traditional milk sector – full /main report

Towards Accelerated Growth in Dairying

CALPI SERIES 9.qxp 1/23/2009 12:59 PM Page 1


Catalyst Management Services Pvt. Ltd.(CMS)Bangalore, Indiahttp://www.catalysts.orgEmail: [email protected]

Socio-economic and Cultural Upliftment In Rural Environment (SECURE),Khammam, AP, IndiaEmail: [email protected]

National Dairy Research institute (NDRI),Bangalore, IndiaEmail: [email protected]

Government of Andhra Pradesh,Animal Husbandry DepartmentEmail: [email protected]

Natural Resource Management Programme Andhra Pradesh (NRMPA),Hyderabad, India

International Livestock Research Institute(ILRI), Nairobi, KenyaEmail: [email protected]

Capitalisation of Livestock Programme Experiences India, New Delhi, [email protected]

Intercooperation in India (IC), Hyderabad, IndiaEmail: [email protected]

Swiss Agency for Development and Coperation (SDC),New Delhi, IndiaEmail: [email protected]

Action for Collective Tribal Improvementand Vocational Education (ACTIVE),Khammam, AP, IndiaEmail: [email protected]

EditingCMS and Calpi Team

Design, layout and PrintingThe Idea Workshop

PublisherIntercooperation in India,Hyderabad

CitationCALPI Programme Series 9

Action ResearchLed by Catalyst Management Servises, Banglore andParticipated by the National Dairy Research Institute,Banglore, two facilitating NGOs ACTIVE and SECUREand supported by animal Husbandary and the DairyDevelopments, Govt. of Andhra Pradesh, CALPI, ILRI,NRMPA, Intercooperation, SMLDA and APDDCF

ContributersCMS and Calpi Team

PhotosCMS Calpi, ACTIVE and SECURE

The use and sharing of information contained in this document is encouraged withdue acknowledgement to the source

DisclaimerThe designations employed and the presentation of material in this publication do not imply theexpression of any opinion whatsoever on the part of the SDC, IC, CALPI, CMS, the Government ofAndhra Pradesh, NDRI, ILRI, ACTIVE and SECURE concerning the legal status of any country, terri-tory, city or area or its authorities or concerning the delimitations of its frontiers or boundaries. Theopinions expressed are solely of the author(s) and do not constitute in any way the official position ofthe above organizations



Towards Accelerated Growth inDairying

An Action Research to Improve the TraditionalMilk Sector

Main Report

March 2008

Series 9



Abbreviations

AP Andhra PradeshAPDDCF Andhra Pradesh Dairy Development Cooperative

FederationAR Action Research CALPI Capitalization of Livestock Programme Experiences India CBO Community Based OrganizationCMS Catalyst Management Services Private Limited, India DIIS Desktop Interactive Information SystemDAH Department of Animal Husbandry DRDA District Rural Development Agency FAO Food and Agriculture OrganizationHH HouseholdsIC IntercooperationIIM-A Indian Institute of Management, Ahmedabad, India ILRI International Livestock Research InstituteISAP Indian Society for Agribusiness ProfessionalsKI Key InformantLACG Local Actions Core Group lpd Litre per dayMBRT Methylene Blue Reduction TestNDDB National Dairy Development BoardNDRI National Dairy Research Institute, India NRMPA Natural Resources Management Programme OMS Organised Milk SectorPPLPI Pro-Poor Livestock Policy InitiativePRA Participatory Rural AppraisalRRG Research Reference GroupSDC Swiss Agency for Development and CooperationSH StakeholdersSHG Self Help GroupSMILDA State Management Institute for livestock Development - APSNF Solid Non FatTMS Traditional Milk SectorToR Terms of ReferenceTS Total Solids



Contents

1.0 Introduction 11.1 Background and Rationale of the Project 11.2 Objectives of the Action Research 21.3 Methodology 21.4 Tools used in the Action Research 42.0 Characteristics of Traditional Milk Sector 52.1 Channels of Traditional Milk Sector 52.2 Size of Traditional Milk Sector 63.0 Profile of Milk Producers 83.1 Profile of Milk Producers 83.2 Milk production 83.3 Animal management Practices 103.4 Artificial Insemination 113.5 Post Production 123.6 Market Channels 143.7 Price received on Sale of Milk 154.0 Profile of Milk Vendor 164.1 Sample Profile 164.2 Selection of Habitations 174.3 Selection of Producers by Vendors 174.4 Scale of Operations 194.5 Milk Procurement and Quality 204.6 Price and other non-price Incentives 214.7 Handling Practices 224.8 Managing Lack of Supply 224.9 Vendor operations - overall 235.0 Profile of Consumers 245.1 Satupalli Market 245.2 Khammam Market 305.3 Vijayawada Market 405.4 Summary of Findings across Markets 515.5 Rural Consumers 565.6 Institutional Consumers 586.0 Quality of Milk in Traditional Milk Sector 606.1 Assessment of Samples by NDRI in Sept '05 606.2 Assessment of quality of Samples collected during Jan '06 606.3 Assessment of quality of Milk by NDRI during April '06 616.4 Overall Findings on Quality Assessment by NDRI 627.0 Summary of Findings and Actions Identified/ Facilitated 647.1 Summary of Findings 647.2 Actions Identified/Facilitated 658.0 Ways Forward 669.0 Key Contributions from the Research 6810.0 Learning from the Research 6911.0 Policy Changes and Approaches 70Annex 1:Summary of the findings and the actions identified /initiated 72


1.1 Background and Rationale of the Project

The Indian dairy sector has made significant progress in the past thirty years. Thecountry is now the largest producer of milk in the world. Dairying is an important livelihood option for the rural poor in many parts of India. However, the profitability of dairy enterprises to a large extent, is dependent on the efficiency ofthe marketing network. The market access for smallholder livestock producersremains a major constraint in any parts of India. Realising the need to address theissue, CALPI took up 'livestock products marketing' as one of its major thrustareas with the aim of supporting small livestock holders in improving their incomesthrough better market access. An estimated 77% of the milk marketed in India,(some 1,340 lakh litre per day in 2005-06 ) reaches the consumers unprocessedthrough the Traditional Milk Sector (TMS). TMS covers many low potential areasand serves millions of small milk producers and consumers. Because of its highlivelihood support, employment potential and the dependence of a vast majority ofsmall livestock producers on it, milk marketing through TMS received high priorityfrom CALPI.

Highly dependent on the efficiency of a marketing network, the market access forsmallholder livestock producers remains a major constraint in many parts of India.Realising the need to address this issue, CALPI (Capitalisation of LivestockProgramme Experiences India, a programme of SDC and IC) took up 'livestock products marketing' (LPM) as one of its major thrust areas with the aim of supporting small livestock holders in improving their income through better marketaccess.

CALPI with the technical support of the Pro-poor Livestock Policy Initiative(PPLPI) of FAO, commissioned a desk study of the informal milk market throughthe Indian Society for Agribusiness Professionals (ISAP). The desk study identified the strengths, deficiencies and data gaps and highlighted the need for a comprehensive study of the TMS to understand its functioning. It concluded thatthe unorganized market agents are likely to continue playing a critical role in the marketing of milk, and it is important to understand the micro-dynamics of the market behaviour of various market agents so as to capitalize on their strengthsfor the benefit of poor rural producers and urban consumers. A methodology forunderstanding the dynamics, amethod of engaging the traditionalsector in new interventions and amethod of bringing together stake-holders and facilitating actions atthe habitations were consideredimportant while bringing in method-ological rigour and conceptualfocus. Further consultations withthe Indian Institute of Management(IIM), Ahmedabad, the InternationalLivestock Research Institute (ILRI),the other partners and the SteeringCommittee of CALPI led to a consensus on integration of bothqualitative and quantitative methods through an ActionResearch (AR) process. The principles of AR are summarised inBox-1.


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1.0 Introduction

B o x - 1

Action Research (AR)

Action Research is a flexible spiral process that allows

action (improvements, changes) and research (under-

standing, knowledge) to be achieved at the same time.

At each stage, the strategies, methods and activities

are reflected upon and refined. AR removes the gap

between the deciders and the doers. People affected

by the decisions (milk producers, consumers, channel

partners, etc.) Join those who plan the processes,

carry them out and regulate the decisions (like NGOs,

CBOs, dairy dept. officials, health authorities). They

remain at the centre of assessing the process and

effects, extracting learning, taking decisions and

implementing them.

The process generates participation and thus guaran-

tees commitment for action. It integrates both quali-

tative and quantitative approaches.

1 Source: Derived using data from Dairy India 2007, NDDB Annual Report 2005-06, Animal Husbandry statistics,Department of AH, Dairy and Fisheries, Govt. of India.



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1.2 Objectives of the Action Research

Based on the outputs of the desk study, CALPI initiated this AR to understand the sector and facilitate actions to strengthen the sector. The AR was conducted byCatalyst Management Services (CMS) and the National Dairy Research Institute(NDRI), in partnership with two facilitating agencies (SECURE and ACTIVE) and steered by a Research Reference Group (RRG). It was actively supported andbacked by institutional partners from the Animal Husbandry Department of theGovt. of Andhra Pradesh, CALPI, ILRI, NRMPA, IC and APDDCF. The majorobjectives of the Action Research were:

1. To test an Action Research Methodology to understand the dynamics of TMS and experiment field actions for improving the sector.

2 To facilitate community-identified spontaneous decisions and actions.

3. To identify additional information needs to clearly understand TMS and itsconstraints and opportunities.

4. To test the relevance of the methodology to identify and address the constraints and opportunities.

5. Through these, contribute to sustainable livelihood options for poorproducers and supply of assured quality of milk to the consumers.

1.3 Methodology:

After a careful selectionprocess, it was decided to conduct the study inKhammam District of AndhraPradesh. Andhra Pradesh wasselected as it was felt that thepiloting should be conducted ina State where there was a bal-ance of the organised sectorand the TMS. Within AndhraPradesh, the district selectionwas done using the criteria ofdairy animal population, the balance between cow & bufflo population, estimated milk production and the extent of

milk marketed through the traditional milk system. The District of Khammam wasselected for the study, as the quantum of milk sold through traditional sector wasin the mid range (i.e.200, 930 tonnes per annum which is 61% of the total produc-tion and 91% of total milk marketed in the district), and the cow-buffalo ratio wasalmost equal. The estimated milk production too was in the middle range(329,650 tonnes per annum) among the districts in the state.

Three Mandals (Khammam, Konijerla and Dammapeta) in the district and two villages (covering five habitations) were selected based on the sampling methodology suggested in the RRG (using secondary data on dairy animal population, milk production, proportion of cow and buffalo population, proportionof traditional and organised sector milk procurement etc.). The pilot study in thesehabitations showed that in most of the habitations, the communities were not into

2 Derived from data of A.H.Dept., SMILDA, APDDCF and the house hold survey of milk producers under the AR3 Derived from data of A.H.Dept., SMILDA, APDDCF and the house hold survey of milk producers under the AR4 'Village' here refers to Revenue Village and 'Habitations' are localities which come under the revenue village

boundaries



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dairying as a livelihood option, eventhough the livestock population washigh. The RRG clarified that the scopeof the action research should be limitedmainly to working with players andissues related to the traditional milk market and to some extent with theorganised sector, for the purpose of comparison. Therefore, the issue of'bringing farmers into dairy market', 'productivity of animals' in these habitations etc. were kept outside thescope of the study (with a view to keepthe conceptual focus of the study), eventhough these were felt to be very important for livelihoods of the poor anddairy as a sector.

The preliminary study in these habitations also threw up a factor - market competition profile - that seemedto play an important role in deciding thedynamics in the sector. Two profilesemerged from the pilot study - one, thepockets where all-three operators (cooperative, private dairy and vendors) operate and two, the pockets where only-vendors operate. During the same period, the pilot study in the Vijaywada marketprovided a field methodology to identify habitations with different competition profiles, working backwards from the market. Based on these, it was decided bythe RRG to modify the methodology to identify habitations that have these twocompetition profiles (on the production side). At the same time, it was also decided to cover four different kinds of markets. The final samples covered aregiven in Box-III.

The study also had a number of interactions with the Department of AnimalHusbandry (DoAH) of GoAP, DRDA, municipal authorities and the cooperativeand the private dairies. Scientific sample collection and quality tests were conducted by National Dairy Research Institute (NDRI). These tests were used tofind out the practises / dynamics of the TMS and the quality of products being soldmainly under the traditional milk chain. For facilitating actions, a number of meetings/ interactions were held with a variety of stakeholders - about 20 interactions in each of the habitations studied. These included PRA exercises, meetings with SHG/producer groups, vendor groups, local leaders and meetingstogether with the AHD staff. At the vendor association level too, at least two meetings per month were conducted during the project period apart from othersmall group interactions.

Box III

Samples for Action Rsearch

Four markets with varying profiles were covered -

rural (villages; eight habitations), semi-urban (town

market - Satupalli), urban (district market -

Khammam) and well evolved market (corporation

- Vijayawada). A total of 949 producer households,

819 household consumers, and 179 institutional

consumers, 75 market intermediaries (65 vendors,

2 creameries, one ghee-maker and 7 dairies) were

covered through semistructured questionnaires,

focus group discussions and observations.

Eight habitations were covered in the production

side. Two profiles of habitations were selected -

one set with an exclusive traditional market chain

and the other with a combination of organised

(coop and private) and traditional market chains.

Four habitations in each profile were covered.

Besides, five habitations where the study was orig-

inally initiated were later dropped as the focus of

the study was clarified by RRG as being habitations

where a reasonable quantum of milk flows

through the traditional milk market, and not one of

bringing farmers into milk market.

About Khammam District

Khammam is situated about 250 kms from Hyderabad, the state capital of Andhra Pradesh (170 N

latitude and 800 E longitude). Maximum temperature is 1200 F and minimum is 400F, with normal

annual rainfall being 1,124 mm. The district has 46 Mandals (administrative divisions), of which 29

are tribal.

The district has a total livestock population of 1.78 million, of which the milch animal population is

300,182. Estimated total milk production is about 329,650 tonnes per annum, of which 9% (i.e.

28,000 tonnes) is being handled by organized sector. The population of cows in milk is 104,382 and

that of buffalo is 196,430.

5 Tests for Fat, SNF, adulterants in milk and bacterial load to determine the shelf life



The methodology adopted for the study covered both flush and lean seasons andwas spread over one year (Aug 05 to June 06).

The study conducted extensive data collection, using tools and techniques developed, tested and vetted through the RRG mechanism. The data collectedwas both quantitative and qualitative, used structured questionnaires, PRA tools,observations on the field both within the habitations and in the markets, enquiriesleading from these observations, informal interactions, meetings and workshops.Raw milk samples were also collected from various points in the channel for laboratory assessments. The study followed principles of action research whereinthe problems related to traditional milk markets were identified in a participativemanner, analysed and spontaneous solutions developed and facilitated withstakeholders. developed and facilitated with stakeholders. Five meetings of theRRG were conducted during the course of the AR process. Groups of RRG members made extensive visits to the field, both to the habitations and the

markets, on three different occasions and had wide ranging interactions with theproducers, vendors and their associations, consumers, creameries, privatedairies, cooperatives and the field research teams. The findings emerging from theresearch were shared with RRG members periodically and suggestions wereincorporated in the research process and used for midcourse corrections. Adetailed documentation of all the processes that were followed has been done bythe study team (refer Process Document). A desktop information system thatbrings together all the documents (proposals, tool kits, databases, analysis, andreports), photographs and video documentation of the entire AR has also beendeveloped.

1.4 Tools used in the Action Research

As advised by the Research Reference Group, a mix of quantitative and qualitative tools was used for collection of data. The following table lists the different tools used for collection of data

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At the Habitations Level:

Social mapping, using transect walk and participatory exercises

Seasonality analysis with particular reference to the dairy sector

Dairy timeline, milestones

Dairy livelihood analysis - identifying problems, actions

Individual interviews with producers - 30 per habitation

Vendor interviews - all vendors in the habitation

Habitation level Consumers - 30 per habitation

Case studies

Formal and informal discussions

Veterinary camps

Producer-vendor meetings

Observations of entire dairy day cycle with vendors, producers

Interviews with key informants in the habitations

At the Market Level:

Mapping of vendor points using key informants, observations

Interviews with household consumers - total of about 1,000 and institutions such as

hotels, hostels

Interviews with vendors and private dairies

Observations in creameries, transit points

Scientific tests for quality through samples

Interviews with key informants from government and communities

A number of reflection meetings within the team

Tools used in the AR



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As the first step, the study came out with the main characteristics of the traditional market. Although traditional products like ghee, sweetmeats, paneeretc. form part of the TMS, they were not covered under the AR. Based on consensus within RRG, for the purpose of the AR, TMS is characterized as thechannels of supplies, either by producers directly or by vendors, sellingunprocessed , unbranded milk in loose form or filled in plastic packets or bottlesin flexible quantities and prices . The market operates through informal agreements both at the producer and consumer level. The processing, if undertaken, uses traditional methods (mainly creameries and ghee-making). Thegeographical boundaries of operation by the TMS are limited to an area in whichthe cycle of procurement and sale can be completed within about five hours.

