Analysis of milk production system

229
Pakistan Economic and Social Review
Volume 47, No. 2 (Winter 2009), pp. 229-242

ANALYSIS OF MILK PRODUCTION SYSTEM IN
PERI-URBAN AREAS OF LAHORE (PAKISTAN)
A Case Study
HAMID JALIL, HAFEEZ UR REHMAN, MAQBOOL H. SIAL and SYED SHAHID HUSSAIN*
Abstract. This study is an attempt to investigate the market structure, sources of milk production and average unit of productivity in peri-urban1 areas of Lahore.
Using primary data of year 2007 from some selected peri-urban areas of Lahore, the results of this study reveal that the lack of training and dairy related education hinders opportunity of value addition with undue cost of poor transportation, low quality and mismanaged distribution. Lack of marketing and supply chain in dairy industry is another bottleneck of development. The results of this study call for the role of government in the development of dairy sector. The government needs to provide critical support for the promotion of smallholder producers in periurban areas.

I. INTRODUCTION
In Pakistan agriculture sector contributes more than 20 percent of the GDP and employs more than 40 percent of the total workforce. Pakistan has larger base of dairy sector allied with the agriculture. Dairy sector generates employment and business opportunities, particularly in the rural and periurban areas. A number of people in urban areas are also involved in dairy based business. The public sector departments hold primary responsibility to guide the farmers and play significant role in dairy sector development.
*The authors are, respectively, Chief, Planning and Development Livestock, Government of
Punjab; Associate Professor/Chairman, Department of Economics, University of the
Punjab, Lahore; Dean, Management and Administrative Sciences, University of Sargodha; and Research Scholar, Department of Economics, University of the Punjab, Lahore
(Pakistan). (For correspondence: [e-mail])
1
Immediately adjoining an urban area; between the suburbs and countryside.

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Dairy enterprise is dominated by the private sector and the role of government is regulatory.
Although dairy enterprise was badly neglected by the Government,
Pakistan is the 5th largest milk producer in the world. According to livestock census 2006, approximately 80 percent of the milk is produced in the rural areas. Only 3-5 percent of total milk production of the country is marketed through formal channels. The remaining 97 percent is produced and marketed in raw form by informal agents in the marketing chain portion of milk producers.
Presently, Pakistan’s dairy industry is facing a number of problems which include the lack of commercial dairy farm, lack of dairy related education and lack of financial and infrastructure facilities. Furthermore, lack of quality check is the most neglected aspect of the whole system. There is no test at any stage along the marketing chain. Many shops in urban areas are exposed to dust and flies. Very few shops have refrigeration facility. The containers used in transportation are unhygienic and also the milk adulteration is another serious concern in peri-urban milk supply chain. On the other side, due to increase in inflation and poverty level, the majority of consumers in Pakistan are price-conscious. Therefore, demand for open raw milk is high as compare to processed milk. Hence, raw milk is the primary dairy product marketed in the country. Over 90 percent of the unprocessed milk is collected and marketed through the informal market. Because of high milk demand there emerges excess demand for milk. To overcome the shortage of milk, powdered milk is imported every year. Furthermore, milk collected from urban area is not sufficient to meet the entire urban demand, more milk is collected from rural areas and also the remaining deficit is met through the imported powdered milk.
The findings of Ali and Saifullah (2006) reveal that the milk production is labor intensive. They pointed out that there are a large number of biological, technical and socio-economic constraints like shortage of feed, high mortality rate, poor genetic potentials, high input cost, scarcity of resources and inadequate marketing system. Burki et al. (2005) provided a preliminary assessment of the state of Pakistan dairy, explored the sector potential in making impact on the dairy economy and identified areas where more detailed research is needed. According to them research on production structure in dairying could enable us to understand the structural changes needed in this sector.
This study is an attempt to address the various important aspects related to dairy sector in Pakistan like source of milk production, average unit

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productivity, cost of milk production and milk supply channels. It may also provide an understanding of the opportunities and problems associated with the dairy enterprises in Pakistan. The findings of the study may help in ensuring development of country’s dairy sector because the research based decisions of policy makers may have real impact on welfare of farmers and progress of all the stakeholders of the sector. The above mentioned objectives of study are achieved through surveying the farmers of peri-urban areas and milk centres in urban areas of Lahore (see BOX).

