Monday, July 16, 2018

Adulterated ghee and analog milk fat sector : A wolf in the sheep's clothing (65th Dairy Pulse 1st to 15th July, 2018)

Dear friends,

Last fortnight saw some good developments in terms of government extending support to dairy farmers and dairy sectors through their export subsidies policies and large players like Amul coming to the rescue of both farmers and consumers in Maharashtra. An interesting article in Business Today on organic milk farming( in which I was being interviewed by the journalist Ms Radhika  ) talked a lot about emerging trends in this sector with a few success stories. Two underlying facts about this sector as shared by me were long gestation period of this sector ( so a start up needs to be patient enough for 5-6 years at least with deep pockets) and  need of regulatory for organic foods ( on which FSSAI is already doing a commendable work). A news related to new norms for organic certification requirements from FSSAI is also part of this bulletin.

A very good news related to dairy sector is about an investment of close to 140-150 billion Rupees ( Rs 14000-15000 Crores)  in next three years as per Crisil report. Amul is looking at around 35 -40 % of this investment followed up by other leading private sector players like Hatsun, Heritage, Parag and others. It would definitely shows a positive sentiment in the sector for those who are getting too depressed due to current dairy situation in India.

An interesting article in Indian Express strongly professed the idea of India to focus on revenue generation through its livestock beyond milk also. It states that if Modi ji wishes to double the farmer's income then Livestock sector must be able to gain its revenue from both of its streams like beef and milk. In current scenario the prices of milk or prices of SMP in global market is not the only reason for farmer's pathetic position. It is like harvesting half of the crop and maintaining the rest at your farm without any realization. A farmer has to keep animals with him irrespective of their productivity and maintain them with their limited resources and have to sustain the whole dairy farm business on paltry revenue generated through milk only. In rest part of the world animals maintained kept for beef purpose are reserves to be used on a rainy day.

Now let us focus on the title of today's blog in which I am trying to highlight the perils of this analog as well as adulterated category of products which are taking away the opportunity of emerging boom in higher consumption of milk and milk products due to improvement in socio economic condition of India. These products are also responsible for poor state of dairy farmers in a benign manner.

Just look at  the news which talks about sale of Ghee flavored cheap edible oils under the label of Desi ghee in central India's markets of MP, Rajasthan etc. It is not the only region where such cases are present, you may find in whole of India desi ghee being sold either adulterated with palm oil etc or simply using ghee flavored combination of  a mixture of oils, hydrogenated ( or partially hydrogenated)  fat and some typical fat based agents like dolphin oils to adjust all the regulator's requirements of BR, RM, FFAs etc. Even some brands of large dairy players are also negotiated with their qualities through some channel partners or some unknown patrons. Currently it seems that all scientific tests requirements by FSSAI for desi ghee have been very well manipulated by these culprits and they can easily pass all the tests even after adding edible oils and other low price fat based alternatives. 

Simultaneously under the nose of all of us there is a new segment which is very comfortably strengthening its foundation which is of cooking media. These people make use of edible oil, hydrogenated fat and milk fat ( to the tune of 5% or so) and later in their advertisements or packaging use terms like Desi or Ghee in a deceptive manner. All large format modern trade including the largest one are more than happy selling them as they are much cheaper in prices and lures innocent consumers due to lack of clarity on terms being used.

Considering Ghee market to be of around 15-20000 Crores and at an average price of Rs 300/kg accounts for around 7 % of total milk being produced in India or 14 % of the total marketable surplus milk in India . In this market we are not considering the ghee made at homes in rural as well as urban India. 

Suppose that till date these people are able to replace only 5 % of the total ghee market which is a highly conservative figure for the sake of understanding the hole this sector is creating in the pockets of poor farmers. Milk equivalent of 5 % ghee equivalent is equal to half billion liters of milk or total annual milk production of whole of North Eastern states ( except Assam), Goa, Puducherry, Chandigarh, Dadar and Nagar Haveli put together.

At 10 % it is equivalent to whole of Himachal Pradesh and at 20 % you wont believe but it would cover total production of any of the states Odissha, Uttrakhand, J&K, Jharkhand  etc along with that of Delhi.

Key findings from above  : Only 5 %  adulterated ghee in market is equivalent to half billion litres of milk.

All these players from analog sector or spurious ghee supplying channels are showing better growth rates than  their dairy counterparts in all analog categories of cream, butter or cooking media on one hand or largely adulterated desi ghee  on the other hand. I am amazed that why the industry is so silent and letting these players grow and take away the rights of dairy farmers by supplying spurious products in the guise of desi ghee or butter or cream so easily.

I have already made a representation to the FSSAI for analog products and requested scientific panel in person to get the testing procedures for desi ghee redefined so that these adulterated products may be checked. I firmly believe that if the industry come together and make a proper representation to the FSSAI and other relevant authorities then surely our farmers would be able to get better prices for their products and would be able to dispose higher volumes of milk also.

In my forthcoming blogs I shall be covering on analog cheese and panir market where the situation is much worse than Ghee and fat based products.  As in case of panir and cheese the value chain is just at the door steps of farmers.