2.1 Channels of Traditional Milk Sector

Two main routes for the TMS have emerged from the research. They are:Producer to consumer (including neighborhood sales) Producer to vendor to consume

Two categories of vendors were identified from the research - vendors who arealso primary milk producers and vendors who are pure market agents. The category of vendors who are also primary producers appear to be more open intheir approach to learning, training and their work. Their interests also appear tobe different as compared to the other categories of vendors. Other players in thechannel were creameries11 and product making units and the consumers (bothhousehold and institutions)

2.0 Characteristics of Traditional Milk Sector

6 100% of milk supplied by operators covered in the research in all three markets; In a very few centres in Satupalli and Khammam, refrigerated loose milk is sold through retail outlets and refrigeration facilities7 52% of milk sold in loose form, 28% in PVC bottle, 12% in plastic bags, 8% others 8 100 ml onwards; even measures such as one-glass, half-glass, or even 'for Rs. 6', etc.9Mostly in Vijayawada market, used mainly by large scale vendors (operating at a scale of 70 litres and above per day)10In terms of distance, this could go up to 70 k.m. in places where train/ bus services are available and the market is large (e.g.Vijayawada)



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Vending Cycle and Key Players

Vendors cater to different kinds of consumers in the market - households, institutions, dairies, bulk coolers and milk product manufacturers and distributemilk of varying quality to cater to the different needs of these consumers. At theprocurement level, vendors collect milk from agents, cooperatives or privatedairies to handle shortages (in all-3 operators' habitations). Usually, any left-overmilk from the market (due to few consumers or lesser quantum purchased, etc.),is sold to dairies or bulk coolers at a lower rate of about Rs. 12 per litre (withoutchecks on quality).

In Vijayawada, a cream separation process was observed amongst large scale vendors. Creameries are situated at main transit points (such as bus stand, rail-way station) where milk from villages are brought into town, cream separated andliquid milk taken for supply to consumers, and cream delivered to creameries.This practice was not observed in a major way in either Khammam12 or Satupallimarkets.

In the case of left over milk, the milk vendors supplied the left over milk to dairiesor bulk coolers. In a few cases in Satupalli and Khammam markets, the vendorssold the excess milk to retail milk outlets which have refrigeration facilities.

2.2 Size of Traditional Milk Sector

The results of the study showed that the TMS has enormous size13 , spread, reachand impact potential. In the study area, the TMS is present in large proportionseven in places where a number of players in the organised sector are present.With increasing urbanisation, the proportion of milk handled by the TMS in themarket is diminishing (e.g. Vijayawada has 42% of the market under TMS compared to Satupalli - 98% and Khammam - 88%), but still substantial quantities are handled by the TMS in these markets and will continue to do so forlong.

In Khammam town, an estimated 1,700 vendors operate. In the production and

11 Mainly in Vijayawada where about 30-odd creameries are operational. In Khammam, there are four creameries, but are used verysparingly as most large-scale vendors supply to institutions where quality check for fat is conducted.12 Four creameries in Khammam and one in Satupalli13 According to secondary sources (APDDCF, 2003-04 list of private dairies/competitors in the federation milkshed; and statementshowing procurement and sales in APDDCF Ltd, year-wise/unit-wise) about 91% of the milk produced in the district is handled throughTMS, i.e... approximately 301,000 tonne of milk per year.



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market channels, TMS provides an important livelihood option for large number ofsmallholder dairy farmers and milk vendors. In production points where there is noorganised sector due to difficulty in access or unviable quantities for operation, theTMS provides the most important market linkages for rural producers (e.g. habitations such as Kondavanamala and Chinnagollagudem, which are about 8km away from the main road). Moreover, in habitations which are close to anurban market, the producers have an incentive to sell directly to urban consumers.Even in habitations where all three operators have a presence, more than 50% ofthe milk is sold through the TMS. This sector provides an effective livelihoodoption for the smallholder dairy farmers, vendors and also caters to the needs of consumers.

Based on the market share of TMS in the towns covered under the AR and therate of growth of each of the channels as derived from the secondary data sources(See Table), it canbe reasonablyassumed that theTMS is likely to bearound for a longtime to come and itis essential tofocus on this segment, both atthe policy andoperational level.It is important tonote that, in spiteof its size, cover-age and impactpotential, the sector is not the focus of any agency (government or other development organisations) for developmental improvement. Planned investments are not focussed on dairy development in these low potential areasserved mainly by the traditional milk system.

A meeting of the RRG Members with the Vendor’s Association



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3.1 Profile of Producers

The study team interacted with a sample of 247 producers. In terms of social categories, about half of the households come from backward castes (such asYadavas and Kuruvas), who are traditionally known for livestock rearing and milkproduction. Some developmentprogrammes by the governmentand other agencies focus ondairying as an important supple-mentary livelihood option andprovide credit for buying ani-mals. These have resulted in amarginal increase in the number of milk producers and animals over the yearsespecially in habitations having irrigation facilities (such as Ananth Nagar and RCPuram). In the habitations studied, dairying is a supplementary source of incomefor most milk producers, with limited animal holding and milk production. Amajority (48 %) of the producers belong to backward castes, followed by 28 %belonging to general caste, 20 % to schedule castes and 4 % to ST. In terms of

economic status, majority of theproducers are poor.

The habitations studied were mainly buffalo tracks with very limit-ed number of cows being reared. Inthe habitations studied, 42% of thehouseholds were primary milk producers (proportion similar in all-3, and vendor-only habitations).Majority (64 %) live either inthatched roof with mud wall housesor in colony houses given byGovt/NGOs. Literacy profile ofrespondents reveal that almost half(i.e. 45 %) of them are illiterate.

A large proportion of dairy producers are either small farmersor landless farmers. At least 2/3rd of

the producers own some agriculture land. This implies that agriculture is either aprimary or a secondary occupation practiced by most of the producers.

3.2 Milk production

The average animal holding permilk producer household was 2.8overall and slightly higher, at 3.1, inall-3 operator habitations. About athird of the milk producers ownonly one or two buffaloes.

3.0 Profile of Milk Producers


It was observed that large farmers had more animals compared to small and marginal farmers. While only 13 % of marginal farmershave six or more buffaloes; 53 % of large farmers have six or more animals. It was alsoobserved that agriculture and dairy almost gotogether. The more agricultural land a farmerhad, he/she was in a more advantageous situation to rear more animals.

About three-fourths of the milk producinghouseholds do not report dairying among the top two sources of income for theirhouseholds. Livestock rearing, including dairy, comprises the main source ofincome for only 14 % of the dairy producers.

The households were grouped according to their main occupation. Overall, it isseen that for a majority of dairy producers, dairying is not in the top two occupations. The scenario is similar across economic categories, caste groupsand type of villages (all-3 or vendor only villages). If we compare across economic groups, a relatively large proportion of upper medium and lower incomegroup households practice dairy as a main occupation. Although more of backward caste communities are associated with dairy as an occupation, it is notseen to be a main occupation for the backward castes either. If we compareacross caste groups, more scheduled castes practice dairy as a main occupationthan other castes. Comparing all-3 and vendor only villages, it is seen that a slightly larger proportion of producers practice dairy as a main occupation in all-3 villages compared to vendor only villages. As relatively more producers practice dairy as an occupation, it is expected that there would be greater milk production. This may be the reason why all the three players - cooperative, privatedairies and vendors are active in these villages.

The average milk production per animal was 2.38 litres per day for flush seasonand 1.77 lpd for lean season, which makes milk production an unviable option ifinvestment is considered14 . Overall, 60% of milk producing households handledquantities less than 5 lpd. In terms of breed, less than a fifth of animals in the habitations were graded buffaloes, and the rest were local breeds.

Almost all the producers reported some production of milk. Overall most of the producers produce milk within the range of 2 to 5 liters per day. Milk productionper producer household is higher in higher economic groups compared to lower economic groups. While more than 50 % of the higher income dairy producers reported production of above 5 liters of milk per day, just around 25 % of lowerincome group producers reported more than 5 liters of production of milk. Acrosscaste groups, more proportion of general and ST caste group producers reportabove 5 liters of production of milk. It is important to note that a majority of scheduled caste producers reported producing less than 5 liter of milk, some evenreporting no production of milk.


914 According to calculations, at least 4 lpd per animal is required for commercial viability, for the producer. Detailed calculations of

profitability and cash flow for small-holder dairy farmers are included in the main report



10

Most of the producers were associated with dairying as an economic activity formore than 10 years. Analysis across economic and caste groups reveals thatcompared to other economic groups, a small proportion of ST and lower middleincome group have recently taken up dairying as an occupation. This may be dueto subsidized support under SGSY and other schemes promoting dairying as aneconomic activity amongst low income scheduled caste groups.

3.3 Animal management Practices

In terms of animal management practices, 64% of producers keep the animalsoutside their houses without a proper shelter. Dry grass was the most used fodder (70% of producers), with only a tenth of producers reporting giving greenfodder to the animals. Use of rice bran for feeding was observed in all the all-3operator habitations--a factor linked to availability of irrigation facilities.

It is important to note that in higher income groups most of the producers used drygrass as feed, while in lower income groups a combination of dry grass, greengrass and rice bran was used. As most of the higher income group producers generally have more agriculture land, it would be convenient for them to feed drygrass to cattle - agriculture residue/by product. No major significant pattern is seenacross caste groups with regards to feeding of animals.



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The hygiene and sanitation levels at the milking points and in places where animals are kept were extremely poor. The normal hygienic practices to be followed while milking (cleaning of udder, place of milking, etc.) was rarelyobserved across different habitations and profiles of producers. Stainless steel oraluminium vessels were used by producers while milking.

Incidences of cattle diseases were found15 to be high as a result of poor animal management and lack of preventive and treatment services in habitations. Main diseases found include foot and mouth disease, Haemorrhagic Septicemia,Mastitis, Anoestrus Ovary, mosquito bites (during paddy harvest seasons) anddeath of calves due to worm infestation. Treatment services at the habitation levelare generally poor particularly for habitations that are away from veterinary institutions (such as Kondavanamala, RC Puram and Basavapuram). The services by the DAH were usually limited to conducting occasional veterinaryhealth camps in a common place about 2-3 k.m. away from these habitations

3.4 Artificial Insemination

Use of Artificial Insemination (AI) services was found to be limited, with 23% ofmilk producers not accessing these services in the last two years, 43% reportedaccessing this service only once in this period. The use of these services wasfound higher in all-3 operator habitations due to better accessibility. The utilisationof services of Gopalmitra was reported only by 17% of the producers (only 4% invendor-only habitations). In terms of satisfaction levels with AI services, about40% producers reported either average level of satisfaction or dissatisfaction.There were no breeding bulls available in the habitations which were far from

15 Veterinary camps are conducted as a part of entry-point activities and as a part of collaborative actions with the DAH and community organisations



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veterinary institutions. The inter-calving period was around 18-24 months, muchhigher than the standard 13-15 months

Milk production in the research sites was characterised by low productivity of animals, and poor animal management practices leading to inefficient and commercially unviable dairy operations. Lack of commercial orientation to dairying by producers, their lack of understanding of animal management practices, combined with poor veterinary services and accessibility issues haveled to the current situation in milk production in the research sites. These issues,related to production, have in turn affected the quality of milk and the price that itcan command in the market. Improvements in these areas are a must for improving the income of small dairy holders.

3.5 Post Production

On an average, about a third of the milk produced in the habitations was consumed within the milk producing households, with the quantum of milk consumption remaining the same between lean and flush seasons. With the leanseason production going down by about 30%, the quantum of marketable surplusmilk was reduced to that extent.

During flush season, for every 100 litres of milk produced in the village, 26 litresis consumed at producer household level, surplus being 74 litres. Of the 74 litres

of surplus milk available for sale, 18 litres goes to the organized sector, 13 litresas neighbourhood sale and 42 litres is sold through vendors. In the lean season,of 100 litres of milk produced in the village, 28 litres is used for consumption atproducer's household level. Of the 72 litres of surplus milk available in the leanseason, 13 litres is collected by the organized sector, 18 litres as neighbourhoodsale and the remaining 41 litres is collected by vendors. This broadly implies thatduring the lean season, neighbourhood sale is least affected, followed by sale tovendors and organized sector. This means, the traditional sector has an edge overthe organized sector managing lean season deficits. This may be due to regularpayment, other services and relationship-based purchasing practiced by vendors.There is no significant difference between consumption and sale across economic groups, castes or type of villages the producers are associated with.

Sales to the neighbourhood, milk vendors, cooperative and private dairies werethe main channels used by producers. Eighty five percent of the milk produced inthe morning and 45% of the milk produced in the evening was sold. Most vendorsdo not procure milk during the evenings, as the demand for milk in the eveningsis much less compared to the morning and the time taken for completing a cyclewould extend their work for more than 16 hours. Therefore, procurement by vendors in the evening was limited in all habitations studied. In all-3 operators'habitations, producers sold milk mainly to organised sector (cooperative or private) in the evenings. In fact, producers who sold milk to vendors in the



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morning sold evening milk to the organised sector. However, in vendor-only habitations, evening milk is either stored and mixed with morning milk or used forhousehold consumption. Effective storage of milk using locally appropriate methods was one of the areas identifiedby vendors to improve market access.

In all-3 operators' habitations, during theflush season, 23% of the milk marketedwas sold to vendors and another 27%sold directly to households and institu-tional consumers, i.e. about 50% of milkthrough the TMS. This proportionincreases to 57% of the marketed milk inlean season, when the share of theorganised sector comes down. In vendor-only habitations, 76% was sold tovendors and 24% was sold directly toconsumers.

A majority (75 %) of the producersassessed quality of milk by its thickness.Other parameters for assessing qualityof milk are taste of product (tea or curd) as a proxy measure (14 % of producers)along with fat content, adulteration and smell. If we compare all-3 villages withvendor only villages, thickness is given topmost importance by most of the producers in both the type of villages. However taste is given importance by agreater proportion of producers (22%) in all-3 villages compared to vendor-only villages where only 5 % of producers give importance to taste of milk.

A majority of the producers assess quality of milk by putting a stick or a finger inthe vessel. Others assess the milk by tasting it in products like tea or curd prepared from milk. Some of them simply assess by mere observation.

However, a greater proportion of producers in all-3 villages report assessing quality of milk by using a stick or a finger. Observation is a dominant method oftesting milk reported by 18 % of pro-ducers in vendor-only villages. Thisshows that there is higher degree ofawareness on quality in all-3 villages,compared to vendor-only villages.

A majority (62 %) of consumers feelthat there is no change in quality ofmilk from season to season. Twentyseven percentage of producersreported that there is a change inquality from season to season whileothers did not have any opinion onthe issue. Those who felt there was achange in the quality of milk, attrib-uted it to change in feed and fodderi.e. availability of green grass andsugarcane. They felt that in summermilk becomes thick due to high fatcontent. Some of the producers alsofelt that quality of milk changes after 4to 6 months of delivery of calf. Ready for the market



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3.6 Market Channel

The main reasons for milk producers choosing a particular channel for sale:

In case of vendors and private dairies-- producers prefer using because of regularity of payment and reliability of the person collecting milk. It is to be notedthat operation of private dairies is similar to that of vendor operations, as thesedairies appoint local level agents to procure milk. In most cases, the producersselect the private dairy based on the agent. In a few cases, ex-vendors havetaken up such agencies in their own habitations.

In case of cooperative societies, the reasons for preference were mainly reputation (well known government dairy) and correct/ higher price, which is quality-based. In habitations where cooperatives operate through agents, the reliability of the person and the confidence that the producer has in the agent werereported as reasons for preferring the channel. The cooperatives collect the milkat their fixed centres. The private dairies also have their fixed centres. The vendors with doorstep collection, personal relations, flexible methods and othernon-price incentives fill some of the needs of the producers. In the case of consumers as well, most of these non price incentives prevail.



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Profile of Market Channel used by Producers in different Seasons

Producers reported that they change the channel of selling milk when vendorsstop/delays payment, percentage of fat of milk comes down (in all-3 villages - organised sector buys milk on fat basis while traditional sector does notbuy on fat measurement basis), and price offered by one channel goes up. Someof the producers also prefer to sell to household consumers in their village, irrespective of the option to sell to vendors/organised sector.

3.7 Price received on Sale of Milk

As for the price received by the producers, the average price reported from vendors ranged between Rs. 11 and 12 per litre. Producers selling directly to theconsumer got higher prices depending on the market and the level of adulterationwith water. Producers selling to private and cooperative dairies, got pricesbetween Rs. 14 and 15 per litre (based on an announced price of Rs. 19.20 perlitre for 10% fat in case of cooperative and Rs. 19.50 in case of private dairies).During the lean season, cooperative and private dairies increased the price by Rs.1 per litre, this was not done by vendors. The price offered by vendors was thesame across the seasons, ranging between Rs. 11 and 12 per litre irrespective ofall-3 or vendor-only habitations.

Prima facie, the price paid by the TMS to producers seems lower than that paidby the private and the cooperative channels. Only about 51-59% of the consumerrupee reaches the producers through TMS. However, producers value many non-price incentives such as acceptance of froth in the milk sold, no separate samplemilk for fat test, door stepcollection/delivery of milk, personalcontact with the farmers, morningwake up call, help in milking, limitedgrocery supplies, milk price realisa-tion on monthly basis etc., the valueof which is not reflected in the 51-59% shown above. Different profilesof producers attach different values tothese non-price incentives. For exam-ple, to a poor milk producer in aninaccessible habitation supply of gro-ceries and supply of milk during dryperiods were more important, where-as for a large producer, convenienceof door-step procurement and help inmilking were given priority.

Even in villages where many vendors or milk channels operate, the price paid byvendors to producers, irrespective of the quality of milk, is the same. There seemsto be an understanding among the vendors on the common price that should beoffered to the producers in the habitations. Occasional deviations from this unwritten rule were reported (e.g. Kondavanamala), but only for a very short time.Price was not considered the most important factor while deciding on the vendors(rather the relationship, regularity of payment and the non price incentives amongothers, were considered important).

A vaccination camp in process



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4.1 Sample Profile

The Study Team collected data from 65 vendors associated with Khammam andSatupalli markets. Of the sample vendors 94 % were associated with Khammam market and 4 % with Satupalli market. Sixty percent of vendors associated with vendor-only operated villages and rest 40 % with all-3 villages.

Most of the vendors in all the three markets were mainly men (close to 95%).Women vendors operated in markets that were close-by and walkable from theirhabitations (e.g. Habitation Peddagollagudem) or in markets that were accessibleby train/bus from their habitations (e.g. Khammam and Vijayawada market, wherewomen vendors from habitations in the periphery of the towns operate).

In terms of social categories, as in the case of producers, sixty two percent of vendors were from backward caste category (traditionally in the dairy business).Very few vendors were from SC/ ST (about10%). Rest of the vendors were from general category castes.

