Dairy Trade: Opportunities and Strategies for Startups

Introduction
India remains the global leader in milk production with an 18 per cent share in the world’s total milk production. However, its contribution to the international dairy market is still minimal at level of less than a half per cent mainly due to low level of milk processing. This huge gap between production and export of dairy products offers seamless and tremendous international business opportunities for startups.

Foreign trade plays a role in many countries in helping improve the variety of affordable dairy products available in a country. In addition, traded products support dairy processing sector, particularly in countries without sufficient domestic milk production.

Emerging Global Scenario
The advent of globalization under World Trade Organization (WTO) regime ? by increased market access and a worldwide reduction in import tariffs ? and technological development has opened the new arena for marketing regional dairy products at both national and international levels. This development in the world trading system has led to the paradigm shift of international dairy markets from being supply-driven to demand-driven. Nowadays, international business in dairy products is getting increasingly responsive to market signals and changing consumer preferences, rather than merely by excess production and depressed world prices. An increasing demand worldwide is noticeably emerging at present, thus increasing the scope and intensity of the global dairy trade.

The trade orientation of the global dairy industry, measured as the share of dairy exports in total milk production, has been reached to its peak of 16 per cent. It suggests the increasing importance of trade in the world’s dairy economies. It may partially be stimulated by a range of new products, expansion of cold storage facilities, improved shelf life, improvements in processing, preservation, marketing, packaging, logistics, and transportation, though high costs are still a constraint.

Global Leading Traders
The bulk of the world dairy trade is in cheese, butter, whole milk powder and skimmed milk powder. Two dynamic dairy ingredients with a substantial projected trade growth in the years to come are yogurt and dessert. The global dairy export market is highly concentrated. Germany remains the largest exporter of dairy products with a share of 15 per cent which is followed by France, New Zealand, the Netherlands, Belgium, USA and Denmark. Germany has been the world’s major dairy importer as well with a share of 10 per cent. Other large dairy products importers are Italy, United Kingdom, France, Belgium, the Netherlands, Spain and USA. India is neither a significant exporter nor an importer of dairy products. However, it reflects the country’s domestic policy orientation as well.

International Dairy Prices
The international prices of dairy products have been witnessing a downward trend since March 2014. Quotations for dairy products continued to be affected by ample world supplies and limited buying interest by traditional importers.

Global Dairy Top Companies
Swiss major Nestle is the top dairy firm in the world, followed by French Lactalis and Danone, while New Zealand’s Fonterra follows. Dairy Farmers of America (DFA) pushed into the top five. It may be noted here that despite the largest milk production, no Indian dairy firm made it to the world’s top 20. Due to a large unorganized sector and driven by cooperatives and not companies, Indian dairy firms are mainly local.

Major Dairy Companies in India
In India, both the cooperative and private sectors have played a significant role in milk processing. The leading players in the dairy industry in India are the following: Nestle, Amul, Mother Dairy, Quality Limited, Britannia, Dynamix Dairy, Sterling Agro, Haryana Milk Foods, Mohan Food, Modern Dairy, Dudhsagar Dairy, Cream Bell, Arun and K Dairy. Similarly, the leading brands for processed dairy products include Amul, Vijaya, Verka, Nandini, “Dairy Best,” Aavin, Milma, Omfed, Vadilal, Kraft, Britannia, Sapan, Spray, Meadow, Mohan, Parag, Shweta, Malkana, Gagan, White Magic and Every Day.

India’s Dairy Trade
The growth rates of India’s both dairy export and import have increased, but the export has grown faster than that of import in both value and volume terms. However, India’s export performance is not up to its true potential. The key reasons attributed to its below-par export performance are (a) high population pressure, (b) low level of milk processing, (c) high transportation cost, (d) stringent food safety measures, (e) occasional ban on export of dairy products, (f) poor quality and hygiene standards of dairy products being exported, (g) insufficient international marketing efforts, and (h) highly protected world dairy markets. Furthermore, import of dairy products has been insignificant. India, which was a net importer of dairy products until 2001, became a net exporter of dairy products, indicating a good export potential for Indian dairy industry. Recent experiences show that dairy exports on a large scale benefit milk producers, but do not hurt consumers. For example, in 2013, dairy farmers got the best-ever price for milk. This was because of global demand, resulting in large dairy exports from India.

Growth in India’s dairy exports could be defined empirically as
Dg = Pr + Av + Mp + Qd + Ii + Sp + Mo

Dg = Dairy export growth potential, Pr = ratio of international price of dairy products to India’s domestic price, Av = Average yield of the milk animal, Mp = Level of milk processing, Qd = Quality of Indian dairy products, Ii = Investment available for infrastructure for supply chain management, Sp = Scale of milk production and processing, Mo = Market opportunities.

Composition of Indian Dairy Trade
The Indian dairy export basket has experienced diversification. The export of skim milk powder (SMP), butter, whole milk powder (WMP), casein and ghee have gone up considerably in value terms during the last decade.