BOX
The data has been collected from peri-urban areas of Lahore, the second largest city of Pakistan. A self-constructed research questionnaire was used as a tool of data collection. All the stakeholders and active players of dairy industry share their observations and experiences based on objectives set in this study. The questionnaire was further validated by pilot testing of 15 respondents and number of errors regarding language, structure, flow and scale options were removed. 120 owners/managers of dairy farms and 60 milk shops/collection centres were interviewed. Quality of survey was ensured through 10 percent back checking. The details of the number of dairy farms visited for sample collection from different areas are given below:
Name of the Area
Number of Dairy Farms Visited
Harbanspura
30
Rakhchandra
40
Thokar Niaz Baig
13
Kamahn Pind
12
Bund Road
8
Chungi Amer Sidhu
8
Shahdara Town
9

The remainder of the paper is organized as follows. In section II an analysis of the sources of milk production are presented. Section III gives an analysis of average unit productivity and cost of the production. Milk supply channels are discussed and analyzed in section IV. The analysis of milk by products is presented in section V. The last section concludes.

II. SOURCES OF MILK PRODUCTION
This section provides the details of various sources of milk production. It addresses the issues like quantity of total milk production, production division by animals and farmers, production brackets according to quantity and associated variables. The analysis is produced from the views of sampled farmers, taken through self-structured study questionnaire.

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TABLE 1
Milk Production Brackets and Farmers
Production Brackets (in litres)

No. of Farmers

Percent

●

Up to 100

76

63

●

100 to 200

25

21

●

200 to 400

13

11

●

400 and above

6

5

120

100

Total

The classification of farmers into various brackets, based on quantity of produced milk, gives significant insights of the dairy industry profile. The statistics show that majority of farmers (63%) produce up to 100 litres milk daily, followed by 21% farmers, who produce 100 to 200 litres milk daily.
The larger quantity of milk production is covered by very small proportion of dairy industry, as 11% produce 200 to 400 and 5% produce more that 400 litres of milk daily.
TABLE 2
Milk Production of Animals and Average Unit Productivity
Total

Average
(Per farmer)

Total Milk Production

14,387

120

Milk from Buffaloes

11,803

98

82%

1,000

Milk form Cows

2,587

22

18%

240

Number of Buffaloes

2,132

18

11.8 litres

85

468

4

11.6 litres

35

Category

Number of Cows

Animal
Share

Maximum
1,020

As per the sample of survey, averagely 120 litres of milk are produced by a farmer of peri-urban areas of Lahore. The maximum limit of a farmer is
1020 litres of milk as shown in the data of this survey. Buffaloes produce major share (98 litres averagely in a farm), which constitutes 82% of the dairy market. Cows contribute 18% of the milk of dairy industry; 22 litres averagely in a farm. Interestingly, population of buffaloes is quite larger as

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averagely 18 buffaloes in a farm as compared to 4 cows in a farm. Maximum numbers of buffaloes in a farm are 85 and cows are 35 in the peri-urban areas of Lahore.

III. AVERAGE UNIT PRODUCTIVITY
The average unit productivity of buffaloes stands at 11.8 litres per day. The milking cows also get average unit productivity around 11.6 litres per day, quite similar to the buffaloes.
TABLE 3
Milk Production across the Production Brackets
Production
Brackets (litres)
●

●

●

●

Up to 100
N = 76 (63%)
100 to 200
N = 25 (21%)
200 to 400
N = 13 (11%)
400 and above N = 6 (5%)

Total
(all brackets)

From
Cows

From
Buffaloes

Total
Production

Average (per farmer)

9.2

38

48

Bracket production

700

2921

3621

27.10%

24.70%

25.20%

Average (per farmer)

28

108

136

Bracket production

691

2688

3379

26.70%

22.80%

23.50%

Average (per farmer)

53

243

296

Bracket production

686

3154

3840

26.50%

26.70%

26.70%

Average (per farmer)

85

507

592

Bracket production

510

3040

3550

19.70%

25.80%

24.70%

22

98

120

Share in total

100%

100%

100%

Total Sum

2785

127970

15582

Category

Bracket share

Bracket share

Bracket share

Bracket share
Average (per farmer)

The production of milk across the different production brackets gives very fruitful insights. Each bracket has different statistics of production. The production bracket of up to 100 litres covers 63% of dairy industry but contribute 25% of total milk share. The average production of farmer is 48 litres per day, contributed 38 litres by buffaloes and 10 litres by cows. The second bracket of 100 to 200 litres production stands 21% of dairy industry,