Nearly half of the vendors were either large ormedium farmers (which implies that quite anumber of vendors also belong to poor category of households in rural areas.

Three fourths of the vendors studied have been in the milk vending business forover five years, with only 5% new entrants in this business since the last twoyears. Most vendors report that milk vending is a business that demands untiringeffort, ability to take risks and an ongoing effective relationship with both producers and consumers. These factors, many say, remain as barriers for anynew aspirant to enter this business. are very few. Even most of the limited numbers of new entrants in the last two years have been either relatives or friendsof the existing vendors, who provided them some contacts to start the business.The demands of this business, such as untiring efforts needed throughout the day, ability to take risks and maintaining relationship with both producers and consumers, have been reported as barriers that prevent many new faces enteringthis business.

About 75% of vendors report 'milk vending' as their main occupation. For a fourthof vendors, agriculture was their main occupation, with milk vending being a supplementary income source. In most vendor families, milk vending has beenthe main family occupation over the years, with the relationship with producersand consumers being passed on generation after generation. As can be seen earlier, most producers report 'relationship' as an important factor for choosing tosupply to a vendor. The relationship goes beyond just milk business, with the vendor's participation in family and other social occasions. This 'bonding' betweenthe producer and vendor is valued very highly in the TMS by producers.

On analysing the vendor profile, it is noted thatvendors are mostly from families that have milkvending as their main business, and have been inthis business for a long time. A large proportion(about two thirds) of these families could be clas-sified as economically better off, given their landholding and caste profile.

For 25 percentages of vendors, milk vending is asecondary occupation. Their primary occupations

4.0 Profile of Milk Vendor



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include agriculture 81 %, private service - 6 % and small business 13 %.

When income of vendors from all sources was combined, it was observed that 67% of the combined income of vendors comes from milk vending. Next majorsource of income was agriculture (26 %) followed by minor percentage of incomecoming from agricultural labour (4%) and other sources (3 %).

4.2 Selection of Habitations

Vendors select habitations based on consistent and reliable quantity of milk available to them from these habitations. Total quantum from the locality and quality of milk are other factors that decide on selection of habitations. Nearly 40% of vendors said that they give top most importance to consistent and reliable quantity of supply while deciding selection of villages. Other considerations inselection of habitations are extent of competition, distance from road, caste/socialprofile, economic profile, personal contact and long term association.

If we combine all the responses by the vendors, it is observed that, in all-3 villages, vendors gave highest importance to reliable quality and in vendor-only villages, highest importance is given to total quantum of milk from the locality. Invendor-only villages, there is no competition with other sectors like cooperativeand private dairies; and hence from their scale of operation/operational efficiencypoint of view, they would adopt a village only if assured of quantum of milk in thelocality. In all-3 villages, there would be higher awareness on quality of milk andmaybe this is the reason vendors look for quality in all-3 villages. However, amajority -46 %, of vendors in all-3 and 33 % in vendor-only villages gave top of themind/highest priority to quantity while selecting a habitation for collection of milk.

4.3 Selection of Producers by Vendors

A majority (49 %) of vendors reported that producers generally contact them for selling milk. Other modes of contacting producers are through reference - friends



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and relatives, personal contact of vendors, vendors looking for producers.Generally since, producers contact the vendors, we can interpret that producersare not in a bargaining position with regard to sale of their milk.

Almost 50 % of vendors said that they focused every two months on selecting the producers. Twenty two percentages of vendors expressed the view that they needto select producers every six months. One in ten vendors said they occasionallyget involved in identifying new pro-ducers for sourcing milk. During thelast six months, most of the vendors(71 %) have experienced selectionof producers.

Vendors consider criteria like reliability in availability of milk -quantity, reliable availability of quality milk, total quantum of milk, distance, caste, economic profile



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and personal contacts while selecting producers to procure milk. Consistent and reliable qualities are the key considerations by vendors while selecting producers.

But reliable quality is the top most consideration amongst most of the vendors(nearly 40 %) while selecting the producers.

Overall, reliable quality, quantity and quantum of milk assumes importance whenvendors select producers for purchasing milk.

Majority (73 %) of vendors feel that producers' not maintaining quality is the mainrisk factor for them. However, it is important to note that quality of most of the milk samples taken from the producers was found to meet quality standards. Othermain risks expressed by vendors were - producer not maintaining time of supplyand producer changing channel of supply.

Some of the coping strategies practiced by vendors to solve their main risks with producers include making regular payments, solving their financial, social or legalproblems, maintaining good relations, regular collection, providing advances andmaintaining long term associations with producers. Overall, it is observed that regular payment is the key to success of vendors in retaining the producers. Nextbest mode of retaining producers or solving producer related risks is by solvingtheir financial, social and legal problems. Majority (22 %)of the vendors reportedthat they give top most importance to regular payment, followed by 10 % vendors giving top most importance to solving problems. It is important to know that at least10 % vendors give top most importance to regular collections from producers asa means to solve producer related risks.

4.4 Scale of Operations

Forty five percent of the vendors handle milk quantities below 20 lpd,and about 31% between 20 and 50lpd. Minimum quantity handled is 6lpd, with more than three-fourths handling below 50 lpd.

Further analysis of scale of operation and caste reveals that



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large scale vendors belong to either backward castes or general castes. In the backward castes, majority (48 %) are small scale operators. All the ST vendorsare medium scale operators. Majority of general caste vendors are medium scaleoperators and schedule caste operators are either small or medium operators.

Most vendors (61%) report using packed milk or milk powder to compensate forany supply shortage. A few reported purchasing milk from other vendors and/ oradding/ dropping few producers or consumers. A few cases of vendors givinghigher rates during lean season to the agents of private and cooperative dairies toprocure additional quantities were observed. In case of milk remaining after sales,most vendors supplied it to private dairies and bulk coolers at a very low rate ofeven Rs. 1 to Rs.2 per litre. However, the quantum of milk and the frequency ofthis situation is very limited (very few vendors reported this happening in the lastthree months).

Overall, the average quantityof milk handled by a vendor ina day is 41.4 litres in the flush season and 34.9 litre in thelean season. The average pervendor collection of milk is lowin all-3 operator villages. This isso because other sectors procure from the same village.In vendor-only villages, the average procurement in a dayin the flush season is 54.5 litresand in the lean season 44.8litres per day. On an average,the fluctuation between lean toflush season is 19 %. The fluc-tuation is slightly more in caseof vendor-only villages com-pared to all-3 operator villages.

This fluctuation between seasons is more in the case of large and small scale players. As the total procurement of large scale vendors is more, the percentage of fluctuation is alsomore. But it is interesting to note that there is a very low fluctuation in case ofmedium scale vendors. The size of operation of medium scale vendors seems tobe an optimal scale of operation.

The main challenge for vendors is to retain the producer, ensure consistent supply and maintenance of quality. The most common strategy adopted by vendors to achieve this was to ensure regular payments to producers. One learning from this study is that vendors also operate on monthly payment terms,both with their consumers and their producers.

4.5 Milk procurement and Ensuring Quality

The place of procurement by vendors is the door-step of the producer. Vendorsensure quality of milk supply by being personally present (or a family memberbeing present) while milking. This demands a large amount of time and effort from



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the vendors. In a few cases, where milking is done in the absence of the vendor,the price paid is usually Rs. 1 lower than the regular rate offered. Case studies ofvendors day-cycle show that the time spent on procurement is close to about 2 to4 hours depending on the number of producers covered by them. Most vendorsstart their working day as early as 4.30 a.m.

Time spent by Milk Vendors for collection of Milk from Milk Producers(During Lean Season) - a Case Study

4.6 Price and other non-price Incentives

The average price paid to producers (as reported byvendors) is Rs. 10.75 per litre, i.e Rs. 11.20 in caseof small scale operators and Rs. 10.60 for largescale operators. Very little variation was found inthe rates offered between all-3 operators and vendor-only habitations. Apart from the price, vendors provide other non-price incentives such as,loans/ advances (31% vendors report such incentives) and information on animal health management (20%). Vendors supplying groceryitems, helping in milking operations, supplying milkduring dry period, etc. were also observed duringfield interactions. A high proportion of large vendorsprovide non-price incentives such as loans andadvances.

A Farmer assisted in green fodder production



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4.7 Handling Practices

Irrespective of the scale of operations, type of habitations, or profile of vendors allthe vendors adulterate milk with water before it is sold (as reported by them in the interviews and during observations). The data shows 67% samples in Khammam,88 % in Satupalli and 55 % in Vijayawada were diluted. This also shows that someof the vendors do sell pure, unadulterated milk. There are different levels of adulteration with water by the vendor based on the price offered by the consumer16 . The lowest quality milk (sold at around Rs. 10 per litre17 ) is adulterated with water to an extent of 75% and 100%. The highest quality milk(sold at around Rs. 18-20 per litre) is adulterated with water to an extent of 10%and 20%. The scientific tests carried out by NDRI confirm a correlation betweenmilk price and milk solids. The perceptions of the consumer with respect to pro-portion of water added in the milk purchased by them are consistent with the find-ings of the scientific tests.

Many small scale vendors sell milk in PVC bottles and some medium and largescale vendors use plastic cans which are not made of food-grade plastic. Thesecans are not easy to clean thereby increasing the microbial load in repeat usagewhich can potentially cause health problems in the long-run.

Most vendors do rudimentary tests to check the thickness of milk by dipping a finger in the milk. In creameries too, all the operations involve contact with milkand its products with bare hands. The water used for adulteration is not filtered.The hygiene and sanitary conditions in creameries are areas of concern.

4.8 Managing Lack of Supply

Vendors reported that one of the major problems faced by them is to balancedemand and supply. Vendors resorted to different practices like dropping a fewcustomers, adding water, purchasing from other vendors, changing producers andmixing pack milk powder to manage shortage in supply. Vendors reported thatthey used a mix of the above options to manage deficits in supply. However, purchasing from other vendors to manage this deficit in milk supply is not anoption.. Exchange of milk (surplus and deficit) between vendors could be an areaof intervention to strengthen the traditional milk sector.

Time Spent by Vendors in Selling to Consumers and Some of theObservations relating to their Trade - A Case Study

16 In some locations, vendors usually keep three to four cans, of which one is invariably filled with water, but it looks white as a littlemilk is added to make it look like milk. When the consumer asks for milk, the vendor usually asks what price and based on the price,a combination of thick milk and water is added in quick time to make the milk for that price.17 General understanding among vendors is that it is 50:50 milk, i.e. 50% water and 50% milk for Rs. 10 per litre



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4.9 Vendor operations - overall

Case studies of vendors show that the gross margin from milk vending operationranges from 41% for small-scale operators to 49% for large-scale vendors. i.e.about Rs. 75 per day for small-scale operator and Rs. 700 per day for large-scalevendors. If one considers opportunity costs and other direct costs, then the netmargin for a small scale vendor works out to only Rs. 10 per day (6% of the saleamount realised). For the large-scale vendor (100 lpd), the net margin works outto Rs. 500 per day (37% of the sale amount realised).

The scale of operations by most vendors is generally very low given the time andeffort spent on each operation. Each vendor balances the quantity of milk handled at his/her level - 'collects only what s/he can sell and sells only what s/hecan collect'. This restricts the quantity of milk handled by each vendor, making itunprofitable for the vendors. The process of collection (including milking in hispresence), transport and distribution of milk at the doorstep of consumers requiresover six hours of the vendor's time every day. Thus, the cost of labour (based onopportunity cost) on a per litre basis remains exceptionally high.

Poor handling practices and adulteration of milk with water and neutralisers byvendors affects the quality of milk supplied to consumers. The scientific tests conducted by NDRI show that the deterioration of milk quality in terms of milksolids and microbial load is highest at the vendor level.



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5.0 Profile of Consumers

The Action Research on understanding the milk market focused on the traditionalmilk market. The Market study was undertaken in three types of markets : onesemi urban - Satupalli, a district head quarter town - Khammam and a major city- Vijayawada. The study focused on understanding the profile of consumers andtheir relationship with the market.

Of the total 819 urban consumers covered in the study, 94 per cent purchasedmilk. Of this, 60% purchased milk from TMS, with 98% in Satupalli, 86% inKhammam and 39% in Vijayawada

5.1 Satupalli Market

Almost all the households (91 %) in Satupalli purchase milk. The respondentswere asked if they purchased milk from the traditional sector, organised sector orboth. Their response showed that, almost 98 % of the households purchase milkonly from the traditional sector. The high incidence of purchase of milk from traditional sector could be linked to preference of consumer and also availabilityof milk from that sector. In this context, both the factors assume importance whileanalyzing the presence of the traditional sector. It is a fact that the organised sector comprising private dairies and cooperatives are yet to expand their distribution network in semi urban areas. On the other hand, there may be an ageold preference to buy from vendors i.e. part of the traditional milk sector.

As a majority of the buyers buy milk from the traditional sector, further analysiswould focus only on traditional sector buyers. This would give us an understanding of the dynamics of the traditional milk sector market in Semi Urbanareas

Profile of Traditional Milk Sector Buyers

Amongst the traditional milk sector buyers, 29 % belong to backward castes, 10% to SC, 4 % to ST and 57 % to general category. The Income profile of the traditional sector buyers reveals that, a majority (50 %) belong to the low incomegroup, 40 % to lower middle income category and 10 % to upper middle incomecategory. None of the traditional sector buyers belong to the higher income group.Twenty five percent of traditional sector buyers (respondents) were illiterate. Onlytwo respondents buying milk from the organised sector belonged to ScheduledCaste, Lower Middle income group and were illiterate. .

The above profile is similar to the population profile of Sathhupalli. However, itwould be interesting to find out the dominant profile of the traditional milk sectorbuyers taking caste and economic category into account. It is observed that 50 %of traditional sector buyers belong to the low income group. Further analysisreveals that majority (41 %) of this category belong to backward castes. It can beinterpreted therefore that a majority of the traditional sector buyers in Sethhupallibelong to lower income and backward caste category.



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Decision on Purchase of Milk

It is important to know - who takes the decision at the family level on purchase ofmilk. This would help us in planning consumer-focused interventions in semi urbanmarkets. It is observed that in 94 % of cases, the adult female of the householddecides on the purchase of milk i.e. from which source to buy milk. A similar pattern is seen in lower income group also - the major buyer of traditional milk. Ina majority (96 %) of the lower income group traditional milk sector buyers, it is

women who take the decision on purchase of milk.

Although not very significant, a pattern is emerging with regards to gender profileof decision-making on purchase of milk. As the income of the family increases,men take the decision on purchase of milk. While in case of lower income groups,4 % of adult males take the decision, it is 11 % in case of lower middle income cat-egory families.

Profile of Milk Purchase

Families purchase milk either in the morning, afternoon or in the evening. Of thetotal milk purchased by traditional sector buyers in Sethupalli, it is observed that88 % of the milk is purchased in the morning, the rest in the evening. The few

families who purchase milk from the organised sector buy it in the morning.

When we relate this buying pattern to economic groups, it is seen that as a family goes up the economic ladder, there is more and more incidence of purchase of milk in the evening. While 4 % of lower income groups buy milk in theevening, it is 15 % in lower middle income category and 18 % in case of uppermiddle income category. This implies that surplus milk in the traditional sector would best be marketed to the upper income groups.

Per Capita Milk Purchase

On an average, each household buying from the traditional milk sectorbuys 247 ml of milk per day. However,the variation in amount of milk purchased by households associatedwith the traditional milk sector is very high, standard deviation being 209.84. Thisis much less (101 ml) in case of buyers who buy from the organised sector.



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Further analysis of per capita purchase of milk across income groups shows that,as the income level goes up, the per capita purchase of milk also goes up. Whilea family from upper middle income group buys 384 ml of milk per day, it is 317 mlin case of lower middle income and only 110 ml in case of low income groups. Thisexplains the high standard deviation of per capita purchase of milk across families. It is also important to note that the standard deviation of per capita purchase of milk, in case of upper middle income groups, is similar to that of lowermiddle income category, which explains also why fluctuations in purchase of milkis less in higher income groups. As the income level goes up, families purchasemore milk and variations in the quantity of milk purchased amongst families in thehigher income groups is less.

Further analysis was made to understand, if there is a pattern in the purchase ofmilk across religions. It was observed that per capita purchase of milk is highest(276 ml) in case of Christian families, followed by Hindus (226 ml) and Muslims(175ml). The variation of quantity of milk purchased by households within a religion is lowest in case of Christians. There is a low standard deviation (82) ofper capita milk purchased by Muslims compared to other religions -202 in case ofChristians and 234 in case of Hindus. This may relate to the economic profile ofdifferent religious groups. Taking per capita milk purchase across economic andreligion groups, it can be interpreted that low per capita purchase is seen in caseof low income and in Muslim families

Quality of Milk purchased

The traditional sector is generally viewed as 'not providing good quality of milk;. Itwould be interesting to know the perception of respondents with regard to qualityof milk being purchased by them. In the traditional sector, one could get pure freshmilk, water diluted milk or cream separated milk. Only 10 % of the respondentsassociated with traditional milk sector feel that they are buying pure milk, majority(88%) of respondents feel that they are getting milk mixed with water. Only 2 %feel that they are getting cream-separated milk

Further analysis wasmade to understand theperception within castegroups. At this juncture, itis important to note thatmost of the vendorsbelong to the backwardcastes. It is surprising tonote that all Scheduletribe families (consideredlowest in the economicladder) and most of thegeneral castes

(considered highest in the economic leader) feel that they are getting milk mixedwith water. When people from the same community (backward caste) sell to thesame community (backward caste), there is some perception that they are buyingfresh milk. It is important to note that irrespective of caste groups, families areaware they are not getting pure milk. The reason behind this is further analysed inother sections of this report. The few households that are buying from the organised sector are unaware they are buying toned milk from the market.



