During the Dairy Industry Conference in Kochi in February 2018, Rahul Kumar, India’s leading dairy professional, managing director of Lactalis India, made a presentation on importance of technology & information technology in the dairy industry. He made a compelling point on how India is a world-beater in both dairy and IT, yet how appallingly minimal is the use of IT in the dairy sector. Being a keen constituent of the same fraternity, I had the opportunity of attending the session. In full agreement, I walked up to Rahul Kumar, congratulated him and we exchanged thoughts on how streamlining of business processes using smart low cost technologies, increased access to data enables dairy businesses to make smarter day-to-day decisions to stabilize milk procurement, production and supply chain solutions. Only later on, I came to experience the tremendous sophistication of usage of IT and data analytics within Lactalis and its benefits globally.
Under ‘normal’ circumstances, change takes its own time and toll on people’s mind and lives. But change does happen for good, albeit at its pace and space. I could see a steady rise in investments in agri-tech and dairy-tech companies, facilitated by improvements in rural infrastructure, better road connectivity, increased mobile and internet penetration and most importantly farmers’ experiential learning and increased awareness. With industry stalwarts like Rahul Kumar sponsoring the cause and a deluge of bright technology graduates from the IITs giving up plump corporate jobs to invest their time and careers in tech start-ups to buttress the agri-economy, things were bound to change.
Then something would hit the world that no one was ready for. There was no contingency plan whatsoever to deal with the enormity of the COVID-19 pandemic. All industries, dairy included, started to look for ways to deal with the ‘new normal’. With demand stalled and milk production rising in India and the world’s bigger markets, the dairy industry struggles to find ways to mitigate impacts from a potential global recession.
Domestic dairy sales may broadly be classified under three segments. Fresh milk & curd and long shelf life products like ghee, butter, milk powder etc. to the households. Second segment constitutes of ingredient sales to the chocolate companies, biscuit manufacturers, nutrition and food supplement companies and the like. The third is the HORECA – the hotels, restaurants and canteens.
Despite all disruptions, household demand is not much affected as milk being consumer staple, takes the last hit of a fall in income, if at all. There has also been an increased interest in shelf-stable milk products such as UHT milk, milk powder and condensed milk as consumers stock up on staple foods in preparation for lockdown. Some bigger markets like Mumbai and Chennai have had some drop in sales, but that is due mainly to people exodus or difficulty in last mile delivery linkages. Be that as it may, I have not come across a single household consumer complaining of non-availability of milk or dairy products.
However, there is a huge drop in demand for dairy ingredients. Not all of the buyers fall under consumer staples. In most cases, manufacturing would have got affected due to lockdown. Reopening became arduous due to non-availability of labour (who would have moved to their home locations), non-availability of transport due to stringent regulations of inter-district & inter-state movements and drivers not reporting to work for fear of contracting the virus. While there are encouraging signs of this segment returning to normalcy, it will take while for chocolates and confectionery sales to be back to pre-COVID levels.
Biggest negative impact of the pandemic has been on the third segment – HORECA. The hotels, restaurants, canteens being mostly shut, schools, colleges all being closed, marriages and public gatherings being regulated, there is a shift away from the wholesale food services, contributing to the downward trend in dairy revenues. Sales of Value Added Products (VAP) like ice cream, cheese, flavoured milk and yoghurt to HORECA that account for almost 20 percent of the organized dairy segment’s revenue, is almost wiped off.
Loss of sales volumes is leading to surplus milk being converted to and stored as skimmed milk powder (SMP). Dairy companies are faced with drastic increase in working capital needs and liquidity crunch due to huge SMP stocks and unsold VAP inventory. Moreover, logistical challenges and consumers’ reluctance to consume cold products like ice creams, flavoured milk and yoghurt during the lockdown months (supposed to be peak demand season) has adversely impacted sales.
But good things also happen in challenging times. The recent three-pronged reforms announced by the Government – reform of the Agriculture Produce Marketing Committee (APMC) Act, changes to the Essential Commodities Act and enabling of contract farming; all advocated by top agriculture economists for decades – hastened by the pandemic are steps in the right direction. Lauded as the 1991 moment for agriculture, these reforms address longstanding needs of the farmers, promises to build efficient supply chains and ensure better products for the consumer without burdening their pockets. The question will be in apt implementation of policies and how soon. We leave this to history to judge.
The real ‘new normal’ for dairy will ride on deployment of technology that I started this article with. I believe, the dairy industry will adopt to smart technology at a far rapid pace than it did in the pre-COVID days. Encompassing a far wider spectrum than it did in the past. The fledgling start-ups that were gathering steam just few months back, will fire on all cylinders. Technology will help increase yield, reduce wastages. Hydroponics and aquaponics have been successful in parts of western India. They need to be scaled up. Technology will make milk procurement, production and distribution more affordable. In fact, there is already great amount of technology investments to tackle production issues. Immediate need is to focus on distribution and creation of markets. Usage of technology will remove layers of middlemen, both on sourcing and distribution sides. From animal health tracking to product traceability to milk freshness to feed management; everything can be tech-enabled for more efficiency. Adoption of technology will come to the rescue of dwindling margins, liquidity crunch, possible loss of appetite to commit to immediate capital expenditure and an overhauled consumer demand. Questions are, how judiciously may one imbibe them and how affordable can it be made to the users.
As things stand, dairy and agriculture continue to hold out hope amidst the present crisis, even as manufacturing, retail and other services continue to grapple with uncertainty from rising COVID cases and localised lockdowns. There has been a bountiful harvest, milk production is rising. On the demand side, people are buying essential items and staples. Packaged food items, diet and nutrition supplements are popular. The rich farmers are buying tractors and agricultural equipment. Supply chains are being restored, though there still remain some bottlenecks. Dairy & Agriculture is expected to do better than most other sectors in 2020 – 21. And within the sector, those companies who adapt fastest to the changed scenario, find winning ways to thrive in the new normal, will do better than others.
