WITH a production of 33 billion litres per annum, Pakistan is the fourth largest milk-producing country. The potential is huge but untapped as the sector operates mostly in informal economy and needs a consistent effort to formalise and be able to contribute in a better way to the national economy. The total value of milk produced is higher than the value of two major crops -- wheat and cotton.

About 97 per cent of the annual milk production is utilised through informal sector. Loose milk consumed in villages and cities through gawallas is mostly unhygienic. This also means that 97 per cent of the 8 million farming households are not linked to formal markets..

According to the Economic Survey 2005-06, per-capita consumption of dairy products has skyrocketed during the last decade, but the local milk production has not kept pace with the rising demand.

With explosive growth in recent years, the dairy sector is attracting the attention of international companies for investment. Still for the available opportunities to be fully exploited, the government must work towards providing favourable environment for foreign as well as local investors. For example, a multinational company dealing in dairy products is said to have plans to invest an additional $480 million over a period of five years. This company has pioneered the development of dairy sector in the country by collecting around 290,000 tons of milk from 3,000 villages and pumping something to the tune of Rs6 billion per annum.

The potential of dairy sector can be gauged from the fact that livestock and agriculture sector contributes over 10 per cent to the GDP, and milk economy in value terms is 27.7 per cent of the total agriculture sector. It is an untapped market, expected to grow by an additional three billion litres in the next few years with a growth rate faster than most sectors -- and 30 per cent by 2015.

Our dairy sector is one of the expanding industrial sectors, with currently about 17 units engaged in production of various dairy products. It is one of those industries here, which have a high potential for growth. However, presently almost all dairy units are working below their capacities.

Capacity utilisation of the processing sector is affected negatively by seasonal milk supply. Increase in demand and decrease in supply during the summer affects the overall operability of units involved in processing milk and related products. Improved capacity utilisation can be achieved through higher milk production over summer, which can be achieved through better farm management and increase in the number of cows. In the same vain, if more of the milk is directed towards processing industry, including both UHT and pasteurisation units, the formal economy will improve in size. This will mean better health benefits due to hygiene, improved financial condition for farmers and higher revenue to the government.

Unfortunately, due to smaller herd sizes and thinly spread population of animals, the economy of scale can not be achieved. Add to that the fact that dairy farming practices are generally very old and traditional and result is low per animal yield and higher market access costs.

Directly related to the fact that herds are stretched across large areas, many farmers do not have any means to store fresh milk which is a highly perishable commodity and wastage is very high. This means that infrastructure developments, including road network and cold chain network are required to facilitate access to market for these farmers.

Around 20 per cent milk produced fail to generate income due to fragile infrastructure facilities. As a result, we are a net importer of milk and milk products. An important goal for the local dairy industry is to meet the needs of the people.

The huge animal population of 50 million suffers from low productivity compared to global players. It is estimated that we have three times more animals than Germany has, but yield is one-fifth of Germany’s and one-third of New Zealand’s representing a significant loss in potential economic and social value.

Besides this, small farmers already having milking animals do not get any benefit from government policies. Most of the farmers are small-scale producers who only cater to domestic needs. The present government’s policy also seems to give maximum benefits to large farmers. The example is Smeda investment plan. Under this plan for starting a small dairy producing unit, the requirement of credit is around Rs5 million.

Low animal productivity, lack of balanced animal feed, poor animal hygiene, lack of water availability and lack of new animal-breeding methodologies are some of the problems inherent in smallholding farm economics. It is said that if only water was readily available to animals, productivity could increase by as much as seven per cent.

There is need for radical transformation of the informal dairy sector into a more formal and organised sector. For this transformation to really happen, the sector requires a commercially-driven dairy development programme. To achieve this, a number of measures have to be taken including, farm management advances, better market access, organising milk supply chain, documenting role of milk trader/gawallas and encouraging increased investment in the sector.

To formalise and improve the industry there is a need to improve the dairy sector through improved research facilities, training and capacity building of farmers, training veterinarians, improving the cold chain through milk chillers, promoting healthy pasteurised milk, develop model commercial dairy farms, focus on breed improvement, facilitation of credit financing to dairy farmers and linking the rural area based farmer to the market mechanism.

This will improve and formalise the dairy sector. The White Revolution being envisaged by a partnership of all dairy sector stakeholders is targeted to achieve an annual production of 40 billion litres of milk by 2015. It aims at creating an additional three million jobs in the formal economy and provide an estimated Rs350 million per day in cash flow to farmers in the sector.

The potential is there, but there is a need for technical support from the industry, strategic support from dairy experts, policy and infrastructure from the government and specific projects funding from the international donor agencies. For overcoming these problems, there is a need for introducing broad-base reforms in the existing government policies for facilitating new investment and encouraging reinvestment in the existing processing industries.

A freer trade environment can also bring opportunities. An efficiently organised sustainable domestic dairy industry, which can only be achieved by eliminating high fixed milk prices, inefficiencies in the co-operative system and letting market forces determine prices at farm and retail levels will create a sustainable dairy industry. Such an industry would be more competitive and thus would have more attraction as a place for capital investment into processing than is currently the case.