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but contributes 23% of total milk production. In this bracket, a farmer averagely supplies 136 litres a day, shared 108 litres by buffaloes and 28 litres by cows. Almost 11% farmers fall in third bracket, which contributes
27% of milk in dairy industry. Average framer in this bracket supplies 296 litres a day, consists of 243 litres from buffaloes and 53% litres from cows.
In fourth bracket (above 400 litres), 5% framers fall in this category averagely supply 592 litres of milk a day making 25% share in total milk production. The average total production is contributed by buffaloes 507 litres and by cows, 85 litres a day. All the production brackets have different averages of daily milk production, but interestingly, contribute in almost similar input/output ratio. The findings show again that cows are less in numbers than milk quantity, but milk production capacity is almost equal to buffaloes. Dairy industry observes good market equilibrium and not concentrated too few larger suppliers. The farmers having more than 400 animals are few in number, while people of less than 100 milking animals are quite large in numbers, which equate their total share of milk production in dairy industry.
COST OF MILK PRODUCTION
The expenses on milk production give valued figures for the strategic planners of dairy industry. The statistics of sampled farmers indicate that farmers spend daily average of Rs. 140 on family labour, Rs. 2906 on animal feed, Rs. 18 on vaccination and Rs. 36 on medicine/drugs and Rs. 56 on utility bills.
TABLE 4
Cost of Milk Production
Average
(monthly)

Total

Average
(Daily)

Family Labor

4,204

504,500

140

Feed

87,176

10,461,160

2,906

531

62,677

18

Medicine/Drugs

1,068

128,205

36

Utility bills

1,678

199,650

56

Transportation

3,561

423,810

119

Total spending in sample

16,370

11,780,002

3,274

Spending

Vaccination

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The average cost of production per litre of milk in peri-urban areas of
Lahore is Rs. 30 per litre but most of the time this cost boost up to Rs. 38 per litre due to poor management practices including shortage of labor, feed, morbidity and mortality of high yield animals. It results into losses and results into demotivation of stakeholders especially dairy farmers. It pushes farmers in unethical practices like adulteration of milk for compensating their losses. The farmers make expense of Rs. 1678 on utilities bills and
Rs. 3561 on transportation of the milk on average. Almost 29% farmers, having less than 14 buffaloes and less than 3 cows, use their own transportation facilities, which incur insignificant extra cost. The results report the highest spending on feed, followed by labor, transportation, utilities and medicine. The vaccination ranked the lowest in priority list of farmer’s spending.

IV. MILK SUPPLY CHANNELS
Milk is produced from dairy farmers in variable quantity depending on number of milking animals and better management practices. Dodhis/Gawals collect 60-70% of the total milk from dairy farmers in peri-urban areas. Milk collected from Dodhis/Gawals is distributed by different channels. The 70% of milk collected from them are distributed to End consumer as home delivery because civic population of Lahore mostly consumed milk from
Dodhis/Gawals. The milk produced from peri-urban areas and small cities near Lahore are unable to fulfill the demand of civic population of Lahore. It means there is adverse imbalance in supply and demand of milk in Lahore.
The remaining 30 percent of milk collected from Dodhis/Gawalas is also distributed through other channels including whole sale milk shops and milk sale points in urban areas of Lahore. The halwai and hotels are also part of milk supply channels in peri-urban areas of Lahore. It constitutes 10-20% of milk supplied. These halwai and hotels processed this milk into different milk by-products or milk directly consumed by consumers.2
The distribution of milk to different channels of supply indicate market portfolio of dairy industry. According to survey statistics of sample, almost
13.20% of milk production goes to Halwai/collection centres, 78.20% to
Dodhis/Gwalas, 8.60% is sold to others sources without any clear
2

The milk in peri-urban areas are also collected by milk collectors and transported to milk collection centres of milk companies including Nestle, Chaudary Dairy and Engro Foods.
It constitutes rest of 5-10% of milk collected in peri-urban areas of Lahore.

