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As corporates enter, dairy sector likely to invest Rs 10k cr over 5 yrs

As the Rs 4 lakh crore Indian dairy industry catches the fancy of corporate giants, the sector is estimated to attract investments worth Rs 9,000 crore-Rs 10,000 crore over the next five years. 
Analysts say the major share of the investments are likely to be for creating farm infrastructure for collection and storage of milk. 
According to NDDB and CRISIL Research estimates, the country produces around 380 million litre per day (mLPD) of milk, accounting for a fifth of the global output. About 40% of this is retained by producers (farmers) for household consumption. Another 41% share is with the unorganised segment. The remaining 19% is procured, processed and sold through by organised dairies. 
Given the rising demand for branded products and investments being made by organised sector players, CRISIL expects the share of organised segment will increase to about 25% by fiscal 2018. In volume-terms, the dairy industry grew 4% annually in the five years ended fiscal 2015, while the organised sector grew at twice as fast. The volume of milk processed from organised sector is expected to grow 13% annually by fiscal 2018, way ahead of a 5% annual growth for the industry at large. 
Cooperatives, however, have a strong presence and hold over the Indian dairy market, and can pose a challenge for the growing corporate dairies when it comes to procurement of milk. 
Ashok Sharma, president & chief executive (Agri & Allied Services) at Mahindra & Mahindra, which has recently forayed into dairying with its Saboro brand explained: "The value of dairy industry at retail level is Rs 4 lakh crore. The share of total organised industry is approximately 30 per cent and is growing at a robust rate of 15 per cent per annum. The value added segment is the major driver of this growth with around 18-20 per cent growth. Curd, lassi, butter milk are growing at around 18 per cent while the smaller categories like flavoured milk, yoghurt, cheese are growing at upward of 20 per cent per annum." 
This high rate of growth and increasing preference for branded products is what is drawing players like Mahindra and Mahindra into the sector. A Crisil Ratings report highlighted that the share of value added products in fiscal 2015 is estimated at 43%, up from 35% in fiscal 2010. Rising purchasing power and increasing health consciousness have spurred lifestyle changes in recent years because of which consumers have gravitated towards value-added products, Crisil said. 
Shiva Mudgil, vice president, senior dairy analyst, food & agribusiness research and advisory, Rabobank says "Increasing organised activity in Indian dairy and direct processor-farmer engagement will entail significant investments in creating capacities for milk procurement, milk handling and product manufacturing. Investments in the dairy business will broadly range between Rs 9,000 crore to Rs 10,000 crore in the next 5 years." The major share of the investment will be for creating infrastructure at farm for collection and storage of milk, he added.
Mudgil noted that the bulk of investments will be made by private dairy companies, but sourcing quality milk could be a challenge for them. 
"This segment will comprise domestic dairy, food-FMCG companies and international dairy companies. For them, sourcing quality milk will be the most critical challenge and this will force them to invest in the milk procurement to increase direct farm engagement," he said.
Analysts, therefore, feel that these companies will also look to expand beyond their regional base. Innovation and technology focus will be important for them to cater to emerging consumer trends, either by developing new products or creating a unique positioning in existing product categories. "This will help them differentiate from the competition in the market with positive impact on the margins," Mudgil added. 
Mahindra, for example, has started with 2000 farmers and claims that it ensures that the milk collected reaches the processing plant in the shortest possible time. Sharma said, "We have forayed with Liquid poly-pouch milk. We did a lot of market research and understood that the consumer in Indore demands fresh, thick milk." The company thus has taken care to differentiate its products from what is already available in the market. Mahindra's poly-pack milk will be followed by value added dairy products like ghee, curd, lassi, and buttermilk. 
FMCG major ITC, on the other hand, has entered the dairy segment with Aashirvaad Svasti Pure Cow Ghee. "The Ghee was launched in select southern markets and we will look at expanding our footprint across the country. We are taking a regional approach and the ghee is customised to cater to local preferences," explained Sanjiv Puri, executive director, ITC Limited. 
ITC has set up a dairy plant in Munger. "Going forward as we expand our portfolio and footprint, we will explore the possibility of setting up such facilities," he added. 
While Gujarat Cooperative Milk Marketing Federation (GCMMF) which markets the Amul brand of dairy products increased its turnover of Rs 8,000 crore to 23,000 crore (provisional figure of FY16) in just about six years, its procurement too nearly doubled by 91% in that period. GCMMF will invest Rs 5,000 crore to set up 10 processing plants that will take its processing capacity to 3.2 million litres per day from 2.3 million litres per day.