Production and delivery of dairy products
Production and delivery of dairy products
Business Model Description
Business models servicing value chains for dairy products (including cold-storage based delivery services) and value-added dairy products (such as cheese – European style cheeses, soft cheese, hard cheese, different types of yoghurts, etc.) help in addressing nutritional needs and offer an alternative source for doubling farmers’ income.
Expected Impact
Improvement in farmer incomes by plugging in farm capacities to value added chains for agri-allied products such as dairy, thereby enhancing socio-economic resilience of the farming community.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- India: Countrywide
Sector Classification
Food and Beverage
Development need
As per the SDG India Index report by Niti Aayog (4.2), India’s progress on SDG 2 (Zero Hunger) is lagging with a cumulative score of 35 on 100, since the score of 20 states and 3 UTs is under 50 points. This is due to low gross value added (GVA) in agriculture per worker of ~68000, in comparison to the targeted GVA in agriculture per worker of 136,000 in accordance with UN SDG target 2.3. (4.2)
The government aims to double farmers’ incomes by 2022 (4.3). In order to achieve this target, farmers’ income, which increased at an annual growth rate of 3.31% during 1993-1994 to 2015-16, is required to grow at 10.4% in order for it to double between 2015-16 and 2022-23. (4.4)
In 2019, India ranked 72nd in 113 countries [in comparison to 76th in 2018 (4.5)], as assessed by The Global Food Security Index (GFSI) based on four parameters—affordability, availability and quality and safety (4.6). As per the Global Hunger Index, 2018, India was ranked 103rd out of 119 qualifying countries. (4.7)
Policy priority
The Public Distribution System has been revamped under the National Food Security Act (NFSA), 2013. Key features include:
- This system implements a paradigm shift in the approach towards the issue of food security at the household level, from welfare to a rights-based approach.
- This Act covers about two-thirds of the population with 75% of rural and 50% of urban population to receive subsidised food grains – rice, wheat, and coarse grains at affordable prices per kg.
- The Act has been implemented in all States/ UTs and has reached around 807 million people.
- Under the “Antyodaya Anna Yojana” (AAY), the poorest from amongst the Below Poverty Line families are entitled to 35 kg of food grains per month at more subsidised rates. (4.2)
The National Mission for Sustainable Agriculture, in tandem with other missions under the National Action Plan on Climate Change, addresses the climate change risks and aims to increase agriculture productivity especially in rainfed areas focusing on integrated farming, soil health management, and synergising resource conservation.
GOI has proposed the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 with the objective to transform Indian agriculture by offering farmers freedom to sell anywhere and to attract private investment in Indian agriculture. (4.10)
Gender inequalities and marginalization issues
While agriculture employs about half of India's workforce (58% of India’s population), it contributes less than 20% to GDP. There is, thus, a pressing need to increase agricultural productivity, and create alternative channels of employment so that many of those currently employed in agriculture can obtain better opportunities of work. (4.2)
As of 2018, 81.1 percent of the dairy and milk processing market was part of the unorganized sector and 71 percent of total participants in the sector are women. (15.1)
Investment opportunities introduction
The market size of agriculture and allied services in India stood at ~USD 283.68 billion in 2018 (4.1).
Food and Agriculture
Development need
As of 2018, India is the leading milk producing country in the world, accounting for 19% of the global market share. (13.11)
The quantum of milk processing is high in India at a level of almost 35% of total milk produced, thus, offering many opportunities in the sector. (13.11)
Policy priority
A budget provision of USD 435 million was made exclusively for Animal Husbandry and Dairying, for the year 2020-21. (15.1)
Gender inequalities and marginalization issues
As of 2018, 81.1% of the dairy and milk processing market was part of the unorganized sector. (13.11) Formalisation of this sector will help in improving quality of dairy produce and generate employment opportunities for those involved in the unorganised sector.
