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The Dairy Industry of Pakistan

Group 4 Members: Maha Muhammad Imran 18783 Laiba Javed 18825 Laiba Shahid 18789 Somal Khan 18747 Satish Ramesh 18809 Neha Bhatti 19191

Dairy Industry of Pakistan

Pakistan’s Dairy Industry holds an important portion of food consumption in the country and plays a vital role in the Pakistani diet in the form of milk, butter, cream, buttermilk, yogurt etc. (Shahid, 2012). The overall contribution of the dairy sector to the country’s G.D.P is 11% making it an essential sector for economic growth. (Jehangir Nasir, 2020).

GDP Contribution

11% Diary Other sectors

89%

The major contributor to the dairy sector is milk which is consumed in a variety of forms. (Aftab, Pak Dairy info, 2019). An important note about Pakistan’s dairy sector is that even though the country is the third largest in milk production, a gap still remains between the national demand and supply in the country. (Aftab, Pak Dairy info, 2019). While on paper, the production is increasing on an annual basis of 3% for milk, 2% for margarine, 6% for ghee and 2% for margarine (Tridge, 2018), the increase in production may very well be attributed to an increase in herd size rather than an increase in productivity (Umm e Zia, 2011).The issue of the mismatch between sufficient milk production and insufficient supply lies within the supply chain. (Aftab, Pak Dairy info, 2019).

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Dairy Industry of Pakistan

History A historical review of the development of Pakistan’s dairy policies evidently indicates that policy-makers gave little importance to the dairy sector. Even though the first Five-Year Plan (1955-60) enabled the government to buy milk from milkmen and supply it after testing for purity, the Second Five-Year Plan (1960-65) in particular, focused mainly on the manufacturing sector (ABID A. BURKI, 2004). It failed to address the issue of increasing dairy production capacity to match the nationwide demand. The Third Five-Year Plan (1965-70) contained policies for the development of the agriculture sector, with little emphasis on the dairy industry. Hence, we notice that the lack of focus on Pakistan’s dairy industry over the years has restricted the country from making full use of its livestock resources to meet the country’s demand and from making major contribution to exports.

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Dairy Industry of Pakistan

The policies set in 1970s and 1980s regarding tax exemptions and removal of import duties on machinery alleviated the interest in dairy industry and the sector began to grow (ABID A. BURKI, 2004). In the early eighties, the dairy sector took steps towards commercialization of dairy farms. Due to the increased demand for milk and dairy products in urban areas, dairy farms were moved to peri-urban areas (Aftab, Introduction of Dairy Sector of Pakistan, 2019). The last two decades have experienced immense urbanization which led to the conversion of subsistence dairy production to commercial and large scale production (Muhammad Naeem Tahir, Current Standing and Future Challenges of Dairying in Pakistan: A Status Update, 2019).

Additionally, Pakistan’s first Livestock Policy (2007) emphasized on improving the dairy sector, which enabled various private sector individuals to invest in the industry (Muhammad Naeem Tahir, Current Standing and Future Challenges of Dairying in Pakistan: A Status Update, 2019). Thus, we can deduce that as policies to facilitate the dairy industry were introduced, the farms began producing dairy on a larger scale, in an attempt to meet the increasing demand.

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Dairy Industry of Pakistan

The government has taken steps to develop the dairy industry in the past decade through the introduction of initiatives including the National Dairy Development Board (NDDB) and the Livestock and Dairy Development Board (LDDB) (Dairy Industry in Pakistan: A Scenario, 2018). The launch of these programs reflect that the government eventually realized the importance of dairy industry in Pakistan. The programs proved beneficial as Pakistan exported dairy products worth $10.67 million U.S.D in the years 2002-2005 (Dairy Industry in Pakistan: A Scenario, 2018).

However, we believe that government policies to improve the exports of dairy further such as education for farmers to use modern methods of dairy production, value addition and a formal marketing and supply chain method were not introduced due to which the sector was not able to produce to its full potential (ENHANCING DAIRY SECTOR EXPORT, 2017).

