Khalid Mahmood, Amit Saha, Otto Garcia:
Dairy Chains in Developing Countries -- A Case Study of Southern Asia


Federal Agricultural Research Centre (FAL), Insitute of Farm Economics, Germany

The aim of this paper is to understand the dairy chains that supply milk from the farmers to the consumers in urban areas in developing countries. A case study of south Asian countries is presented in this paper. In South Asia the milk produced by small farmers is mainly consumed on the farms for home consumption as raw milk and for processing into household dairy products (butter oil is very common product). Only the surplus milk (25% of the total production) is transported to the urban consumers through various chains. There are three major types of these chains, a) Formal chain (processed milk, 3-3.5% milk fat contents). b) Informal chain (fresh milk unprocessed milk, 3 to 4.5% fat contents) c) Farmers direct sales (fresh milk, 4-6% milk fat contents). The data used for analysis is collected through panel surveys from each of the one major market in selected countries. A comparative method developed by International Farm Comparison Network (IFCN) is used for the analysis of dairy chain and the margins. The transaction margins are calculated on the basis of one kilogram of raw milk, which is sold as fluid milk (3 to 6% fats) and extracted cream in all of the chains. The results are based on first estimates. Consumer prices: Returns from milk and cream sales are highest in formal chain of Bangladesh, which is US$ 0,48 per kg milk. The lowest consumer prices are in informal milk milkman chain of Pakistan as US$ 0,24 per kg for unprocessed raw milk. Farmer milk prices: Highest milk prices are received by Bangladesh farmers at US$ 0,32 per kg milk. Lowest milk prices are received by Pakistani farmers at US$ 0,13 per kg raw milk. Indian farmers are receiving milk prices above US$ 0,20 per kg raw milk. Margins: The milk margins from farmer to the consumers vary from US$ 0,06 to 0,24 per kg milk with lowest in Pakistan informal farmer direct sale chain and highest for Bangladesh formal processed chain. In general the margins are lower in direct sales due to absence of extra cream sales. If the farmers are receiving higher milk prices, the consumers have to pay the higher milk prices as well to maintain the margins in the chain. Formal vs. Milkman: The Indian (Haryana) formal chain is more competitive by paying higher milk prices to the farmers and selling low priced processed milk to the consumers. In Pakistan/ Bangladesh the informal chain seems to be more competitive.

Keywords: Consumer prices, dairy chain, developing countries, farmer milk prices, margins, south Asia


Contact Address: Khalid Mahmood, Federal Agricultural Research Centre (FAL), Insitute of Farm Economics50-Bundesallee, 38116 Braunschweig, Germany, e-mail:
Andreas Deininger, September 2004