Saturday 18 February 2012

news about new challenges in dairy


The milkmen who hope to challenge India's iconic milk co-operative Amul
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Karumapuram, in Salem, Tamil Nadu is 10,000 km from Hamilton, New Zealand. Culturally, the two towns are further apart, as Shane Whittaker, who hails from Hamilton, has discovered over the past six years he has spent in Karumapuram.

Whittaker works for Hastun, one of south India's largest private dairy brands. Every alternate day Whittaker visits farmers who supply milk to the dairy. Since he does not speak Tamil, Whittaker uses sign language. "They are not farmers," corrects Whittaker, head of dairy development at Hatsun's sprawling 72-acre plant in Karumapuram. "They are businessmen."

Back in Chennai, someone who's undoubtedly a businessman, Whittaker's boss and CMD of Hatsun, RG Chandramogan, explains why a Kiwi like Whittaker should be working so far away from home.

"Today's calf is tomorrow's cow," he says. "Only if we have the animals can this business grow. Hatsun has 12 agronomists to guide farmers. It is also picking some of the best practices from New Zealand." Chandramogan steered the company from being a Chennai-based ice cream maker in 1970 to a dairy giant that collects 1.8 million litres of milk every day from 3 lakh farmers.

Hatsun's story is not unique. Across India, a clutch of private dairy players are rapidly growing in size and competing in a fast-growing market - milk, cheese, butter, ghee, ice cream. This has been Amul's turf. Competition for
Amul is also coming from MNCs like Danone and Nestle.

Pride of Cow

For the past few months, upmarket south Mumbai households have been drinking milk from 'happy cows'. Priced at Rs 75 a litre, the milk is extracted from Jersey-Holstein cows which listen to soothing music and consume fodder specially grown at a farm near Pune.

The milk, branded as Pride of Cow, is just one of the offerings of Parag Milk Foods, an upstart private dairy that has plans to challenge Amul. And leading Parag's charge is BM Vyas, former Amul boss and a dairy industry veteran with over four decades of experience.

"In India, many dairies sell milk that's recombined [powdered milk is added to fresh milk]," says Vyas, director, Parag. "In the West, recombined milk has to be declared in the label. That's not the case here. Pride of Cow has found great acceptance as people pay a premium for fresh milk," says Vyas.

Parag is not just looking at milk. "We have a market share of 30-40% in the cheese category in modern retail stores in Mumbai," says Devendra Shah, chairman, Parag. Why is that a big deal? Mumbai is among the largest markets in India's Rs 400-crore cheese segment. "This March our revenues will cross Rs 1,000 crore," says Shah. To put that in perspective: Parag earned Rs 550 crore in March 2010.
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Milk and Money

Staggering growth figures describe some other private dairies. Hyderabad-based
Heritage Foods, founded by Chandrababu Naidu, has seen its revenues grow from Rs 628 crore in 2007-08 to Rs 1,101 crore in 2010-11. Revenues of Tirumala Milk Products, another Andhra Pradesh-based milk company, have almost quadrupled: Rs 285 crore in 2006-07 to Rs 834 crore in 2010-11.
What led to this growth, other than the spiralling milk prices? One, the overall increase and change in pattern of milk and milk products consumption. According to a recent Assocham report, milk production, 123 million tonnes now, is likely to reach 190 million by 2015. By 2015, the annual turnover of the dairy sector is likely to be Rs 5 lakh crore.

The icing on the milk cake: over 85% of the industry is unorganised, which leaves enough headroom for all players to grow.

The other big reason is that ambitious players can now use modern retail. As giants like Amul and
Mother Dairy have grown across the markets, some of these players have been forced to grow and expand their reach into new markets.

Mother Dairy is doing this, too. It had a virtual monopoly over NCR's milk market till competition came from Amul. Now it is looking beyond NCR and to the north.

"We are looking at Haryana and central UP. We are growing at 24% annually in Mumbai...doing well in Hyderabad and Chennai," says Nagarajan S, MD, Mother Dairy.

That perhaps explains why Heritage has expanded beyond just Andhra Pradesh to neighbouring states and Maharashtra and Orissa.

Or why Paras VRS Foods, a six-decade old, Delhi-headquartered company is looking beyond the capital. "Currently we are marketing milk in Delhi, NCR and Uttarakhand. We are looking at Haryana, western UP and other states. We are launching in Lucknow and Mumbai by next month," says Rajendra Singh, MD, Paras.

The company, a major player in the ghee market in north, eastern and western India, supplies milk to the Indian Railways.

9.2 mn Litres a Day

With the emergence of modern retail, dairy companies tapped a new set of customers willing to experiment with products like gourmet cheese or flavoured yoghurts. That helped companies like Parag launch brands like Go Cheese targeted largely at urban consumers.
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All this leads to one question: how will this brewing competition affect Amul, the 800-pound gorilla of the Indian dairy space?

To understand that, one needs to understand how the Indian dairy sector is structured.

According to Assocham, almost 60% of the milk produced in India is consumed in its liquid form. The rest is consumed as butter, ghee, curd, paneer, cheese and other forms.

