of the USA, over 5
times of China and over 4 times of Pakistan.
In FY19, milk production stood at 188 million tonnes, registering a largely stable y-o-y
growth of about 6.5% vis-à-vis a growth of about 6.6% witnessed during the previous year.
Milk production has witnessed a steady growth in the country registering a CAGR of about
5.5% between FY10 and FY19. However, the production recorded a higher CAGR of 6.4%
between FY16 and FY19 led by increased consumption of dairy products in the country.
Also, the per capita availability of milk in the country registered a CAGR of about 4.2%
between FY10 and FY19 and a CAGR of about 5.2% between FY16 and FY19. Per capita
availability increased from 273 grams per day in FY10 to 394 grams per day in FY19.
Dairy Products:-
During the last five to ten years, India has seen dramatic shift towards consumption of value-
added products such as cheese, yoghurt, UHT (ultra-
heat treatment) milk, flavored milk, and whey. To tap the advantages of the changing
consumer food preferences, most organized players are expanding product portfolios in the
value-added segment. This segment offers high growth potential and better margins versus
the liquid milk and Skimmed Milk Powder (SMP) segment.
The value-added products overall contribute to ~35-40% of the total dairy market in India an
d commodity products
together contribute to almost ~65% of market share. Furthermore, within the value-added seg
ment, largest product category is ghee, having a market share of about 15-
18% in the overall dairy market. While loose packets of curd is available locally, a key
characteristic of emerging value-added products like UHT milk, flavoured milk, low-fat
curd/yogurt, cheese and whey is that 100% of these products are sold through organized
market. The value-added products market is under-
penetrated, thus having tremendous scope for the growth and is expected to grow at much fast
er rate as compared with the commodity market.
Considering the higher growth potential, the private companies have added capacities in the v
alue-added product
categories for the past few years such as cheese, curd, flavoured milk, along with addition in t
he milk procurement capacities. The private players are also investing in brand building
exercise and aiming to add more B2C business in their portfolio.
Growth Drivers:-
Demographic advantage
Rapid urbanization
Rising income levels & growing per capita expenditure
Rising growth in number of nuclear families
Dual income households
Increasing health awareness & vegetarianism
Emerging opportunities In Indian dairy Industry
Following are certain trends that will shape the dairy sector and create more opportunities:-
Growth of niche dairy products:
For years, the dairy industry was focused only on cow and buffalo milk and milk-based
products. Rising internet penetration and increasing consumer awareness have, however,
upended this long-standing norm. Today, consumers are increasingly inclined towards better,
healthier alternatives such as camel milk, goat milk or donkey milk.
For instance, it has become common knowledge that camel milk does not contain A1 casein
and beta-lactoglobulin, which makes it fit to be consumed by those suffering from milk
allergies and people who are lactose intolerant. Camel milk is also gaining popularity since it
aids digestion, improves gut health, may prevent high blood pressure and may even help ease
the symptoms of autism in children. Further, goat and donkey milk are also gaining favour
among health enthusiasts as they are light on the stomach and packed with essential nutrients.
Niche dairy products such as flavoured camel milk powder, camel milk-based skincare
products or goat milk ghee will definitely attract more consumers.
Changing customer sentiments:
Indians are quite accustomed to having their packet of milk being delivered at their doorstep
early in the morning. However, new-age consumers are more quality-sensitive and tech-
savvy than ever before. Hyperlocal delivery companies are identifying the changing
consumer demands and offering tailored, tech-backed services to them. Such companies are
offering pure, premium milk and milk products that can be ordered online in a matter of
seconds. The options of pre-payment and long-term subscription further adds to the value
proposition being created by these start-ups. All consumers need to do is place an order at
night and fresh milk - or other essentials - can be delivered to their home as early as 6 am.
Further, with increasing disposable incomes and a renewed focus on healthy living, customer
spending habits are also changing. Consumers are willing to spend more on a product that
promises undeniable health benefits. Thus, the demand for premium products such as camel
milk is slated to increase.
Product expansion by dairy platforms:
Tech-backed milk and milk-product delivery platforms are likely to expand their ambit over
the next few years. Leading players will look at branching out and offering a holistic grocery
shopping experience through one consolidated app. Since customer acquisition costs are quite
high in this segment, companies will largely benefit from strengthening their product
portfolio and improving customer stickiness. Thus, an increased number of start-ups can be
expected to stock and deliver milk, milk products, vegetables, groceries, and other everyday
essentials.
Several challenges still exist in the hyper-local milk delivery segment. While the market size
is considerably vast, consumers are quite fragmented. Further, although leading VCs such a
Sequoia Capital and Matrix Partners have funded start-ups in this sector, there still exists a
gap in investments. Increasing competition is another major challenge for these companies.
However, defragmenting the market, improving the supply chain and furthering innovation
can help start-ups address these challenges in an effective and efficient manner. Carving a
niche and offering diverse products is already allowing several companies to increase
margins and move towards profitability.
It is truly an exciting time to be operating in India's fast-growing dairy segment. Evidently,
the market is set to expand on the back of the aforementioned trends. As a result, consumers
will benefit greatly with easier access to high-quality products - delivered fresh, daily.