As of 2018, 81.1 percent of the dairy and milk processing market was part of the unorganized sector and 71 percent of total participants in the sector are women. (15.1)
Investment opportunities introduction
The total milk production in India reached 187.74 million tonnes in 2018-19, and is expected to increase to ~330 million tonnes in 2032-33, with milk supply exceeding milk demand by 38 million tonnes in 2032-33. (15.1)
Key bottlenecks introduction
Majority of the dairy and milk processing market is part of the unorganized sector. The dairy sector needs organisation, significant infrastructure and capital infusion to boost hygiene and nutrition levels. Investment in infrastructure to transform this ecosystem, would require tapping into unrealised potential for supply and distribution logistics, as well as into the huge customer base under this segment. (13.11)
Meat, Poultry and Dairy
Pipeline Opportunity
Production and delivery of dairy products
Business models servicing value chains for dairy products (including cold-storage based delivery services) and value-added dairy products (such as cheese – European style cheeses, soft cheese, hard cheese, different types of yoghurts, etc.) help in addressing nutritional needs and offer an alternative source for doubling farmers’ income.
Business Case
Market Size and Environment
> USD 1 billion
10% - 15%
The milk processing industry is expected to expand with an annual growth rate (CAGR) of 14.8% between FY2018 and FY2023, and is projected to reach USD 32.57 billion in FY2023. (13.11) India's milk processing capacity is expected to double to 108 million MT from 53.5 million MT by 2025. (15.4)
The total milk production is expected to increase to ~330 million tonnes in 2032-33 (from 187.74 MMT in 2018-19), with milk supply exceeding milk demand by 38 million tonnes in 2032-33. (15.1)
Flavoured milk drinks segment experienced strong retail current value growth of 25% in 2019. The main drivers of growth for this segment are the rising health consciousness among consumers. Flavoured milk is expected to register a CAGR of 23.6% in the period between 2019-2024. (13.11)
Yoghurt and sour milk products recorded a retail current value growth of 26% to reach USD 3.29 billion in 2019. (13.11)
Indicative Return
15% - 20%
Dairy business is capital intensive (cost of cattle, quality feed, machinery for processing, cold-storage facilities and transport), it is only investable if it is able to capture a large share of the market in order to justify the project cost involved.
Aavishkaar invested in a dairy in Orissa which is generating a revenue of USD 2,000-2,500 million per annum and is growing at ~20% per year
Business models dealing in value-added dairy products (including cheese, yoghurts, etc.) have raised capital and proved to be scalable businesses.
Investment Timeframe
Long Term (10+ years)
As per expert consultations, success of dairy based business models depends on large volumes and capturing a large market share. Since this would require a substantial amount of time and effort to build, investments in this space will be for a long gestation period.
Ticket Size
PE and VC deal values in the food and beverage sector stood at USD 881 million, through 83 deals in 2019. (12.22)
Market Risks & Scale Obstacles
Market - Volatile
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
As of 2018, India is the leading milk producing country in the world, accounting for 19% of the global market share. (13.11)
The quantum of milk processing is high in India at a level of almost 35% of total milk produced, thus, offering many opportunities in the sector. (13.11)
160 million children around the world receive milk through school feeding programmes (Bulletin of the International Dairy Federation, 2020). (15.1)
Annually, 8.4 million farmers depend on the dairy sector for their livelihoods, out of which 71% are women. Furthermore, in a year, crop production employs the rural workforce for 90 to 120 days, but dairy provides alternative employment opportunities throughout the year. (15.1)
Impact of Covid-19: - As per expert consultations, as people move back to villages during the pandemic, the dairy industry is expected to gain more importance in the absence of other employment opportunities. - Closure of sweet shops, tea shops and restaurants also dealt a blow to the demand for milk and other dairy products (such as cottage cheese, etc.). (15.2) - As of June 2020, decline in milk sales in India was ~30% during the lockdown period. This demand dip hit the farm incomes of around 75 million dairy farmers. (13.17)
Gender & Marginalisation
While agriculture employs about half of India's workforce (58% of India’s population), it contributes less than 20% to GDP. There is, thus, a pressing need to increase agricultural productivity, and create alternative channels of employment so that many of those currently employed in agriculture can obtain better opportunities of work. (4.2) As of 2018, 81.1 percent of the dairy and milk processing market was part of the unorganized sector and 71 percent of total participants in the sector are women. (15.1)
Expected Development Outcome
The business models under this IOA have the potential to: Generate employment opportunities in dairy farming in rural areas; Support development of agribusiness and Food Processing Industry; Offer an alternate source of livelihood to farmers and enable them to double their income.