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Dairy Industry of Pakistan

Current Situation of Dairy Industry Pre COVID-19: Prior to the outbreak of the corona virus (COVID-19), the contribution of livestock to agricultural output was estimated to be 58.6% and to the total GDP was 11.6% in years 20152016. However, if we compare these statistics to the year 2019-2020, after the country was hit by the pandemic, the output of many industries, including dairy fell drastically. Before the pandemic, 96% of dairy (mainly milk) in Pakistan came from cattle and buffalo (Memon, 2016). It has been noted that the growth of Pakistan’s dairy industry since 1996 has risen from 25.3% to 49.6% in 2006 (Zia, 2006). Despite the potential, this industry was not commercialized even before the arrival of the pandemic, and thus Pakistan imported powdered milk from countries like U.S, New Zealand and France etc. in the years 2013-2014 which substantially increased by 66% in 2014-2015 (Memon, 2016).

Post COVID-19: Since the pandemic has hit, not only has the production of dairy industry reduced, but the downward push in prices by 10%-15% has made it difficult for many farmers (who sold milk to middle men) to survive in the industry (Hasan, 2020). This fall in sale of milk by 70% is because of the fall in the demand of locally available milk as cheaper substitutes are available to the consumers like powdered milk (Sindhu, 2020). This reflects a negative impact not only on the local dairy industry, but also on the balance of payment account.

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Dairy Industry of Pakistan

GDP Growth: Being the fifth largest producer of milk in the world, Pakistan’s GDP, before the COVID-19, was expected to grow at a rate of 3.2%, with 2.9% contributing from agricultural output. (BRIEFS, 2020). Dairy industry is a crucial segment of Pakistani economy, and thus in order to revive the economy dairy sector needs to be improved. For this, it needs to be commercialized, as only a minimum of 1% increase in processed milk could lead to a major increase in milk production in Pakistan by 2 billion litres, bringing a tax revenue of over Rs.6 billion for the government (News Update Times, 2020).

Figure 1: Pakistan's Milk Market - Estimated Consumer Spending

Legislations & Regulations: In order to revitalize the dairy industry, governments in the past have taken initiatives like tax incentives to increase milk production from 2006-2016. In 2016 sales taxes led to a fall in the demand for packaged milk by 30% due to a high PED (DAWN, 2019). If we look at the consumption pattern of dairy, especially milk, after COVID-19, we note a 3.2% increase since 2009. However, the problem that arises here is that the farmers and the industry were deprived

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Dairy Industry of Pakistan

of the tax exemptions and other leverages during the time

when

the

industry

actually needed a revival i.e. post pandemic. Over time, the governments have halted the growth of the industry right when it is about to enter its boom phase. The survival of this industry lies in two major aspects: 1. Relaxations and exemptions in local regulations 2. Stricter policies against imports, especially for powdered milk

Competition and Trends in Production System The Milk production and consumption in Pakistan increases every year by an average of 33.2% while the current situation of that sector says otherwise (Economic Survey of Pakistan, 2019-20). The data of past 10 years (See Table 1) instead of facilitating the statement above, shows a gap between milk production and consumption (See graph 3). While the overall production increases every year, the productivity does not. In 1996, around 42.5% households had herd size of 1-2. Our animals are not capable of producing sufficient milk due to health hazards, poor management, and awareness. For instance, one dairy animal in New Zealand and Germany produces milk equal to 3 and 6 milking animals in Pakistan respectively. [Garcia, et al. (2003)]. (Burki, A. A., Khan, M. A., & Bari, F. (2005)).

