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Supply Chain Management in Dairy

Supply Chain Management in Dairy

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SUPPLY CHAIN MANAGEMENT IN DAIRY PROCESSING UNITS – A COMPARAIVE ANALYSIS OF PRIVATE AND CO-OPERATIVE UNITS

Thesis submitted to the University of Agricultural Sciences, Dharwad in partial fulfillment of the requirement for the Degree of

MASTER OF BUSINESS ADMINISTRATION

in

AGRIBUSINESS

By

NITHIN R.R.

DEPARTMENT OF AGRIBUSINESS MANAGEMENT COLLEGE OF AGRICULTURE, DHARWAD UNIVERSITY OF AGRICUTLRAL SCIENCES, DHARWAD – 580005

JULY, 2008 ADVISORY COMMITTEE

Dharwad

(R.A. YELEDHALLI)

JULY, 2008

MAJOR ADVISOR

Approved by:

Chairman : ______________________

(R.A. YELEDHALLI)

Members : 1.____________________

(BASAVARAJ BANAKAR)

2.____________________

(BALACHANDRA K. NAIK)

3.____________________

(K.A. JAHAGIRDAR)

4.____________________

(Y.N. HAVALDAR)

CONTENTS

Sl. No. Chapter Particulars Page No. CERTIFICATE

ACKNOWLEDGEMENT LIST OF ABBREVIATIONS LIST OF TABLES LIST OF FIGURES LIST OF APPENDICES 1 INTRODUCTION 2 REVIEW OF LITERATURE 2.1 Procurement management 2.2 Demand management and product management 2.3 Value addition 2.4 Sales management 2.5 Problems faced by the processing units 3 METHODOLOGY 3.1 Brief description of the selected milk processing units 3.2 Selection of the processing units 3.3 Method of analysis 3.4 Concepts and terms referred in the study 3.5 Processing of milk into pasteurized milk and milk products 4 RESULTS 4.1 Procurement management in processing units 4.2 Demand and product management in processing units 4.3 Value addition in the selected units 4.4 Sales management in selected units 4.5 Problems faced by the processing units 5 DISCUSSION

5.1 Procurement management in processing units 5.2 Demand and product management in processing units 5.3 Value addition in the selected units 5.4 Sales management in selected units 5.5 Problems faced by the processing units 5.6 SWOT analysis of the dairy processing units 6 SUMMARY AND POLICY IMPLICATIONS REFERENCES APPENDICES

LIST OF ABBREVIATIONS

SMP MBM

-

Skimmed Milk Powder Masala Butter Milk

LIST OF TABLES

Table No. Title Page No. 4.1 Quantity of milk procured and cost involved in procurement of milk by the co-operative unit during 2007

4.2 Quantity of milk procured and cost involved in procurement of milk by the private large scale sector during 2007

4.3 Quantity of milk procured and cost involved in procurement of milk by the private small scale sector during 2007

4.4 Quantity and value of raw materials procured by co-operative and different private sector processing units during 2007

4.5 Seasonal fluctuations in milk procurement by co-operative and different private sector processing units during 2007

4.6 Output and capacity utilization by the co-operative processing unit

4.7 Output and capacity utilization by the private large scale processing units

4.8 Output and capacity utilization by the private small scale processing units

4.9 Cost of carrying inventory of finished products by the co-operative unit

4.10 Cost of carrying inventory of finished products by the private large scale units

4.11 Cost of carrying inventory of finished products by the private small scale units

4.12 Demand management of milk and milk products in different milk processing units

4.13 Product mix in co-operative and private sector milk processing units during 2007

4.14 Cost structure of processing of milk in co-operative and private sector processing units

4.15 Sales realization in co-operative and private sector units

4.16 Cost and returns in co-operative and private milk processing units

4.17 Comparative price at different stages of marketing of processed products by milk processing units

4.18 Annual cost of marketing of processed products by co-operative sector unit

4.19 Annual cost of marketing of processed products by private large scale units

4.20 Annual cost of marketing of processed products by private small scale units

4.21 Problems faced by co-operative and private sector processing units

4.22 Ranking of problems LIST OF FIGURES

Fig. No. Title Page No. 1. Sampling design 2. Capacity utilization by the dairy processing units 3. Product mix in co-operative and private sector milk processing units during 2007

4. Costs in co-operative and private milk processing units LIST OF APPENDICES

Appendix No.

Title Page No. I. Demand management of Milk in co-operative and private sector processing units

II. Demand management of Curd in co-operative and private sector processing units

III Demand management of SMP in co-operative and private sector processing units

IV Demand management of Butter in co-operative and private sector processing units

V Demand management of MBM in co-operative and private sector processing units

VI Demand management of Pedha in co-operative and private sector processing units

VII Demand management of Lassi in co-operative and private sector processing units

VIII Demand management of Ghee in co-operative and private sector processing units

IX Demand management of Paneer in co-operative and private sector processing units

X Demand management of khowa in co-operative and private sector processing units

XI Demand management of Mysore pak in co-operative and private sector processing units

XII Demand management of Cream in co-operative and private sector processing units

XII Demand management of Shrikand in co-operative and private sector processing units