Happy e reading

with best regards

Kuldeep Sharma
Chief Thinking Officer
Suruchi Consultants (ISO 9001:2008 Company)
C-49 Sector-65
Noida 201307

Sunday, July 1, 2018

During Crisis government makes better policies (64th Dairy Pulse 16th to 30th June, 2018)

Dear friends,

At the outset I would like to thank you all for reading this blog with patience and correcting us wherever we commit some mistakes. In one of our blogs a few weeks back we mentioned about the huge pile of SMP to the tune of 200000 MT and we mentioned it to be as 12 % of total milk production. Actually it was around 2% of total milk production and we acknowledge the mistake. Pl do write back to us for any thing which needs our attention.
Last fortnight we saw government taking a few good decisions related to offering export subsidies so as to relieve cooperatives disposing off huge piles of powder stock. Thsi would help them , making rooms for forthcoming milk floods, post monsoon from the farmers. There have been suggestions by some other dairy expert on certain social media forums, that let government offer these huge piles of smp as donation or gift to other under developed nations which demand it.
Let us examine on how apt and sustainable such strategies are from the perspective of sustainability of dairy farming business in the country. May be for current situation it might be considered as a temporarily relief to the sector. 

I believe that use of Iodex or any other such pain reliever is good enough for sprains but not for fractures.
Current pathetic situation of dairy farmers has not evolved over night. This crisis is an outcome of a series of neglect which the policy makers are keeping their eyes closed on for a long period now. 

Let us look at all the game changing moves by the government starting from importing different varieties of wheat seeds from Mexico in late sixties , decision to import SMP/Butteroil to make Operation flood happen and in this millennium to try out Genetically modified crop for cotton ( BT cotton). All these moves were too painful and faced a lot of objections and debates but later changed the horizon of Indian agriculture. The first move made India self sufficient in around 5-7 years time, the second move made India largest producer of milk in around 4 decades and the last move made India almost second largest producer as well as exporter of cotton in two decades.

During crisis the government makes better policies. 
(I have borrowed these thoughts from Dr Ashok Gulati a noted agriculture expert from IFPRI.)

So last week I thought that why not to enroll farmers to start thinking about what is best for them and let them prepare a draft agenda to be submitted to the government for designing a better policy. A few of the points in the agenda may be as weird as getting BT cotton to India but let it be. Atleast we must stop watering the stem (by providing subsidies or support for short term gains to the processors) and not to the roots(dairy farmers) of the plant (dairy farming in this case).

If you get some time then watch this video which I have shared with a subscribed group of around 30000+ dairy farmers and dairy entrepreneurs  across the nation. However I am listing the same points below also for your kind perusal and further suggestions.

The key policy changes which might support farmers in long run may be as follows :

a. Change in milk pricing structure in the country. Currently it is fat based. This way Cow milk producer is at a loss at most part of the country. The other problem with this structure is that high perceptual cost of ghee makes it easier for a large number of market players to produce adulterated ghee by mixing it with edible oils or to charge very high rates for cow based ghee. If cow based ghee fetches higher prices then why cow milk does not fetch that premium by default ( barring those few players who without even having farms are selling cow milk at Rs 100 + per lietr and cow ghee @ Rs 2000+ per kgs).

b. Introduction of Minimum support price for milk on seasonal basis ( we have raised this issue at least 3 times in last two years). I am surprised to see that government has enacted a daily basis formula for diesel and petrol wherein the beneficiaries are public sector, government (revenue deptt) and large oil companies. It is being done so that not even a single paisa loss is incurred to all these three stakeholders. However when it comes to the farmers no such formula is there to protect them (even atleast 2-3 times an year) when the season changes and under market dynamics of highly fluctuating (normally upwards only) input costs. As a rule of thumb the farmer must be able to purchase atleast 2 kgs of balanced ration cattle feed out of selling 1 kg of milk to make some profits ( at 1.5 Kgs formula he will be breaking even only in most of the cases). This way if the cost of balanced cattle feed is Rs 18/kg for a cow and Rs 22/kg for buffalo then the msp for milk must be Rs and Rs 44 per kg for cow and buffalo milk respectively. The economists may be used to evaluate regional costs of production of balanced feed so as to avoid any mistake.

c. Based on land holding or number of animals holding the farmers may be given some kind of compensation for the period of crisis as is done in the case of natural calamities like drought and floods. A suitable group may be used to apply acturials to find such compensatory packages.

d. On the lines of FCI(food corporation of India) we may have another FCI which is Fodder corporation of India. This institution may be used to collect and store hay blocks and silage from around the country. This corporation will help in taking care of all the gaps arising out of our agri diversity and thus would provide silage and feed ( inputs ) to the dairy farmer at a reasonable cost or by using Kissan credit cards. This will help them to atleast sustain their animals at low cost and thus would sustain even at low prices.

e. There could be a system aligning the farmers and processors and giving an opportunity to the farmers to become part of the real value chain of the dairysector. In case of access milk the farmers may provide milk free of cost to the processors and the processors in turn would convert that milk into value added products like SMP, cheese, UHT milk etc. These processors would act as a bank to the farmers and the farmers may be able to insure their produce for a future date gain. The government may act as a guarantor to the system and would ensure a minimum assured price to the farmers at a future date. This way farmers will get a good price for their routine production and invest their surplus milk like SIP in commodities . The processor would also be able to run his plant at full capacity without any liability to make immediate payments to the farmers in case of a glut. The government would act as a moderator and ensure true governance so that interest of everyone remain intact.

These are just couple of thoughts..howsoever weird they are but we will have to think , deliberate, share and make it reach to the policy makers.
Please share your thoughts which we would love to collate and make a list of suggestions for the government to implement. We shall be collecting the suggestions from the farmers also which I would be sharing with you all in some forthcoming issue.
In last edition  we promised you that in this edition we shall be sharing details on how an upsurge in analogue dairy product segment will be  ruining the opportunities of dairy farmers to sell more milk in the country. However we have postponed that to next edition and focussed more farmer's centric discussion this time.

Happy e learning.

with best regards

Kuldeep Sharma
Chief Thinking Officer
Suruchi Consultants (ISO 9001:2008 Company)
C-49 Sector-65
Noida 201307