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Point of Purchase - Distribution Channel

A consumer would purchase milk either directly from a producer's place, a vendor's place or vendors' would supply milk at the home of the consumers. It isseen that in case of a majority (88 %) of traditional sector buyers, vendors comesto homes and suppy milk, fol-lowed by 8 % cases where theconsumer buys from the vendor'splace and in 4 % cases they get itfrom producers place. Thus vendors are key stakeholders inthe traditional dairy value chain.In case of the very few buyers oforganised sector milk, it wasobserved that they buy from thenearest shop.

Across caste groups of traditional sector buyers, it is observed that in most cases,vendors supply milk at home. If we compare schedule caste to backward castegroups, buying from the vendor's place is the case in SC households while buying from producer's place is seen in the case of backward caste households.In future studies, it would be interesting to probe these dynamics, which mayrelate to caste dynamics in villages. Majority of the backward caste communitiesare either producers and/or vendors..

As the income level goes up, there is more evidence of vendors supplying athome. One would assume that, lower income group households go to the producer's place so as to get milk at a lower cost. But it is seen than amongst lowincome group households there is more incidence of purchase of milk from thevendor's place than from the producer's place. Issues like low quantity of purchaseand other barriers (like caste system) could be reasons for not buying from theproducer's place

Packaging and quantity of Milk Purchased

Traditional sector consumers buy milk either in loose form or in bottles. While 42%of buyers buy milk in loose form around 48 % buy in bottles. If we consider buying in loose form or bottle as similar, then 90 % of buyers buy milk in loose/bottle form. There is hardly any sale of milk in sachets or plastic packs. Thehigh perception amongst consumers that they are getting milk mixed with watercan be linked to purchase of milk in loose form.

Most of the consumers of the traditional milk sector buy either 500 ml or 1 litre ofmilk per day. While fifty two percent of consumers buy a 500 ml pack size of milk,31 % buy 1 litre pack size of milk. Around 10 % of consumers buy a 250 ml packsize of milk. Here pack size refers to quantity of milk purchased in a normal transaction. Up to 96 % of consumers buy, at the maximum, 1 litre of milk in a normal transaction. Households that buy milk from the organised sector buy 500ml pack size of milk. It is worthwhile to note that in markets like Satupalli, there isa significant proportion (10 %) of households that buy a small quantity of milk i.e.250 ml.



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Consumer's preference in deciding Channel of Buying Milk

Consumers were requested to rank the reasons for which they prefer a specificchannel of buying milk. The top ranks given by each consumer were grouped toderive the consumer's preference in decidingchannel of supply. Key considerations in themind of consumers to decide on a specificchannel of supply includes availability of milkat right time (29 % of consumers), quality ofmilk (25 % consumers) and home delivery(21 %). Around 10 % of the consumers feelthat loyalty to specific vendors, built overyears of experience, makes them prefer thatchannel.

Quality of milk is a key consideration while deciding source of purchase only for25 % of consumers i.e. quality is not a major consideration. This may be the reason why consumers buy from the traditional sector, despite their perceptionthat they are buying milk mixed with water. Other considerations like home delivery, availability at right time and loyalty of consumers helps to overcome thequality related issues of the traditional milk market. This is also why a large number of households buy milk at their homes from vendors. If we link the channel of supply with reasons of preference for a specific channel, we find thatsome of the quality conscious consumers buy milk directly from the producer'splace.

Price of Milk and Terms of Payment

A majority of the traditional sector consumers (75 %) are paying Rs. 10 to Rs. 12per litre of milk. Some of the consumers (15 %) are paying Rs. 13 to Rs.14 whilethe rest (10 %) are paying Rs. 15 to Rs. 18 per litre of milk. It is important to understand how vendors (major sellers of milk) are able to sell milk at Rs. 10 toRs. 12, when they are purchasing/procuring milk at the same price.

It is relevant to link price of milkwith quality of milk purchased.Majority (94 %) of the traditionalsector consumers who purchasemilk at Rs. 10 to Rs.12 feel thatthey are getting milk mixed withwater, while only 40 % of consumers paying Rs. 15 to Rs.18 feel that they are getting milkmixed with water. As theprice paid by the consumerincreases, the perception ofgetting quality milk alsoincreases. Hence, it can beinterpreted that vendors areable to supply milk at Rs. 10 to Rs. 12 per litre, almost at their purchase price, onlyby mixing water. The additional quantity of milk gained by adding water and thereby the additional income generated by selling the additional quantity, helpsvendors meet their cost of operation and return/income.



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Further analysis of the price paid by consumers belonging to specific communitygroups reveals that a majority (79%) of low income consumers in the traditionalsector buy milk at Rs. 10 - Rs. 12 per litre. As the income level of the consumergoes up, there is incidence of purchase of higher priced milk. Nevertheless, a substantial percentage of households in each of the economic categories buy milkat Rs. 10 -Rs. 12 per litre.

Ninety percent of the consumers pay for the milk monthly. In a very few cases,there is daily, weekly or fortnightly payment. Households that buy from the organised sector, mainly from shops, pay on a daily basis i.e. possibly at the timeof buying milk. Late payments are disadvantageous for the vendors. However, it isnot seen as a reason of preference from the point of view of consumers. None ofthe consumers gave top rank to "late payment" as a reason for preferring the specific channel of supply

Usage of Milk

Milk is mainly used for curd, tea/coffee and formaking sweets. Nearly 41 % of the consumersuse the milk for making curd. This may be a reason for the high preference for thick milk. Thethicker the milk the more curd formation and better quality of curd.

Perception of Consumers regarding Quality of Milk

During the market survey, consumers were asked their opinion on quality of milki.e. what they would value most when it comes to quality of milk. Most of the consumers feel that quality of milk can be known by its thickness and taste.Amongst thickness and taste, thick-ness is given more importance. Amajority (83 %) of consumers gavethickness as a key indicator to knowthe quality of milk. Very few households gave importance toyield, shelf life or utility in preparation of different productswhen it came to quality of milk.

Further analysis of indicators ofquality across economic groups reveals that, as income level increases, there isincreasing preference of 'taste' as an indicator of quality. An attempt was made tounderstand the extent of satisfaction of traditional sector consumers with regard tothe specific quality in milk they value the most. Seventy five percent of consumersfeel that they are happy with respect to the taste of milk bought by them, 13 %were happy to some extent, and 6 % were not happy. The rest of the respondentsdid not answer this query. With regards to thickness being valued most by consumers, 60 % felt that they are happy with thickness of milk, 35 % were happyto some extent and 4 % were not happy.

This can be further analysed by relating 'quality expected' by the traditional sector consumers and 'quality accessed' (in their opinion) by them. While 83 % of



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consumers gave first importance to thickness of milk, about 60 % were happy withthe thickness of the milk bought by them. This means that although most of thetraditional sector buyers are happy with regard to the service and the quality ofmilk, some of them are not happy, with the milk bought by them, or with the suppliers

Problems faced by Traditional Sector Consumers relating to Quality

Thirty one percent of traditional sectorconsumers do not have any problemwith the present market system. Someof the key problems expressed werebad smell, mixing of water, and curdlingof milk. Although a substantial percentage of consumers feel that thyare getting milk mixed with water, asmall proportion of them consider thisas a quality issue.

Satisfaction level of Consumers

Consumers were requested to rank their overall satisfaction on different parameters like timely availability, convenience in delivery, price paid, packaging,quality and suitability for preparation on a 5 point scale i.e. unsatisfied to highlysatisfied. On most of the parameters, consumers were either satisfied or highlysatisfied. It can safely be interpreted that overall traditional sector consumers arehappy with the market.

Nearly 69 % of the traditional sector consumers expressed concern about quality.This is reflected in the above table Consumers are divided when it comes to quality as an issue, but most of them are 'highly satisfied' with regard to otherparameters relating to the traditional milk market.

5.2 Khammam Market

The following section details the profile of the milk market in Khammam town. Themilk market comprises both the organised and the traditional sector. It was felt that dynamics of the milk market, particularly traditional milk sector, would be differentin Khammam compared to semi urban markets like Satupalli or major cities likeVijayawada. While analysing different aspects of the milk market in Khammam, aneffort was made to relate with semi urban markets like Satupalli.



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Almost all the households (98 %) in Khammam town buy milk. Amongst those households that purchase milk, 86 % buy from the traditional milk sector, 11 %from the organized sector and 7 % from both the sectors. As the percentage ofhouseholds buying from both, organised and traditional sector, is low, we caninterpret that there is a high degree of loyalty/consistency among consumers withregards to source of milk purchase. Further analysis would try to understand theunique features and differences between the various sectors.

Profile of Consumers

As almost all the households are involved in buying milk, it was not considered relevant to analyse the composition of the consumers with respect to caste, economic category and literacy as it would largely be in line with the populationprofile. We have however related the composition in one milk sector with the otheri. e. traditional and organised.

It is observed that, comparatively a greater proportion of backward caste households are associated with the traditional milk sector, while general castehouseholds are more linked to the organised sector. While 37 % of traditional

sector buyers belong to the backward castes, only 23 % of organised sector buyers are from the backward castes. On the other hand, while 61 % of organisedsector buyers belong to general/other castes, 46 % of traditional sector buyersbelong to general/other castes. It seems backward caste people are closely linked



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to the traditional sector. One can relate that to the fact that most of the vendors,key players in the traditional sector belong to backward castes.

The economic profile of consumers in the traditional sector is similar to the overall milk sector. There is a slight difference when it comes to organised sector.Compared to other sectors, a slightly higher proportion of consumers in the organised sector belong to the lower middle income group. While around 35 % oftradition sector and overall milk sector buyers belong to lower middle income category, it is 45 % in case of the organized sector. The organised sector has beenable to attract all economic classes of people in cities like Khammam. Within theoverall movement of consumers, from traditional sector to organised sector, it hasbeen slightly more attractive for the lower middle class to buy milk from the organised sector.

There is similarity in literacy profile of respondents in the overall milk sector andthe traditional sector. However, there is a noticeable difference if we compare profile of respondents/consumers of the organised sector with other sectors. Aslightly higher proportion of respondents using the organised sector are educated up to the primary level and there are also graduates, whichmean the organised sector has attracted both -the literate and others who are well educated. Although the literacy profile of the respondents should reflect the literacy profile of consumers/households, it may not be appropriate to relate literacy profile with profile of consumers.

We can confidently interpret that the profile of consumers of the traditional milksector is related to the overall milk sector. There is no major distinct pattern in thetraditional milk sector. If we remember that not so long ago, it was only the traditional sector which was serving milk consumers, then we can understand whythe consumer profile of the traditional sector continues to be similar even now.Traditional sector reaches out to all sections of the society, even where there issignificant presence of organized sector in the market.


In all the sectors, mainly women (75 % of households) decided on the source of purchase of milk. It is seen that, compared to other sectors, more women areinvolved in decision-making regarding milk. While 75 % of women made decisionsin the traditional milk sector, women decide 81 % of case in the organised sector.

Across economic classes of consumers, it was women who largely took decisionson purchase of milk. There is no specific distinction seen across economic groups.


A majority of consumers (82%) buy from the traditionalsector. Eleven percent ofhouseholds buy from theorganised sector, the restbuy from both sectors.

Although a majority of consumers ineach of the caste groups are



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associated with the traditional sector, it is observed that comparedto backward castes and schedulecastes, a greater proportion of STand general/other category households deal with the organised sector. It would be relevant to analyse why the traditional sector is losing consumers belonging to 'STand others ' category. At some point of time, the ST and others/general categoryconsumers who have shifted to buing from the organised sector were associatedwith the traditional sector.

In all the sectors, there is purchase of milk in the morning and evening.Irrespective of type of sector most consumers buy milk in the morning. Purchaseof milk in the afternoon is done only through the traditional sector. Supplying milkat any time, even in the afternoon, could be one of the strengths of the traditionalsector.


Per capita purchase of milk is similar across sectors like the traditional and the organised sector. However, variation in quantity of purchase of milk is slightly higher in the traditional sector compared to the organised sector.

Nevertheless, it is important tonote that per capita purchaseof milk is high in case of con-sumers buying from both sec-tors- traditional and organised. This may be because consumers associated withboth the sectors have a fluctuating requirement of milk. While on the one hand requirements per household fluctu-ates, the overall quantum of purchaseacross households associated with boththe sectors, varies widely, which can beexplained in terms of a higher standard deviation compared to other sectors.

Overall, in Khammam market, the percapita purchase by an average consumeris 216 ml in day. As income levelsincrease, the per capita milk purchase alsogoes up. The variation in purchase of milkacross higher and upper middle economicgroups is higher compared to othergroups. A household belonging to the higher income group buys almost double themilk bought by a household belonging to alower income group.

We can also observe that, irrespective of increase in income, after a certain pointof time, per capita milk purchase may stagnate. Per capita purchase of an average household belonging to a higher income group and upper middle incomegroup is almost the same.

Amongst consumers belonging to different religious groups, per capita milk purchase is highest in the case of Hindus, followed by Muslims and Christians.



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However, in case of smaller markets like Satupalli it was seen that per capita milkpurchase was higher in case of Christians followed by Hindus and Muslims. If wecompare both the markets, we see that consumption of milk is related more toeconomic status than with religion.


Organised sector consumers buy milk inpackaged form with specified quality parameters. The perception on 'quality ofmilk' being purchased in packaged formwas collected. Only 30 % of traditional sec-tor consumers feel that they are buyingpure milk. The figure is 10 % when itcomes to semi urban markets likeSatupalli. This means, the perception ofgetting quality milk is higher in case ofmajor markets like Khammam, but is relatively less in local markets like Satupalli,although local markets are more close to the producers and vendors.

Twenty nine percent of households buying milk from both the traditional andorganised sector felt that they are getting pure milk. This is similar to those buyingonly from the traditional sector. About 19 % of the buyers associated with both traditional and organised sector, said that they do not have any idea about thequality of milk purchased by them. This may be because they are not associatedwith any one sector.

If we further analyse about 'perception of milk' amongst traditional sector consumers, it is seen that across caste groups, 60 to 70 % of consumers feel thatthey are getting milk mixed with water.. However, compared to all the castes, moreof the general/other caste people feel that they are only getting water mixed milk.

In the organised sector, a majority (48 %) of the consumers purchase toned milkwhile 19 % purchase double toned milk. It is also a fact that quite a proportion ofhouseholds (19%) in the organised sector do not know what type of milk they arepurchasing. Very few households purchase standardised and whole milk. In mostcases, people are not aware of the type of milk they are purchasing. They eithersaid that they do not know the quality of milk; or did not answer or checked "others" type of milk being purchased by them. This indirectly explains why,although people are buying from the organised sector, they are not aware of thequality of milk they are buying


In the case of almost all traditional sector consumers, the milk vendor supplies athome. This is a notable difference, as in local markets like Satupalli, where 88 %are traditional sector households, vendors' supply milk at homes. It is worthwhile noting that 'vendors supplying at home' is the major channel of supplyof milk in the traditional sector.

In the case of the organised sector, consumers could buy from a milk booth, shopsor private agents. A home delivery service is also offered by organised sector suppliers. Consumers are spread across the mode of purchase. Nevertheless, a



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significant number (29%) of consumers areassociated with home delivery, which is similarto vendors' supplying at home. In future studies,it would be interesting to track the trend ofhouseholds accessing milk through home delivery in the organised sector. If we analyseacross caste groups, the profile of general/other

caste households buying milk is spread across channels - 21 % through homedelivery, 37 % from milk booth and 26 % buying from shops. But it is interesting tonote that a majority (57 %) of backward caste households access milk throughhome delivery. Similarly, buying from a milk booth and getting home delivery isprevalent in ST households buying from the organised sector.

One would assume that as income levels go up, there would be a preference forhome delivery. But it is not so. All the higher income group households associated with the organised sector reported that they buy milk from shops.

Home delivery of milk inthe organized sector ispicking up in lower economic segments.While only 25 % of lowincome groups preferhome delivery, 50 % of

lower middle income group prefer home delivery. It is also important to note thataccessing a particular mode of purchase has more to do with options availablewith the household than any specific preference for a particular mode of purchase.Home delivery services e.g. in the Khammam market may not be widely available. At this stage however no pattern emerges across economicgroups with regard to preference for specific mode of purchase.


Popular brands of milk being sold in Khammam market include Vyshnavi, Model,Thirumala and Vijaya. A majority (84 %) of consumers in the organised sector arenot particular about the brand of milk they are purchasing. Six percentage of buyers in the organized sector reported that they buy Vyshnavi brand of milk.Model is purchased by 6 % of consumers and Vijaya is purchased by another 3 %of organised sector consumers.

Traditional sector consumers buy milk in loose form, in bottles or even in sachets.It is observed that 88 % of the traditional sector buyers buy milk in either looseform or in bottles - 47 % of them buying in bottles, 41 % in loose form and 9 % insachets. It is important to note that buying of milk in sachets is reported more inbigger markets like Khammam, which is not the case in small markets likeSatupalli.

Most of the buyers in the organised sector buy milk in sachets. Buying milk inloose form was reported by 3 % of the consumers. (They may be buying smallquantities of milk from retailers, who orobably convert milk packs into loose form.

Overall most of the consumers in the milk market (62%), buy either 500 ml or 1litre of milk pack sizes of milk. Rest of the consumers either buy 250 ml or 750 mlof milk pack sizes. While analysing pack size of milk in different milk sectors - traditional and organised, the scenario is slightly different.



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While the organised sector is dominated by purchase of 500 mlpack size of milk, all pack sizes arepurchased by the traditional sector.Pack sizes of milk bought by consumers in the overall milk

market and the traditional milk market is similar. This may be so, because the traditional sector has a major proportion of the milk market in Khammam.


Consumers prefer a specific channel/source of milk for various reasons like quality of milk, loyalty to brand or supplier, advantage of home delivery, availability in right time, low price, dependable supply, getting the product on credit and proximity to suppliers/shops. It is observed that across milk sectors,most consumers (more than 60 %) prefer a specific channel for buying milk asthey feel they are getting quality milk. This implies that it is difficult to associateeither the organised or the traditional sector of providing quality milk. However,one can not ignore the higher percentage of consumers in the organised sectorbuying milk therein for quality reasons .In comparison with small markets withSatupalli, it was observed that "quality of milk" as a reason for preferring a particular channel increases in bigger markets like Khammam.