1. INTRODUCTION The term supply chain management was coined by consultant Keith Oliver, of strategy consulting firm Booz Allen Hamilton in 1982. Supply Chain Management (SCM) is the process of planning, implementing and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory and finished goods from point-of-origin to point-of-consumption. The term ‘Supply chain’ was originally associated with classical multinational enterprises that were vertically integrated. But, now supply chain management has become relevant in situations where in there are more than one autonomous players. In such cases,

there is often a dominant enterprise that uses its power to organize and plan the chain by involving customers and suppliers. Supply chain management involves an organizational or institutional perspective involving collaboration, business environment, power and trust; a performance perspective involving performance measurements and consumer behaviour; and a process perspective involving process management issues such as costing, organizing supply chain, targets and decision making. A supply chain refers to different players being linked from farm to fork to achieve more effective, efficient, customer focused and market oriented flow of products. The supply chain may include growers, packers, processors, storage and transport facilitators/providers, marketers, exporters, importers, distributors, wholesaler and retailers. The development of supply chain requires knowledge and expertise about the functioning of the complete chain including strategic aspects i.e. framing strategies pertaining to chain design, chain formulation, chain organization, chain management and partnership and the functioning aspects i.e. chain marketing, chain logistic, quality assurance, material flow, information flow, value addition, technology and interaction. Managing supply chains requires an integrated approach in which chain partners jointly plan and control the flow of goods, information technology and capital from farm to fork and vice versa. Supply Chain Management is concerned with the efficient integration of the entities involved so that merchandise is produced and distributed in the right quantity, to the right locations and at the right time. The concept of supply chain has many variants such as commodity chain, value system, value chain, production network and value network. A value system is a set of interlinked complete firms, which have all the business functions. Alternatively, a commodity chain is a network of labour and production processes whose end result is a finished commodity. It is the series of relations through which a produce passes i.e. extraction,

conversion, exchange, transport, distribution and final use. The participants in a value chain can be integrated firms, retailers, lead firms, turn key suppliers, and component suppliers. Global value chain or Commodity Chain Analysis (CCA) highlights the levels of integration between suppliers, producers, and consumers for a given commodity. Various innovations in supply chain management include Efficient Consumer Response (ECR), Information and Communication Technology (ICT) and New Generation Cooperatives (NGCs) besides strategic alliances, which create more sustainable and profitable partnership in supply chain. 1.1 SUPPLY CHAIN MANAGEMENT WITH PERSPECTIVE

TO DAIRY INDUSTRY OF INDIA: Our country has a rich tradition in dairying since the time of Lord Krishna. Dairying has been inherent and non separable in Indian culture, for centuries. Milk and milk products have always been an integral part of our consumption habits. In the vast field of animal husbandry, the contribution of dairying has been most significant, in terms of employment, as well as income generation. In post-independence India, co-operative dairying has been one of our great successes, having a profound impact on socio-economic development of rural areas. India stands first in world milk production with a share of about 14 per cent in world milk production. Milk has achieved a unique status in terms of its output value exceeding Rs. 1,00,000 crores and has made a rapid stride both in terms of number of milk producers and quantity of milk produced. In India, dairying is the important subsidiary occupation in rural areas, next to the main occupation of agriculture. Livestock sub-sector alone contributed to 4.22 per cent of the total value of GDP (Gross Domestic Product). The development of dairy industry in India is well known all over the world as one of the most successful development programmes in the globe known as white revolution. Dairy farming is visualized by the farmers in the country as

part of an integrated agricultural system where dairy and agriculture complement one another. The milk production in India was 17 million tonnes in 1950-51. This could meet only 25 per cent of the domestic demand; the remaining 75 per cent of the demand was met by importing the milk solids. The production was stagnant for two decades till 1970, with annual growth rate of milk production of one per cent. Thanks to the vision and foresight of Dr. Kurien, in 1970 NDDB (National Dairy development Board) launched “Operation Flood Programme” with objective of ending milk famine in the country and turning farmer’s cooperatives into a powerful catalyst for transforming India into a major milk producer in the world. Further, by providing milk producers a remunerative price round the year, milk production in India touched 74 million tonnes in 1997. By the year 2006, India has emerged as the largest milk producer with a production of 100.9million tonnes. This is as a result of India’s “White Revolution” in milk production. The first phase of “Operation Flood Programme” was between 1970 and 1981 and it laid the foundation for modern dairy industry in India. There was a self-sustaining growth of producer’s controlled dairy co-operatives. The second phase was in action during 1981 to 1985, which established 136 milk sheds and captured markets in 290 cities and provided 4.9 billion finance. The operation flood had completed third phase on 31 March, 1994 by capturing 500 cities with a population target of 300 million customers. When the third phase was over, the following benefits had reached the small dairy farmers. 1. Sustained increase in production (4-5% growth/annum) raising the per capita availability of milk to nearly 220 grams. 2. Dependence on commercial imports of milk powder ended. 3. Marketing mechanism improved and providing assured market outlet for milk producers and quality milk for consumers. 4. The quality of milch animals improved.

At the end of operation flood-II, 72,744 dairy co-operative societies in 170 milk sheds of the country having a total membership of 93.14 lakh has been organized. The Operation Flood Programme launched another massive programme called “Technology Mission on Dairy Development (TMDD)” in June 1989. The objective of TMDD was same as that of Operation Flood Programme’s objectives. Karnataka has always remained in the forefront of all agricultural development initiatives in the country and dairy development is no exception. Dairy farming in Karnataka, like in elsewhere in the country, is largely characterized by the prevalence of dairy enterprises that are mostly subsidiary occupations alongside the main agricultural activity of the farmer. Specialized dairy enterprises do exist but not only is their number abysmally low as compared to regular types, but also are restricted mostly to urban areas and their surroundings. Karnataka stands eleventh in milk production in the country and it occupies third position with respect to milk production under co-operative sector in the country. The milk production was around 4124 thousand tonnes during the year 2006-07. The KMF is covering 27 districts, with 7000 dairy co-operative societies, around 17000 villages involving 1.5 million farmers collecting around 20 lakh litres of milk daily. As per world bank experts report, for an initial investment of Rs. 200 crores in Operation Flood III, the net returns per year to the rural economy had been Rs. 24,000 crores. No other major development programme all over the world, has matched this input-output ratio. The basic functions of any dairy enterprise are procurement, processing and marketing. This type of operation is known as “Anand pattern of dairying”. The management of dairy enterprise should be very careful in these activities. The procurement of milk includes milk collection centers (dairy societies). The other important decision in milk procurement is pricing of milk. The two axis system of milk pricing is commonly used i.e., based on Fat and

