DAIRY INDUSTRY

Demand Conditions
Pakistan is the 3rd largest milk producer in the world with an annual milk production of 36.2 billion12 as per 2010. There are over 10 million families having more than 56 million dairy animals, mostly indigenous buffaloes and cows. Milk sector contributes a total of 10.8 13 percent to the total GDP of Pakistan. Milk and its various products contribute a total of 27% to the total household expenditure on food items in Pakistan. Milk production, despite its low yield is a valuable sector and today is far ahead of the major cash crops such as cotton, rice and sugarcane of the Pakistan but the irony is that this sector is much neglected by the government. There is a high demand for both powdered and processed milk in the neighboring countries of Pakistan like Iran, UAE, Saudi Arabia besides Malaysia, and Philippine, which Pakistan can successfully harness to get a competitive advantage. The market for Dairy food in Pakistan increased between 2002-2007, growing at an average annual rate of 7.2%14. Milk and its various products come second to the cereals in the level of per capita consumption is Pakistan. The annual per capita consumption of milk in Pakistan is 190 liters. On a Provincial basis, per capita consumption stands at 246 liters in Sindh, 132 liters in Punjab, 86 liters in NWFP, and 108 liters in Baluchistan. The Pakistanis are becoming price conscious when it comes to milk due to the rise in inflation and high levels of poverty, this also one of the main reasons why unprocessed open milk is preferred over processed and packed milk. Majority of the industry is unstructured and more that 90 percent of the milk is collected and sold unprocessed. Marketing is done through the informal market by a multi tiered layer of marketing agents which include middlemen, gawallas, etc.

Demand-Supply Gap One of the major problems with this sector has been the gap which exists between the demand and supply of the milk to meet the local demand. To cover up this gap during July 2006 November 2007, dairy products worth Rs. 2320.42 million ($38.6 million) were imported15. Fresh milk being a highly perishable item is easily damaged during collection from milk producers. This is due to the inefficient distribution, which involves milk changing hands between numerous players like dodhis, middlemen, etc during the distribution and the adding of impurities. This further increases the gap between the demand and supply. Moreover the increasing urbanization and income levels in Pakistan has further increased the demand for urban milk rapidly, which in turn promoted commercial dairy production of milk that
12

http://www.thefreelibrary.com/Pakistan+ranks+at+fourth+with+36.2+million+tons+milk+production.a0217977969 13 http://www.smeda.org/sector-development/dairy-sector-brief.html 14 http://www.researchandmarkets.com/reports/706517/dairy_food_in_pakistan_to_2012 15 http://www.aphca.org/reference/dairy/Pakistan%20LLS%20draft-final%2020-11-07_forweb.pdf

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led to increased supplies from rural producers. But still due to long distances, short life of fresh milk, lack of storage and transportation facilities, most of the milk produced in the rural areas is unable to reach the milk processing plants and hence this supply isnt enough to meet the current increasing urban milk demand. Despite being one of the largest milk producing nations, Pakistan is still not self sufficient to fulfill its local demand. The demand of milk in Pakistan has been 36.9 billion liters as per 2010. On the other hand the supply was only 35 billion liters. Hence the demand and supply gap has gone up to 1.9 billion liters. In 2009 this gap was only 1.5 billion liters and it is estimated that in 2015 this gap will rise to 3.6 billion liters. The daily shortage of milk in Karachi alone has been at around 4 billion liters.

International Demand Countries such as Iran, UAE, Saudi Arabia, Philippine and Malaysia have a huge demand for powdered and packed milk, hence Pakistan has the potential to cover theses international markets but first Pakistan needs to cover its local demand and become self sufficient. It has been noted that during July 2010-November 2010, dairy products worth $54.6 million were imported. The below figure shows the total milk production per million tons in different countries of the world and the sizes of the dairy farms with respect to animals that are kept per farm in Pakistan, India, United States of America, Germany and New Zealand.

http://www.fao.org/ag/againfo/programmes/en/pplpi/docarc/wp3.pdf

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Local Demand Milk and milk products represent 27% of total household expenditure on food items in Pakistan. Local demand for open and unprocessed raw milk is very high compared to processed milk and this mainly due to the considerable price difference. Processed milk is expensive due to its processing and packaging costs. Although this problem can be overcome by government subsidiaries but it has been seen that the government has a more favorable attitude towards other lucrative industries. PROVINCE NATIONWIDE PUNJAB SINDH BALUCHISTAN KHYBER PAKHTOONKHWA ANNUAL PER CAPITA CONSUMPTION 190 LITERS 132 LITERS 246 LITERS 108 LITERS 86 LITERS

Moreover in Pakistan there is a high demand for the following products made from milk:

Yogurt

Khoa

Butter

Ghee

Cheese
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Ice cream

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It has been noted that on average 20% of the raw milk purchased by the local milk shops in Pakistan are converted into dahi (yogurt) and khoa. During Ramadan and in summers the consumption of dahi increases significantly. Currently the prices of unbranded yogurt range from Rs. 21-25 per liters. Ghee is also one of the main products which is made out of milk. Majority of this ghee produced is consumed by the rural homes with only about 34% being marketed through whole sellers through wholesalers, vendors and shopkeepers, both in rural and urban areas. Desi butter, another important product made out of milk, has a stable demand, which slightly increases during the winters. The quantity marketed reaches almost 58 thousand tons per year. Majority of this butter is produced by the larger dairy shops in the cities. They usually buy fresh cream from the whole sellers and paka dodhis and convert it to butter on a daily basis. The ice cream industry, produces around 9,000 to 10,000 thousand tons of ice cream per annum, and uses mainly dairy ingredients, especially fresh cream. Fresh milk is mostly substituted by imported milk powder. The demand for fresh milk and dairy products in Pakistan will definitely continue to increase over the years, the fact behind the phenomenon being the growth of the human population. Other variables influencing increasing demand of milk are the growth of personal incomes. Demand for milk and dairy products in 2010 16:PRODUCTS Fresh and boiled milk Dry and condensed milk Butter Ghee Total (fresh milk equivalent) ( 103 T) 25,604 68 165 327 36,900

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http://www.ilri.org/InfoServ/Webpub/Fulldocs/South_South/ch09.html

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Seasonal Fluctuations in Demand During the summers the demand for milk increases, when the intake of milk products such as lassi and ice cream increases, while the supply is low because of a decrease in the yield of milk. The opposite happens during the winters, there is an excess production of milk while the demand is low. Hence overall the seasonal fluctuation hampers both production and consumption patterns in Pakistan.

DEMAND & SUPPLY OF MILK AS PER 2000

120 100 80

60 40 20 0 j f m a m j j a s o n d demand supply

MONTHS

The Figure above illustrates the fluctuations in demand and supply over the year 2000. It can be easily seen that there is a surplus in the supply of milk from October to March which are winter months. This surplus is due to the fact that the demand of milk decreases during the summers and the supply increases. On the other hand there is an excess demand of milk from March to October which are the summer months due to an increase in the demand of milk and a decrease in the supply of milk due to low yield. Milk supply from rural milk farms decreases by half in mid-summer. In contrast, the peri-urban producers of milk have better control over their contribution to the supply, hence supply fluctuates less through summer months in the peri-urban areas. It is assumed that the total supply reaches the lowest point during the mid-June; at this point, supply represents only 55% of that during the peak period i.e. during the mid-February. Based on preliminary results from various small surveys, the total demand of milk varies from its highest point in June to an estimated low of 60% in December.

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