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Pakistan Economic and Social Review

specification. There is large number of farmers (72%) of total sample sell milk to Dodhis/Gawalas. It includes the farmers who sell milk by themselves and act as Dodhis/Gawalas. Most of them reside in major cattle colonies of
Peri-urban areas of Lahore. It constitutes major percentage of total milk sold in peri-urban areas. Next to this category, there are Halwai/milk shops that purchase milk directly from farmers. It constitutes 22% of total sample size.
Almost 6% of farmers sell milk to other sources which are unknown in sample of dairy farmers.
TABLE 5
Milk Sale across Supply Channels
Channels

Total

% of Total

●

Halwai/collection centre
N = 26 (22%)

1881

13.20%

●

Dodhi /Gawalas
N = 87 (72%)

11252

78.20%

●

Others N = 7 (6%)

1254

8.60%

Total (N = 120)

14387

100.00%

V. MILK BY-PRODUCTS
According to conducted survey of sample milk purchasers/collection centres, almost 10% purchase up to 100 litres, 40% purchase 100 to 200 litres, 22% purchase 300 to 400 litres and 28% buy more than 400 litres milk daily. 10% milk centres buy averagely 68 litres daily, where they use 30 litres for by products and rest 38 litres sell to the end users (see table 6). This category of milk centres buys only 2% total centre market of Lahore. 40% of milk centres make purchase of 171 litres daily on average, where 86 litres are used for making by-products and 84% litres are sold to end users. This category has 18% share of milk purchase in dairy market. 22% milk centres purchase daily 318 litres on average, where 107 litres are consumed for developing byproducts and 211 litres are sold for general users with 21% market share.
28% milk centres hold largest market share of 58% with 12930 litres daily purchase on average. They make various dairy products from 4520 litres and make sale of rest 8410 litres.

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TABLE 6
Milk Consumption Across the Categories of Purchasers
Total
milk

Used for byproducts

Sold to end users

Average

68.6

29.6 (43%)

39 (57%)

Sum of this category

412

178

234

Share of this category

1.90%

Average
171
100 to 200
Sum of this category
4110
N = 24 (40%)
Share of this category 18.50%

86 (50%)

84 (49%)

2075

2035

Average
318
300 to 400
Sum of this category
4783
N = 15 (22%)
Share of this category 21.50%

107 (34%)

211 (65%)

1610

3173

Average
862
Above 400
Sum of this category
12930
N = 15 (28%)
Share of this category 58.20%

301 (35%)

560 (62%)

4520

8410

370

139 (38%)

230 (62%)

Sum of this category

22235

8383

13852

Share of this category

100.00
%

100.00%

100.00%

Categories of milk purchasers (litres)
Up to 100
N = 6 (10%)

Total
N = 60
(100%)

Average

The yogurt is most prominent by-product in the dairy industry of Punjab.
Milk centre purchase up to 100 litre of milk, produce 26 kgs of yogurt daily on average, with 2.5% share of total yogurt market (see Table 7). The milk centres of 100 to 200 litres produce 75 kgs yogurt daily on average with 27% market share. The purchasers of about 400 litre milk use 95 litres for yogurt production, making 22% yogurt market share. The milk centres, buy above
400 litres milk daily, consume 238 litres daily for yogurt production.
Averagely, the milk centres produce 113 kgs of yogurt daily and sell on the price varies from 38 to 39 rupees per kg.

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Pakistan Economic and Social Review

TABLE 7
Yogurt Production Across the Categories of Purchasers
Categories of milk purchasers (litres)

Production
Daily in litre

Average

26.5

Sum of this category

159

Share of this category

Up to 100
N = 6 (10%)

2.50%

Average
Sum of this category

1732
26.90%

Average
Sum of this category

1437
22.40%

Average
Above 400
N = 15 (25%)

38.6

95.8

Share of this category

300 to 400
N = 15 (25%)

38.6

75.3

Share of this category

100 to 200
N = 24 (40%)

Price per litre

238.5

Sum of this category

3100

38.5

Share of this
Average
Total
Sum of this category
N = 60 (100%)
Share of this category

39.1

48.20%
112.8
6428

38.7

100.00%

Along with yogurt, numbers of other dairy products are produced in urban and peri-urban areas of Lahore. Among milk centres of Lahore, 10% produce butter, 4% Cheese, 2% Ghee, 73% flavored milk and 12% produce
Khoya (see Table 8). 85 Kg butter is averagely produced constituting 10% of by-products market other Yogurt. Butter is sold at Rs. 250 per kg. Cheese contribute 4% share with average production 32 kg by cheese producers.
Cheese is being sold at Rs. 135 per kg. Very few milk centres produce Ghee,