SNF (Solid Not Fat) content of milk. Seasonal fluctuation is another important aspect which needs adequate attention to ensure regular and sufficient milk throughout the year. Since, milk is a perishable commodity, it has to be processed (chilling or pasteurizing) immediately after procurement, otherwise, it gets spoiled. The processing activity cannot be neglected as it converts the milk in consumable form to more value addition forms. The marketing includes product mix, pricing policy, distribution channel and sales promotion. The milk products are marketed by both KMF (Karnataka Milk Federation) and Private Milk Units. For the success of a dairy industry/firm efficient supply chain management is a prerequisite. Thus, the supply chain performance of the processing units is a deciding factor. Milk supply chains are more concerned with controlling of milk quality and supply fluctuations which are unique to this sector. Perishable goods like milk require a time efficient supply chain. This perishable factor can affect the milk supply chain. Supply chain management has seen as a source of gaining competitive advantage in the business world. Due to pressures from increased competition resulting from globalization of supply, processing and distribution networks, high levels of service expectations and competitive pricing, the supply chain management has become more important. The Indian supply chain for milk products is affected by abnormal wastage and poor handling. The wastage occurs because of multiple points of handling. Shortage of cold storage facilities and refrigerated transport equipment lead to inefficiencies in handling milk products. There is a compelling requirement for appropriate infrastructure for storage and transportation such as temperature controlled warehouses and vans. By practicing improved supply chain management practices, there will be significant reduction in the wastages of milk and milk products which in turn will benefit both the farmers as well as the consumers by means of increased returns and decrease in price respectively. Given the fragmented nature

of the milk supply chain, few companies have access to capital and the ability to invest in supply chain. A detailed study of business performance of milk processing unit would be of immense use to know whether co-operative or the private sector follows the sound supply chain management practices. Keeping in view all these facts, an attempt is being made to assess the management of dairy processing units in Karnataka. The specific objectives are; 1) To analyze the procurement management in different types of dairy processing units. 2) To analyze the demand management and product management. 3) To ascertain the value addition in different products. 4) To analyze the sales management of milk and its products by the units. 5) To analyze the problems faced by the selected units in management of dairy processing. 1.2 LIMITATIONS OF THE STUDY

The study pertains to the owners of the private processing units who are generally suspicious of the motives of any investigation because of fear of taxation. Therefore, the investigator has confronted with few drawbacks in ascertaining accuracy of data. Hence, greater care was taken to collect the data as accurately as possible. The present study was undertaken in Dharwad milk union jurisdictions and data were collected from the processing units during 2007, which was undoubtedly a very short period for generalization of data and extending concrete recommendations either for similar capacity firms or the processing industry in the entire state.

1.3

PRESENTATION OF THE STUDY

The study is presented in six chapters. ♦ The first chapter deals with the introduction and objectives.

♦ The second chapter presents review of literature on the related topics. ♦ The third chapter outlines the features of the study area, sampling framework, analytical tools and specifies the concepts used in the study. ♦ The fourth chapter presents the results obtained in the study. ♦ The fifth chapter discusses the results of the study. ♦ The sixth and final chapter presents the summary and policy implications. 2. REVIEW OF LITERATURE In this chapter, an attempt has been made to critically review the literature of the past research work, in relevance to the present study. Except a few, most of the studies were confined to the milk processing. However, the studies conducted on milk processing and other related agricultural commodities were reviewed and presented under the following heads. 2.1 Procurement management 2.2 Demand management and product management 2.3 Value addition 2.4 Sales management 2.5 Problems faced by the processing units 2.1 PROCUREMENT MANAGEMENT Natarajan (1990) observed that the major cost in milk production was cattle feed (20%). He suggested that Agricultural Price Commission in consultation with Economic Ministries and Planning Commission to recommend, from time to time to the procurement and support prices of milk and milk products as done for other agricultural commodities. In addition, he reported that for better performance of Dairy Co-operative Societies (DCS), four factors were important viz., high milk utilization, better milk marketing, distribution of cattle feed and credit for buying and technical assistance to milk producers through co-operatives. Mohammed Ali (1992) reported that fresh fruits and vegetables accounted for more

