The dairy sector will struggle to keep pace with milk demand in 2022-23

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LAHORE: Blighted by low productivity and a weak supply chain, the dairy sector’s struggles and efforts to keep pace with milk demand could continue into 2022-23, thanks to the government’s failure to create a enabling environment based on innovative cost reduction initiatives.

Although one can find fanciful figures like Pakistan being the 4th largest milk producing country in the world with one of the largest herds of animals, the stark reality that haunts consumers paints a totally different picture of the performance of the dairy sector. The dismal situation of the dairy sector can be measured by the fact that the availability and affordability of milk has been compromised over the years.

An increase of more than 15% in the price of milk has been observed in about a year. Pasteurized fresh milk prices soared to Rs 195/litre in the country last week, indicating a sharp increase in the cost of food for consumers. More bad news would hit consumers in the next fiscal year, starting July 1, 2022.

The trajectory for milk and other dairy products will only get worse in 2022-23 and could cross the Rs 200/litre mark.

The availability of quality milk is also an issue, especially with declining production compared to growing demand. Regarding the growth rate of milk production, in 2020-2021, the production of the dairy sector recorded a growth of 3.22% in milk volume. This annual growth rate has been constant for several years.

According to the 2020-21 economic study, the annual growth rate of milk production is even higher, at 3.5% to be precise. With up to 40% post-production losses mainly due to weak supply chain and other intrinsic faults, the net gain in milk production recorded at a meager 2.1%, which does not is not even sufficient to meet the demand generated by the annual population increase.

According to Dr. Talat Naseer Pasha, a leading expert in the dairy sector, the cost of production has led to high milk prices in the country. Increase in the prices of food such as chokar (wheat bran), straw and fodder. In addition, the heat wave had a negative impact on milk production this year. Additionally, corporate dairy farms reproduce in a way that results in less milk production on top of the seasonal shortage impacting production.

Regarding rising production costs, Hafiz Wasi, a seasoned veterinarian, observed that the negative impact of the heat wave coupled with rising production costs tends to create an imbalance in the productivity of the dairy sector. Usually, during the summer months, up to 30% milk loss has been observed, but this time the heat wave had its own toll. The second reason was the rising prices of all inputs used in dairy farming, which forced producers to raise milk prices accordingly.

Waqar Ahmad, who works with a multinational food giant, admitted fresh milk is going wild. He blamed soaring input costs, however, adding that prices for all raw materials have risen. He was of the view that the skyrocketing cost of production was seen due to the increase in operating costs in general. He also pointed to the global food inflation trend as one of the related reasons for the spike in dairy prices.

According to experts, building a strong supply chain has been seen as a key area where the government has no role and it really hurts when it comes to the productivity of the dairy sector. High post-production losses have been attributed to an inefficient supply value chain lacking facilities to preserve a highly perishable product like milk. The government should facilitate the establishment of such a supply chain at the local level with a back-up power device to ensure minimum losses during transport.

At the same time, according to a study, the low productivity of animals in the country has been one of the underlying factors for the low competitiveness of the national dairy sector. According to the findings of the study, although Pakistan is one of the largest milk producing countries in the world, the yield per animal is declining. With an annual production of 57 million tonnes of milk from 24 million cows and buffaloes, the average annual yield is 1.62 tonnes per animal, just 62 percent of the world average.

However, according to one study, all the increase in production in the country was due to the expansion of the animal herd, while globally, the yield per animal also improved. This, combined with the weak infrastructure development of the milk value chain in the country, has reduced its competitive position in national and international markets.

Moreover, the diversity of processed dairy products in Pakistan has remained narrow around the production of ghee only, while the production and consumption of processed milk and dairy products except yogurt has remained limited. Clearly, Pakistan is missing a great opportunity to take advantage of the rapidly expanding international trade in milk and dairy products.

Despite reasonable growth in milk production, real milk prices after inflation discounting are rising, suggesting that there is an unmet demand for milk in the country. As part of the policy measures, the federal government, with its role redefined under the 18th Constitutional Amendment, has taken the following actions: i) Importation of high-yielding Holstein-Friesian and Jersey dairy cattle breeds for improved milk production ii) Supply of semen and embryos of high yielding animals for genetic improvement of native low producing animals iii) Import of high quality feed/micro-ingredients to improve the nutritional quality of animals and poultry feed in order to encourage and promote the establishment of added value in the country.

The federal government has been working on various projects to increase dairy productivity in the country. These include the Livestock Insurance Scheme for Borrowers (LISB): it aims to minimize the risk of illness or death of animals due to accidents and natural disasters in the livestock and dairy products, farmers have better access to LISB. The scheme covers small farmers with up to 10 animals and the government supports a premium subsidy of up to 4 percent per year. During the period July 2014 to December 2020, banks submitted premium claims of Rs 2.84 billion against 0.82 million beneficiaries.

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