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Growing dairy and meat industry

September 08, 2014


Improved bank financing of animal farming, expanding market outreach of milk and meat processing companies, and the growing domestic and foreign demand for livestock products, are reshaping the sector.

Latest SBP stats show that banks’ lending to livestock sector almost tripled to Rs10bn between August 2013 and July 2014, from Rs3.6bn in the year-ago.

Bankers say the bulk of the credit went to large commercial animal farms and dairy and meat companies, adding that a part of bank financing was used for expanding distribution and marketing networks. Engro Foods, for example, launched in December 2013, its fresh milk brand ‘Mabrook’ and opened a number of retail outlets for its marketing. Haleeb Foods also opened up dozens of milk collection centres, in collaboration with an NGO, in villages of Bahawalnagar, Punjab.

‘The main reason for price hike of dairy and meat products is costlier electricity and animal feed

Around 20 companies are currently engaged in processing of milk and production of its byproducts and some of them like Nestle, Engro and Haleeb are also involved in exports. Some 30 companies including Al-Shaheer Corporation and Al-Aien Group are involved in meat processing and exports.

In FY14, exports of more than 74,000 tonnes of meat and meat products fetched $230m, up from about 63,000 tonnes worth $211m in FY13. Industry people say the bulk of exports are going to Saudi Arabia followed by Kuwait, UAE, Bahrain, Oman, Qatar, China and Afghanistan.

Similarly, exports of milk and cream (not concentrated/sweetened) more than doubled to about $50m in FY14 from $20m in FY13, official stats show. Forex earning through exports of concentrated or sweetened milk and cream remained unchanged at $9m.

Exporters say the bulk of milk exports of both categories go to Afghanistan. Some tiny shipments are also made to Egypt, Libya, Mozambique, Nigeria, Sri Lanka, Tajikistan and the UAE. Butter, yogurt and other dairy products are also exported mainly to Afghanistan and Tajikistan. People associated with the trade say total export earnings through these items rose to about $5m in FY14 from around $2m in FY13.

Export earnings of dairy and meat products continue to grow backed by strong foreign demand. And local demand of processed milk and meat also have enough potential for growth but tapping it requires investment in dairy and meat industry.

All milk processing companies combined currently cater to about three per cent of the domestic market while the remaining 97pc demand is met by traditional network of direct fresh milk supplies — from dairy farmers to wholesalers to retailers. This low market share can be enhanced significantly if milk processors are able to cut costs to narrow the gap between the prices of processed and fresh milk.

No credible data is available about the market share of processed meat but industry people estimate it is around 5pc of the entire domestic market.

Despite the recent expansion, some key issues continue to impede the growth of milk processing industry. These include insufficient procurement of milk, adulteration in milk supplied by dairy farmers, low awareness among consumers about quality of milk, absence of pasteurization law and financial obstacles in attaining the economy of scales. Top market players, however, are aggressively engaged in diversifying their product base. Nestle, for example, has recently launched frozen curd brand named as Dahi.

On the other hand, the most pressing issue of meat processors is the lack of formal financing for the middle and small players. Big players like Al-Shaheer Corporation (parent company of Meat One) have made investment, initially on their own and later on with bank financing, for establishing modern animal farms and slaughtering and meat preserving technologies. “But smaller companies have begun to get bank financing only lately and may take some time to roll out branded meat products,” says an official of All Pakistan Meat Exporters and Processors Association.

Consumption of packaged milk is growing fast in major cities like Karachi, Lahore and Islamabad due to changing urban lifestyle and mushrooming of chains of big and small super stores. However, sales growth of branded packaged milk remains far lower than the potential because their prices are stubbornly higher than fresh milk sold at local milk shops.

Prices of processed meat are also far higher than the rates charged at butchers’ shops, which themselves have seen sharp increase over the past few years due to growing exports of meat and meat products. People say that the main reason for price hike of dairy and meat products is costlier animal feed and electricity, especially after the withdrawal of subsidy on animal feed in the latest budget.

They say that the government will have to make investment in dairy farming infrastructure, cold chain and veterinary services and farm management systems.

Published in Dawn, Economic & Business, September 8th, 2014