DESPITE a huge potential for growth, the dairy sector remains stuck in a groove, operating mostly in informal sector with very little incentive to grow on commercial lines.

Still, the country is the world’s third largest milk producer with over 50bn litres of annual milk production. Only 3–5pc of this output is marketed through formal channels. The remaining 96pc is loose or unprocessed milk supplied to consumers by local supply chains, meeting their nutritional needs but with no assurance of being pure, hygienic or safe. However, the processed dairy sector, a latter-day form of this old business, is creating a consumer pool for itself in the urban centres.

Some 8.5m families, mostly in rural areas, are involved in the milk business, with 92pc of them engaged in small scale farming, having 1-6 animals per household, accounting for approximately 65.4pc of the total population of cows and buffaloes. About 8pc families are doing medium scale farming, with 7-50 animals per farm, and take care of around 27.9pc of the total animals. A tiny group of individuals, about 0.1pc, has a herd of more than 50 animals per farm. They look after the rest of 6.7pc of the cows and buffaloes population mostly in corporate style.

The dairy sector as a whole is facing a myriad of critical problems. A study of the past dairy policies, according to summer 2004 issue of Pakistan Development Review of PIDE, shows that the planners in Pakistan have always been more concerned about the development of the crop sector than the dairy sector. This is despite the fact that livestock’s contribution to the GDP (at 11.8pc in 2014-15) is higher than the contribution made by the entire crops sector.

Policy interventions for dairy development have been very few and far between, which also reflects in the poor showing of milk yields per animal, and in the way milk supply channels are currently organised

In fact, the policymakers never had faith in the development of the dairy sector. For example, a cursory look at the Five-Year Plans shows that the policy interventions for dairy development were very few and far between, which also reflects in the poor showing of milk yields per animal, and in the way milk supply channels are currently organised.

This attitude was also reflected in last month’s milk crisis in Karachi over fixing of new prices. The crisis began with the official ban on hormonal injection (oxytocin) being administered for the past 15 years to buffaloes for enhanced milk yield. The ban resulted in lower yield and there was a 30pc drop in milk supplies to the city. The price the government insists to retain was set in 2012 and has meantime become irrelevant in the wake of multiple increases in prices of inputs like feed, transportation and animals. The cost of production has, in fact, become higher, leaving little rationale for milk sellers to stick to the three-year old price.

In recent years, many medium-sized dairy farms were shut down after having suffered losses. The number of farms has now shrunk to 8m from 11.5m in 1996. It means there has been a 30pc decline in dairy business during the last 18 years. According to CEO of Corporate Dairy Farmers Association, investment in large-scale dairy farms has come to a complete halt and no new mega farm has come up since 2013 because of some regulatory, taxation and health issues. Fourteen farms were set up during 2007-2012 with an investment of Rs20.7bn. The growing downward trend in the dairy sector had also been reported in a recent survey conducted by the Punjab Livestock and Dairy Development Department.

The closest rival to the growth of dairy sector has been the skimmed powder milk and whey powder which are imported in large volumes and are popular among low-income groups. Unlike India and Turkey, which charge import duty on dry milk up to 68pc and 180pc, respectively, to protect their local industry, Pakistan has reduced the duty from 25pc to 20pc. According to UN statistics, Pakistan imported $341m worth of skimmed milk powder and whey powder during 2012-2014.

The problem is that the farm gate price of fresh milk is higher than the powdered milk. Secondly, the annual demand for fresh milk is increasing by 10-20pc whereas its production is growing approximately by 4pc per annum. Since the supply of fresh milk is not enough to satisfy the growing demand, it is argued, the government cannot discourage import of milk powder.

Published in Dawn, Business & Finance weekly, October 5th , 2015

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