India's Dairy Industry At Cross Roads Harish Damodaran

3738 words - 15 pages

India’s Dairy Industry at a Crossroad
A Current View of the World’s Largest Milk Producer

Harish Damodaran The Hindu Business Line, New Delhi.

• For the year ended March 31, 2009, India’s GDP was Rs 61642 billion ($ 1.37 trillion) at current market prices, translating into a per capita product of Rs 52,685 ($ 1,170). • For the US, the corresponding 2009 figures were $ 14.26 trillion and $ 46,364. The Indian economy is one-tenth of the US’ and an average Indian’s income 2.5% of the average American! • But India is growing. In 2004-05, GDP was only $ 740 billion, with per capita GDP at $ 680. So in current ...view middle of the document...

• Meeting these demands pose huge production challenges in terms of pressure on land, water and even labor resources. The resulting impact on the economics of farming may not be small.


RURAL 1972-73 1977-78 1983 1987-88 1993-94 1999-2K 2007-08 72.81 64.35 65.56 63.77 63.18 59.40 52.35 URBAN 64.49 59.98 58.69 55.91 54.65 48.06 39.58

Source: National Sample Survey Organization

RURAL % of % of Total Food 7.29 10.01 7.68 11.93 7.57 11.54 8.62 13.52 9.49 15.02 8.75 14.74 7.79 14.88 URBAN % of % of Total Food 9.33 14.47 9.53 15.88 9.21 15.69 9.54 17.06 9.80 17.94 8.68 18.05 7.25 18.31

1972-73 1977-78 1983 1987-88 1993-94 1999-2K 2007-08

• Indians take naturally to milk. Besides its nutritional value for a significant section of the population that is lacto-vegetarian, milk is part of the country’s socio-cultural and religious traditions, linked to its strong association with purity and good health. • The bulk of indigenous sweets consumed during festivals and social ceremonies are milk-based. Ghee (clarified butter) is a common frying and flavoring medium in India, where people generally avoid use of other animal fats like tallow and lard.

• No wonder, an average Indian family’s expenditure on milk is next only to cereals among all food items. Milk is a classic ‘superior good’: As people’s incomes rise, the share of milk and dairy products in their total spending goes up, while declining for cereals (an ‘inferior good’). • Average income elasticity of demand for milk and milk products – % rise in consumption for every 1 % rise in income – is estimated at 1.9 in rural India and 1.2 in urban India (Dairy India 2007). It is higher among lower income groups.

Decile Class Lowest % of Food Decile % of Food Expenditure Class Expenditure 4.56 (45.37) 6th lowest 13.29 (32.55)

2nd lowest 7.50 (41.14) 7th lowest 15.83 (29.80) 3rd lowest 8.98 (38.51) 8th lowest 16.93 (28.04)

4th lowest 10.61(36.12) 9th lowest 19.46 (25.78) 5th lowest 12.09(34.65) Highest 21.61 (20.29)

Average for All Classes: 14.88 (30.69)

Decile Class Lowest % of Food Decile % of Food Expenditure Class Expenditure 9.91 (35.75) 6th lowest 18.61 (24.19)

2ndlowest 12.58 (31.00) 7th lowest 19.70 (22.51) 3rd lowest 15.16 (28.41) 8th lowest 19.93 (20.60) 4th lowest 16.53 (26.39) 9th lowest 21.15 (18.85) 5th lowest 17.41 (24.90) Highest 20.47 (14.42)

Average for All Classes: 18.31 (22.43)

• Organized dairies handle barely a fifth of India’s total milk output. Their product portfolio includes liquid milk (estimated yearly sales of $ 5.8 billion), powders/baby-foods ($ 1.2 billion), ghee ($ 1.1 billion), ice-cream ($...

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