Irrespective of sectors, it is seen that loyalty to brand or supplier is seen only incase of one out of 10 consumers. This is similar to that reported in semi urbanmarkets like Satupalli. Brand/loyalty is important but is not at the forefront in thedecision making process of con-sumers. Key difference is seenwhen we relate home deliverywith availability at the right time.While traditional sector con-sumers give importance tohome delivery, availability at theright time assumes importancein case of organised sector con-sumers. If we further take into account, households looking for dependable sup-ply, (which is similar to availability at the right time), it is more in case of the organ-ised sector.

One of the key observations is that, price of milk is not a major factor influencingdecision- making in either traditional or organised sector. Nevertheless, amongstboth the sectors, there is priceconsciousness: 4 % of tradi-tional sector gave 'highestimportance' to price (low price)while deciding on a particularchannel of supply.

This can be further related toprice as a consideration fordeciding channel of supply andthe actual price paid by theconsumers.



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It is seen that consumers in either traditional or organised sector pay from Rs. 10-Rs.18 per litre of milk. A majority (85 %) of consumers pay Rs. 15 - 18 per litreof milk. It is seen that an average consumer in the organised sector pays morethan the traditional sector consumer.This may be the reason why none ofthe organised sector consumersreported 'price' as a major consideration in deciding the channelof purchase.

Data relating to the traditional sector reveals an interesting picture. There areclearly two price brackets as far as price of milk is concerned. While forty five percent of traditional sector con-sumers pay Rs. 10 - 12 per litre ofmilk, another 40 % pay Rs. 15 -18 perlitre of milk. It is seen that milk of dif-ferent price ranges are available in thetraditional sector suiting the payingcapacity of the consumer. This obvi-ously relates to quality of milk beingpurchased by the consumers in thetraditional sector. However, more, tra-ditional sector consumers, in major markets like Khammam, are paying higherprices (Rs.15 to Rs. 18) for milk, compared to consumers in smaller markets. Onthe one hand, this relates to the purchasing power of consumers in bigger markets like Khammam and on the other hand, to a higher degree of quality consciousness reported (for preferring a channel) by traditional sector consumers.

We can further link the quality and price issues by classifying consumers into pricebrackets. Majority (80 %) of the traditional sector consumers who pay Rs. 10 --12per litre of milk feel that they are getting milk mixed with water. As the price paidper litre of milk goes up, perception of getting pure milk also goes up. When a consumer pays as high as Rs. 18 per litre of milk, perception on quality of milkgoes up: 67 % of the consumers paying more than Rs. 18 per litre of milk feel thatthey are getting pure milk. Incidence of lack of awareness on quality of milk

If we compare small markets likeSatupalli with a big market likeKhammam, a comparatively greaterpercentage of consumers are concerned about quality. More than 90% of consumers of the traditional sec-tor, paying Rs. 10-12 per litre of milk inSatupalli feel that they are getting milkmixed with water, while 80 % feel that inthe Khammam market.

There is a clear distinction regarding periodicity of payment for milk purchased,when we compare traditional sector with organised sector. While payment on amonthly basis is practiced by majority (95 %) of the traditional sector consumers,daily payment is seen in 74 % of the organised sector consumers. It is very clearthat the monthly system of payment is predominant in the traditional sector and adaily system of payment is predominant in the organised sector. Although there is



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one dominant system of payment in each of the sectors, it is important to take intoaccount the incidence of daily payment in case of traditional sector and monthlypayment in case of organised sector: 4.6 % of traditional sector consumers pay ona daily basis, and 19 % of organised sector consumers pay on a monthly basis. Iflate payment is considered to be one of the advantages for consumers to preferthe traditional sector, one may note that the organised sector has also started providing this advantage. Weekly payment was reported by 3 % of organised sector consumers. The shifting pattern in payment system of milk in the organisedsector can be related to competition between the organised and traditional sectors, and the organized sector trying to adopt some of the inherent strengthsof the traditional milk sector.

At this juncture, it would be interestingto know about the frequency of milkprice negotiation in the traditional andorganised sectors. Quite a large propor-tion of consumers in both the sectors(27 % in traditional and 23 % in organ-ized) feel that there was no variation inprice. At least one in 4 households reported price negotiation once in 1 to 3 years.Frequency of price negotiations is similar in both organised and traditional sectors.Price negotiation in the organised sector would not mean one to one negotiationslike in case of traditional sector. It refers to change in price of milk for different categories of milk products made by the organised sector. As frequency of changein price is less, as experienced by consumers in both the sectors, it can be saidthat the market is very competitive in nature. Any change in organised sector pricing and services influence the traditional sector and vice versa

Usage of Milk

Milk purchased by households could be used by children directly or as a healthdrink for children. Households also purchase milk for making tea/coffee and curd.An attempt was made to understand the profile of households based on primarypurpose for which they purchase milk.

It is observed that the proportion ofhouseholds associated with eachcategory of use of milk is similar inboth sectors. This means that thepurpose for which milk is being purchased is not a major determinant

in deciding the preference in any sector. However, a close look at the data alsoshows that, households prefer traditional milk for children and making curd.Organised sector milk is preferred for making tea/coffee. In case of smaller markets like Satupalli, a substantial proportion of households (17%) buy milk formaking sweets, which is not the case with traditional sector consumers in citieslike Khammam.

Perception of Consumers on Quality of Milk

Across different milk sectors, consumers judge 'quality of milk' by testing its tasteand thickness. A majority of organised sector and traditional consumers gave topmost priority to 'thickness of milk'.



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However compared to the traditional sector, more consumers in the organizedsector (61 % compared to 48 %) gave priority to 'thickness of milk'. Tasteassumes more importance for traditional sector consumers compared to organised sector consumers: while 43 % of traditional sector consumers give topmost priority to taste while deciding quality of milk, only 32 % of organised consumers gave priority to taste. Other than taste and thickness, consumersjudge quality of milk by knowing its shelf life, smell, colour, yield and extent of usein different preparations. Although it is not significant, traditional sector consumersgive preference to smell and yield, and organised sector consumers give preference to shelf life and yield. Thus amongst minor quality parameters, in theeyes of consumers, - traditional sector consumers prefer smell and organised sector consumers prefer shelf life.

Further analysis of 'perceptionof quality' across economicgroups suggests that a greaterproportion of consumers fromupper-middle economic groupsgive importance to taste; moreconsumers from higher incomegroups give importance tothickness as a quality

consideration. Except for higher income groups, the profile of consumers across'quality parameters' is similar.

Problems faced by Traditional Sector Consumers relating to Quality

Consumers in Khammam milk market reported that some of the problems facedby them relating to quality of milkinclude bad smell, getting previousday's milk, mixing of water withmilk and curdling. Quite a largeproportion of households in eachof the sectors revealed that theydo not have any problem withquality of milk purchased by them.Milk mixed with water is a problemreported only by traditional sector consumers.



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Thirteen percent of traditional sector consumers feel that they are getting milkmixed with water. A greater proportion of consumers feel that they are getting previous day milk compared to consumers in the traditional sector. It is importantto note that in Khammam market, a relatively low percentage of consumers feel that they are getting milk mixced with water, compared to smallmarkets like Satupalli


A large majority of households in Khammam market, associated with either theorganised or the traditional sector are happy with the services of their sector.Roughly, three out of four households are happy with the milk and associatedservices of the milk sector.

It is worthwhile to note that, while 8 % ofhouseholds are unhappy with the traditional sector, 13 % are unhappy with theorganised sector. This means there is potential to strengthen the traditional sector ifits weaknesses are overcome, and strengthsof the organised sector are built into it..

Using either the traditional or the organisedsector, few households are not satisfied with the services of the chosen sector from which they are buying milk. Within

the 'higher satisfaction level', we see that traditional sector consumers have concerns about quality (which is ranked lower in the satisfaction level) while the organised sector has concerns about timely availability in adequate quantities.While on most of the parameters 70 to 90 % of traditional sector consumers arehighly satisfied, only 65 % of consumers are highly satisfied on quality. Similarly,only 74 % of organised sector consumers are 'highly satisfied' about timely availability of milk in adequate quantity, but around 80 % are highly satisfied incase of all other parameters. Compared to semi urban markets like Satupalli, consumers of the traditional sector are relatively happy with their quality of milk.Consumers were requested to rate their satisfaction on parameters that includeavailability, convenience in delivery, price, packaging, quality and suitability for preparations

5.3 Vijayawada Market

Vijayawada is a major city in Andhra Pradesh. It is nearly a 2 to 3 hour drive fromKhammam town. The earlier sections dealtwith the dynamics of the milk market in a semiurban place like Satupalli and also in a majortown i.e. Khammam. In this section we dealwith the dynamics of the milk market inVijayawada with special emphasis on the traditional milk sector and comparisons withother markets like Khammam and Satupalli willbe discussed.

Type of milk purchased from different sectors



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The sample size of households covered in the Vijayawada market study was 468.It was observed that 92 % of the households purchase milk. -which is less thanthat of the medium size cities like Khammam. In Khammam, almost all households(98 %) purchase milk.

In Vijayawada, 57 % of households are associated with the organised sector, 35% with the traditional milk sector and the rest 8 % being with both the sectors. Itis observed that as the size of a city increases, the organised sector has a greater presence. While in Khammam 11 % of the consumers buy milk from the organisedsector, it is 57 % in case of Vijayawada city. In the past, major investments weremade in the organised sector which was aimed at reaching key urban centers.Despite huge investments, at least 35 % of consumers are being served by thetraditional sector.

Profile of Consumers

Consumers in Vijayawada city are almost equally divided across the two milk sectors i.e. traditional and organised sectors. This implies that there is sufficientcompetition between the two sectors in the market place. As only 11 % consumersdepend on both the sectors, we can interpret that consumers are generally loyalto a specific milk sector- be it organised or traditional.

As more than 90 % of households buy milk, any profile of caste groups in theoverall milk sector is likely topresent the population profile ofVijayawada city itself.Comparing the caste profile of traditional sector consumers to organized sector,it can be interpreted that, moreof schedule caste and backward castes communities

are associated with traditional sector and more of general caste consumers are associated with the organised sector.

On the other hand, if we compare across economic groups, it is observed that households with higher economic status are associated with the traditional sectorand those with lower income group are with the organised sector. However, the association with a specific sector does not mean favour of a particular sector.

If we compare Vijayawada with Khammam, similar analyses can be drawn if weare comparing caste profilse. But in the context of economic groups, lower economic status households are more associated with organised sector in majorcities like Vijayawada.

Literacy and education status do nothave a major bearing on the sectorthe consumer would choose. Onemay expect that, educated peoplewould purchase milk from the organised sector. The finding is in the

reverse. Comparatively highly educated consumers prefer traditional sector milk.The average family size of traditional sector consumers is 4.13 and that of



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organised sector consumers is 4.25. There is no major distinction with regard tofamily size of one sector of consumer with the other sector. However, the average family size of those households that buy milk from both traditional and organised sector is 5.28 which is relatively high. This explains why milk requirement of largefamily consumers would not only be high but also fluctuating, which is why theydepend on both the sources of milk.


IIrrespective of type of sector the consumer chooses, in most sectors women decide on purchase of milk and they are not biased in favour of a

specific sector.

However, the scenario isslightly different in case ofhouseholds buying milkfrom both sectors. In 75 %

of households associated with a specific sector, it was women who took the decision on purchase of milk. but the percentage is 83 % in households buyingmilk from both sectors.

It is seen that as the income of the household goes up, women take decisions onpurchasing milk. In medium size markets like Khammam there was no distinctionacross economic groups.


In all the sectors, purchase of milk is seen in the morning and evening. In a fewcases consumers also buy milk in the afternoon. More organised sector consumers (84%) purchase milk in the morning, while 72 % of the traditional sector consumers buy milk in the morning, .

If we compare incidence of purchase of milk in the evening across type of city,more evening milk purchases in are seen in major cities like Vijayawada. For

example, while only 11 % ofthe traditional sector consumers buy milk in theevening in Khammam, it is 26% in Vijayawada.

If we analyse the incidence of milk purchase across economic groups, weobserve that time ofmilk purchase is no

way linked to economic status. Across all economic groups nearly 80 % households buy milk in the morning, rest largely buying in the evening.



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In Vijayawada, average per capita purchaseof milk per day is 227 ml. This is slightly higher than reported in Khammam town. Percapita per day purchase of milk by the traditional sector is relatively higher than thatof the organised sector. Interestingly this isthe reverse in towns like Khammam.

This means with more and moreincidence of organised sector purchase, per capita purchasecomes down. Traditional milk sector suppliers are able to reachout to high volume consumers. Anearlier profile of the organised sector had also revealed thatlower income consumers areassociated with the organised sector. It is expected that the percapita purchase of milk in case oflower economic status consumers

would be less. As lower economic status consumers are associated with organised sectors, the overall per capita purchase of milk per day in case oforganised sector is lower than the traditional sector. The higher standard deviationof organized sector compared to traditional sector explains that variations in quantity of milk purchased by organised sector consumers is higher than traditional sectors.

As the economic status of consumers goes up, families purchase more milk.While a higher income group household purchases 348 ml per capita milk per day,it is almost half and as low as 161 ml in case of low income group consumers.Within economic groups there is wide variation in the quantity of milk purchased

by different consumers. The higher theincome group, the higher the variation inmilk purchased within the economicgroup.

Amongst different religions, it isobserved that the per capita purchase of milk per day is highest in the case ofHindus (234 ml), followed by Muslims and Christians. The variation in quantity ofmilk purchased is also highest in case of Hindus followed by Christians andMuslims. However, the per capita purchase of milk may have more to do with economic status than with religion. Economic status within the religion may becontributing to higher or lower per capita purchase of milk.


Fifty five percentage of traditional sector consumers felt that they are getting milkmixed with water. Compared to smaller towns like Khammam, a lesser proportionof traditional sector consumers feel that they are getting milk mixed with water inmajor cities like Vijayawada,. A very small proportion of traditional sector



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consumers feel that they are gettingcream-separated and packed milk.This means the traditional sector isunable to take advantage of separation of cream (managing fat asis done in organised sector) to gainmore income.

The perception of getting water-mixed milk is high in case ofconsumers buying milk from traditional sources. This may be onethe reasons why such consumersare associated with both traditionaland organised milk sector.

Data reveals that all the ST house-holds feel that they are gettingwater-mixed milk. The perception ofgetting poor quality milk (defined in terms of mixing of water) is highest in case ofSTs followed by general caste, backward caste and schedule castes. Some of thebackward caste people communicated that they are getting cream-separated milk.As majority of vendors are from backward castes, they would be aware of the incidence of separation of cream practiced by some of the vendors, while othercaste people may not be aware of such practices. If we compare Vijaywada withKhammam, we find that even amongst all caste groups, the proportion of castegroups who feel that they are getting water-mixed milk is low in Vijayawada compared to Khammam. It is surprising that in Vijayawada, all the ST consumersfeel that they are getting water-mixed milk.

While 72 % of the organised sector consumer's purchase toned milk, 8 % purchase double toned milk. Very few households purchase either standardised orwhole milk. Nearly 11 % of the organised sector consumers expressed that theydo not know the type of milk they are purchasing. Compared to Khammam, thereis a high degree of awareness about the type of milk being purchased by organised sector consumers in Vijaywada.

In Vijaywada, awareness of 'type of milk' being purchased in the organised sectoris high in case of backward castes, followed by general caste, ST and SC. Majorityof the consumers in the organised sector purchase toned milk, others mainly purchase double toned milk. Examining the pattern of purchase of toned and double toned milk across caste groups, we can see that, compared to othercastes, the backward castes and general castes buy more double toned milk.While 12 % of backward caste consumers buy double toned milk, none of the consumers belonging to ST caste and hardly 5 % of consumers belonging to SChouseholds buyi double toned milk. Incidence of purchase of standardised andwhole milk is observed in case of backward caste and general caste consumers.


In case of a large majority of traditional sector consumers (91 %), vendors supplymilk at home. Some of the consumers associated with traditional sector buy milkfrom producer's place (3 % of them), producers milk in front of them (3 %) and 1% of consumers. buy from vendor's place With more and more urbanization, one



45

presumes that vendors would supply milk at hometo all traditional sector consumers, but this is notso. Although the incidence of vendors supplyingmilk at home is very high across all types of cities,it is highest in case of medium size cities likeKhammam. In future studies, it would be worth-while to explore why consumers in traditional sec-tor in major cities, prefer to collect milk from pro-ducer's or vendor's place, when the market is competitive and there are differentchannels of supply of milk.

Further analysis across caste groups using the traditional sector reveals that irrespective of caste groups, in most cases vendors supply milk at home. It ismainly in case of SC households that some of the consumers (33 %) go to thevendor's or producer's place to buy milk. It is possible that in case of some of theSC households, caste-related issues limit access to doorstep services of vendors.

In case of the organised sector, the dominant mode of purchase of milk is buyingfrom milk booths and retail shops. There is also purchase of milk through the home delivery mode. Atleast one in three (29 %) organised sector consumersget milk through home delivery. It seems the organisedsector is competing with the advantage of traditionalsector services gives i.e. home delivery of milk. Thereare reports of the organised sector buying milk fromprivate agents. One in ten consumers (11 %) using theorganised sector buys milk from private agents.

In the organized sector, within the caste groups thereis more incidence of buying from shops in case of SC groups, while buying frommilk booths is more prevalent among ST households. Home delivery of milk isseen across all caste groups, but more in backward castes and general castecommunities.

Across economic groups, it is seen that in case of almost all the higher incomegroup families, vendors supply milk athome. Although very limited, the incidence of buying milk from vendor's or producer's place is seenacross all the lower income groups.Compared to all the economicgroups, incidence of buying from producer's place is more evident inupper middle income groups.