With 85% of the industry unorganised, most of the remaining milk is tapped by the state run co-operative dairies. Take the Karnataka Co-operative Milk Producers Federation (KMF), the second-largest in the country.

It sold a whopping 2.8 million litres of milk a day and registered a turnover of Rs 4,542 crore in 2011-12 (figures up to December). Vyas explains, "Even Amul handles only 3% of India's milk."

That small data point, nevertheless, works out to 3.45 billion litres of milk in 2010-11 and over 9.2 million litres of milk a day. Compare that with even the large private dairy players that handle between 1.2 and 1.8 million litres of milk a day, and the difference in strategies is obvious.
Since state co-ops receive so much milk, they focus on milk followed by ghee," says Vyas. "On the other hand, private companies receive less milk, so they focus on value-added products," says Vyas.

And there's the issue of margins. "There is no malai (cream) in the milk business," jokes RS Sodhi, managing director, Amul. Thanks to the flourishing co-operatives, which are not driven by profit motive, the milk distribution business in India lives on wafer-thin margins. That perhaps explains why large private companies like Britannia tried but failed to crack the pouched milk market.

Competition is Coming

Private companies' focus on value-added products is obvious. Britannia now pushes cheese, spreads, butter, UHT milk and curd. Parag sees one-third of its revenues coming from cheese, another third from butter and the rest from milk and other products by 2013.

Don't forget the MNCs. French giant Danone has come up with a two-pronged strategy. "Our DNA is one of a yogurt company," explains Jochen Ebert, MD, Danone India. So, for starters, Danone has launched products like flavoured dahi and yogurts, primarily in modern retail outlets in four cities - Mumbai, Pune, Hyderabad and Bangalore.

Danone has also set up a country business unit that launched Fundooz, an affordable food brand for school-going children. Ebert says the response has been encouraging. "In modern retail, we are among the top 3 players in the yogurt category [in the four cities]." Ebert values the Indian packaged yogurt market at 100 million.

Nestle, among the oldest MNC dairy players, has also spruced up its portfolio. "The quality of milk in India is not consistent...we track the milk to ensure our products meet very high-quality standards," says a Nestle spokesperson, adding that the company recently launched "Nestle a+ Milk and Nestle a+ Dahi and Nestle ACTIPLUS Dahi as benchmarks of quality."

Amul's Sodhi brushes away the competition. The $2.2-billion giant took 33 years to cross $1 billion in revenues, only to double it in just four years. "If you look at most categories like cheese," says Sodhi "the products are priced high. With our capacities, we will drive prices down further. In a couple of years, we will have three times more capacity. MNCs can't survive for long with the margins in this business," adds Sodhi.

But what about modern retail, where the likes of Britannia and Go Cheese are turning on the heat? "Modern retail accounts for just 5% of India's retail sales. Plus, modern retail outlets are already squeezing the margins of the competition," says Sodhi.

PEs Can Milk It

"In the dairy business, the amount of milk you handle is everything," says Vyas. And it's a race that most dairies are warming up to. Parag says that it will increase its procurement from most states in the south with its new plant in Andhra Pradesh. "We now have two dairy plants handling 1.2 million litres of capacity. In another two years, we should be doubling

D Brahmanandam, joint MD, Tirumala, says that the company is planning to invest Rs 3,000 crore in the next one year to set up an integrated dairy.

Global private equity giant Carlyle had picked up a 20% stake in 2010. Parag is also said to be in talks with PE companies for raising more funds. The milk wars might just have begun.

The challengers

Mother Dairy: Amul's biggest challenger. Like Amul, Mother Dairy has co-operative roots and hence a solid procurement network. As a result, it is present across dairy categories. A very strong player in the NCR market, the company is expanding rapidly across the country.

Parag Milk Foods: Among India's fastest growing dairy product companies. Offerings include packaged milk, butter, cheese, ghee, etc, under Go/ Gowardhan brand. Go's USP: it uses only cow's milk.

Danone: Focused largely around the yoghurt segment. In the past two years, Danone has launched yoghurts and flavoured dahis.

Nestle: Is one of the oldest players in the dairy segment in India. It's Milkmaid and EveryDay brands have been around for a long time. The company recently launched Nestle a+ Milk and Nestle a+ Dahi and Nestle ActiPlus Dahi.

Britannia: Major player in the cheese market. Also present in HT milk, curd, flavoured, fortified milk.

HUL: HUL has always been a big player in the ice cream category. In recent times, the company launched its flavoured Kissan Soya Milk and Kissan Creamy Spread in 22 towns across the country.

Tirumala Milk Foods: One of the largest milk suppliers in the south, the company is also present in the butter, ghee segments. With revenues expected to touch Rs 1,200 crore this year, the company has massive expansion plans, including an integrated plan with investments of over Rs 3,000 crore.

Heritage foods: The Hyderabad-headquartered company reaches out to 8 lakh households in Andhra Pradesh, Tamil Nadu, Karnataka, Kerala and Maharashtra. Is one of the largest players in southern India.

Hatsun: Chennai-headquartered Hatsun makes the popular Arun ice creams. Its milk brand Arokya is one of the largest private pouched milk brands in the country. The company also sells butter, ghee and milkour capacity," says Shah.