than 90 per cent of the total quantity of raw materials procured in both the private and public sector processing units. This accounted for more than 77 per cent of the total value in private sector and 60 per cent in total value of main raw material in public sector. The annual average purchases of fresh fruits and vegetables by the private sector unit was 12,841.60 metric tonnes worth Rs. 204.74 lakh, while the same in public sector unit was 575.5 metric tonnes worth Rs. 9.58 lakhs. Balasubramanian and Prema (1996) in their study on processing and trading of cashew nuts in India observed that the total processing and raw material costs accounted for about 70 per cent, labour charges 10.5 per cent, purchase taxes per cent, freight and handling charges 5 per cent, packing cost 4.5 per cent and remaining 5 per cent was contributed by costs of power, fuel, depreciation and overheads all put together. Malleswari (1996) examined the potential, infrastructure and constraints of mango processing in Andhra Pradesh. The study showed that mainly three varieties of mango were used for manufacture of pulp viz., totapuri, alphonso and raspuri. Roughly 55 per cent of pulp was made from totapuri, 35 per cent from alphonso and the rest from other varieties of mango in the processing units of Chittoor district. Mangoes were purchased both from the markets as well as from the farmers directly. Balappa (1997) in his study production, marketing and processing of redgram in Gulbarga district revealed that the purchase price of redgram by the dal miller was Rs. 1881.27 per quintal and the sale price was Rs. 2277.04 per quintal of which the cess incurred for purchasing redgram was Rs. 81.27 per quintal. Ramandev (1998) in his study on management appraisal of cashew nut processing industries in Uttar Kannada revealed that overall, total cost of cashew nut procurement was Rs. 324.16 per quintal. The total cost of procurement per quintal worked out to be higher through inter state imports-processor at Rs. 434.41 followed by grower-trader-processor,

grower small dealer-processor, growers processor and international imports processor at Rs. 379.63, Rs. 342.45, Rs. 323.33 and Rs. 299.99 per quintal, respectively. Shobha (1998) in her study on performance of fruit and vegetable processing units in co-operative and private sector in Uttar Kannada district found that the private sector processing unit procured fruits and vegetables to the tune of 187.098 metric tonnes values at Rs. 8.37 lakhs. The procurement of fruits and vegetables by the co-operative sector unit was161 metric tonnes valued at Rs. 6.22 lakhs. Fresh fruits and vegetables constituted 87.58 per cent of quantity while semi-processed fruits and vegetables accounted for 12.42 per cent of the total raw material purchased. Veena and Tajinder (2000) has studied performance analysis of Bhogpur and Jargoan sugar mills in Punjab. The procurement pattern of these two sugar mills, the Jargoan mill crushed 2238.67 thousand tonnes of sugarcane and produced 191.93 thousand tonnes of sugar. Thus, the quantity of cane crushed and production of sugar were higher for Jargoan mill compared to the Bhogpur sugar mill. The quantity of cane crushed and the quantum of sugar production was higher by the Jargoan mill by 38 and 35 per cent, respectively. The percentage recovery of sugar for Jargoan mill was 8.38 being lower compared with 8.57 for the Bhogpur sugar mill. Lindgreen and Hingley (2003) discussed the measures taken by Tesco Food Company in setting up effective guidelines for managing its relationships with neat suppliers. These guidelines make it possible for serious food scares and to address consumers concern over animal welfare and environmental issues. Specific initiatives include different animals, feeds and medicinal policies and schemes have been implemented by both Tesco and the meat suppliers. The benefits of Tesco’s approach to its suppliers and consumers are considered and included the ability to deliver higher value products. Narayana Reddy (2004) in his study reported that most (61%) of the retailers get their requirements from wholesalers, 15 per cent from the large and other retailers. Over 17 per

cent of the selected retailers get their goods from more than one source, but a small percentage of retailers get some of their requirements from producers. From the side of the terms of supply 67 per cent of retailers get their requirements by paying cash. Only 13 per cent of the retailers get their requirements on credit and 19 per cent get credit partly from the suppliers. Apart from this, the study also shows that the organized retailers/hyper malls and super marketers get wholesales’ margin plus concession as they buy in bulk and are also the producers. 2.2 DEMAND MANAGEMENT AND PRODUCT

MANAGEMENT Blayney and Weimar (1991) analysed four general alternatives to the current US dairy programme, each with the objectives of avoiding large milk surpluses were studied by USDA. These were: (1) a target price/deficiency payment programme; (2) a reclassification plan, commonly called the Class IV plan; (3) two-tier pricing; and (4) milk marketing diversion. Using a rating system to evaluate each proposed programme's effect on production, use, prices, farm receipts, retail value, and government cost, it was concluded that the current programme measured up well against the options studied. Although the current programme did not guarantee producers a profit, it provided the market signals individuals need to make decisions and acted as a price floor to stabilize downswings in prices. McCool (1996) study described the challenges that make inventory management a problematic issue for in-flight caterers' financial management practices. In-flight kitchens are a logistics operation, and effective inventory management and detailed product usage controls were essential for overall cost control. They were most efficiently operated as large production food factories with assembly line production of passenger trays. The different requirements of individual airlines, which may have an account with the caterer, add considerably to the caterer's costs and must be reflected in the pricing offered to the airlines.

A pricing system was developed which eliminates product food cost as the basis of pricing and which places new emphasis on actual labour requirements to produce, package, store, and distribute the products and menu items selected by each airline. Chandrashekaran (1999) in his estimation of storage costs for a multi crores, multi product and multi-location firm found that there existed three different systems of storage namely company owned, company leased and dealer owned ware-housing facilities. Of these three different facilities, he found that dealer owned system to be the cheapest and the company owned system to be the costliest facil ity. Ashraf (2000) in his study on business performance of co-operative oil mills observed that the interest on capital locked in carrying the inventory, store maintenance and storagecosts and material losses were the major components in the overall cost of the inventory management for both large and medium scale units. Lichtenberg and Zilberman (2000) developed a model to examine storage technology choices in the inventory management of commodities that are relatively highly perishables, and their impacts on resource allocation, prices, the environment, and the economic welfare of consumers or producers. The model was used to derive the socially optimal level of spoilage reducing input use and to examine the effects of alternative policies for addressing environmental damage on supply, market equilibrium and consumer and producer incomes. It was shown that storage technology choices affect total output as well as the temporal distribution of supply, consumption, and prices. Vickener et al. (2002) found that investment in supply chain management technology in US food industry was extensive, particularly so in the restaurant or food–away-from–home (FAFH) sub sector. From 1980 to 1995, inventory turns in the restaurant sub sector have effectively doubled, increasing from 26 to 51. This means FAFH inventories were entirely replenished once a week, down from the 14 days supply maintained two decades ago. Over the same period, total market capitalization grew at a compounded annual growth rate of 17

