Milk Procurement

We know that dairy industry is dependent on a perishable raw material i.e. milk which is subject to wide seasonal fluctuations. How and from where do the dairy plants collect milk to meet their daily requirement? Or what are the factors that influence milk procurement? The organized dairies collect their milk supplies from milk shed area.

A milk-shed area is the geographical region from which a marketing agency secures its fluid supply. The size of the milk shed area is primarily determined by the demand of the dairy plant. The larger the dairy plant the larger the milk shed and more costly the supply. If a dairy plant is large enough the milk shed may overlap of other cities. The number of milk collection centre, the number of milk producers pouring milk at the collection centre, distance of milk collection centres, price paid by different milk procurement agencies, regularity of payment are the other considerations that determine milk procurement.

The systems of milk procurement, which have grown in the organized sector of dairying, can be depicted as following (Fig).
Milk Procurement by Organized Sector
Milk Procurement by Organized Sector

How milk is procured by the dairy plant? As can be seen from the flow chart,the organized dairies collect milk through one or combination of the following systems:

i. Direct System
In this system the plant collects milk directly from the producers by establishing its own village procurement centres. The milk producers deliver their milk supplies at the collection centres. The payment for milk to the milk producers is made according to pre-specified rate based on quantity and quality of milk supplied.

ii. Agent System

The dairy plant appoints agents to procure milk in the specified area. Payment for the milk is made directly to the producers while the agent gets the commission on pro-rata basis.

iii. Contractor System
The plant purchases milk from the contractor according to terms of the contract.The details in respect of quality, quantity of milk in the flush and learn season, price and the payment etc. are specified in the contract.

iv. Co-operative System

The plant accepts milk from Milk Producers Co-operative Societies (MPCS) established and functioning at the village level. The milk producers in the villages give surplus milk to MPCS. The payment for milk is made according to quality and quantity of milk. The rates for fat and SNF are made known to the milk producers.

The co-operative sector has made tremendous progress in the organization of dairy co-operatives at the grass-root level in the villages and milk procurement in sizeable quantities. The extent of their reach can be judged from the number of dairy co-operatives, their membership, quantity of milk procured and sold in different states under the co-operative sector during the year 2003-04 as given in Table
Milk Procurement in Different States under Co-operative Sector as on 31-03-2004
Milk Procurement in Different States under
Co-operative Sector as on 31-03-2004
It is made clear at the outset that the dairy plants in the co-operative and public sector domain have adopted dairy co-operatives structure as a system not only for milk procurement but also for dairy development as well.It may be emphasized that no city dairy can function properly unless it is linked up with a proper milk procurement organization preferably located at a distance from the urban consumption centers. Dependable sources of milk supply would be distant milk production centers rather than close peri-urban areas.

In the past, city dairies were established without much thought on the milk procurement arrangement. When the city dairies were commissioned there was immediate need for milk. Milk contractors and middlemen were ready to supply milk. The milk contractor supplied milk to the dairy when they found it more profitable to do so. This happens in milk surplus season when milk prices in the rural areas and consumer prices in the cities are low. During lean season the contractors take advantage of the high market price in the cities and divert the milk directly for sale through traditional milk vendors. Many dairies had to remain at the mercy of milk traders and contractors facing the problem of more milk than what they can sell during flush season and less than what they need during lean season. The system of milk procurement through contractors and middlemen neither helps the producers nor the consumers.

The milk producer’s interests shall be served best when he gets remunerative price for milk, the payment is regular and timely, incentives for higher milk production like availability of veterinary services free or at a nominal costs, readymade feed mixture at subsidized rates, supply of improved seeds and other technical services are provided to him.

On the dairy development aspects, National Commission on Agriculture had observed the weaknesses of agent system and the contractor system. It recommended establishing the milk co-operatives all over India on Anand Pattern as these societies serve the best interests of milk producers. These societies appoint their own employees, equip the centre with testing, measuring or weighing facilities and operate the collection centers. The chances of malpractices by the paid employees are reduced as they work under the constant watch of the milk producers. Moreover the price of milk is based on the two-axis pricing policy, calculated by fixing a pre-determined rate for fat and solids-not-fat. Milk producers are generally better off in this type of system of payment.