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Dairy Industry of Pakistan

Percentage Increase/Decrease (Production) 2010-11 2011-12 2012-13

2013-14 2014-15

2015-16 2016-17 2017-18 2018-19 2019-20

3.25%

2.99%

3.22%

3.25%

3.26%

3.22%

3.22%

3.23%

3.23%

3.23%

Percentage Increase/Decrease (Consumption) 2010-11 2011-12 2012-13

2013-14 2014-15

2015-16 2016-17 2017-18 2018-19 2019-20

3.24%

2.97%

3.21%

3.24%

3.24%

3.21%

3.22%

3.22%

3.22%

3.22%

Table 1: Milk Production and Consumption over the past 10 years. Source: Economic Survey of Pakistan 2009-2020. 000 tonnes

Milk

2010-

2011-

2012-

2013-

2014-

2015-

2016-

2017-

2018-

2019-

10

11

12

13

14

15

16

17

18

19

20

44978

46,440 47,951 49,512 50,990 52,632 54,328 56,080 57,890 59,759 61,690

(Gross

Production) Milk

2009-

(Gross

Consumption) 36,299 37,475 38,690 39,945 41,133 42,454 43,818 45,227 46,682 48,185 49,737

Table 2: Milk Production in Consumption in 000 tones. The TABLE 1 shows the consumption is increasing but not efficiently. It can be due to several reasons such as inefficient supply chain or that more educated and informed consumers have stopped consuming loose milk (Dairy Industry of Pakistan, 2012). The growth of urbanization has made a more refined portion of buyers, which prefers processed and packaged milk. From

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Dairy Industry of Pakistan

2006 to 2009 alone, utilization of packaged LDP increased by 8.4% per annum as compared to the unpackaged milk, which just increased by 2.1% per annum, (Food Journal PK, 2016)

Milk 70000 60000 50000 40000 30000 20000 10000 0 2009-102010-112011-122012-132013-142014-152015-162016-172017-182018-192019-20 Milk (Gross Production)

Milk (Gross Consumption)

Graph 1: Gross Production and Consumption 2009-2020. Thus, even if the production is increasing, emphasis on an improved supply chain is needed. Pakistan has truly enjoyed the comparative advantage of producing milk as compared to other countries in terms lower farm-gate price (Garcia, O., K.Mahmood, and T.Hemme, 2003)1. Future Outlook Looking at the facts and figures presented above, it will become necessary for us to adopt modern methods of carrying out production processes otherwise, players like Nestle will completely dominate the market based on what we have reflected above. Similarly, our population is going to double in 19.4 years (Iqbal, 2020) Therefore, the demand for dairy products will surely rise, increasing the chances of dairy industry to experience a boom but the

1

The Garcia et. Al 2003 calculated the prices of farm gate prices of countries like USA, Germany etc. and the prices found out to be 40% higher than that in Pakistan.

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Dairy Industry of Pakistan

instability in the country will be a major barrier. Likewise, Pakistan dairy association is desolated on the fact,

despite submitting three proposals to government regarding the

economic development of dairy sector, there is no such thing highlighted in 2020-2021 budget (Admin, 2020). Therefore, the likely consequence of this will be decline in its contribution of GDP by less than 11% in upcoming years. Since 2016, the sector is declining due to abolishment of zero-rating tax (Admin, 2020). Similarly, policy for milk substitutes, early calf mortality and the use of probiotics in regular practices does not seem to be implemented as well as no single pasteurization law in major cities (Admin, 2020). These highlighted practices have minimal chances of getting implemented due to the fact that country has a circular debt of Rs. 27.8Billion/month [Government of Pakistan, 2021] and that little importance is given to dairy sector. (Admin, 2020). Added to this, Pakistan is experiencing a rise in inflation and it is expected to be around 6.5% in the upcoming years till 2025 (Plecher, 2020). Consequently, the demand for raw milk will remain greater than that of processed milk due to the relative price blow through inflation.

However, we will witness a slight spike in demand for processed milk too because of healthconscious people who consider raw milk as highly unsafe. The future is processed milk where players like Nestle, Opler’s and Haleeb will hold a significant share of the market due to a less

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Dairy Industry of Pakistan

milking yield per animal. [Economic Survey of Pakistan 2018-19], and derivation of safe milk resulting in stunting and wasting (Admin,2020).

Similarly, our local dairy industry is on the verge of collapse in upcoming years due to poor management [Chairperson PDA, DairyLand, 2020] and the only way Pakistan can cope up with demand of it will be through imports posing an added burden on foreign reserves. The table and bar graph below show how there is an increase in imports in the past years (Sattar, 2019). This exponential rise in the imports will continue to increase further causing heavier reliance on imports. Thus, painting a dim and deteriorating picture of the dairy industry’s future.