per cent from $ 5 to $53 billion. Based on the co-integration model estimated, they found that for every one unit increase in inventory turnover, market capitalization increased by $479 million in the FAFH industry over the analysis period. Thus, the equity capital market places a premium on the efficient management of inventories in the food system and rewards those firms that develop, adopt and implement supply chain technologies. Farsad and LeBruto (2003) reported that the consequences of overstocking items or understocking were undesirable. Overstocks absorb money and invite waste. Understocks risk disappointing customers with unavailable menu items or add to food costs by requiring emergency runs to the cash and carry. Through analysis of daily item use and an application of risk, managers could calculate when to reorder; that is, when there is sufficient stock to cover typical demand until the next delivery. To account for unexpected demand, some safety stock must be included (by calculating the standard deviation of each day's use for the past time period, say, a week, and factoring that with the Z score of the service-level probability that management is willing to absorb). By factoring the lead time (delivery and food-prep), the standard deviation of the usage, and the acceptable probability of a stockout, managers can use a formula to determine precisely when to reorder. Nein and Roan (2004) reported that as computers are more and more widely used in livestock production and farmers manufacturing their own feeds were growing more popular in Taiwan. This study was conducted to design a package which included simple feed formulation and ingredient inventory management to meet the farmers' needs, and to provide them with a more effective management regime of the feed ingredients. This system was written in Microsoft Visual Basic 6.0 programming language and Microsoft Access database. The system was divided into four modules in terms of inputting basic data, formulation calculation, inventory management, and printing report. The inventory management system could facilitate the managers in monitoring the inventory to make the most effective

adjustment and usage of the ingredients. The managers could, therefore, load their ingredients at the right time to avoid wastage and to reduce their ingredient costs. This system could be executed on Windows operation system and enable the farmers to consider their livestock growth condition to make it as a calculation tool to formulate animal feeds rapidly. 2.3 VALUE ADDITION

Subramanyam and Sudha (1992) worked out the costs and returns associated with processing one tonne of finished product of tomato (ketchup), it was observed that the benefit cost ratio was around 2.00 showing that processing was profitable. Raw material and packing are the two major items accounting for 67 per cent of the total variable cost of processing, which was Rs. 93.76 per tonne of raw material (fresh tomatoes) was needed for producing 32.42 tonnes of finished product. Singh et al. (1994) in a study on economics of marketing and processing of pulses in Banda district (Uttar Pradesh) observed that per quintal cost of processing of arhar, gram, and lentil was Rs. 831.67, Rs. 823.47 and Rs. 752.05, respectively.Maurya et al. (1995) in their study on marketing of anola and its products in Varanasi district indicated that, the per quintal processing cost of morabba, pickle and chutney amounted to Rs. 2198.80, Rs. 1750.40 and Rs. 3233.80, respectively. The highest processing cost was for anola chutney and the lowest for anola pickle.Katz and Boland (2000) study revealed that US premium Beef Ltd, a Cooperative partnership between all segments of the beef industry value chain was affording each segment on interest in the key stages of beef production and processing, as well as equal share of the financial risks and rewards. This value added strategy was accomplished through vertical integration and adding a qualitybased pricing structure to more closely link beef producers and consumers. Srinivas et al. (1996) in their study on the economics of processing of cashewnut in Andhra Pradesh, indicated that the processors have to bear the processing cost of Rs. 124.22

per 80 kg of raw nuts. Out of the total cost, Rs. 50.77 was raw material cost, which formed 40.89 per cent and labour cost was Rs. 72.81 which accounted for Rs. 58.61 per cent of total processing cost. Mahesh and Nagaraja (2002) reported that the value addition of cashew (Anacardium occidentale) kernel baby bits (CKBB) was attempted by coating with cane sugar, honey and salt. Optimum coating occurs at 100 degrees C for 5 min at 70 per cent concentration for cane sugar and honey, and 5 per cent for salt. Sweetened (70%) and vanillin (0.1%) flavoured CKBB are the most preferred. De-fatting of CKBB enhances the per cent coating. Coating of cashew kernels of different grades with cane sugar at 70 per cent is dependent on the surface area. Cashew apple juice could be coated on the CKBB. Acceptability of cashew apple juice coated baby bits (BB) improves with the addition of cane sugar at 70 per cent concentration. Permitted colours and cane sugar compete with each other during coating. Madhuri and Kamini (2003) found that in watermelon, the rind constituted 33 per cent of the whole fruit weight. Value added preserved products like pickles, tutti fruity, vadiyams and cheese were prepared using the white portion of watermelon rind. The quality of products in terms of physical parameters was evaluated. All products were subjected to sensory evaluation test using a panel of 20 judges. Results showed that mean sensory scores for product attributes were high. There was no change in mean scores after one month storage. Santhosh et al. (2003) in examined the Indian research efforts in vegetable crops, new niches for vegetable production, and the impact of pest management research. It was indicated that the ongoing research programmes on vegetables addressing many emerging challenges, there is a wide scope for innovative improvements and a sharper focus on vegetable processing, value addition and quality control. Subasinghe (2003) studied the different innovations used by food processors to add value to aquaculture products such as shrimps, in order to survive in a highly competitive

