Dollops of foreign money churn Indian dairy sector
(Reuters) source: Khaleej Times Online

1 May 2004

BOMBAY - Women in India used to have the milkman deliver the milk, and then spend long hours in the kitchen boiling it to make yoghurt, butter, ghee and cottage cheese.

Milk VendorToday refrigerators in small retail shops brim with colourful packs of branded milk, including skimmed and full-fat milk as well as chocolate and strawberry-flavoured varieties.

“We used to buy packaged dairy goods for use in an emergency at home, but discovered that they are more convenient, hygienic, and consistent in quality and not that much more expensive,” said Anupama Katakam, a 30-something communications executive.

“So we have switched almost completely to branded dairy.”

Since India became the world’s largest milk producer in 2001, some local dairies have moved from a basic portfolio of milk powder, pasteurised milk and ghee to sell milk in foreign markets.

And foreign players are eager to tap the 750 billion rupee ($17 billion) industry.

“There has been a paradigm shift in the consumer’s ability to buy, plus greater exposure to products they’d not known before, leading to greater demand for high-end, niche products,” said Sonal Shah, head of food and agribusiness strategy at Rabo India.

”At the mass end, too, there is a shift from making yoghurt and sweets at home to buying them off the shelf,” she said.

That’s drawn in a host of foreign dairy companies. Dabon International, a joint venture of consumer goods maker Dabur India and French dairy firm Bongrain SA, launched Le Bon premium cheese in India in 1998, and recently introduced ghee and cottage cheese.

Denmark’s Christian Hansen has just set up shop in Bombay to make ingredients for processed cheese and yoghurt.

And American cheese maker Schreiber Foods spent 1.7 billion rupees in February to raise its stake in local firm Dynamix Dairy, which makes butter, cheese, yoghurt and ghee for Nestle India.

Got milk?

The move toward branded dairy products is the second “white revolution”, after milk production was boosted in the 1970s and 1980s by the first one, called “Operation Flood”.

India’s daily milk output totals more than 240 million litres, and is growing at more than four percent each year. This is second only to the EU’s combined output, and exceeds that of the United States.

There are nearly 700 registered dairies across the country, but most production is fragmented across 70 million farmers, some selling just two to four litres per day.

Just 13 percent of the milk is processed and packaged, with nearly half retained by farmers and the rest going to vendors.

The branded segment, worth an estimated 173 billion rupees, is growing much faster than the traditional sector.

“Some years ago, milk, yoghurt and ghee were all sold unbranded,” said Sumeet Anand, chief executive officer of Dabon. “Today, the consumer is ready to buy even branded paneer (cottage cheese). It’s a natural evolution process.”

India’s National Dairy Development Board now markets the Mother Dairy brand while Gujarat Cooperative Milk Marketing Federation (GCMMF), which led the first dairy revolution, sells goods under the name Amul.

Some players are looking abroad for growth, particularly to countries with large Indian populations. South India-based Hatsun Agro Products Ltd is planning forays into Sri Lanka and Seychelles.

Britannia, controlled by India’s Wadia family and Groupe Danone, has a joint venture with New Zealand’s Fonterra Cooperative Group.

Say cottage cheese

Multinational players have focused on butter and cheese, but realise their potential for growth is small compared with ethnic Indian products, which Rabo estimates will grow at more than 10 percent per year over the next four years.

For instance, the market for milk-based sweets, which are an integral part of festivals, weddings, and even the daily diet, is worth 310 billion rupees -- nearly half the industry’s turnover.

“It all boils down to how much of a perceived difference a firm can create between a branded product and an unbranded product,” said Atul Rastogi, analyst at Motilal Oswal Securities.

“It is easier in value-added products, for which people are willing to pay a premium, than commodity-type products.”

One challenge will be a tendency for price-sensitive Indians to favour fresh foods over packaged foods, which is why ice cream makers have had limited success and why Britannia pulled packaged milk from some markets and its line of cottage cheese entirely.

But consumers like Katakam have made the transition easily.

“Making butter or ghee at home is time-consuming and inconvenient, and you cannot be assured of quality when you buy them unbranded,” she said. “So I don’t even mind paying a slight premium for these advantages.”

Picture courtesy: National Dairy Development Board & The Hindu

© 2004 Khaleej Times All Rights Reserved.


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