Years

1975-1976

1990-1991

2007-2008

2017-2018

Imports

0.3

1.4

3

20

(Billion Rs.)

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Dairy Industry of Pakistan

Bibliography (2018). Retrieved from Tridge: https://www.tridge.com ABID A. BURKI, M. A. (2004). The State of Pakistan’s Dairy Sector: An Assessment. The Pakistan Development Review, 149-174. Admin. (2020). Dairy contributes 11% to the GDP of Pakistan. News Update TImes. Aftab, D. M. (2019). Retrieved from Pak Dairy info: http://www.pakdairyinfo.com/introduction.htm Aftab, D. M. (2019). Introduction of Dairy Sector of Pakistan. Retrieved from Pak Dairy Info: http://www.pakdairyinfo.com/introduction.htm#:~:text=In%201980s%2C%20dairy% 20sector%20in,were%20females%2C%20including%20some%20cows. BRIEFS, A. (2020, August). COVID-19 Impact on Farm Households in Punjab, Pakistan: Analysis of Data from a Cross-Sectional Survey. ADB BRIEFS. Retrieved from https://www.adb.org/sites/default/files/publication/624751/covid-19-farm-householdspunjab-pakistan.pdf (2018). Dairy Industry in Pakistan: A Scenario. DAWN. (2019, March 7). Govt working on laws to revive dairy sector. Retrieved from DAWN: https://www.dawn.com/news/1468132 (2017). ENHANCING DAIRY SECTOR EXPORT. TRTA Pakistan.

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Dairy Industry of Pakistan

Garcia, O., K.Mahmood, and T.Hemme. (2003). A Review of Milk Production in Pakistan with Particular Emphasis on Small-Scale Producers. Retrieved from Food and Agriculture Organization of the United Nations. Hasan, M. (2020, June 9). Milk prices down by up to 15pc in Pakistan due to COVID-19 impact. Retrieved from The News: https://www.thenews.com.pk/print/669820-milkprices-down-by-up-to-15pc-in-pakistan-due-to-covid-19-impact Iqbal, A. (2020). Population in Pakistan continues to grow rapidly: report. Dawn . Jehangir Nasir. (2020). Pakistan Dairy Association is Dasstisfied With FY20-21 Budget. Retrieved from ProPakistani: https://propakistani.pk/2020/07/14/pakistan-dairyassociation-is-dissatisfied-with-fy20-21-budget/ Memon, D. N. (2016). Dairy industry in Pakistan: Bright prospects of mill processing industry. Muhammad Naeem Tahir, R. R. (2019). Current Standing and Future Challenges of Dairying in Pakistan: A Status Update. Muhammad Naeem Tahir, R. R. (2019). Current Standing and Future Challenges of Dairying in Pakistan: A Status Update. IntechOpen. News Update Times. (2020, July 14). Dairy contributes 11% to the GDP of Pakistan. Retrieved from News Update Times: https://newsupdatetimes.com/dairy-contributes11-to-the-gdp-of-pakistan/ Plecher, H. (2020). Inflation rate in Pakistan 2025. Statista. Sattar, A. (2019). Milk Production in Pakistan. PIDE Blog.

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Dairy Industry of Pakistan

Shahid, H. a. (2012). Dairy Industry of Pakistan. European Journal of Business and Mangement, 1-4. Sindhu, F. (2020, April 4). Livestock sector suffers in lockdown. Retrieved from The Express Tribune: https://tribune.com.pk/story/2190478/livestock-sector-suffers-lockdown UKEssays. (2018, November). Analysis fo the Dairy Industry in Pakistan. 15. Retrieved from https://www.ukessays.com/essays/marketing/dairy-industry-in-pakistan.php?vref=1 Umm e Zia, T. M. (2011). Dairy Development in pakistan. Zia, U. E. (2006). Pakistan: A dairy sector at a crossroads. Islamabad: National Consultant for Milk Marketing.

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