market environment. Some of these innovations were focused on the packaging and presentation of the shrimps, whereas others focused on pre-processing/processing, such as peeling, preparation of breaded products, application of batters, and production of other shrimp-based products. Arora et al. (2004) found that vegetable washing is an important primary process unit operation for value addition of the produce at farm level. Washing is used not only to remove field soil, dust, pesticides, but also the surface microbial load. Carrots, potatoes and spinach were washed mechanically in a rotary vegetable washing machine at varying speed and time and then evaluated for their quality. The microbiological washing efficiency, which is calculated by observing the total viable count of the surface of the vegetables before and after washing ranged between 96.5-99.8 per cent as compared to recommended 80 per cent indicating the adequacy of the vegetable washing machine. Kaveri and Bindhu (2004) showed the effect of substituting 50% of the pulse fraction of 10 Indian recipes (adai, pessarattu, plain dosai, masal vadai, seeyam, mysore bonda, kandharappam, dhokla, maladu and moong dhal halwa) with whole or defatted soyabean flour on quality and nutritive value. The results showed that all recipes substituted with whole soyabean flour had higher carbohydrate and calorie contents than traditional and defatted soyabean flour-substituted recipes. Calcium, phosphorus, iron and protein contents were higher in substituted than traditional recipes. The flavour, taste and degree of liking of wholesoyabean flour-substituted and traditional recipes were almost similar. It was concluded that whole soyabean flour could be included in the daily diet by incorporating in recipes at 50% level. Ramakrishnaiah et al. (2004) attempted to study the technology package developed to retrieve the cotyledon material from the dhal mill by-products containing about 50 per cent cotyledon material amounting to one million tonne and also refining the same to an acceptable/desired level. The technology consists of de-stoning, size separation, and air

classification followed by refining and thermal stabilization of edible material. About 30-35 per cent of the cotyledon material was recovered from the by-products from the commercial dhal mills and used in the preparation of traditional pulse based products. It could be substituted in pulse-based products such as vada, rasam/sambar and papads upto about 50 per cent. Adoption of this technology by dhal millers in the country would result in the recovery of about 5 lakh tonnes of cotyledon material valued at Rs. 500, which could contribute to the economic upliftment of the industry. 2.4 SALES MANAGEMENT

Dalvi et al. (1989) in their study on economics of processing cashewnut in Singhadurg district of Maharashtra found that the total marketing cost per tin was Rs.

44.05, the commission charges (50%), tax and octri (51.33%), transportation (10.53%) and handling costs (2.67%) were the important cost components. Premkumari (1992) studied the distribution of milk and milk products of Shimla milk plant and reported that supply of milk in the suitable channel and with a good container was very complex and expensive matter in existing situation of dairying. Venkateshaiah (1992) while studying groundnut processing by different categories of traditional oil mills in Cuddapha district of Andhra Pradesh noticed three main channels. All the three channels were used for marketing oil while only last two were used for marketing of oil caters. These channels are; Channel-I Æ Producer – Wholesaler – Retailer – Consumer Channel-II Æ Producer – Retailer – Consumer Channel-III Æ Producer – Consumer Chahal and Gill (1993) identified six channels of milk marketing in Punjab of which one channel was through milk plant and in other channel many intermediaries were operating. The authors concluded that producers share in consumer rupee depends upon length of

channel and number of intermediaries and form in which finally product sold to consumer. They reported that co-operative channel had highest share of producer in consumer rupee Maurya et al. (1995) indicated that in marketing of anola products, highest percentage of consumer’s rupee (62.25%) was the processing cost followed by the cost of kutch anola (15.58%), retailers margin (10.87%), manufacturers margin (8.67%) and charges paid by retailer 2.63 per cent. Malleswari (1996) reported that heavy promotion and distribution costs mark the domestic retailing of processed mango. A can containing 850 g of pulp is sold at the retail outlets at Rs. 45, whereas the processing cost is only Rs. 18 including the cost of packing. The price spread between processor and consumer is therefore Rs. 27 per can. The retailer buys from the distributor at Rs. 38 per can. The spread is therefore the widest between the processor and wholesale stockiest because branding, labeling, packing and sales promotion are done at this stage. Rajesh and Joginder (1996) while studying the marketing pattern of processed fruits and vegetable products observed that Processor – Wholesaler – Retailer – Consumer, Processor – Retailer –Consumer and Processor – Consumer were the three main marketing channels. They also noticed that in large-scale units all the three channels in medium sized units, the second and third channels and the small-scale units used only the third channel. Further, they also reported that large scale units marketed about 58 per cent and 6 per cent of their produce through first, second and third channel, respectively. Similarly, the medium scale units marketed about 70 and 30 per cent of their channel in case of small units, all the products are marketed through third channel only.Ramandev (1998) in his study on processing of cashewnut in Uttar Kannada district of Karnataka identified the following five main channels for marketing cashew kernels. Channel-I Æ Processor – Consumer Channel-II Æ Processor – Trader – Consumer

