“DOODH KA DOODH AUR PAANI KA PAANI” REAL THREAT TO GLOBAL COMPETITIVENESS OF INDIAN DAIRY INDUSTRY PRESENTATION By Mission Director INTERNATIONAL IMPROVEMENT MISSION Regd. Office #53-A, Sector 18-A, Chandigarh

REAL THREAT TO GLOBAL COMPETITIVENESS OF INDIAN DAIRY INDUSTRY DO YOU KNOW WHY YOUR PROFITS ARE LOW? ANALYZE AND IMPROVE YOUR A.D.M. FACTOR A DULTERANTS AND PRESERVATIVES IN RAW MILK DILUTION OF RAW MILK WITH WATER MANIPULATIONS IN COMPOSITION OF RAW MILK

OPTIMISING PROFITABILITY OF DAIRY BUSINESS A DULTERANTS AND PRESERVATIVES IN RAW MILK QUANTIFY AND CALCULATE FINANCIAL IMPACT OF ADULTERATION We all know that adulterants and preservatives in milk affect quality of dairy products and profitability of dairy business. Based on scientific analysis and clinical tests prepare a chart that besides quantifying level of adulteration convert that consequential loss in to financial terms. Purchase raw milk only after accurate evaluation of financial implications and assessing actual worth of milk being purchased. Locate and develop appropriate sources from where you can procure “PURE” unadulterated milk.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS D ILUTION OF RAW MILK WITH WATER Normally we feel that added water in milk does not benefit the seller or harm the buyer so long we pay the price of milk after testing FAT and SNF in milk as per 60:40 C.L.R. based two axis formulae but actually it is not so. ADDITION OF WATER IN MILK Reduces its contribution to profitability. Increases handling /processing cost. Adversely effects Fat/S.N.F. test results. Helps the seller to manipulate SNF:FAT ratio to his advantage Helps unethical/unorganized traders to dominate the organized sector. Badly effects microbiological quality of raw milk/ dairy products.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS IMPACT OF ADULTERATION WITH WATER QuantityFatSNFSNF:FatFatSNF KGs%RatioRs./Kg Rs./Kg Assumed Rate=Rs.13.00/KG or Rs. 200/Kg Fat Standard Milk: 6.50% Fat, 8.84% SNF & C.L.R. Fat rate/Kg={(13.00x 0.6)/6.5}x100=Rs.120 SNF rate={(13.00x0.4)/8.8}x100=58.82 Diluted Milk:(100Kg Milk+30 Kg. Water) 5.00% Fat & 6.80% SNF Fat rate={(13.00x.6)/5.00}x100= Rs.120/Kg. SNF rate={(13.00x.4)/6.80}=Rs /Kg.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS IMPACT OF DILUTION & MANIPULATION Quantity C.L.R. FatSNFSNF:FatRATEFatSNF KGs %Ratio Rs./Kg Rs./Kg Rs./Kg Rate=Rs.13.00/KG or Rs. 200/Kg Fat Standard Milk: 6.50% Fat & 8.84% SNF Fat rate/Kg={(13.00x.6)/6.50}x100=Rs SNF rate/Kg.={(13.00x.4)/8.84}x100=58.82 { B.M.} Fat rate/Kg={(13.00x.6)/5.00}x100=Rs SNF rate/Kg.={(13.00x.4)/8.67}x100=51.21 { M.M.} Fat rate/Kg={(13.00x.6)/3.50}x100=Rs SNF rate/Kg.={(13.00x.4)/8.50}x100=43.29 { C.M.} Value per C.L.R=Rs (C.M) Value per C.L.R=Rs (B.M)

