Corporate dairies to have an edge over co-operatives

Parag, Hatsun, Kwality plan to increase milk procurement for value-added products

Growing demand for branded and value-added products is likely to see more action from private dairies in procurement and new product launches.

An India Infoline report points out the profit after tax (PAT) growth for players like Hatsun Agro, Heritage Foods, Kwality Dairy, Parag Milk Foods and Prabhat Dairy between 2011-12 and 2015-16 has been 22.8 per cent, 56.1 per cent, 17.1 per cent, 25.8 per cent and 26.7 per cent, respectively. All these players have moved away from commodity trade to focus on value-added products.

"The margins for the commodity (skimmed milk powder) is around 4.5-5 per cent, while for fresh products it is around 9.5-10 per cent, and for value-added products this goes up to over 20 per cent," says Nawal Sharma, president and head, business transformation, Kwality.

The high rate of growth and increasing preference for branded products is drawing players like Mahindra & Mahindra and ITC into the dairy industry.

M&M has launched vitamin-enriched milk with 44 per cent higher cream content. ITC is selling Aashirvaad Svasti pure cow ghee. Godrej Agrovet has raised its stake in Creamline Dairy from 10 per cent to 25 per cent.

Danone, Nestle and other existing dairy players are adding to their product lineups and cooperatives such as Mother Dairy are also expanding their operations.

The India Infoline report predicts the private sector is likely to procure more milk from farmers than cooperatives in future.

Ruchita Maheshwari, an analyst with India Infoline, says there has been a 20-30 per cent rise in direct procurement from farmers by private dairies.

"To process value-added products one needs to procure directly as there is a difference in the way milk is chilled by contractors. This is encouraging private dairies to develop well-defined farmer-connect programmes," says Sharma.

Kwality plans to raise its direct farmer sourcing from 22 per cent of its overall volume to 50 per cent in the next four years.

Maheshwari says players like Parag source 100 per cent of their milk directly from farmers. Around 70 per cent of the country's milk production is handled by the unorganised sector, the rest is shared equally by cooperative and private dairies.