The composition of imported products keeps changing each year depending on domestic and international demand-supply situation and prices. However, the chief dairy products imported by India include butter oil, whey products, cheese and milk powders. The major nations from where India brings dairy products are Denmark, Nepal, USA, France, the Netherlands and Italy.

Major Export Destinations
India is the largest net exporter of dairy products in Asia. The chief importers of Indian dairy products are mainly developing countries, namely, Bangladesh, the United Arab Emirates, Pakistan, Nepal and Bhutan. As far as loyalty of importers of Indian dairy products is concerned, Bangladesh and the UAE are likely to gain market shares from the other importers of Indian dairy products.

Competitiveness of Indian Dairy Industry
As far as competitiveness of Indian dairy products is concerned, it may be noted that India is a least cost producer of raw milk but it loses her competitiveness in processed dairy products. This points toward a problem of inefficiency in milk processing plants. On an average, the unit export value realized by Indian dairy products is below the world’s average unit export value. It reveals that India’s quality-competitiveness is rather poor.

India’s comparative advantage lies in its world’s largest dairy herd, favorable climate, inland water resources and large farming sector. The country has also a location advantage with respect to access to the Asian markets, which are the net importers of dairy products. However, the milk yield is far below that of other leading producers. Creating a quality infrastructure at farm for collection and storage of milk is highly desirable for enhancing the competitiveness of Indian dairy industry. In order to boost earnings, dairy companies can step up focus on value-added higher-margin dairy products such as flavoured milk, paneer, curd, ghee and butter.

The generation of more exportable surplus through improved breeding and feeding programmes is the key to amplify the foreign exchange earnings from dairy sector. Policy and research emphasis should be on development of efficient milk value chain to boost trade. To improve the bargaining power of the country, on the quality front, India should improve its image as a reliable and consistent supplier of safe and quality dairy products conforming to the international standards.

Trade Policy
The department of animal husbandry, dairying and fisheries (DAHDF) regulates milk and dairy product export to India. Imported dairy products require a sanitary import permit issued by DAHDF, and a veterinary certificate certified by an exporting country’s veterinary authority. The Food Safety and Standards Authority of India (FSSAI) regulates dairy products under the Food Safety and Standards Regulations (FSSR), 2011. India applies tariff rate quotas (TRQ) for dairy product imports such as non-fat dry milk and butter oil; imports above the TRQ will be levied at 60 and 40 per cent. Government of India increased the butter, butter oil and ghee tariff rate from 30 to 40 per cent until March 31, 2016. Meanwhile, no subsidies have been granted by the government for the promotion of exports of dairy products.

Recently, India has signed a protocol with the Government of Russia for export of dairy products to that country. However, the current slump in prices in international markets can make it difficult for India to gain from the opening of Russian markets for Indian hard cheese export. India’s SMP exports to Russia have benefited during the last year. Nonetheless, global dairy markets seem to have begun a recovery and Indian dairy exporters could see an opportunity in the future.

Procedure for Exports
The Agricultural and Processed Food Products Export Development Authority (APEDA) promotes export of dairy ingredients from India. The Government of India has lifted a ban on export of milk and cream, concentrated or containing added sugar or other sweetening matter, including whole milk powder, dairy whitener and infant milk foods in November 2012. The ban was, however, withdrawn in the case of casein in April and SMP in June 2012.

Procedure for Imports
India has an open mind, but presently Government of India has extended the prohibition on import of milk and milk products (including chocolates and chocolate products and candies, confectionery, food preparations made with milk or milk solids as an ingredient) from China for one more year. India had first imposed the ban in September 2008 due to the presence of melamine, used for making plastics and fertilizer. India, however, does not import milk products from China, but as a preventive measure, it has imposed the ban. Now, India has further extended the ban on Chinese milk and dairy products until June 23, 2016.

Import Tariffs
India’s basic applied dairy tariff rate varies from 30 per cent for milk and cream not concentrated nor containing added sugar to 60 per cent for milk and cream, concentrated or containing added sugar. India’s custom duties (applied tariffs) on dairy products are far below the WTO bound tariff rates. A comparison of India’s dairy tariff structure with that of other Asian countries brings out that its tariff rates are below China and Japan, but higher than Indonesia, the Philippines, Malaysia and Singapore. India’s tariffs on imports of dairy products may be characterized as moderate.

Government Development Policies and Initiatives
The Government of India is progressively taking initiatives to promote the dairy industry in the country, in which inclination towards cattle breeding, clean milk production, dairy development, and feed fodder management are included. Currently, the government has focused on technology, research on genome of indigenous breeds and e-commerce platform for connecting breeders with farmers.

Strategies for Export Growth
Indian dairy products get lower prices in the world market. In order to get premium prices and better access in the world market, India should focus on improving the quality of its dairy products.

Finally, India’s export marketing strategies for its dairy products should encompass the following: market institutions to commercialize production, intensified awareness and efforts to produce quality dairy products with reduced safety risks, higher standards to meet sanitary and phytosanitary specifications for food export, greater productivity, and increase in the scale of the collection, distribution and processing of dairy products.

Source : Fnbnews