OPTIMISING PROFITABILITY OF DAIRY BUSINESS TECHNO-ECONOMICS OF COW MILK V/S BUFFALO MILK Assumed Rate=Rs.13.00/KG or Rs120/Kg fat & 58.82/Kg SNF (Buffalo Milk) Rs /Kg. Fat & Rs /Kg. SNF (Cow Milk) (60:40 Two axis Formulae) Let us presume that we purchase 100Kgs. B.M. & 100Kgs. C.M. SNF:Fat ratio of standard buffalo milk (8.84/6.50)= 1.36 SNF:Fat ratio of standard cow milk (8.50/3.50)= Cost of 100 Kg. B.M.(6.50% & 8.84%)=6.50x x58.82=Rs.1300 Cost of 100Kg. C.M.(3.50% &8.50%)=3.50x x43.29=Rs.920 Total cost of 200Kgs. (B.M.+C.M.)=Rs.2220 Total mixed milk(B.M.+C.M.)=10Kgs Fat Kgs. S.N.F. Cost of mixed milk=10x x =Rs Difference between A & B: Rs =Rs or Rs /Kg * Cow milk as such is not expensive as compared to buffalo milk but It is manipulation of transferring part of cow fat to buffalo milk fat and buffalo milk SNF to cow milk..

OPTIMISING PROFITABILITY OF DAIRY BUSINESS D ILUTION OF RAW MILK WITH WATER 30%ADDITION OF WATER IN MILK Reduces its contribution by Rs per KG. Assumptions:Rate=Rs.13.00/KG(Fat=Rs.120/KG &SNF=58.82/KG) Realisation=Fat=Rs.193.8/KG & SNF=Rs.95/KG) Cost of milk (5x x58.82)=Rs.10.00/KG. Revenue=(5x x95)=16.15/KG. Contribution=(Revenue-Cost)= =Rs. 6.15/KG. Cost of Standard buffalo milk=6.50x x58.82=Rs /KG. Revenue= (6.5x x95)=Rs. 21./KG. Contribution=(Revenue-Cost)= 21-13=Rs.8.00/KG. Loss of Contribution=Rs =Rs.1.85/KG.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS D ILUTION OF RAW MILK WITH WATER 10%ADDITION OF WATER IN MILK Increases direct/indirect handling /processing cost by Rs.0.40/KG ***** Assumptions:Rate=Rs.13.00/KG (Fat-Rs.120/KG & SNF=Rs.58.82/KG Loss due to use of milk powder for compensating dilution in S.N.F. 0.80x58.82/100=Rs.0.47/Kg. Extra milk procurement commission* Extra milk chilling cost* Extra transportation cost* Extra power cost* Extra steam cost* Total=0.87/Kg.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS DILUTION OF RAW MILK & MANIPULATION ADDITION OF WATER IN MILK Helps the seller to manipulate SNF:FAT ratio to his advantage. Assumptions:Rate Rs.13.00/KG(Fat=Rs.120/Kg SNF=Rs.58.82/Kg Rs.13.00/Kg (6.50% Fat & 8.84% SNF) V/s (5.00%Fat & 6.80% SNF) Milk 6.5/5.00=1.30( 100 KG milk+30KG water) ( )x120+( )x58.82=Rs.2..99/Kg say Rs.3.00/Kg. Price for (5.00%&&6.80%)=Rs.( )=Rs.10.00/Kg Actual payment claimed as mixed milk=Rs (5x222/100)/Kg.=Rs.11.10/Kg. Hidden loss to purchaser=Rs. ( )=Rs.1.10/Kg. Actual payment claimed as Cow milk=Rs (5x262,28/100)/Kg.=Rs.13.11/Kg. Hidden loss to purchaser=Rs. ( )=Rs.3.11/Kg. Possible loss in milk purchase transactions due to dilution & manipulation: =Rs.1.10 to 3.11/Kg. ( Converting diluted milk as M.M or C.M) * These losses could be controlled by purchasing B.M. & C.M separately strictly as per C.L.R. and releasing only due payment as per formulae)