Gender & Marginalisation
Primary SDGs addressed
2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size
2.3.2 Average income of small-scale food producers, by sex and indigenous status
8.2.1 Annual growth rate of real GDP per employed person
12.3.1 (a) Food loss index and (b) food waste index
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Outcome Risks
If milk production is not handled in a hygienic way, it can impact the quality of milk consumed, and thereby the health of consumers.
Protection is needed from unfair and hazardous practices such as food adulteration.
Impact Classification
What
Development of the dairy sector would help in boosting rural economic growth and empowering rural women. (15.1)
Who
Farmers will benefit from an increase in income and by diversifying the source of income.
Risk
If milk production is not handled in a hygienic way, it can impact the quality of milk consumed, and thereby the health of consumers.
Impact Thesis
Improvement in farmer incomes by plugging in farm capacities to value added chains for agri-allied products such as dairy, thereby enhancing socio-economic resilience of the farming community.
Enabling Environment
Policy Environment
A budget provision of USD 435 million was made exclusively for Animal Husbandry and Dairying, for the year 2020-21. (15.1)
The Government of India is making efforts for strengthening infrastructure for the production of quality milk, procurement, processing and marketing of milk and milk products through the following dairy development schemes: (13.11) - National Programme for Dairy Development (NPDD): NPDD Provides subsidy for the installation of bulk milk coolers; milk processing plants; milk powder plants and, rehabilitation of milk unions/ federations. - Dairy Entrepreneurship Development Scheme (DEDS): The main objective of the scheme is setting up modern dairy farms and infrastructure for the production of clean milk along with up-gradation of technology to handle milk on a commercial scale. The scheme aims to provide value addition to milk through the processing and production of milk products.
As per the National Action Plan on Dairy Development vision 2022 report, it is envisioned to increase milk procurement and processing through setting up of village-level dairy infrastructure. Under this plan, organised milk handling is to be increased to 41% by 2022 and to 50% by 2023-24. Milk procurement by cooperatives will increase from 10% in 2020 to 20% in 2023, and milk procurement by the private sector will be increased from 10% to 30% in the same period. (15.1)
Financial Environment
Financial incentives: Under the Dairy Entrepreneurship Development Scheme (DEDS), a back-end capital subsidy at 25% of the project cost for general category and at 33.33% for SC/ST farmers is offered. The component- wise subsidy ceiling is subject to indicative cost arrived at by NABARD from time to time. The FM also announced a new scheme wherein interest subvention of 2% per annum will be provided to dairy cooperatives in 2020-21, and an additional interest subvention of 2% per annum will be provided on prompt payment of loans. (13.17) As per RBI Circular on priority sector lending, activities covered under Agriculture for lending are classified under three sub-categories viz. Farm credit, Agriculture infrastructure and Ancillary activities. (15.5)
Other incentives: The GOI has undertaken the following initiatives to encourage investment in the dairy sector: Dairy Processing and Infrastructure Development Fund (DIDF): Financial assistance for milk chilling infrastructure, manufacturing facilities for value added products, modernization and creation of new milk processing facilities etc. The Finance Minister (FM) recently announced an outlay USD 2 billion for the Animal Husbandry Infrastructure Development Fund, which will be used for supporting private investments in dairy processing and value addition, and cattle feed infrastructure. (15.1)
Regulatory Environment
The Department of Animal Husbandry and Dairying (AH&D) is one of the Departments of the newly created Ministry of Fisheries, Animal Husbandry and Dairying. The Department is responsible for matters relating to livestock production, preservation, protection from diseases and improvement of stocks and dairy development, and also for matters relating to the Delhi Milk Scheme and the National Dairy Development Board.