The most common system of procurement of milk now being followed by most of the government dairies is through establishment of milk collection centers and the collection-cum-chilling centers. The simplest form of milk chilling station is where milk can be chilled by ice. A chilling plant handling about 10,000 litres of milk per day is reported to increase cost roughly by 30 paise per litre to the cost of milk.

A chilling plant handling smaller quantity of milk increases the cost further. In order to reduce the cost per litre, the chilling plant should be of a size giving the optimum economic returns. Generally speaking the minimum size of a chilling plant should have a handling capacity of 10,000 liters/day. The selection of the size of the chilling plant quite often poses a difficult problem for the dairy organization. Though the operational cost per litre of milk is lower with bigger sized plant but while taking a decision on the size of the chilling plant, the extent of availability of milk is also a determining factor. A decision of the capacity of the chilling station should,therefore, be taken in all cases after carefully weighing various factors and keeping in view the primary consideration of economy.With good and reliable transport agencies, it should be possible to transport milk in fresh condition from village collection centers to a dairy plant located 50 to 60 km away. Chilling centers may, however, become unavoidable under certain situationse.g. where milk is to be procured from far away places and where transport facilities are not satisfactory. Actually it is the time lag between milking and its receipt at the dairy plant and the associated risk of spoilage of milk that would determine the requirement or other wise of a chilling centre. While it is necessary to maintain the quality of milk, it is equally necessary that procurement cost is kept as low as possible.

The dairy industry is also faced with the problem of uneven supply of milk during different months of the year whereas the demand of milk and milk products does not depict wide fluctuations. How to meet such situations to balance supply with the demand so that the wide gap between them is narrowed down? Sometimes large dairies requirement cannot be met from one source and that too from a nearby source of milk production. A large dairy has to be linked up with more than one milk shed. It is with these objectives that helped in establishment of rural feeder/balancing dairies to meet the milk requirement of new dairies set up in the metropolitan cities. Each feeder/balancing dairy was to be owned and operated by the milk producers themselves. The role and objectives of feeder/balancing dairies are elaborated below.

v. Feeder/Balancing Plants
To ensure a year-round steady and uniform supply of milk for city milk projects there is need to establish feeder/balancing plants. The feeder function of the plant is confined to the dispatch of chilled/pasteurized milk in bulk to the city distribution system whereas the balancing function of the plant is to balance the year round supply of the required quantity of milk to the cities and conserve the remaining quantity of milk procured in the form of milk products. It is generally observed that procurement of milk during the lean season declines to nearly one-third of that of the flush season whereas the year-round demand for milk in the city remains almost constant. One of the measures to meet this demand is to conserve surplus milk during the flush season in such a way that it can be utilized during the lean season. The surplus milk may either be converted into products ready for direct marketing or for reconstituting into fluid milk during the lean season.

The farmers should be provided with a guaranteed market throughout the year. It is, therefore, necessary to build up processing facilities that are large enough to process the entire marketable surplus milk during the flush seasons. This can be achieved with establishment of what has come to be known as Feeder/Balancing Plants as an integral part of a large city milk supply project.

vi. State Milk Grid and National Milk Grid

With the establishment of a number of fully functional feeder/balancing plants of adequate size in suitable locations within a state, it would be desirable to establish a State Milk Grid that would ensure steady milk supply all through the year in different parts of the state. Similar developments in the adjoining states may enable the creation of a regional milk grid and with progressive development it should be possible to establish a national milk grid for the whole country. Creation of the milk grid would require besides establishment of functional feeder/balancing plants, the building up buffer stocks of products like skim milk powder, white butter, butter oil and frozen cream.

Milk, after collection at the village collection centre needs to be transported as early as possible to the dairy plant or milk chilling centre for processing/cooling. Fast moving vehicles can be used to transport milk by road. The dairy organization has to decide whether to own its own fleet or hire it on contract basis. Further it requires schedules of the timings to be maintained at the collection centres to clearly demarcate the responsibilities to the village society, truck operators and the dairy plants. Road milk tankers are more economical and satisfactory for collection milk from chilling centres provided adequate quantity of milk is available for a single trip. The biggest size road milk tanker can carry about five times milk quantity in comparison to a truck which can carry about 75 cans of 40 litre capacity each.

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