OPTIMISING PROFITABILITY OF DAIRY BUSINESS D ILUTION OF RAW MILK WITH WATER ADDITION OF WATER IN MILK: Helps unethical/unorganized traders to dominate organized sector Unethical/unorganized sector exploits milk producers by purchasing milk at low price (using money power), diluting it with ice water,modifying SNF:FAT ratio to their advantage, using undesirable adulterants/preservatives and supplying that milk to dairy plants at unreasonably high cost. Unfortunately buyers look at only the as such cost of diluted milk which appears low and reasonable. Under these conditions ethical private sector will find it extremely difficult to compete with unorganized sector.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS D ILUTION OF RAW MILK WITH WATER ADDITION OF WATER IN MILK Badly affects microbiological quality of raw milk/ dairy products. Disposal of industrial waste water without proper treatment has badly affected the quality of water available in villages from shallow hand pumps/ tube wells. Contaminated water of this kind plays havoc with microbiological quality of milk rendering it unfit for manufacturing dairy products meeting National/ International quality standards.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS M ANIPULATIONS IN COMPOSITION OF RAW MILK CALCULATE IMPACT OF MODIFYING SNF:FAT RATIO ON PRICE OF MILK Declared price of milk is subject to specified % of FAT and SNF Change of FAT or SNF disturbing specified ratio can decrease real worth of milk that does not reflect on milk billing calculations Cost of milk being paid appears logical and reasonable as per arithmetical calculations but causes heavy loss to buyer. Purchasing diluted/adulterated/manipulated milk from unethical traders is major reason for heavy losses to many private sector milk plants and low profitability of multinational companies and dairy plants in co- operative sector.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS RATIONALIZING MILK PRICING PATTERN  Conventional milk pricing system being followed by dairy industry in India was designed many decades ago when prices of ghee and skimmed milk powder used to follow a set seasonal pattern and ratio of realization from FAT and SNF did not vary much to effect the profitability of dairy business adversely.  A new modified/rationalized system of milk pricing based on contribution (realization from 1KG standard milk containing specified amount of FAT and SNF but fair to milk producers and industry) needs to be designed/implemented.

OPTIMISING PROFITABILITY OF DAIRY BUSINESS ANNEXURE-A Dairy plant selling pasteurized liquid milk must earn >Rs.3.00/Kg. Assuming annual average basic price of raw milk as Rs.13.00/Kg. (6.50%/8.84%) or Rs. 200/Kg. Fat (Rs. 120 /Kg Fat & Rs / Kg. SNF) total solids=15.34%, C.L.R.= 29 Milk collection/processing/packing /marketing cost for efficiently managed dairy plant will not normally exceed Rs.4.00/Litre. (including processing losses and over heads) Pasteurized whole milk containing 6.00% Fat and 9.00% SNF (Total solids=15%) would cost Rs.13/Litre ( Approximately).  Retail consumer price for pasteurized whole milk in most of the towns: Rs.21.00/Liter* As such there is clear profit margin of more than Rs.4.00/Litre. {21-( )}=4.00/ Litre Dairy company handling one lac litres milk per day would thus make annual net profit of more than Rs Crores. (20% of turn over) provided there are no hidden losses. {100000x4.00x365}=Rs.14,60.000,00 * Normally difference between consumer price for whole milk and farm gate price paid to milk producers remains Rs.8.00/Kg. Rs.{ (21- 13)=Rs. 8.00/Kg.}

OPTIMISING PROFITABILITY OF DAIRY BUSINESS RATIONALIZED MILK PRICING PATTERN  Conventional milk pricing pattern being followed by dairy industry in India was designed many decades ago when prices of ghee and skimmed milk powder used to follow a set seasonable pattern and ratio of realization from FAT and SNF did not vary much to effect the profitability of dairy business adversely.  A new modified/rationalized system of milk pricing and billing based on net contribution (realization from 1KG standard milk containing specified amount of FAT and SNF but fair to milk producers and industry) needs to be designed/implemented.  Our Mission associate in Canada has developed such a milk pricing cum billing system based on digital analytical technique (D.A.T.) that is suitable for purchasing B.M., C.M., and M.M. determining its actual net worth accurate up to decimal points.

INTERNATIONAL IMPROVEMENT MISSION LET US WORK TOGETHER TO ELIMINATE HIDDEN LOSSES DUE TO ADULTERATION DILUTION AND MANIPULATION