Among organised sector consumers, asthe level of income increases, they prefer home delivery of milk. While 10 %of low income consumers prefer toaccess milk through home delivery, 60% of higher income group use thismode. Buying from milk booths or shopsis seen across lower income groups(rather than higher income groups).Private agents are able to sell milk toboth lower income groups and also toupper middle income groups.



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The most popular brand of milk being purchased by households buying milk fromthe organised sector in Vijaywada is Vijaya. Seventy four percent of consumerspurchase Vijaya milk. The other brands of milk being purchased by organised sector consumers in Vijayawada are Model, Vijaya Gold, Jersey and Heritage.

If we compare consumers associated with the organised sector and those whouse both the organised and thetraditional sector, similar preferences in purchase of milkis seen. There is a very highdegree of brand loyalty inVijayawada. This can be linkedto the vast distribution networkof different milk brands. While inVijaywada most of the buyersbuy one specific brand - Vijayabrand of milk, it is not so inKhammam, where organiaedsector consumers are not particular about any specific brand of milk. This alsoshows that most of the private sector brands are trying to capture medium sizemarkets like Khammam, after getting into the more competitive/stabilised marketof Vijayawada.

With regard to packaging of milk, while the majority (92 %)of traditional sector consumers buy milk in loose or bottle form and similarly, the majority ( 91 %) oforganised sector consumers buy milk in sachets. Packaging in organised sector

gives consumer few options as milk is largely sold in sachets. In Khammam market, there was some incidence of sellingof branded milk in loose form at retail outlets,which is not observed in Vijayawada market.Similarly, in the traditional milk sector marketin Vijayawada there is more prevalence of buying milk in loose form (82

%) than in bottles. Incidence of sale of milk in bottles in the traditional sector ismore in Khammam market than in Vijayawada market.

Overall, in the milk market, 75 % of consumers buy milk in 500 ml packs, rest buyeither 250 ml or 1 litre. The organised sector is mainly dominated by purchase of500 ml pack size of milk, followed by 250 ml pack size. But in the traditional sector, at least 1 in 10 consumers buys milk in1 litre packs. Overall, we candeduce that the dominant pack sizes in the traditional sector is 500 ml and 1 litre,and in of the organised sector it is 500 ml. Dominance of sale of the 500 ml packleads to more availability of milk in that pack size in the market place. Across sectors, be it overall milk sector, traditional sector or organised sector, there issimilar prevalence of sale of milk in 250 ml pack. Z

Comparing the traditional sectors ofVijayawada with Khammam, it is seenthat more proportion of people inKhammam buy 1 litre pack size of milk,compared to Vijayawada. While inVijayawada, 12 % of consumers buy the1 litre pack, 36 % do so in Khammam



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As part of the market survey, consumers were requested to rank thereasons for which they prefer a specificchannel of supply. A majority (41 %) oftraditional sector consumers said theypreferred that channel of supply so asto get quality milk, followed by 14 %who gave importance to 'availability intime', and 9 % who are loyal to suppliers. It is observed that acrosstypes of market, semi urban, majortown and cities, at least 1 in 10 consumers in the traditional sector givetopmost importance to the 'loyalty ofvendor/supplier' while taking decisions onpurchase of milk. Home delivery as thetop reason for preferring the traditionalchannel of supply was expressed by only8 % of consumers.

The organised sector consumers give topmost importance to both quality and availability in right time. An equal proportion of consumers in both traditional and organized sector giveimportance to 'quality'. Although quality isimportant for consumers in both the sectors, a large proportion of consumersvalue "availability of milk in time" in caseof traditional sector consumers.

However, data reveals that in medium size markets like Khammam consumersgive more importance to 'quality' compared to major markets like Vijayawada. Inmajor cities like Vijayawada, although quality of milk is important for consumers,consumers also value other features while deciding the channel of supply of milk.


A majority of consumers in both organised and traditional sectors, pay Rs. 15 -18per litre of milk. The proportion of consumers paying different rates of milk is similar across the traditional and the organised sectors. However, if we comparethe range of lowest and highest prices, a slightly more proportion of households inthe traditional sector pay in the lowestprice range. On the other hand, slightlymore proportion of households in theorganised sector pay in the higher pricerange. Although both the sectors servedifferent price range of customers, thetraditional sector seems to serve morelower price range consumers while the



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organised sector serves higher pricerange consumers.

This can be further analysed examiningthe price paid by different economicgroups. It is observed that a greater proportion of higher income group consumers pay a higher price for milk,which may relate to their paying capacity. If we examine the proportion ofdifferent economic groups paying thehighest price for milk: 7 % of the low income group pay more than Rs. 18 per litreof milk, and 20 % of consumers in higher income group pay that amount for milk.

After classifying the consumers according tothe price paid by them, further analysis was done to understand the type ofmilk purchased by them (in their opinion). Fifty eight percent of the consumers paying Rs 10 to Rs 12 per litre ofmilk feel that they are getting milk mixedwith water. This is just 21 % in case of consumers paying more than Rs. 18. Withincrease in price paid by consumers, theperception that he/she is getting quality milk(not/less mixed with water) increases.

With regard to payment terms, majority (90 %) of traditional sector consumers payonce in a month. The next major mode of payment is daily payment as practicedby 7 % of consumers. In the organised sector, 76 % of consumers pay for theirmilk on a daily basis. Incidence of monthly payment of milk was reported by only15 % of respondents. It seems households paying for milk on a monthly basis inthe organised sector must be getting home delivery .

Usage of Milk

The consumption pattern of milkacross the sectors is similar. In boththe traditional and the organised sec-tors, most of the households (morethan 40 %) use milk for making curd, followed by for tea and coffee. However, aclose look at the data shows that some of the households in the organised sectorbuy milk primarily for tea and coffee while some of the traditional sector consumers use it primarily for making curd. Overall it seems that traditional sectormilk is preferred for making curd and organised sector for making tea and coffee.The usage of milk across households is similar in case of major cities likeVijayawada and towns like Khammam.

Perception of Consumers on Quality of Milk

Consumers in the traditional sector consider thickness as a key parameter for testing quality. Same is the case with organised sector. But amongst both the



49

sectors, 74 % of the consumers value thickness of milk in the traditional sectorcompared to 66 % in the organised sector. Other than thickness', people giveimportance to 'taste' of milk.

Although not a top of mind priority nearly 10 % consumers in both the sectors giveemphasis on 'yield' of the milk. According to consumers, other features of qualityof milk include smell, shelf life, colour and use in different preparations. Furtheranalysis across economic groups would reveal that more proportion of lowerincome group consumers give importance to taste of milk. Parameters like 'yield'of milk is given first order of importance by at least 1 in 5 high income grouphouseholds ( 18 % of households).

It is observed that 'thickness' ofmilk is the top parameter formeasuring quality of milk incase of a major proportion ofhouseholds across economicclass. It is also seen that thereare variations in the profile ofconsumers in higher incomegroups, compared to lowerincome groups. Most of the consumers in the lower income

group either look for thickness or taste to measure quality of milk. Compared toKhammam market, it is seen that in Vijayawada, slightly more proportion of middle class consumers give top importance to 'thickness' in measuring quality ofmilk

Problems faced by Consumers relating to Quality

Most of the respondents in thetraditional and organised sectordid not answer the query about'quality-related problems of milk'.One in five consumers clearlysaid that they do not have anyquality issues relating to milk purchased by them. Amongstconsumers in both organized andtraditional sector, (those whoexpressed that there is no



50

quality issue), more proportion of traditional sector consumers are happy withquality of milk.

Overall, consumers are generally happy with 'quality' of milk. Some of the problems faced by consumers relating to quality are bad smell, curdling, mixing ofwater, getting previous day's milk and mixing of milk powder. Further analysis ofquality related issues in the organised and traditional sector reveals that, whileboth mixing of water and curdling of milk is a quality issue in the traditional sector,curdling of milk is the problem encountered by consumers in the organized sector.


More than fifty percent of consumers in both, the traditional or the organised sector are happy with quality of milk and services of the sector. Slightly higher proportion of households in traditional sector (56 % in traditional sector comparedto 52 % in organized sector) are happy with their sector's services. At the sametime, it is important to note that more traditional sector consumers are unhappyabout the services of their sector compared to those in the organised sector. While17 % of organized sector consumers are unhappy with the services of their sector, 27 % consumers are unhappy with traditional sector service.

Compared to Khammam market,the extent of unhappiness among consumers is relatively high inVijayawada market. While similarproportion of households are happywith the services of the sector in the traditional and the organised sectors, as mentioned earlier, happiness in case of traditionalsector is slightly higher comparedto the organised sector.



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Consumers were requested to rank their level of satisfaction relating to differentparameters on satisfaction of services relating to buying of milk. Parametersincluded availability, convenience in delivery, price, packaging, quality and suitability for preparations. In both the traditional and organized sector consumersare generally highly satisfied with services of the sector. In case of the traditionalsector, some of the consumers (3 to 6 % of them) expressed average satisfaction(not very high satisfaction) on parameters like availability, price, delivery, packaging and suitability for preparations. Nearly 30 % consumers in both traditional and organized sector expressed concern over quality of milk. Anotherkey concern raised by at least 1 in 5 consumers in the organised sector(expressed 'average satisfaction'), was on price. It is evident that, although it is nota major issue for now, traditional milk sector needs to work towards strengtheningquality of milk.

5.4 Summary of Findings Across Markets

The milk market study covered 819 consumersacross three types of markets - major(Vijaywada), medium(Khammam) and small(Satupalli) markets. The market surveyinvolved. 468 consumers in Vijayawada, 297 inKhammam and 54 in Satupalli.

If we combine all the three markets, it is observed that a majority (57 %) of consumers are still associated with the traditional sector. Usually, consumers areassociated with either the traditional or the organised sector. A very few proportion(7 %) of consumers purchase milk from both the traditional and the organised sector. It is seen that the organised sector isactive in the major markets. As the size ofthe market goes up, there is more and morepresence of the organised sector. The tradi-tional sector continues to be used by a largeproportion of consumers, and the sector isexpected to remain active for a long time tocome.

The pattern across markets is similar, if wecompare by 'volume of milk' purchasedacross sectors in each of the markets.Overall, 59 % of the milk requirement acrossthe three markets is purchased from the traditional sector. If we relate across markets, we can safely interpret that the traditional sector is catering to consumerswho require less milk compared to thoserequiring more milk.

In the overall traditional milk sector, 40% of consumers belong to the lowerincome group followed by 34 % lowermiddle, 22 % upper middle and 3 %higher income group. Further delvinginto the data reveals that a larger proportion of lower income group



52

households are associated with the traditional milk sector in smaller markets likeSatupalli, compared to major markets like Vijaywada. Consumers across economic groups reported buying of milk from the traditional sector. It is difficult toassociate traditional sector with any specific economic groups.

The overall caste profile of the traditional sector consumers showsthat a majority (55%) of consumersbelong to the general category followed by 29 % backward castes, 9% SC and 6 % ST. While the traditional milk market in Vijaywada isdominated by general caste, backwardcaste and general castes dominate inKhammam. Compared to the othermarkets, traditional milk market showsa relatively large proportion of ST. Thisfinding is important to plan any traditional market focused interventionin these markets. The caste profile ofthe traditional sector across markets islinked to the demographic (caste)profile of the population in thatcity/town.

Literacy profile of respondents associated with traditional sector consumers shows that the sector comprises of consumers belonging toall literacy groups. It is seen that a relatively less proportion of illiteratepeople are associated with the traditional sector in Khammam compared to the other markets. Theoverall literacy level of the traditionalsector consumers is lower in Satupallicompared to the other markets. Literacyprofile of respondents in Khammamalso reveals that a larger proportion ofeducated consumers are associatedwith the traditional sector.

Women are at the centre stage of decision making relating to purchase ofmilk. Overall, in a majority (78%) ofhouseholds in the traditional sector,women take the decision on purchase of milk. The pattern is similar across majortowns and cities like Vijayawada and Khammam. But when it comes to small markets like Satupalli, in almost all the households, women take decisions on purchase of milk.

Majority of the households prefer to buy milk in the morning. There is some purchase of milk in the evening but only a small proportion of households buy milkin the evening. Incidence of buying milk in the evening is seen more in major citieslike Vijaywada compared to smaller towns. While 24 % of traditional sector consumers buy milk in the evening in Vijaywada, only 12 % of consumers buy milk



53

in the evening in case of Satupalli. Buying milk in the afternoon was reported onlyin major towns and cities like Khammam and Vijaywada, more in Khammam, thanin Vijaywada.

Overall, the average traditional milk sector consumers buy 223 ml milk per personper day. The per capita purchase of milk per day is similar in different markets. Thelowest per capita purchase of milk per day was reported in medium size towns likeKhammam. If we compare standard deviations of per capita purchase of milk perday, we may conclude, that variation in purchase of milk amongst traditional sector consumers is highest in smaller markets like Satupalli. Variations in purchase of milk amongst traditional sector consumers are lowest in Khammamtown. However, overall quantity of milk purchased by consumers varies widely.

A majority (65 %) of consumers inthe traditional sector perceive thatthey are buying milk mixed withwater. In larger markets consumers perceive that they aregetting more of pure milk. While10 % of consumers in Satupallifeel that they are buying puremilk, it is 30 % in case ofKhammam followed by 35 % inVijaywada. This would indirectlyexplain why consumers are nothappy with the traditional sector.This is howver not reflected in therespondent's response on theirsatisfaction level with the traditional milk sector.

In case of most of the traditionalsector consumers (95 %), vendors supply milk at home. Theother mode of purchase includesbuying from producer's place, producer milking in front the consumer and buying from ven-dor's place. Compared to othermarkets, in Satupalli market, asmall proportion of consumersreported buying of milk from eitherproducer's place or from vendor'splace. In Khammam, in case ofalmost all the traditional sectorconsumers (99 %), vendors supply milk at home. Broadly it seems traditional sector has a clear niche in medium size markets like Khammam which is very competitive in nature. Maybe due to the absence of the organised sector, the traditional sector dominates in small markets like Khammam. In the midst of fiercecompetition, like in Vijaywada, the traditional sector still continues to be relevant.This implies that while planning interventions towards strengthening traditionalsector, we need to plan keeping in mind the extent of the presence of the organised sector in the market.

In the traditional sector, people buy milk either in loose form or in bottles.Incidence of buying milk in bottles is seen more in smaller markets like Satupalli



54

compared to major markets like Vijaywada. Overall, at least one in ten consumersin the traditional sector buys milk (12 %) in sachets. This is mainly seen in citiesand towns. In case there is a growing preference for milk in sachets (that promisea desired quality), the sector could be strengthened by introducing the option ofselling milk in sachets.

Dominant pack sizes for purchase of milk in the traditional sector include 500 ml(50 % of consumers) followed by 1 litre(25 % of consumers). The next preferred pack size is 250 ml. There is aclear distinction in the preference ofpack size in Khammam market andVijaywada market. While a higher proportion of consumers buy the 500 mlpack size in Vijaywada, it is almostequally divided between 500 ml and onelitre pack size in Khammam town.

Overall, the top most consideration fornearly fifty percent (47%) of consumersin the traditional sector for choosing thissector is - getting quality milk. On theother hand, a large proportion of themalso perceive that they are getting milkmixed with water. This implies thatalthough consumers are looking forquality milk, mixing of water is not amajor issue for them. Earlier analysishad revealed that there is strong relationbetween price paid and perception onquality of milk purchased by consumers.Quality as a reason for preferring tradi-tional sector is observed in major citiescompared to small semi urban placeslike Satupalli. Interestingly, in smalltowns like Satupalli, traditional sectorconsumers also value 'availability atright time' and 'home delivery' services of vendors.

Overall, consumers prefer the organisedsector for getting 'quality' milk and 'availability at right time'. While 37 % oforganized sector consumers felt 'quality'of milk is important; in case of 39 % ofconsumers 'availability at right time' isthe prime consideration for buying milkfrom the organised sector.

In the traditional sector, a majority of theconsumers (44 %) pay Rs. 15 - 18 perlitre of milk. The next major price rangeis Rs.10 - 12 per litre of milk paid by 37% of consumers. There is a distinct pattern with regards to price of milk paidby the consumers across the markets.



55

As the market size grows, pricepaid by most of the consumers goes up. While only 10% of consumers pay Rs. 15 - 18per litre of milk, it is nearly 60 % inVijaywada.

The organized sector market doesnot exist in small towns likeSatupalli. Overall, 66 % of the con-sumers in the organised sectorpay Rs.15-18 per litre of milk. However, it is important to note that in towns likeKhammam more consumers pay a higher price (more than Rs.15 per litre of milk)than in the major cities like Vijayawada.

Payment Terms

It is seen that the predominant mode of payment is on a monthly basis, followedby daily payment. There is slightly more incidence of daily payment in major citieslikes Vijaywada, compared to smaller towns like Khammam.

Overall, consumers prefer milk having'high thickness'. In smaller towns likeSatupalli, thickness is the sole parame-ter for judging quality of milk. If we com-pare, Vijaywada with Khammam, it isseen that more proportion of consumersin Vijaywada look for thickness, com-pared to Khammam. With regards totaste, more proportion of consumerslook for taste in Khammam compared toVijaywada. In the eyes of consumers,thickness and taste are key parametersfor deciding quality of milk.

Overall, majority (40%) of the consumers primarily buy milk for tea/coffee. Thirty two percent of consumersprimarily buy milk for curd. The other useof milk is as a health drink for children. Itis observed that compared to smaller towns, in major cities like Vijaywada, moreproportion of consumers use milk for tea/coffee, health drink for children and asmilk for children. On the other hand, compared to major cities like Vijaywada, moreproportion of consumers use milk primarily for purpose of curd.