Channel-III Æ Processor – Commission agent – Consumer Channel-IV Æ Processor – Exporter – Consumer Channel-V Æ Processor-cum-Exporter – Consumer Further, it could be observed that highest quantity of cashew kernels were marketed through Channel-III (36.06%) and least was through Channel-IV (3.5%) sales. Further, it could be noticed that sales tax and turnover tax, transportation and handling costs, commission charges and export expenses were the major components of marketing cost. Total marketing costs amounted to Rs. 89.41 per tin. The highest cost of marketing was noticed in case of Channel-III (Rs. 155.19/tin) and the least was observed in case of ChannelV (Rs. 70.33/tin). Shobha (1998) studied the performance evaluation of co-operative and private of fruit and vegetable processing units at North Karnataka, she revealed that the marketing of processed of two processing units, the following alternate channels were; Channel-I Æ Processor – Wholesaler – Retailers – Consumers Channel-II Æ Processor – Retailer – Consumer Channel-III Æ Processor – Consumer Channel-IV Æ Processor – Wholesaler – Caterer Channel-V Æ Processor – Caterer The private sector unit was marketing the produce through the two channels (IV and V) by selling their produce to wholesaler on an average at Rs. 3171.002 (64%) per quintal and at a price of Rs. 3360.63 per quintal (36%). Gajanana and Subrahmanyam (2001) studied the marketing and exports of lemon grass oil from Kerala. Lemon grass oil was observed to be marketed mainly through two channels as below. Channel-I Æ Producer – Co-operative society – Processor/Exporter

Channel-II Æ Producer – Private traders – Processor/Exporter Between the two channels, nearly 78 per cent of growers (including 22% selling to cooperative society also) sold 59 per cent of the oil to the private traders and 44 per cent of the growers, sold 41 per cent of the oil to the co-operative society in Kavikadava village of Kerala state. Sawant et al. (2001) studied marketing of mushroom, the system of assembling and distribution dried mushrooms consisted of mushroom growers, commission agents and consumers including hotels and big consumers. The commodity through two main channels namely; Channel-I Æ Producer – Commission agent (farm gate) – Consumers Channel-II Æ Producer – Commission agent (market) – Consumers In Channel-II, the producer directly sold mushroom to the commission agents near big city, with 77.3 per cent while in case Channel-I, the commission agent purchased mushroom from producer at their farm gate with 22.70 per cent. 2.5 PROBLEMS FACED BY THE PROCESSING UNITS

Nagesh (1990) found that major problems faced by the groundnut processors in Karnataka were high competition among the existing processors, short supply of raw materials, frequent price fluctuations, non-availability of skilled labour and high taxes are the few major problems experienced by the processing units.Venkateshaiah (1992) in his study on groundnut processing units in Andhra Pradesh, has identified that stiff competition among the processors for getting the required raw material, frequent power shedding, high taxation, low product recovery and non-adoption of efficient technology, at an affordable costs as the major problems associated with the groundnut processing. Mangala (1995) while studying the strategies for effective management of sugar factories in India found that lack of quality raw material, efficient technology and professionally

trained management personnel at different levels of organizational structure as the main problems and similarly pointed to the firm’s external problems such as governments pricing policies. Rachhpal and Darshan (1996) in their study performance of agro-processing units in Punjab revealed that failure of these industries on the market front in terms of brand is the major problem. Further, he opined that any such failure ultimately put a question mark on the very survival of the industry or unit under consideration. Brahmaprakash and Dinesh (1997) in their study on infrastructural requirements for establishment of development and operation of agro-processed industries in rural areas opined that lack of market information systems, timely and adequate financial support and post-harvest technology as the major problems to realize the rural projects in India. Roy (1997) opined that lower capacity utilization of the agro-based industries was reasoned by lack of infrastructural facilities such as lack of transportation, storage and technology for post-harvest handling. He also opined that the lack of integrated network between the producer, farmer and the processor as indirect problem of agro-based industries. Ramandev (1998) in his study on business performance analysis and appraisal of the cashew nut processing units in Uttar Kannada district of Karnataka has identified that high taxation, short supply of raw materials, unfavourable government policies and marketing system were major problems as conceived by the industry. Shobha (1998) studied on performance evaluation of private and co-operative processing units of fruit and vegetable processing units at North Karnataka. The prevalence of problems in the co-operative sector processing unit was inadequate availability of raw material in terms of quality and quantity, lack of power supply and also problem in lack of modernization of machinery. Inadequate transport facility and high flight charges. Private sector short supply of power, high taxation is major constitute in private sector.

Saravanan et al. (2002) reported that the constraints of cashew nut processing units in Tamil Nadu. Constraints reported by the processors, are high wage rate, exporters by most of the processors (86.67%) in Kanyakumari district more than 80 per cent of processors felt that the declining trend in imports and inadequacy in supply of raw materials from domestic market were major constitute for them. High purchase tax for raw nut at 8 per cent purchased in domestic market and increasing competition from other countries in processing were the constraints faced by more than 60 per cent of the respondents, other problems are were frequent power cuts during the processing period and wide fluctuation in the prices of cashew kernel.3. METHODOLOGY This chapter deals with the methodology followed in the present study, which includes the selection of the processing units and their description, sources of data and analytical techniques adopted. The details are presented under the following headings. 3.1 3.2 3.3 3.4 3.5 Brief description of the selected milk processing units Selection of the processing units Method of analysis Concepts and terms referred in the study Processing of milk into pasteurized milk and milk products

