Dairy units in India turn to cheaper alternatives

This strikes a blow to small farmers as they don't get a fair price for their produce since the market is flooded with cheaper options

By Jitendra
Published: Wednesday 26 December 2018
Dairy farming
Credit: Getty Images Credit: Getty Images

The Indian milk sector, which surpassed the European Union to become the world’s biggest producer in 2017-18, is growing like never before. A recent report by global analytical company CRISIL forecasts a steady growth in milk sales in coming years and a 50 per cent faster growth in the value-added dairy products sector. Sniffing windfall gains, national and international players are entering Indian dairy sector, widening procurement networks and expanding dairy portfolio. These developments should usher in good news for the country’s 73 million small and marginal dairy farmers who have been struggling to recover the production cost for the past three years. But N Adinarayan, a marginal dairy farmer from Mandambarpalli village in Andhra Pradesh’s Chittoor district, does not think so. And he has a reason.

“Earlier, procurement units used to refuse to pay us a fair price citing surplus supply and a slump in global milk price. They now say the market is flooded with cheaper milk,” informs Adinarayan. But the fact is dairies supplying cheaper alternatives actually sell soya milk mixed with dairy. In last three years, milk procurement rate in Chittoor has remained Rs 18-20 per litre, whereas the production cost has increased to Rs 24-28. These dairies are selling their formulation at as low as Rs 15 and keeping the rate further depressed, he adds.

In Maharashtra’s drought-hit Beed district, 31-year-old Nilesh Chipde is equally worried. In 2014, he quit his high-paying job in business management to set up a dairy farm with over 100 cows and supplies milk to dairy processing units in the district. “What I see is most these units mix vegetable oil, such as palm oil, with milk fat to produce cheese and butter. They push the products by using distorted logos or brand names of established companies, and their consumer base ranges from individuals to restaurants and confectionery shops,” says Chipde, adding that the practice has increased in the past couple of years.

Even big players are passing off products made using vegetable oil and milk solids, as pure dairy products. Market experts say the organised market of these products, dubbed analogue dairy products, stands at over Rs 30,000 crore in India. If one takes into account the unorganised sector, it is well over Rs 50,000 crore, says Vijay Sardana, commodity expert in Delhi.

Of late, the Indian dairy industry has raised its concerns about such products churned out by big players like Hindustan Unilever (HUL), ITC Ltd, Future Group, Cargill India and several local companies. In 2017, the Gujarat Cooperative Milk Marketing Federation (GCMMF), owner of Amul brand, launched an advertisement campaign that emphasised the difference between ice-creams (made from milk fat) and frozen desserts (made from vegetable oil). Though HUL’s Kwality Wall’s, leader in frozen desserts market in the country, dragged Amul to court, the Food Safety and Standards Authority of India (FSSAI) sided with Amul and has since asked all companies dealing in fast-moving consumer goods not to sell frozen products in the name of ice creams or under the garb of dairy products if they contain plant-derived fats.

Dark side of analogues

The use of dairy analogues is not new to India. In the early 1980s, the National Dairy Research Institute (NDRI), Karnal, conducted research on alternative dairy products to fill the gap between demand and supply of milk. “We did research on alternatives like soya milk when the country was facing milk crisis,” says Kaushik Khamuri, scientist at NDRI. “Now it is irrelevant as we are world leader in milk production.”

The nutrition level of most alternative milks, such as those derived from almond, soyabean and grains, are low when compared with dairy milk. They, however, provide safer alternatives for those who are averse to milk; the lactose intolerant; those who are allergic to milk protein casein; those who follow veganism; or those who follow dairy-free diet due to calorie or cholesterol restriction. But for commercial enterprises manufacturing pizzas, tacos, confectionery, milk beverages, cheese, yoghurt and frozen treats, these dairy look-alikes have emerged as cost-cutting opportunities.

For instance, explains Sardana, HUL’s frozen dessert which is being sold as ice cream is made by substituting Rs 700 per kg milk fats with Rs 60 per kg of edible palm oil. Similarly, sugar and maltodextrin (white powder made from corn, rice or potato starch) are major ingredients of skimmed milk powder products (SMP). While the retail price of one such SMP Nestle’s Everyday Dairy Whitener is Rs 350 per kg, sugar does not cost more than Rs 35 per kg (see ‘Utterly butterly...’).

Source: Market and industry sources

“Alternatives like palm oil have also been a common mix in sweets, cheese and butter available in the open market,” says Sardana. But in recent years, dairy farmers are using those as milk adulterant. This is probably to compensate for losses incurred due to a slump in milk price, he adds.

An official with K C Group, soya milk machine manufacturer in Delhi, explains the profit potential of dairy analogues. One can extract some seven litres of milk from 1 kg soyabean, which costs Rs 40. Even though the soya milk making machine costs Rs 1.5 lakh, ballpark estimate shows the production cost of a litre of soya milk is as low as Rs 5.50. It means huge profits even if the farmer sells the milk at the lowest rate of Rs 15. “Most orders for our machine come from smaller towns of Uttar Pradesh and Madhya Pradesh. The demand for soya milk is negligible in those cities. Why would people buy the machines if not for selling soya milk as adulterant,” says the official, who does not wish to be named.

DS Mishra, advisor to Rajasthan-based cooperative Saras Milk Federa tion, also says cases of adulteration are mostly reported from states like Uttar Pradesh and Madhya Pradesh where cooperatives are weak, and private players control the procurement network and dictate milk price.

Time to draw the line

Analysts say the market of dairy analogues is growing because of ignorance among consumers as well as lax regulations. For instance, most confectionery shops use palm oil to make khoa (condensed milk). “FSSAI has defined khoa but does not define barfi made using khoa,” says Sameer Saxena, manager (quality assurance), GCMMF.

The absence of labelling regulations that can differentiate dairy analogues from pure dairy products are missing. “The rightful income of dairy farmers is being diverted to dairy analogues, which further impacts the health of consumers,” says R S Khanna, chairperson of Kwality Ltd, Delhi-based dairy company. “Dealing with dairy alternatives, their labelling and specification, and differentiating them from dairy products are complex issues,” says Sunil Bakshi, advisor at FSSAI. “The rules for checking dairy analogues are under consideration of the scientific panel,” he adds.

Saxena, however, says the dairy industry wants regulation that the public can use to physically differentiate dairy products from non-dairy products. “We believe non-dairy products should be named just beverages or sold under some other name.”

(This story was first published in Down To Earth's December 16-31 edition under the headline 'Rise of lookalikes')

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