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which stands almost 1.5% market share of Ghee producers, with 25 kg average production, sold at Rs. 360 per kg. Majority of milk centres produced 89 litres flavored milk daily on average, taking 72% share of diary by-products, sold at Rs. 25 per litre. Khoya also have significant share of
12% in dairy by-products with average daily production of 105 kgs, which is sold at Rs. 233 per kg by Khoya producers.
TABLE 8
Production and Sale of other By-Products
Daily
Production

Sale price3

Average

85

250

Sum of this category

170

Share of this category

9.90%

Types of by products
Butter in kg
(10%)

Cheese in kg
(4%)

Average

32.5
65

Share of this category
Ghee in kg
(2%)

Sum of this category

3.80%

Average

12.5

Sum of this category

1.50%

Average

89.3

Sum of this category

1250

Share of this category

72.70%

Total

3

Average

105

Sum of this category

25.7

210

Share of this category

Khoya in kg
(12%)

350

25

Share of this category
Flavoured milk in litre (73%)

135

12.20%

Average

78.2

Sum of all categories

233

1720

Sale prices may be different now because of substantial increase in the prices of food items in the last one and half year (after the completion of the study).

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Pakistan Economic and Social Review

VI. CONCLUSION
This study analyzes the sources of milk production and average unit of productivity in peri-urban areas of Lahore. Dairy industry is a labourintensive business with lot of hygienic considerations in milk transportation in Pakistan. The results of the study show that the demand of the raw and unprocessed milk in Lahore is higher than its supply. This leads to a lot of malpractices in the supply of milk making it equal to its demand.
Furthermore, it does not seem commercially viable unless huge planning and dairy development efforts are made by the concerned department of the
Government of Punjab.
This study also identifies several factors like lack of dairy related education and training, lack of marketing and supply chain in dairy industry.
These factors are considered to be responsible for slow dairy development in
Pakistan. Furthermore, the proportion of small milk producers is quite high in Pakistan which hinders the economies of scale and profitability in the dairy industry. It calls for effective decision making in the operations of dairy industry from planning department, key stakeholders, and policy makers. These measures may include extensive training in the area of marketing, management, supply chain, and credit schemes for small farmers.4 4

In future it needs further investigation to pinpoint the exact percentage and quantity to make better policies to balance the supply-demand of milk in big cities like Lahore. This study can also provide a basis for further rigorous analysis of the issue by using the modern econometric estimation techniques.

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Pakistan Economic and Social Review

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References: Aazim, M. (1997), Milk powder price on the rise. The Dawn [Electronic version] retrieved on July 21, 1997. Ahmad, S. (1962), An investigation into supply, consumption and marketing of milk into Lyallpur City Ali and Saifullah (2006), Milk production and marketing. The Dawn [Electronic version] retrieved in January 2006. Ali, T. (2006), A case study of milk production and marketing by small and medium scale contract farmers of Haleeb Foods Limited, Pakistan. Anjum, M. S. (1978), A note on economic analysis of consumer demand for raw and processed fluid milk in Lahore Bhatti, M. Y. (1992), Emerging role of livestock in agricultural economy of Pakistan Burki, A. A., M. Khan and F. Bari (2005), The state of Pakistan’s dairy: An assessment Government of Pakistan (2006), Economic Survey 2005-06. Islamabad: Ministry of Finance. Haq, H. I. (1989), Practical aspects of marketing of chilled raw milk in urban areas Khan, D. A. and H. U. Schinzel (1982), Systems and channels of milk marketing Livestock Action Plan (2003), Action Plan for Livestock Marketing Systems in Pakistan Malik, Z. R. and S. Muhammad (1989), Need and development of national standards and specifications for various types of milk and milk products. Ministry of Food and Agriculture and USAID (1989), Pakistan’s Dairy Industry: Issues and Policy Alternatives (Special Report Series No Peter, Waynn (2006), Mission Carried out under the Auspices of the Australia Pakistan Agriculture Sector Linkages Program: Report on Said, M. A. (1997), Cost free measures for improved milk production. The Dawn [Electronic version] retrieved on 16 September 1997. Schinzel, H. U. (1982), Demand, supply and marketing of livestock products: A case study of a selected area in Punjab Zia, U. (2007), Improved market access and smallholders dairy farmers’ participation for sustainable development (consultancy report