Overall, in the traditional sector, 67 % ofthe consumers are happy with the services of traditional sector. Comparedto all the three markets, more proportionof traditional sector consumers arehappy with the services of their sector. Itis seen that in the major markets, peopleare relatively unhappy with the traditional sector compared to smaller



56

markets like Satupalli. While 4 % of the traditional sector consumers in Satupallimarket are unhappy with services, it is 8 % in Khammam, and 27 % in Vijaywada.It is worthwhile to note that while 67 % of the traditional sector consumers arehappy with the services of their sector; in case of the organised sector it is relatively less i.e. 55%. Overall it means, most of the consumers in the traditionalsector are happy compared to the consumers in the organised sector.

5.5 Rural Consumers

The study covered 257 consumers in the study villages. It was observed in thesample that all the households purchase milk. All the consumers buy milk from thetraditional sector. The organised sectors does not market milk in rural areas,

In case of 70 % of the households, women are involved in decision making relating to purchase of milk. Except in the lowest income group, it was observedthat with increase in income in the household, the role of women in decision

At a Glance

Of the total 819 urban consumers covered in the study, 94% purchase milk. Of these, 60%

purchased milk from TMS ( 98% in Satupalli, 86% in Khammam and 39% in Vijayawada). In

terms of the quantum of purchase, 64% of the milk purchases were from TMS (99% at

Satupalli, 88% at Khammam and 42% in Vijayawada).

The per capita milk purchase is highest in Vijayawada at 227 ml per day, followed by Satupalli

222 ml and Khammam 217 ml. The per capita consumption is the highest for higher income

categories (at 348 ml per day in Vijayawada) and gradually reducing (with low income

category 161 ml per day).

Preference for traditional milk market is highest among high income groups (52% of

households reporting purchase from TMS), followed by the upper middle income group

(48%). In the low income categories, preference for the organised sector was highest with

59% reporting preferring this channel.

The main reasons for preference for the TMS were the 'quality of milk (thickness and taste)'

followed by 'availability at right time' and 'home delivery'. In case of organised sector too,

the 'quality of milk (thickness and taste)' was the main reason for preference, followed by

'availability at the right time'.

About 65% of the consumers purchasing from TMS report that the milk is water-mixed. This

proportion was the lowest at 58% in Vijayawada (where price and competition is high, and

there is a practice of cream separation), compared to the highest at Satupalli 88%. In

Khammam, 67% consumers report that the milk is mixed with water.

In terms of usage pattern, 40% of the milk purchased was for tea and coffee, 32% for curd

and 21% as milk or health drink for children. The usage pattern is different for each town,

with the highest proportion of milk used for tea/ coffee in Vijayawada (43%), compared to

the highest proportion of milk for making curd in Satupalli (43%). The milk is not taken raw

by any of the consumers.



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making relating to purchase of milk reduces. This means any intervention relatingto strengthening the traditional sector aimed at involving rural consumers, must necessarily involve women.

The villages have been classified into two categories - Vendor only villages i.e.only traditional sector is active and all-3 villages, where all - private, cooperativeand traditional sectors are active.

While in 72 % of households of all-3 villages, women take decisions on purchaseof milk, it is 68 % in the case of vendor-only villages. As the number of players inthe village increases, more and more women start taking decisions on purchaseof milk.

Overall, the per capita purchase of milk per day in rural consumer's household is137 ml. This is higher in all-3 villages (149 ml) compared to vendor-only villages.This means the market for selling milk is larger when there are more players in themilk sector. However, fluctuation in per capita purchase of milk across householdsis much higher in all-3 villages compared to vendor-only villages.

A majority of the consumers in ruralareas (95 %) buy milkin the morning.Buying pattern is similar in all-3 and

vendor-only villages. In villages, where milk isthe main produce, there is also some incidence of purchase of milk in the morning.If we analyze further, purchase in the eveningis doneby higher income group rather thanlower income groups. While 17 % of higherincome group consumers buy milk in theevening, it is only 3 % in case of lower incomegroup.

Overall, 66 % of the rural consumers feel thatthey are buying milk Mixed with waterPerception of getting water-mixed milk is

higher where only vendors operate. This means when all three players are active,there is increase in consciousness in quality, resulting in higher proportion of consumers believing that they are buying pure milk.

As the economic status of families goes up, there is increase in perception thatthe household is getting pure milk. While 26 % of poor households feel that theyare getting pure milk, it is 50 % in case of higher income groups.

Unlike in the case of urban consumers, where there is predominance of vendorssupplying milk at home, in case of rural consumers, it is different. Majority (76 %)

18 significant at the 0.01 level - 2 tailed



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of the rural consumers buy milk from producer's place. However, when we compare between all-3 and vendor-only villages, it is observed that there are moreincidences of vendors supplying at home in all-3 villages than vendor-only villages. When there is more competition in the village, it is expected that vendorswould supply milk at home. Nevertheless, buying from producer's place is predominant in all-3 and vendor-only villages. Across economic groups, it isobserved that in case of higher income groups, there is more and more incidenceof vendors supplying at home. While only 4 % of households have vendors supplying milk at home, it is 60 % in case of the higher income group. Buying fromproducer's place is seen more in case of poor and lower income groups. In almost80 % of households in the poor economic group, the householder goes to the producer's place to collect milk.

Majority (71 %) of the consumers pay Rs. 10 to Rs. 12 per litre of milk. Some proportion of consumers also pays Rs. 13 to Rs. 18 per litre of milk. In vendor-onlyvillages, more (79%) proportion of households pay Rs.10 to Rs.12 per litre of milk,where as only 64 % of consumers in all-3 villages pay Rs. 10 to Rs. 12 per litre ofmilk. When all three players are operating in the village, it expected that there willbe more procurement leading to competition to pay higher price to producers. Inthe process, consumers in such villages end up paying a higher price for milk purchased by them. There is no distinct pattern with regards to price paid by theconsumers across economic groups. However, data broadly reveals that lowerincome groups are associated with low price milk and higher income group withhigh price milk.

5.6 Institutional Consumers

The sample covering institutionscomprised of 61 % small, 23 % medium and 12 % large institutions.Majority (79 %) of the institutionspurchase milk in the morning. Nearlyhalf of them (41 %) feel that they arepurchasing pure milk. Twenty six percent of the institutions felt thatthey are getting milk mixed withwater, the rest are not sure of thequality of milk purchased by them.

In case of 63 % of the institutions, thevendors supply milk at the institution.There is also the incidence of buyingmilk from shops (10 %), from privateagents and delivery by agents or

A jubilant field team with a producer group



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company. Fifty four percent of institutional buyers buy milk loose, around 26 % ofthe institutional consumers buy milk in sachets. Such consumers are usually associated with the organised sector.

A majority of the institutional consumers (54 %) buy 1 litre packs. At least 1 in 10consumers (8 %) buy milk in quantities of 10 litres and above. Most of the institutional consumers give importance to quality of milk and availability at theright time, in preference to a specific channel of supply.

A majority (56 %) of the institutional consumers pay Rs. 13 to Rs.14 pr litre of milk,followed by 29 % paying Rs.10-12 per litre of milk. Most of them (84 %) pay formilk on a daily basis, followed by 6 % paying on a monthly basis and 4 % payingon a weekly basis. Frequent negotiations or variations in pricing of milk are not witnessed by institutional consumers. The profile and experience of institutionalconsumers do not vary much across the markets

A meeting of the Research Team with the Milk Producers

A PRA in progress in one of the habitations



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6.1 Assessment of Samples by NDRI in Sept'05

The quality of milk at the producers' level was very good.

Most of the producers sold genuine good quality milk to the vendors.

The vendors very seldom sold genuine unadulterated milk.

The price for milk varied from Rs.10/- to Rs.20/- per litre. The low pricedmilk contained around 50% added water.

Adulteration was with water alone. No thickening agents were detected in any of the samples.

Results indicated that some vendors resorted to partial cream separationfrom milk in addition to adulteration with water.

6.2 Assessment of quality of Samples collected during Jan'06

In Khammam town only two out of the seven samples collected from individual consumers conformed to legal standards. The milk supplied bythe Co- operative dairy conformed to toned milk standards. One private dairy sample conformed to double toned milk. Other samples were substandard. Among the institutional customers, a Government hospital received good quality milk. None of the samples collected from vendors met legal standards. In one case about 3 parts of water was found to be added to 1 part of milk.

In Allipuram, most milk producers supplied milk of poor quality to vendors.Of the 9 samples collected only 2 conformed to legal standards. Similarwas the quality of milk received by individual consumers. Only 2 out of the 7 samples collected from vendors conformed to legal standards. There was wide range in the extent of adulteration.

In Ananthanagar, the milk received by the vendors was generally of goodquality. Private and co-operatives dairies received mostly acceptable quality milk. In general adulteration was comparatively less in this area.

Adulteration was rampant in Satupalli area. None of the samples collected from vendors and institutional customers conformed to legal standards. Of the 14 samples analysed from this area, only one samplereceived by an individual consumer conformed to quality standards. All others were adulterated, some to the extent of 50%.

Common thickening agents like starch and sugar were not detected in anyof the samples tested.

The microbiological quality of the samples analysed indicated that in general the quality was poor.

Though low priced milk always contained added water, no definite price quality relation could be established. The difference in quality of samples from different vendors and places was observed to vary substantially.

6.0 Quality of Milk in Traditional Milk Sector



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6.3 Assessment of quality of Milk by NDRI during April '06

During analysis, more attention was given to detect the presence of neutralisers which are prohibited by law and also to evaluate the microbiological quality of milk. On receipt of the milk samples, rosalic acid test was performed on samples, especially those from vendors, to detect the presence of neutralizers. Similarly, Methylene Blue Reduction(MBR) Time was measured in selected samples. (The time taken for decolorization of the dye is influenced by the number and type of bacteriagrowing in the milk. The greater the number of organisms present and greater their activity, the more rapidly the dye is reduced. MBR Time of 5 hr and above is considered very good, 3-4 hr is good, 1-2 hr fair and ½ hr and below poor).

Fat and solids-not-fat (SNF) levels of all the samples collected were estimated. As per Food Adulteration Act, in Andhra Pradesh, buffalo milk should have a minimum of 5% fat and 9% SNF. The legal requirement fortoned milk is min. 3.0% fat and 8.5% SNF; double toned milk should have1.5% fat and 9% SNF.

The samples were checked also for common thickening agents like starch, sugar and urea. Of the 14 samples collected from Satupalli, only one sample conformed to the quality requirement of buffalo milk with respect to fat and SNF. Adulteration with water was very common. It appears from the analysis that adulteration was with water alone. Thickening agents like starch, sugar and urea were not detected. The MBR time was generally very short indicating high microbial load. The short MBR time could also be due to the long time taken to transport milkfrom Satupalli to Kammam. About 50% of the samples tested positive forneutralisers.

The quality of samples from Ananthanagar was generally good. Of the 19samples analyzed, only two samples failed to meet the requirement of SNF for buffalo milk. All samples met the requirement with respect to fat.The microbiological quality as judged by MBR time was fairly good.

In Khammam, the milk sold by the Vendors and received at the householdwas mostly adulterated with water. About 50% of the samples tested containing neutralisers. The MBR time was fairly good, in general. Some samples however showed low MBR time.

About 75% of the samples collected from Allipuram were found to be adulterated. Wide variation was noticed in the range of adulteration. In general, the MBR time was found to be good. However, about a third ofthe samples were found to contain neutralisers.

It is concluded that adulteration of milk with water is rampant in most of the areas covered. The vendors often resorted to addition of neutralisers.Ananthanagar milk samples were mostly of good quality.



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6.4 Overall Findings on Quality Assessment by NDRI

The scientific tests conducted by NDRI across the channels show that producersamples consistently conformed to total solids figures, whereas less than half ofvendor's samples conformed to quality standards. Institutional consumer sampleshad the poorest conformation rate. The graph shows proportion in each categorymeeting the prescribed quality standards.

The smaller scale vendors have a higher proportion of samples meeting the requisite standards vis-à-vis larger vendors.



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The average total solids in milk sold during the lean season are marginally higherthan that during the flush season, with producer samples showing the highestamount and the institutional consumer samples showing the lowest levels ofsolids.

The correlation between the price paid (as reported by the consumers) and themilk solids from these tests is significant (correlation coefficient 0.50118 for totalsolids and 0.441 for fat). It supports the perceptions of the consumers withrespect to water mixing.

No chemicals or thickeners were found in the milk sold at any level during the flushseason. However, during the lean season, about 50% of the vendor samples werefound to carry neutralisers (sodium carbonate).

Milk quality assessment carried out on thebasis of Methylene Blue Reduction (MBR) testis reflected in the chart. While at the producerlevel, the quality was consistently good, at thevendor and consumer level, about two thirds ofthe samples were of 'fair' or 'poor' quality (withMBR time ranging between 1 hr to 5 minutes).The samples from institutional consumers(such as hotels) showed very poor quality interms of MBRT.

As most of the milk through vendor route are diluted, the criticality of this qualityis not felt at the consumer level, as the milk does not clot on boiling.

18 significant at the 0.01 level - 2 tailed



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7.1 Summary of Findings

TMS has enormous size, spread, reach and impact potential. With increasing urbanisation, the proportion of milk handled by TMS in the market is diminishing, but still substantial quantities are handled by TMSin these markets. An analysis of the macro data at the national level indicates that at the present rate of displacement, TMS would take morethan 6-7 decades to reduce to 10% of the milk marketed in India. It therefore important to address the gaps in the TMS and also build on thestrengths of this sector to contribute to overall milk production in the country.

At the production and market levels, TMS provides the most important livelihood option for a large numbers of smallholder dairy farmers and milkvendors. In production points where there is no presence of the organised sector due to difficulty in access and unviable quantities for operation,TMS provides important market linkages. Even in research thesites, where all three operators have a presence, more than 50% of the quantum of milk is sold through TMS

In spite of its size, coverage and impact potential, the sector is not focussed by any agency (government or other development organisations) for its improvement. Planned investments focussed on dairydevelopment are not made in these low potential areas served mainly by

traditional milk system.

The key strengths of TMS are:

Provides the most important market access for the milk producedin the low productive and inaccessible areas

Provides livelihood opportunities for a large number of producersand vendors, and addresses the consumer preferences in markets (price, flavour, taste, size, etc.)

Price plus services at the producer level (advances, wake-up call,supply of milk during dry period, supply of groceries, etc.)

Doorstep procurement and milk delivery.

Emergency support for producers.

Long personal relationships, going beyond generations.

Constant prices; no quality checks; no samples for quality checks, accept froth at producer level (quantity lower than actually accounted)

Acceptance of fluctuating quantities and qualities of milk; even small quantities (both at consumer at producer levels)

Areas of Improvement in TMS

Improvements in the quality of milk handled so that the issues offood safety and conformation to legal standards are ensured

Quality - price relationships at both producer and consumer levels

Operational inefficiencies due to low scale of operations, handlingpractices, methods used for procurement, etc.

7.0 Summary of Findings and Actions Identified/Facilitated


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Lack of institutions and platforms that enable sharing, negotiations and working together to address the common issues.

Low productivity due to lack of incentives for higher productivity, lack of services, etc.

Establishment of some minimum infrastructure for quality testing,preservation, storage etc.

Review of legal standards for unprocessed, unpacked milk beingsupplied by TMS.

7.2 Actions Identified/Facilitated

The AR generated vast insights into the working of the TMS in research sites. Thechannel through which milk is being sold was mapped, with variations in differenttypes of markets. During the process, a series of actions were identified by theproducers and vendors, on a wide range of topics including input supply, breedimprovement, quality, price and other parameters. The actions already implemented include creation of a platform in each habitation for bringing up dairy/vendor related issues, resolving production linked problems like supply of travis,breeding bulls, fodder seeds, organisation of veterinary camps, training in cleanmilk production, sharing of quality and price issues with vendors and generatingsolutions, exploring quality tests, storage and preservation options, fulfilment ofquality standards, sharing of information with consumer groups, exploring consumer education etc. Seeing the positive energy being generated by the AR,the district staff of the department of AH, APDDCF and Velugu and the VendorAssociations (VA) have actively participated in the AR and pledged their support.Most of these actions were taken up through linkages with existing institutions,with only facilitative support from the study team.

A few field strategies that emerged from the action research during consultationswith various stakeholders have been facilitated by the study team. The detailedactions that were tried out on the field and the support provided and expected fromeach stakeholder is given in the Annex A. These actions could be classified intothe following main areas -

(a) Capacity Building: Building capacities of all the players in the TMS channel in the areas of clean milk production, handling practices, awareness on quality and legal standards, etc.

(b) Institution Building: of milk producers, vendors and consumers and facilitating sharing platforms

(c) Exploration of Technology and Operational Solutions: mainly to promote and facilitate quality based pricing, better handling practices, improving operational efficiency

(d) Productivity enhancement: through linkages and collaboration with government departments and local community based organisations.

(e) Policy Level Initiatives: (detailed below under policy changes and approaches)


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The action research has opened up opportunities for planners, policy makers andsenior government representatives to view this sector as an area of potential andwidespread intervention for livelihood improvement and sectoral growth. It alsohighlights potential actions for addressing long-term threats of quality and foodsafety aspects not addressed hitherto.

The experience also pointstowards working together oftraditional and organized sector in sync with each otherto achieve the goals ofincreased production, betterincome and sustainable liveli-hoods. There have been anumber of strengths and goodpractices/ principles in each ofthese sectors, which the othercan learn and adapt for overallimprovement. There shouldn'tbe a feeling of one sectorreplacing the other in the longrun. It is important to understand areas of improvement and addressthem through the strengthsand the base built over the

years in each of the sectors. The grass-root level actions prove that a synergeticapproach by a number of agencies can contribute to positive changes.

The pilot action research has opened up a number of opportunities with a varietyof stakeholders in the TMS in the research sites. Institutions of producers andvendors have been organised and some actions initiated. Capacity building ofthese institutions, facilitation of platforms of producers and vendors, linkages withgovernment and other agencies to address production and productivity relatedissues, exploration ofpossibilities for qualitybased pricing throughinnovative institutionalmodels, etc. are at various levels of implementation. Thereis a need to logically follow these processesand build the capacitiesof institutions to sustainthese so that the potential benefits of theaction research facilitated so far is fullyrealized and the pending actions with thevendors completed.

