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ENHANCING DAIRY SECTOR EXPORT COMPETITIVENESS IN PAKISTANprocessing enterprises. The model is characterized by the payment of relatively higherprices to the farmers to ensure the continued supply of milk.b) Vertically-Integrated Cooperative Setup: This model aims to ensure welfare of thefarmers in terms of productivity and income. Idara-e-Kissan (IK) is the only dairycooperative operational in Pakistan based on this model. The milk is procured fromgeographically dispersed small farmers through a network of village milk collectors whoare also responsible for transportation of collected milk to the processing plants of HalaDairies 30 . The system is more focused on the provision of development-related livestockservices such as veterinary care, animal vaccination, artificial insemination, feedimprovement, extension and social services while it is less focussed on payment of highprices for milk to the farmers. Any village farmer can become a member of thisorganization if he/she owns at least one cow or buffalo. Although there is no membershipfee, however, the farmer should be able to supply at least 300 litres of milk in a six-monthtime period to benefit from the development services offered by the cooperative setup forthe next six months.As can be observed, both models rely heavily on the village milk collection agents or dodhis forprocurement of milk from farmers. The prices received by farmers are based on the weekly quotations formilk containing at least 6% fat by the processors. The quality of milk is tested by these agents and milk isthen transported to the milk collection centres of the processing companies. These centres are equippedwith the necessary chillers and other equipment that maintains temperature of milk at 2°C for the purposeof reducing the risk of contamination and spoilage. From this point, milk is transported to the processingplants through specialized storage trucks. The plants process the milk into UHT and pasteurized dairyproducts for supply to urban consumers. Although Idara-e-Kissan has been successful at organizing smallfarmers and vertically integrating its supply chain for processing of milk into dairy products by Halla, theimpact of the project has been limited due to its incapacity of reaching a large number of farmers scatteredin various parts of the country. According to estimates, the organization accounts for just 0.2 per cent ofthe total milk produced in Pakistan and only about 2 per cent of the total UHT/ Pasteurized milk in thecountry (Riaz, 2008). There is dire need to establish additional dairy cooperatives on the same lines ofIndia (Amul Dairy) where the concept has gained popularity and organized geographically dispersedfarmers effectively.Some of the private sector trade organizations that aim to bring together dairy farmers of the country andaddress their production and marketing related constraints include the Pakistan Dairy Association (PDA),Livestock Breeders and Dairy Farmers Association (LBDFA), Livestock Farmers and Breeders Association(LFBA) and Farmers Association of Pakistan (FAP).The Contract Dairy ModelAlthough the milk processing companies in the formal sector prefer to procure milk directly from thefarmers, they are forced to rely on the milk collection agents or dodhis due to the limited outreach of theircollection networks. The commercial processors enter into contracts with the rural dodhis or Village MilkCollectors (VMC) / contractors. In cases where the VMC centres have been set up by these companies,the village farmers can directly sell milk to these contractors who are available during morning and eveningtimes.The VMC has no discretionary price-setting power in this case and has to purchase milk from the farmerson the price set by the processor based on the 6% fat content criteria on a weekly basis. In addition to this,the VMC receives a commission for collecting, storing and transporting milk to the processor’s collectioncentres. The VMC is a self-employed person and operates under the supervision of the village council thathas the powers to dismiss him as well. The VMC has to be vigilant of the quality of milk as it is tested againat the collection centres and if the fat content or milk quality falls short of the required standards, the milk isreturned and any financial implications must be faced by him only.30 Halla is a popular dairy brand name in Pakistan which is marketing pasteurized milk and dairy products.31
ENHANCING DAIRY SECTOR EXPORT COMPETITIVENESS IN PAKISTANThe milk collected from farmers by dodhis is directly sold to the collection centres of the commercial dairyprocessors established in the villages. In this case, however, the price received by the farmers is not basedon the fat content criteria as the dodhis set prices using personal discretion. The farmers may receivemaximum price if they directly sell their produce to the commercial milk centres without involvement ofintermediaries.The collection networks established by commercial dairy processors aim to include: (i) rural subsistencelevelfarmers, (ii) rural smallholders, (iii) medium-sized producers, and (iv) peri-urban producers. Theintermediaries have the opportunity to earn better returns if the milk collected is from the areas that are farflung,relatively remote and lack proper road infrastructure. Additionally, these agents are further paid apremium by the commercial processors in the lean months of summer/monsoon season to ensuremaximum supply 31.Milk Prices in PakistanThe milk prices in Pakistan vary to a larger extent in the formal and informal dairy processing sectors. Ithas been observed that there has been a sharp increase in the import volume of powder milk since 2007by large milk processors to satisfy the urban consumers’ demand as is evident from Table 5. Theseprocessors use powder milk to produce liquid milk 32 which is eventually packaged and sold through retailoutlets in the country.According to industry sources, in 2006 packaged milk in Pakistan was being sold at PKR 36/ litre (US$0.37) 33 . The decline in international prices of powder milk in recent years provided incentive to the largeprocessors to import it in huge quantities with import prices coming down to PKR 22/litre (USD 0.23) in2011. However, the domestic consumer was paying up to Rs. 65/litre (USD 0.68) in 2011 while the profitmargins of these companies rose sharply. At present, a litre of packaged milk is exorbitantly priced at Rs.90/litre or above and is becoming increasingly unaffordable for the domestic consumers. These prices aremainly applicable to the 3% milk formally processed in Pakistan. However, in the wake of rapidlyincreasing international prices of powder milk recently, the future prices of packaged milk in Pakistan seemto be unpredictable.The remaining 97% milk being produced through informal channels in the country reaches the urbanconsumer in loose form through Gawallas (traditional milkmen) or milk retail shops and is currently pricedat an average of PKR 70/litre (USD 0.73) in the city of Lahore. In 2011, loose milk in the informal sectorwas priced at an average of PKR 40/litre (USD 0.42) which indicates a sharp rise in loose milk prices aswell. This increase can be attributed to a widening gap between demand and supply of milk, inflation, andrise in the cost of production during recent years.Constraints in Domestic Supply and Value ChainConventional and Low-End Farming PracticesAs mentioned above, the dairy sector of Pakistan is mainly dominated by the informal sector with about95% of the total milk distribution. The informal sector lacks modern and high-end farming practises as hasbeen the case with the rest of the agricultural sector of Pakistan. These farmers are less efficient inproduction and due to economic reasons there is less expectation of getting high yields from them in theshort and even medium run. Due to a large livestock population, the country faces serious environmentalconcerns with regard to management of its solid and organic wastes. At the same time, a national levelpolicy is lacking in the implementation of a biogas 34 or bio slurry 35 production initiative.31 During these months/ period, the supply gap of milk increases due to low production levels in the country.32 1 kg powdered milk – 7.5 kg liquid milk (SMEDA)33 Based on current exchange rate of USD 1 = PKR 9534 Biogas typically refers to the gas produced as a result of breakdown of organic matter, consisting of dead plant and animal material,animal and kitchen waste. The gas can be utilized for heating for purposes, typically for cooking.32
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