Drought may result in loss of at least 5% production in dairy industry

It is either El Nino or La Nina that mars or makes a good monsoon. Last two years agriculture suffered the El Nino Effect. Drought severely affected 10 states in India almost for two consecutive years. This had a marginal impact on the dairy industry. But the current third year is hurting milk production and productivity due to lower availability of fodder, and stressed livestock unable to deliver as much milk as before. While last year the growth in milk production was highest ever at phenomenal 6.3%, the current drought may result in a minimum loss in production of five per cent or more, depending on the region in question and the intensity of drought.

Fortunately, it is predicted that the current La Nina for bodes well for the upcoming monsoons. Should the drought affected regions be able to provide water and fodder to the suffering cattle and buffaloes to survive, the dairy industry would heave a great sigh of relief.

As the world’s largest milk producer, India produced 146.3 million tonne (MT) in 2014-15, against 137.69 MT in 2013-14.1 It remains to be seen how much will be produced in 2015-16. With the 2016 monsoon predicted to be normal or somewhat above normal, production in the latter part of the year is bound to pick up. This is as far as the elements are concerned.

Budgetary Cheer

But human intervention has always been able to ameliorate even adverse circumstances in the dairy industry, driving better outcomes and higher productivity. It is this aspect we need to focus upon for the upcoming months of the calendar year. This is where the provisions in Budget 2016 announced earlier should be helpful in boosting outcomes in the dairy sector.

Where the animal husbandry segment is concerned, the Budget’s focus on technology, research on genome of indigenous breeds and an e-commerce platform for connecting breeders with farmers should augur well for the industry’s outlook in 2016 and beyond. The budgetary provision of Rs 850 crore will help in breeding better indigenous cattle and improve the productivity of farmers who possess local breeds. Of course, it needs to be borne in mind that almost 90% of farmers in India rear foreign breeds such as Holstein Friesians (HF) due to their extremely high yields. But the focus on indigenous breeds will be helpful for farmers in the long run and boost profitability in local breeds by finding means to enhance their productivity. Through genomics, the use of indigenous breeds could become more viable and sustainable.

Creation of an e-commerce platform will benefit farmers seeking to procure better breeds from breeders. Such a platform can also be helpful in eliminating middlemen, who have their own vested interests and may not really help farmers in securing the best deals. Through the online medium, efficiency and profitability are also bound to increase. Of course, one cannot lose sight of the fact that foreign breeds such as HF have been instrumental in boosting production numbers and playing a role in taking India to the position it today occupies globally.

According to market analysts, the dairy industry will continue to grow by a CAGR of more than 7% during 2016 and thereafter. North India will be the dominant force in the market backed by rising per capita consumption and the growing youth population. Across India, consumers will be more inclined towards value-added products such as yoghurt, probiotic drinks, cheese, cottage cheese, butter, clarified butter, ice cream as well as other dairy products and traditional sweets.

Changing consumer patterns and the growing presence of leading foreign players operating in India will be the other factors that impact the dynamics of the industry.

Rural Catch Up
Considering the number of affluent families rising in the cities as well as rural areas, the demand for value-added dairy products is bound to increase as people opt for more nutritious diets. Driven by higher demand, companies in the public and private sectors are bound to boost their footprints in numerous regions, leading to higher employment opportunities, especially via private players, who have been more assertive in making their presence felt during the past decade. Given the dairy industry’s presence across the country, more farmers may gradually turn to dairy farming as agriculture becomes difficult and less remunerative.

As the competition soars in 2016, more companies in the dairy sector will embrace modernisation to promote higher revenues and productivity. Foreign entities and investors will then find the sector more attractive as the dairy companies operating in India report better revenues. Despite the industry being largely unorganised presently, the number of organised players will rise in 2016. Although demand for value-added products is higher in the urban areas, rural regions will slowly witness more demand as these families become more upwardly mobile and health-conscious.

Meanwhile, the government needs to undertake special steps to plug perennial pain points such as the lack of skilled talent, poor cold storage infrastructure and a faulty pricing mechanism, all of which hinder retail operations, particularly of private players.

If the government undertakes these measures at the earliest, 2016 may turn out to be a milestone year for India’s dairy industry.