The milk processing industry collectively invested $700 million in the last five years in Pakistan — the fourth largest milk producing nation. The industry projects that the share of packaged milk in the domestic market currently stands at 7pc. The rest of the market is catered by the informal sector.

“The price of packaged milk has increased 200pc over the past half decade, but so has the cost of production. From Rs36 per litre in March 2006, milk price surged to Rs99 in March 2014. The milk business is very intricate and demanding,” Sarfaraz Rehman, CEO of Engro Foods, told Dawn over the telephone.

“Engro is working at a narrow margin of 11pc. At the best of times, the margins did not go beyond 24pc. Whereas in soaps and shampoos [besides other items], margins are as high as 35-45pc,” he said.

“We conduct as many as 30 different tests to maintain standards, invest in infrastructure/logistics and training of livestock farmers for better yields and practices, and record all transactions. We pay all taxes and government levies.

“On the other hand, our competitors in the informal sector dealing in loose milk operate outside the tax net, and do not monitor or report safety standards. Documentation is necessary for an even playing field, if the government wishes the milk industry to grow,” he asserted.

Waqar Ahmed, head of corporate affairs and communications at Nestle Pakistan and Afghanistan, focused on the availability of safe and healthy milk to people.

“Quality-conscious consumers are paying for the quality,” he said over the rising price of packaged milk.

“Nestle Pakistan is obligated to meet international standards, which is difficult to achieve here as the unprocessed ‘raw’ milk is often low in quality. The margins in the milk business are not in double digits, as far as I know. I do not have numbers at the top of my head. You can get the data from the website of the Pakistan Dairy Association.”

Ikramaul Haque, a member of the executive committee of the Dairy Association of Pakistan and chairman of Millac Foods, felt that despite multiple challenges, milk companies are doing exceptionally well.

“The bigger players tend to use their dominant market position to their benefit. For better results, the government needs to act to reconcile conflicting interests hurting the country’s milk economy,” he commented over telephone from Lahore.

Asad Farooq Fahim, a spokesperson of the federal ministry of industries, absolved the federal government of any responsibility in this regard.

“After the 18th Amendment, it is not our subject,” he responded over a question regarding price monitoring. “We do all that needs to be done to create an enabling environment,” came the sharp reply from Islamabad over the tilted business space occupied by the informal sector.

The big gap between prices at the livestock farm gate — Rs35-50 per litre — and at retail outlets — Rs75-100 — and the wide band of variation of Rs15 at source and Rs25 in shops necessitates deeper insight into the milk economy for better understanding of the role of stakeholders along the supply chain and the part that the government can play in ensuring steady supply of a basic food item at an affordable price.

In the current scheme of things, the end-consumer does not get value for his money in terms of quality and quantity. And producers of the base milk — the dispersed population of dairy farmers — complain of not getting fair return on their investment.

Ikram ul Haq believes that price distortions are also rampant because civil society organisations are weak. “The consumer rights bodies are not active, so the government feels no pressure to do its job effectively, and companies and retailers get away with their antics.”

Background research by this writer revealed many sets of fiercely competing players, with little regard to fair play, business ethics and the law of the land.

Meanwhile, farmer representatives complain that middle men exploit them, and that the companies pay them less than the fair price at collection points. “We are caught between the mountain and the sea. We can’t hold back the stock. It has to be sold at whatever price we get,” a progressive farmer from Sahiwal told Dawn over telephone.

“The powerful companies are rolling in money. They fix prices unilaterally, even though they should not, as dictated by the Price Control and Prevention of Profiteering and Hoarding Act 1977. They also indulge in deceptive marketing in their media campaigns, as they also use powdered milk and claim the packages contain fresh milk.”

Haroon Agar, former KCCI president and a commercial importer, confirmed that milk packaging companies import powdered milk.

When reached over phone, the Competition Commission of Pakistan confirmed said it has initiated an inquiry against milk companies for indulging in non-competitive practices by abusing their market position. “We are at the initial research stage,” the CCP told this scribe from Islamabad.

“With better management by the government at the federal and provincial levels, production yields and the standard of milk production can improve. This can bring prices down and boost prospects of processing and allied industries not just for the local market but also for exports,” an expert commented.

The demand of milk is huge and is rising at a fast pace because of its use in a number of food, confectionary and bakery products. Little wonder that despite massive local production, the country imports powdered milk. In the first eight months of this fiscal, 34,382 MT of powdered milk was imported for $10.5 million, according to the Pakistan Bureau of Statistics.