8.0 Ways Forward

PRA is one of the tools widely used in the ActionResearch

Installation of a milk testing equipment in progress


The presence of local facilitating agencies (NGOs) combined with the work doneand the rapport built with vendors and the producers associations so far, providean excellent base for taking these actions forward. Moreover, the vendorsappeared to be quite keen to learn and improve their operations. The VendorAssociations are quite keen to facilitate the process, given their interest in the long-term benefits and sustainable livelihood options. The training of vendorsat NDRI brought in improved awareness and the need for improvements. Thevendors have also come forward to facilitate formation of Producer Associationsand, in the long run, Consumer Associations to facilitate better bondage with them.They perceive that the onslaught of private dairies poses a major threat to theTMS and therefore, are likely to cooperate better. The category of vendors whoare also primary producers appear to be more open in their approach to learning,training and their approach to work. Their interests also appear to be different ascompared to those of the other categories of vendors. The capacity developmentefforts therefore need to be tailor made to suit both the vendor categories. Basedon these opportunities, some immediate actions proposed are:

1. Improving the quality of milk handled by vendors so that it conforms to legal standards.

2. Improving the price spread and non-price incentives for the vendors through improving the scale of operations, productivity improvement, marketing and financial management skills, solutions for reducing the losses (through storage and other technologies). This in turn is likely toresult in increased price for the producers.

3. Establishing and nurturing Producer and Consumer Organizations, through capacity building of local facilitating agencies and exploring opportunities for institutionalization of these efforts in government or otheragencies.

These could be done through capacity building of the Vendors and Producers andtheir associations, providing basic infrastructural facilities for quality testing, facilitating and handholding support to address the various issues collectively.

Wider dissemination of information from the action research though a number ofinitiatives - publications, presentations and wide circulation of outputs of theresearch - need to be undertaken so that other states and regions could benefitfrom the learning.

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Once the farmers are convinced of the need, the space for a PRA could be found anywhere


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The AR process has been effective in obtaining reasonably accurate and hardground level data on the traditional milk market players, their share and thedynamics in their operations; particularly with different market profiles. Theprocess has broken the barrier by engaging these 'unorganised' players in a continuous dialogue and working with them. The study has also provided scientific validity to quality-related issues through laboratory tests and linked themwith consumers' preferences.

The study has brought out an important finding: that producers and consumerssee inherent advantages in the traditional milk sector, even in places where theorganised sector is present. Each type of operator brings in additional advantagesboth at consumer and producer level; in fact a combination of channels is preferred by both producers and consumers. It is therefore important to makeoptions available. At the same time, issues related to quality and price need to beaddressed effectively.

The study has proven that, with systematic and consistent effort, one can workwith players in this sector and create platforms for producers and vendors to cometogether for their mutual benefit. Focused efforts and facilitation at different levelscan lead to various stakeholders coordinating the efforts to solve the problems ofdairy farmers.

The enormous size and spread of the TMS and the nature of its operations clearly point to the need to appreciate its relevance and accept and work withthem so as to improve the quality of milk supplied by them and its efficiency.

The study has also developed and tested a methodology, tools and analysis methods that can be readily used to understand and work with the traditional milksector.

9.0 Key Contributions from the Research

Taking stock of the outcomes of a well conducted PRA



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The Informal Milk Market, being one of the least studied and sensitive areas,requires extra care and effort to obtain accurate and transparent information.

Multiple actors, some with divergent interests, call for very effective and efficientAction Research to ensure participation, learning and improvements simultaneously.

Action Research is a process-oriented approach. However, there is a need tohave deadlines and specific outputs for administrative and accountability purposes. There is always a conflict between these two approaches, which needscareful balancing at various levels.

An institutional mechanism for undertaking such Action Research needs to bringin multi-skill teams at various levels to ensure quality, least start-up time and foreffective technical support.

Promotion of the traditional sector should not be seen as detrimental to the growthof the organised sector. These two are complementary to each other, keeping theproducers and the consumers at the centre of development. By having both, theconsumers and the producers have the option to make informed choices.

While handling sensitive subjects such as quality in the traditional milk sector,there could be vested interests using these outputs for their benefits. This canpotentially spoil the relationship with the groups with whom the study teamsworked closely and gained their confidence. There needs to be a system of periodically identifying and assessing these risks from external factors and a strat-egy to address them from time to time.

10.0 Learning from the Research

A long interaction between the RRG members and the Vendor’s Association


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The foregoing chapters demonstrate that TMS is a sleeping giant with vast potential for growth and development. About 77% of the milk marketed in Indiapasses through this channel. Millions of producers, consumers and market intermediaries are dependant on this segment. If supported and nurtured effectively, it has all the ingredients to usher in another white revolution. The reasons as to why this segment deserves the attention of the policy makers, planners, development agencies, researchers and academia are summarized inBox.

Traditional systems of marketing, as mentioned earlier, bring in some inherentadvantages, particularly for the poor and marginalised in low milk potential areas.Any improvement in this sector will directly benefit these producers. The observations and findings of the Action Research provide ample pointers forchanges in the approaches and policies. There are a number of suggestionswhich emerged during the research process as also during the subsequent deliberations. These need further exploration. Details of some of the recommended changes in approaches and policies are indicated in below. Someof these are pointers for policy actions for agencies supporting development oflivelihoods of the poor. Interventions in this area could be promoted as part andparcel of livelihoods improvement programmes for the poor

1. The selections of districts/areas for investments under the dairy programmes are based on the criteria of minimum production and viability levels specified by the organised sector for the high potential districts. The criteria may be made flexible, need-based, stakeholder-driven and open to include low potential areas served by TMS as wel.

11.0 Policy Changes and Approaches

Reasons why the Traditional Milk Sector should be supported

1. In recent years, milk production in India has started showing erratic growth patterns.

In this context, stimulating dairy production, particularly focused on TMS, deserves

special attention.

2. TMS covers a vast number of low-potential districts and markets. Millions of resource

poor farmers and market intermediaries earn their livelihoods through TMS. In order

to realise the national goal of a 'socially inclusive and regionally balanced economic

growth', it is important that the government does not ignore these millions and the

low-potential regions.

3. Growth trends in various segments of the milk value chain demonstrate that TMS is

likely to exist for a long time to come - at least 6 - 7 decades to drop down to a level of

10 percent of the milk marketed in India.

4. The quality of milk served by TMS has scope for improvement. It deserves high

attention from the angle of food safety, net returns to the milk producers and

value for the consumer's rupee.

5. Investments in dairy production hitherto were focused in about 250 high-potential

districts of the country. In spite of its vast size, reach, spread and impact potential, the

TMS or the areas served by them received no worthwhile investment or support. With

small selective investments, the low-potential areas served by TMS could stimulate milk

production to reach a threshold level faster so as to attract other channels also to join,

compete and drive still faster growth - exploring synergies.

6. The enterprise of small-holder dairy farmers with low producing animals seems to be

economically unviable. It is feared that better availability of credit for purchase of live

stock under the poverty- alleviation programmes may be aiding in the creation of more

such unviable enterprises. Market access through TMS and appropriate policy support

to provide better animals, deserve attention.


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2. The quality standards for processed and packed liquid milk provide a number of options in terms of fat and SNF levels. This provides options (both in terms of price and quality) to consumers. However, for raw milk(which is mainly from the traditional milk sector) there is only one standardin Andhra Pradesh, which is for whole buffalo milk (5% fat and 9% SNF).Consumers, however, prefer to have a range of prices and quality evenin the traditional milk sector, which is being addressed through adulteration with water. The possibility of allowing two-three standards forunprocessed milk would enable the vendors to accept and operate within a legal frame. There is also a need to address this issue from the angle of consumer awareness, vendors training and policy measures.

3. The efforts towards improving TMS and stimulating production in low producing areas should not be seen as directed at displacing any one channel by another, but at synergising and supporting each other. It should stimulate milk production in the low producing districts to reach theminimum threshold levels in a shorter time so as to attract other channelsalso to join the competition for the benefit of the poor.

4. Given the current growth trends in milk production, for further financial investments in high-potential districts, priority may be given to the commercial routes. Government resources may partly be diverted to stimulate production and marketing in low-potential areas as well.

5. Providing some minimum infrastructural support in terms of processing, preservation and transport of milk especially aimed at improving the quality, economy of scale and efficiency of operations would enable vendors to adhere to the minimum quality standards for milk and enhancethe returns to the milk producers.

6. Adequate impetus needs to be provided for building 'consumer awareness' and creating platforms of consumers and traditional milk operators

to dialogue for improvement in quality, price etc. Govt. support for training and capacity building of vendors need to be extended side by sidewith regulation.

7. Promotion of appropriate stakeholder based organizations (Vendor Associations, Producer Associations, and Consumer Platforms etc) and facilitation of dialogue processes among them are of considerable importance in improving TMS.

8. The Livestock Service Delivery Systems under the Govt. and other agencies need to be reviewed from the angle of stimulating production inthe areas uncovered by the organised sector. The services should also aim at improving the quality and productivity of the animals thereby the viability of the small-holder milk production system.

9. Fixing minimum productivity norms for the animals to be distributed underthe antipoverty programmes, providing effective market linkages, ensuring continuous cash flow at the producer level through a series of credit options (rather than stopping at single credit) etc. would help the farmers enormously.

10. Introduction of quality based pricing system under TMS is bound to improve the returns to the producers and the options to the consumers.

11. There are a number of perceptions regarding TMS, many of which are ill-founded. The government could facilitate a process of awareness building through various stakeholders, by which the right picture could bepresented to producers, consumers, market agents and the public at largeabout TMS.


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Annex 1: Summary of the findings and theactions identified /initiated


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International Livestock ResearchInstituteBox 30709, Nairobi, 00100, KenyaTel: +254 20 422 3000,Website: www.ilri.org

National Dairy Research InstituteAdugodi, Bangalore -560 030Tel: + 91 80 2571 0661-4E mail: [email protected]

Action for Collective Tribal Improvementand Vocational Education (ACTIVE)Khammam, Andhra Pradesh -507002, Tel : +91-8742-246933, website : www.activeindia.org

Socio-Economic and Cultural Upliftmentin Rural Environment (SECURE)Khammam District. Andhra PradeshTel:+91 8744 4269, + 91 8744 76746 Mail:[email protected]

The International Livestock Research Institute(ILRI) works at the crossroads of livestock andpoverty, bringing high-quality science and capacity-building to bear on poverty reduction andsustainable development for poor livestock keepers and their communities. ILRI is a non-profit-making, non-governmental organizationwith a mandate to conduct research to contribute tolivestock development as a pathway out of poverty. It has its headquarters in Nairobi, Kenyaand a second principal campus in Addis Ababa,Ethiopia. ILRI works in all developing regions ofAfrica, Asia, Latin America and the Caribbean, withoffices in East and West Africa, South andSoutheast Asia, China and Central America.ILRI employs over 700 staff representing some 30disciplines from about 40 countries.

ILRI works in partnerships and alliances with otherorganizations, national and international, in livestock research, training and information. It facilitates raising awareness on the importance ofresearch for poverty reduction, develops regionalresearch programmes and projects, facilitatesestablishment of knowledge sharing arrangementsand assists in building capacities for conductingpro-poor livestock research.

The National Dairy Research Institute (NDRI) is thepremier organisation that provides research andhuman resource development support for DairyDevelopment in India. Scientific innovation and infusion of science in various sectors of the dairyindustry are the hallmarks of the Institute. TheInstitute works in close liaison with various nationaland international developmental agencies. It catalyses close interaction among scientists, students, farmers and industry orchestrating harmonious dairy development. Themandates of the Institute include:1. Undertake basic and applied research

in Dairy Production, Processing, Economics and Management.

2. Develop Dairy Farming Systems and demonstrate models for transfer of technology.

3. Organise programmes at under-graduate andpost-graduate levels in dairy science and short-term training and vocational courses.

4. Collaborate with National and International agencies for Dairy Research and Development.

5. Provide consultancy and referral supportto Dairy Industry, Dairy Farmers and other Dairy Development Agencies.

ACTIVE is a non-profit organisation engaged indevelopment of tribal livelihoods in remote, interiorand poorly endowed hamlets in the KhammamDistrict of Andhra Pradesh. ACTIVE believes thataccess to livelihood, socio-political and ecologicalsecurity is a basic human right and strives to organize marginalized people deprived of thesesecurities so that they are able to access them ontheir own.

ACTIVE's journey in the development sector beganin 1987. Today it is specialized into a socio-technical institute to facilitate economicallyfeasible and environmentally sustainable livelihoodand land-based programmes through a network of grassroots NGOs and people's institutions. It hascore capabilities in the areas of animal husbandry,soil and water conservation, forestry and sustainable agriculture, participatory planning,monitoring and evaluation of interventions for natural resources management, capacity buildingof NGOs and CBOs and thematic networking.

ACTIVE's approach to interventions in the naturalresources management involves 'bringing peopleto the forefront'

SECURE is an action group started in the year1991 with a clear mission of facilitating"Integrated tribal and rural development throughparticipatory natural resource management andwomen empowerment." Over the past ten years,SECURE has been working for sustainable tribaldevelopment through interventions focused onchild education & development, women empowerment, promotion of alternate incomesources, preventive health education, collectiveaction through SHGs and control and management of natural resources especiallyforests and tanks. Besides, SECURE is alsoactive in livestock development, integrated pestmanagement, participatory forest managementand watershed management.

Its vision is to empower the poor and the marginalised. SECURE is also engaged in community mobilisation related to collectiveaction of Vana Samrakshana Samithis (VSS), tribal land rights and thrift & credit groups intomandal level federations for effective lobbyingwith government agencies. It is also involved innetworking among NGOs of Khammam district forprotection of environment, health care and protection of childrights.


Swiss Agency for Developmentand Cooperation (SDC) New Delhi -110 021Tel: + (91) 11 - 2687 7819 / 20Web site: www.sdcindia.in

Intercooperation in India (IC)Hyderabad - 500 034Tel: + (91) 40 - 2335 5891 / 2Web site: www.intercooperation.org.in

Catalyst Management Services Pvt. Ltd. Bangalore - 560 094 Telephone: +91 80 23419616Fax: +91 80 2341 7714Email: raghu @cms-india.org

Capitalisation of Livestock ProgrammeExperiences India New Delhi - 110 016, Tel: 91 11 26868536 /41829717E mail: [email protected]

The Swiss Agency for Development andCooperation (SDC) is the development arm of theFederal Ministry of Foreign Affairs of theGovernment of Switzerland engaged in international development cooperation. SDC worksin India with a focus on poverty reduction in thesemi-arid rural regions of the country.

Starting in 1963 with a technical collaboration inmilk production, SDC's partnership with India'sdevelopment agenda is spread over a diverse setof engagements covering natural resource management, rural finance and livelihoods, decentralisation, empowerment of the discriminated, environment and pollution, humanitarian assistance as well as human andinstitutional development. SDC India's partnersinclude civil society organizations, Govt. departments, public sector entities, research advocacy groups, professional associations andother development agencies. Its goal is to supportpeople initiated, people owned and people controlled processes that render sustainable andequitable rural development.

Intercooperation (IC) is a leading Swiss non-profitfoundation engaged in development and international cooperation for 25 years. IC is aresource and knowledge organisation with 550 professionals working in 22 countries includingAfghanistan, India, Pakistan, Bangladesh and Nepalin South Asia. IC works with a number of agencieslike SDC, World Bank, IFAD, GtZ, SECO, EU, ITTO,governments and NGOs.

During its early days, IC provided technical expertiseto livestock and dairy programmes of SDC in manystates. Its working domains further expanded to coverinstitutional development and capacity building,watershed development and sustainable agriculture,decentralised planning and development and adaptation to climate change. Since 2006, IC operatesas a registered entity in India, actively collaboratingwith governments and a wide variety of organisations. IC's working domains in India areLivestock, livelihoods and environment; Vulnerabilityand adaptation to climate change and Local gover-nance & civil society.

CMS is a consulting research and training organi-zation that has been working in development sec-tor for over a decade. It is part of the CatalystGroup of institutions which include Swasti, a healthresource centre and Vrutti, a livelihoods resourcecentre. CMS strives to enhance the effectivenessand efficiency of organizations working in develop-ment through management support services there-by improving the quality of life of disadvantagedgroups.

It works with a range of organizations from grass-roots community based organizations to NGOs, bi-lateral and multi-lateral donors, governmentdepartments and academic and corporate bodies.CMS is known for its expertise in action research,monitoring and evaluation and specific studies.Over the years, the Catalyst group has executedover 400 assignments across India and countrieslike Sri Lanka, Cambodia, Pakistan andBangladesh. It has different skills - technical, socialand managerial and also experience of workingwith development focused and business orientedorganizations. The group is based at Bangalore inIndia with branch offices at Delhi, Bhopal,Hyderabad and Madurai. For more details http://www.catalysts.org

CALPI is a programme of SDC implemented byIC. It's objective is to capitalize on SDC-IC's richexperiences to significantly inspire changes in theeconomic, administrative, legal and policy frameconditions in the livestock sector in such a waythat the priorities and challenges of the rural liveli-hood systems are effectively addressed and therural poor, particularly women benefit from theemerging opportunities. In its first phase from May2002 to July 2006, CALPI supported 17 projectsand ten activities spread over 7 thrust areasthrough a network of 27 partners. In its secondphase (consolidation phase) of two years fromAugust 2006, CALPI supports nine projects.

All the projects supported by CALPI function onmulti-stakeholder, participatory approaches andconsortia / resource pooling mode following multi-stakeholder participatory approaches and net-working, beginning with capacity development ofpartners and stakeholders. Most of them focus onniche areas and well identified support gaps ofhigh impact potential on the poor. CALPI alwaysfocuses on networking and building synergiesand convergence with the Governments playing afacilitating and steering role.


traditional milk sector – full /main report

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