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Dairy sector

Dairy is a ubiquitous part of food palette in India, ever-present in both food service and packaged goods, whether as an end product (such as milk or curd) or as a critical input for products such as butter, cheese, and paneer. Given its intrinsic presence in our daily diet, dairy is a microcosm of the food industry, with the preferences of dairy consumers largely being influenced by the same trends affecting the broader food sector.

In the early days and months of the COVID-19 pandemic, the dairy industry faced challenges—such as shifts in supply and demand. This supply-and-demand mismatch early on was created by an abrupt shift in supply, from dairy farmers at village level to large co-operatives. On the demand side, many producers and co-operatives were left without a market to sell their products. This abrupt shift of the dairy market from procurement centres to retail outlets overwhelmed distribution logistics in the short run. However, the industry ultimately emerged intact thanks to adjustments such as supply chain simplification and operational flexibility in the business model.

While nearly all dairy companies struggled to adjust to the new normal during the early stages of the pandemic, most capitalized on increased retail demand through operational flexibility.

The following three factors contributed to their success:

  1. Manufacturing flexibility: Most of the surplus milk was converted to Skimmed Milk powder, Butter and Cheese. This highlights the value of flexibility and how systems could benefit from such adaptability in the future.
  2. Collaboration across the supply chain: Producers, processors, packagers, distributors, and retailers coordinated among themselves, as well as with local and state authorities, to ensure products reached shelves on time ensuring the population was able to get their favourite cup of tea all along the pandemic. Government also played a major role to ensure no interruption happened in the essential commodity supply chain.
  3. Simplification of the product basket: Product rationalization characterized much of the crisis. To meet increased demand, companies moved away from a historic focus on variety of dairy products and moved toward the basics – milk, butter, and paneer.

COVID-19 has changed the world, but the fundamentals of dairy sector are just as relevant in today's uncertain environment. This past year was challenging for many reasons, yet the dairy industry showed its resilience. Focus on dairy farmers, processors and the consumer will reap rewards for the sector in the coming times.

The government has also supported the sector with various schemes and initiatives:

  • Government has extended the Dairy Processing and Infrastructure Development Fund till 2022-23. This will focus on building an efficient milk procurement system by setting up of processing and chilling infrastructure and installation of electronic milk adulteration testing equipment at village level. The scheme envisages providing loan assistance to State Dairy Federations, District Milk Unions, Milk producers companies, Multi State Cooperatives and NDDB subsidiaries across the country who are termed as Eligible End Borrowers (EEBs). 
  • The Animal Husbandry Infrastructure Development has been approved for incentivizing investments by individual entrepreneurs, private companies, MSME, Farmers Producers Organizations (FPOs) and Section 8 companies to establish (i) the dairy processing and value addition infrastructure, (ii) meat processing and value addition infrastructure and (iii) animal feed plant. The Animal Husbandry Infrastructure Development is a central sector scheme under the Prime Minister’s Atma Nirbhar Bharat Abhiyan stimulus package for incentivizing with budget allocation of INR 15,000 crore. 
  • Government has also approved the central sector scheme – Production Linked Incentive Scheme for Food Processing Industry and the scheme focuses on dairy products such as Mozzarella Cheese, Ice Cream, Milk-based beverage and Indian traditional sweets. The central scheme has an outlay of INR 10,900 crore and will be implemented over a six-year period from 2021-22 to 2026-27. It is a great initiative of the government for the creation of global food manufacturing champions.

The pandemic marks a turning point for the dairy sector: new patterns of consumer and business behaviour emerged at extraordinary speed during the pandemic. The level of innovation in response to this crisis has been truly impressive in the dairy sector. Shift to newer business models accelerated faster than many believed possible. Companies that rapidly evolved themselves in response to the pandemic have done tremendously well and are well poised to reap the benefits in future. 

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