This document summarizes research on traditional and modern milk marketing chains in India and their implications for smallholder dairy farmers. The key points are: 1) India has a large dairy sector dominated by small farms, but milk is sold through both traditional local markets and modern cooperatives/companies. 2) Research finds smallholder dairy farmers who sell to modern markets earn higher incomes than those relying only on local traders. 3) Factors like farm size, education, and information access influence whether farmers use traditional or modern markets. 4) Policies should encourage smallholder participation in formal markets to improve farmer welfare through higher returns.

1. TRADITIONAL VS MODERN MILK
MARKETING CHAINS IN INDIA
Implications for smallholder dairy farmers
Anjani Kumar
South Asia Regional (SAR) Office
International Food Policy Research Institute
Myanmar | 31 October 2019
Co-authors: A K Mishra, Sunil Saroj, P K Joshi

2. Outline
 Structure of milk production and marketing
 Factors affecting choice of milk marketing outlets
 Implications of milk marketing choice
 Returns from dairying
 Monthly per capita consumption expenditure
 Compliance with food safety measures at farm level

3. Introduction
 Rising importance of the dairy sector in the agricultural economy has
been one of the most important features of India’s agricultural
transformation
 India, with 176 million metric tons, is the largest milk producer in the
world and milk production continues to grow at a robust rate
 India’s milk market is segmented into modern (formal) and
traditional (informal) outlets.
 Modern outlets include
 dairy cooperatives and private processing firms (domestic as well as multinational);
 this segment procures about 25 percent of total milk production.
 Traditional outlets include
 local milk traders, local halwais (sweet-makers), small-scale dairy processors, and
consumer-households (Sharma 2015, Kumar et al. 2018)

4.  Several studies reveal that the majority of the milk in India is sold through
traditional marketing outlets
 (Staal et al. 2006; Kumar and Staal 2010; Kumar et al. 2011).
 However, the recent trend shows that dairy farmers are increasingly using
modern milk-marketing outlets.
 These emerging trends, while indicative of catering to the expanding
consumer base with growing wealth, offer challenges as well as
opportunities for both the supply of and demand for milk.
 A few studies opine that the poor will suffer from the increased use of
modern marketing outlets (Farina et al. 2000; Reardon et al. 2001).
 However, a plethora of studies show that the emergence of modern food
supply chains has improved the linkages between the buyers and
smallholders in developing countries
 (Mishra et al. 2018a, 2018b; Otsuka, Nakano, and Kazushi, 2016; Wang et al., 2014).

5.  A few studies which examined the case of milk marketing in India indicate
that farmers who supply milk to informal channels are less efficient and
earn lower profits per dairy animal than farmers supplying the cooperative
and the multinational sector in Punjab
 (Vandeplas et al. 2013; Kumar et al., 2018).
 Interestingly, the dominance of traditional milk-marketing outlets persists
despite the emergence and expansion of several modern milk-marketing
chains.
 The integration of dairy farmers with organized and modern milk-
marketing outlets remains a major policy discussion in India.

6. Structure of milk production in India
441
624
858
1,277
558
0
200
400
600
800
1000
1200
1400
Marginal Small Medium Large All
Average milk production (Litre / annum)
52.1
21.0 16.4
10.5
0.0
20.0
40.0
60.0
Marginal Small Medium Large
Share in milk production (%)
35.9 39.9
50.2
62.9
39.4
0.0
20.0
40.0
60.0
80.0
Marginal Small Medium Large All
% of agricultural households producing milk

7. Contribution of marginal and small farmers in total milk production
0.0
20.0
40.0
60.0
80.0
100.0
RJ MP PB KA HR AP CG MH GJ TN UP JH UK BH HP AS OD KR JK WB
55.5 55.8 58.4
63.1 63.4 66.0
70.3 70.9
75.3
81.8 83.9 85.0 89.1 89.8 92.7 93.4 93.5 94.4 95.9 98.1
Share in milk production (%)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
AP MP RJ MH HR KA PB CG GJ TN UP AS BH OD JH KR UK HP JK WB
64.1 64.2 65.5 67.8 68.3 71.1 71.2 75.3 75.8
83.7
88.9 91.9 93.2 93.6 94.3 94.3 95.3 95.8 96.7 98.3
% share in milk producing households

8. Average annual household milk production across states in
India (litres)
0
500
1000
1500
2000
2500
CG JH AS OD WB AP MP UK BH MH KR UP JK KA HP TN RJ GJ PB HR
18 33
129 142
200
283
471 482 520 560 573 574 614
675 713 757
955
1,397
2,118 2,148

