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Is Growth of Dairy Industry in India Restrictive

Created on 28 Apr 2020

Wraps up in 3 Min

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Updated on 29 Aug 2020

Milk and other dairy products always top the grocery list. Thanks to the white revolution, India’s milk production is self-sufficient. Hence, we can expect milk on all our dining table without having to face any shortages. Following lockdown the entire economy went into a spiral, leaving most of the countries around the world clueless. Amidst all this chaos a hand full of industries still made a humungous profit. One among them is the Indian dairy industry. The demand for the packed milk and other dairy products raised 15-20% despite all this. Companies like heritage gained more than 93% during this period. 

Thus, it is sure a hidden chest with loads of opportunities. This has attracted global dairy producers to turn their attention towards the $120 billion industry. But there are a lot of obstacles that the international companies will have to face to capture their territory in the Indian dairy market. 

Will the dairy giants set foot in India?

The Indian dairy industry is made up of 75 million farmers who own a minimum of 2-3 cows. Most of these farmers are women who sell milk for supporting their families. Further, they don’t easily sell the milk produced to anyone. That is where small companies or producers come into play. They have developed a commercial relationship with the farmers over the years which had helped them to fetch good results. Even big companies like Amul, Nestle, and mother dairy had put a lot of work into this aspect. Hence, building a strong sourcing channel can be a huge problem for any foreign entity and is highly time-consuming. 

The Indian milk channels are extremely fragmented than in countries like France and the US. Hence for a new company, it can be hard to approach 100's and 1000's of farmers spread across the nation and convince them.

Then, why not import? That can be a very expensive process. For instance, Danone, a French producer used this method to cover the 1.25 billion milk consumers of our country. They tried to import milk rather getting them locally. The result was, they had to shut their production plant in Haryana. 

Most of these foreign companies are forced to focus on specialized nutrition products like baby products and value-added products like flavoured yogurt. Because the liquid milk sector is heavily competitive with local and small producers holding the major portion of the market. Moreover, the Indian population is not ready for adapting towards readymade curd, butter, or yogurt yet. We mostly buy milk and try to make curd or other required products all by ourselves. Though a lot is shifting towards readymade stuff, it might take time. 

Apart from that, the Foreign Direct Investment (FDI) in the dairy segment invites a tariff of more than 35% with locals having a tax bracket of 22% plus surcharge and cess.  And the Regional Comprehensive Economic Partnership (RCEP) which demanded an FTA agreement with Australia and New Zealand failed various controversies. The Indian government is hesitant and against the plan proposed by the RCEP as an FTA can affect the livelihood of local farmers greatly. 

The problems prevailing over cow slaughter is also a major problem for foreign dairy entities. Globally once the cow or buffalo has milked for 14-15 years, they are sold to slaughterhouses. This forms 40-50% of their margin. But in India, a non-producing cow is sent to Kausalya or small farmers at a cheaper price. 

Despite all this, companies like Fonterra, Fromageries Bel, Arla, are gauging every aspect of the Indian market intending to set their foot. These companies are either performing a joint venture on investing in foreign entities, like in the case of Danone and Epigamia, Fonterra, and future consumer products. With an expected growth of 13-14% in the next couple of years, the industry is sure a mine of gold waiting to be dug. 

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Deb P Samaddar

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Deb is a keen learner and eager to learn about the finance world. He is that person who would never stop talking, but my oh my, the words he uses, are not something a normal human would in a regular conversation. While the conversations are well, interesting, the write-ups are faultless. With an increased proclivity towards tech and language, he aims to capitalise on his interests as a content writer at Finology.

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