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Tropentag, October 5 - 7, 2004 in Berlin

"Rural Poverty Reduction
through Research for Development and Transformation"

Who Is More Competitive in the Dairy Chain in India - Formal vs. Informal

Amit Saha, Otto Garcia, Khalid Mahmood

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


The informal sector is the dominating channel in handling 80 percent of milk processing and marketing of milk and dairy products in India. The paper looks into some of the forces responsible for their dominance even under foreseen liberalisation of agricultural trade conditions. The study uses a case study approach to analyse the dairy chain involving the most common milk products handled by the organised and unorganised sectors in the state of Orissa, India. Orissa is a state where 95% of milk is still handled by the informal sector. IFCN (International Farm Comparison Network) methods are utilised for the analysis of costs of milk production and margin analysis. This case study involved two channels of dairy milk processing, the formal cooperative milk union and the informal milkman. The product studied was the most common product marketed namely, fluid milk (2,5 to 3 percent fat content). The farmers price of milk (4% fat) paid by the milkman was 11,5 percent more, the consumer price lesser by 22,7 percent. The value addition margin per litre of raw milk processed was lesser in the informal sector by 78 percent. The milkman is adulterating the milk with 400 ml of water per litre of raw milk to bring down the fat content to 2.5%. Hence, the processing and marketing costs for the milkman was lower by 273 percent per litre of raw milk handled leaving a higher cash net margin by around 50 percent of the formal channel. This could clearly explain the reason for dominance of the informal sector in milk markets in Orissa, with both the farmer, consumer and the informal milk agent (milkman) being benefited more in the process, though the milk quality by the informal sector is much worser than that in formal sector. Due to lack of quality awareness and adequate infrastructure to cater to urban market demands is making the informal channel more competitive and thus dominating the milk markets in India.

Keywords: Competitiveness, cooperatives, dairy chain, food, formal, informal, markets, milk, quality

Contact Address: Amit Saha, Federal Agricultural Research Centre (FAL), Insitute of Farm Economics, Germany, e-mail: amit.saha@fal.de

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