9. Milk marketing channels in India
Milk Value Chain I
Consumer
Retailers
Milk cooperatives
Milk collectors
Milk Producer
Consumer
RetailerMilk Trader
Processor
Consumer
ConsumerRetailerConsumer
Milk Trader
Milk Value Chain
II
Milk Value Chain
V
Milk Value Chain
IV
Milk Value Chain
III

10. Milk marketing pattern in India
Source: Kumar et al (2019)
53.2
22.4
15.7
8.7
% share in marketed milk
Marginal Small Medium Large
51.8
14.7
19.8
9.7
2
0.9 1.1 0.1
Distribution of milk producers selling to different
outlets
Not seeling Household Milk vendor
Formal market Household & local Household & formal
Local & formal All

11. 0
100
200
300
400
500
600
Marginal Small Medium Large All
237
349
431
558
294
Marketed surplus of milk (L/annum/household)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Marginal Small Medium Large All
53.7
56.0
50.3
43.7
52.6
Marketed surplus as % of milk production

12. Structure of marketed surplus milk across states in India, 2013
0
200
400
600
800
1000
1200
GJ PB TN HR KA KR MH RJ MP UP BH AP UK JK HP WB AS OD JH CG
1052 998
654
592
502 497
424
230 215 208 205 200 186 176 133 110 108 97
17 12
Average annual marketed surplus of milk (litres)
0
10
20
30
40
50
60
70
80
90
KR TN AS MH GJ KA AP CG OD WB JH PB MP BH UK UP JK HR RJ HP
86.9 86.4 83.6
75.8 75.3 74.4
70.6 68.6 68.3
55.2
51.4
47.1 45.7
39.4 38.6 36.2
28.7 27.6 24.1
18.7
% of milk production

13. Factors affecting choice of milk marketing channels
 Age
 Gender
 Education
 Herd size and composition
 Scale of milk production
 Caste affiliation
 household size
 Land size
 Source of information

14. Impact of dairy cooperatives
Member Nonmember Treatment effects
Milk yield
Member (a) 4.09 (c) 2.93 TT = 1.16***
Nonmember (d) 2.07 (b) 1.80 TU = 0.27***
Net return per liter
Member (a) 7.16 (c) 5.20 TT = 1.96***
Nonmember (d) 4.87 (b) 3.52 TU = 1.35***
FSI
Member (a) 0.43 (c) 0.39 TT = 0.04***
Nonmember (d) 0.45 (b) 0.42 TU = 0.03***
Kumar et al 2018

15. Impact of dairy cooperative membership on milk yield, net return,
and FSM adoption by farm size
Farm Category
Mean outcome
ATT t-value Change in %
Members Nonmembers
Milk yield
Landless 5.2 3.3 1.9 1.7102* 57.6
Marginal 8.3 4.3 4.0 3.3245*** 93.0
Small and large 8.5 4.7 3.8 2.5282** 80.9
Net return per liter
Landless 8.4 8.0 0.4 0.1176ns 4.7
Marginal 12.5 7.0 5.4 2.7300*** 77.1
Small and large 10.0 5.3 4.7 1.9171* 89.2
Adoption of FSI
Landless 0.44 0.36 0.8 2.1391** 20.4
Marginal 0.53 0.44 0.9 3.251*** 20.4
Small and large 0.56 0.49 0.7 2.185** 12.6
Kumar et al 2018

16. Average treatment effects of different milk marketing
channels
Kumar et al 2019
Milk marketing outlets Annual income from dairying (In Rs.)
Household 8937.95***
Local trader 14280.86***
Formal chain 19434.81***
Household and local 22265.72***
Household and modern 30214.07***
Local and modern 24396.81***
All three 17815.19***

17. Conclusion and policy recommendations
 Our studies suggest that the likelihood of selling to milk-marketing outlets is
influenced by observable characteristics like:
ofamily size, social caste, educational attainment, training, and farm size as well
as receipt of publicly funded unemployment benefits, food subsidies, and
sources of technical information
 These findings can inform the design and targeting of policies that aim at
fostering adoption of single and multiple milk-marketing outlets in India
 Participation of smallholder dairy farmers in milk-marketing should be
encouraged
 Selling to formal chains should be encouraged because this outlet yields
significant positive effects on Indian smallholder dairy farmers’ economic welfare
 The participation in modern milk marketing chains be facilitated by improving
extensive services, reducing entry barriers based on caste and assets.

18. Thank you