Marketplace Participants
Private Sector
Investors: Aavishkaar Venture Management, Hindustan Unilever Limited, Lok Capital Group, Matrix Partners India, Orios Venture Partners, Alteria Capital.
Private Sector
Corporations: Players in the flavoured milk segment are ITC, who made an entry with the launch of Wonderz Milk, and Coca-Cola, who entered this category with “Vio”, a flavored milk drink in 180ml Tetra Pak with two flavours. (13.11) Others players in the flavoured milk segment include Mother Dairy and Amul. Brands with products catering to consumer tastes are those such as Nestlé, which launched Karela Raita and Banglar Mishti Doi, adding traditional, savoury and contemporary products to their existing flavored yoghurt portfolio. (13.11). Milk Mantra Dairy, Tasty Dairy Specialities Limited, Vijaykant Dairy and Food Products Limited, HR Food Processing Private Limited, Country Delight, Doodhwala, Farmery and iOrganic are players engaged in milk delivery business.
Non-Profit
AROH Foundation is a national level NGO is working with dairy farmers in more than 80 villages in the states of Uttar Pradesh, Chhattisgarh & Meghalaya, which it has adopted for Holistic Rural Development programs.
Target Locations
India: Countrywide
References
- (4.1 https://www.ibef.org/industry/agriculture-india/infographic 4.2 https://niti.gov.in/sites/default/files/2019-12/SDG-India-Index-2.0_27-Dec.pdf 4.3 https://asia.nikkei.com/Business/Startups/Indian-agritech-startup-targets-10m-users-in-nationwide-expansion#:~:text=Sheth%20said%20AgroStar%27s%20goal%20is,become%20more%20profitable%20and%20prosperous. 4.4 https://www.drishtiias.com/summary-of-important-reports/strategy-for-new-india-at-75 4.5 https://www.thehindubusinessline.com/economy/agri-business/agri-tech-platform-ninjacart-expands-operations-to-delhi-mumbai-pune-strengthens-headcount-by-600/article26600072.ece 4.6 https://foodsecurityindex.eiu.com/Country/Details#India 4.7 https://www.drishtiias.com/to-the-points/paper3/food-security-1 4.8 https://www.ibef.org/economy/union-budget-2020-21 4.9 https://www.hindustantimes.com/india-news/govt-to-announce-changes-in-essential-commodities-act-dismantling-of-apmc-sources/story-TOBYYq5XvLW2fNMz0mUIYL.html#:~:text=Amendments%20in%20the%20essential%20commodities,meeting%20on%20Monday%2C%20sources%20said. 4.10 https://indianexpress.com/article/explained/an-expert-explains-farm-acts-and-federalism-6622769/ 4.11 https://www.wbcsd.org/Overview/News-Insights/WBCSD-insights/Impact-of-COVID-19-on-smallholder-farmers-in-India#:~:text=Prices%20of%20sugar%20rose%20in,places%20due%20to%20over%2Dsupply.&text=However%2C%20the%20COVID%2D19%20induced,marginal%20farmers%20in%20the%20country.
- (15.1 https://www.thehindubusinessline.com/opinion/indias-dairy-sector-has-helped-lift-the-rural-economy-and-improve-livelihoods/article31722467.ece# 15.2 https://www.networkideas.org/featured-articles/2020/05/covid-19-lockdown-impact-on-agriculture/ 15.3 https://www.vccircle.com/matrix-backed-dairy-startup-country-delight-raises-fresh-capital/ 15.4 https://www.ibef.org/economy/union-budget-2020-21 15.5 https://m.rbi.org.in/Scripts/FAQView.aspx?Id=87#:~:text=Loans%20to%20individuals%20up%20to,the%20dwelling%20unit%20in%20the