The digital future of dairies: automation and its effects
In the not-too-distant future, large integrated dairies will operate with relatively few workers.
Taking automation to the ultimate level could mean that dairies will be almost completely
unmanned except for people in the control room and the maintenance crews. Ultimately,
lighting will hardly be needed.
Call it science fiction, but the factories and warehouses of the future could be dark places –
literally speaking. There will be no need to put the lights on except for occasional visits by
humans to tend the machines.
Digital dairies
We are in the midst of the fourth industrial revolution, known popularly as Industry 4.0. The
forthcoming revolution in industry will be spurred by the greater use of automation, data
exchange, robotics and artificial intelligence. It is the result of a growing convergence of two
fields that have until now been disconnected: information technology and operational
technology. A bridge is forming between the physical world of production and the digital
world of cyberspace. Nowadays the buzzwords in industrial manufacturing and the supply
chain are “digitalization”, “cloud computing” and “the industrial Internet of Things” (IIoT).
The arguments for adopting this latest technology in industry are powerful. According to a
recent Deloitte report on the smart factory: “An optimized smart factory allows operations
to be executed with minimal manual intervention and high reliability. The automated
workflows, synchronization of assets, improved tracking and scheduling, and optimized
energy consumption inherent in the smart factory can increase yield, uptime, and quality, as
well as reduce costs and waste.”
It’s all about uptime
The dairy industry is a fast adopter of new technology and automation. Through takeovers,
the industry has become more and more consolidated, with a few large international players
competing for a share of the world market. These large multinationals are building larger and
larger dairy plants to gain economies of scale, at the same time as the operating systems are
becoming ever smarter. The trend is for modern dairy processing and filling lines to run at a
higher capacity and for a longer time without interruption.
Cloud-based predictive maintenance
The next step is to store all this data in the cloud to keep the database continuously updated.
The stream of data from all the connected units and production lines can be used to learn
more. New information is used to uncover meaningful insights using advanced analysis.
Even though the plants of the future may be literally dark places, there are many bright sides
to the coming revolution in terms of energy efficiency, reduced waste and improved product
quality.
How IoT can help transform India’s huge dairy market
Much of the credit for the surge in milk production goes to the first ‘white revolution’ of the
1970s, when Operation Flood—the world’s biggest dairy development programme—was
launched. Today, India’s $120 billion dairy market, of which the organized sector accounts
for $70 billion, is bigger than that of the European Union and the US. It has been growing
steadily for the past two decades and the nation accounts for more than 18% of the world’s
total milk production. Demand remains high: and the organized dairy market is expected to
grow at 23% every year.
However, as urban demand has continued to grow exponentially, the industry needs a second
dairy catalyst.
Unlike the West, milk producers in India remain largely unorganized, which results in
inconsistent quality and composition of milk. They lack granular, actionable data to improve
their operations. In the world’s largest market for milk, dairy farmers—who own just two
cows on an average—have struggled to improve their productivity: they produce 1,248 kg of
milk per cow in a year, while their counterparts in the US—where the average farm size is 90
times larger—produce about eight times more per cow, according to IFCN Dairy Research
Network.
India has set itself a target of producing 200 million tonnes of milk by 2022, according to the
department of animal husbandry, dairying and fisheries, ministry of agriculture and farmers
welfare. Also as per a study on the demand for milk conducted by the National Dairy
Development Board (NDDB), the estimated demand for 2030 at an all India level is 266.5
million metric tonnes for milk and milk products. To meet this ambitious goal, farmers will
need to increase their productivity. Digitalization, which has been slow in coming to the
sector, will have a major role to play in making this transformation possible.
Start-ups are leading the way. They are transforming the largely unorganized dairy sector by
building automated tools that leverage the Internet of Things (IoT) and advanced analytics to
improve milk production and quality for India’s small dairy farmers. One of them is Stellapps
Technologies.
IoT offerings in the dairy sector cover the entire value chain from milk production to
payments. Farmers can track a cow’s health and yield through a wearable sensor—something
akin to a Fitbit for cows—and measure important parameters such as milk quantity and yield.
Using this data, farmers will receive immediate feedback, which they can then compare with
their peers to improve productivity and boost incomes.
This technology works for the farmers’ customers too. Buyers of milk, such as large dairy
cooperatives and companies, will be able to track conditions under which the milk is stored,
transported and distributed. They will have accurate data about the quality and composition
of milk, the history of production by each farmer and fees owed to them, leading to improved
inventory management, reduced wastage of perishable food items and better service delivery.
It makes a lot of sense for start-ups in the industry to have strategic partnerships with large
players to create more value for small farmers. Such partnerships go beyond equity
investments to strategic ones for deeper domain knowledge, flexibility and access to real-time
operational technologies. Through such deals, start-ups will have access to the larger
partners’ cutting-edge technologies, including artificial intelligence-powered operations
management software, thereby helping them scale faster during their phase of growth.
Partnerships between start-ups and established companies are vital to accelerate innovation in
a sector like this. Empowering India’s milk producers with better data and faster paths to
profits will also enable India to maintain its position as the world’s biggest dairy producer.