3.1 BRIEF DESCRIPTION OF THE SELECTED MILK PROCESSING UNITS The overall objective of the study was to examine the supply chain management in milk processing units. For the purpose of the study the milk processing sectors were considered. Eight milk processing units representing one from the co-operative sector, two from private large scale and five from private small scale sectors have been chosen for the study. The Dharwad Milk Union (DMU) processing unit under co-operative sector, Sri Krishna milks Pvt. Ltd. and Vijaykant milk and food products Pvt. Ltd., under private large scale sector

and Shankar milk centre, Ram Rahim milk centre, Al-Rehman (mote) milk centre, Waghmode and Mullannanavar milk centre under private small scale sector were selected. The sampling design is represented in Fig. 1. Milk processing units are extensively established in and around Dharwad and Hubli. Being called as educational cities there is a huge demand for milk and its products and it offers a ready market for processed milk products. A brief description of the selected units is presented below. 3.1.1 Dharwad Milk Union Co-operative Limited Dharwad Milk Union (DMU) processing unit is a part of Operation Flood Project of NDDB. This is a Government of Karnataka undertaking and an active constituent of Karnataka milk federation (KMF). The unit was established in 1984 at Lakamanahalli, at a project cost of Rs. 3 crores which includes capital expenditure on building and machinery. The processing unit is under the active control of Managing Director. Under Managing Director, there are four managers, one each for procurement, processing, marketing and accounts. The main objectives of the unit is to help farmers in realizing better prices by procuring milk and produce value added products. The unit is well equipped with the latest indigenous machinery. The average procurement of milk by the unit is 249.30 lakh litres per year. Various processed products like butter, ghee, milk powder, curd, lassi, khowa, paneer, pedha etc. are produced and sold under the brand name of “Nandini”. 3.1.2 Sri Krishna milks private limited Sri Krishna milks is a private limited company. The unit was established in the year 1989 near Kiravatti village, Yellapur Tq of Uttar Kannada district. Sri Krishna milks was installed with a project cost of Rs. 7 crores that includes capital expenditure on building, plant, machinery and equipments.

The processing unit is under the control of Managing Director, who controls procurement, processing, marketing and accounting. Under Managing Director, there are two general managers, one for administration and one for accounts. The main objective of the unit is to procure milk and process the same into value added output. All the machines purchased are based on the latest technology. The average milk procured by the unit is to the tune of 161.15 lakh litres per year. The unit has occupied a greater market share in liquid milk and its byproducts, which are produced by the unit. The unit sells liquid milk under the brand name ‘Sri Krishna & NatureFig. 1. Sampling design Rich’ and products like butter, ghee, curd, lassi, khowa, paneer, pedha are processed and sold under the brand name ‘Sri Krishna’. 3.1.3 Vijaykant milk and food products private limited Vijaykant milk and food product is a private limited company. The unit was established in the year 2006 with an investment of Rs. 8.50 crores near Neginhal of Bailhongal taluk, Belgaum district. The processing unit is under the control of Managing Director. Under Managing Director, there is one general manager who takes care of procurement, processing, marketing and accounting. Since the unit was recently established it has not been utilized to the full capacity possible. Though the unit was recently established it has acquired a greater market share in terms of liquid milk, under the brand name “Aditya”. 3.1.4 Shankar Milk Centre Shankar milk centre is a solely owned small scale private unit established in the year 1999, with a project cost of Rs. 4 lakh on Haliyal road, Dharwad. Average milk procured by the unit is to the tune of 900- 1500 lts per day. Unit has earned a good name for its products like ghee and butter. 3.1.5 Ram Rahim Milk Centre

Ram Rahim Milk Centre is a solely owned small scale private unit established in the year 1987, with an investment of Rs. 2.28 lakh near Malmaddi, Dharwad. Average milk procured by the unit is to the tune of 900- 1500 lts per day. Unit has earned a good name for its products like ghee, lassi and butter. 3.1.6 Al-Rehman (mote) Milk Centre Al-Rehman Milk Centre is a solely owned small scale private unit established in the year 1996, with an investment of Rs. 4.68 lakh near bus depot, Dharwad. Average milkprocured by the unit is to the tune of 800- 1000 lts per day. Unit sells liquid milk and milk products like cream, khova, etc. 3.1.7 Waghmode Milk Centre Waghmode Milk Centre is a solely owned small scale private unit established in the year 1995, with an investment of Rs. 5.73 lakh near C.B.T, Hubli. Average milk procured by the unit is to the tune of 500- 650 lts per day. Unit has earned a good name for its products like lassi, curd and liquid milk. 3.1.8 Mullannanavar Milk Centre Mullananavar Milk Centre is a solely owned small scale private unit established in the year 1982, with an investment of Rs. 1.28 lakh near Gouli galli, Hubli. Average milk procured by the unit is to the tune of 500- 600 lts per day. Unit has earned a good name for its products like lassi, curd and liquid milk. 3.2 SELECTION OF THE PROCESSING UNITS The present study was undertaken in Dharwad milk union jurisdictions and data were collected mainly from the dairy processing units during 2007. The data relating to the procurement of milk for the year 2007 were drawn from the ledger account and purchase books of respective units. Figures pertaining to the costs and margins have been taken from the profit and loss accounts and the balance sheets in the case of both the private sector and co-operative sector units. Relevant data pertaining to the organizational, business and

financial aspects of the unit for the study period were collected from the balance sheet and profit and loss accounts. The data relating to the pattern of investment was worked out from the management records. The processing techniques and marketing channels adopted by the processing units to sell their product was studied from the management records and dispatch registers. 3.3 METHOD OF ANALYSIS 3.3.1 Procurement pattern A detailed information regarding the quantity of milk procured, procurement price of milk, value of milk procured, transportation cost involved, wastage value and seasonal fluctuation in milk procurement were gathered from the ledger accounts and purchase books of respective units. Simple tabular analysis was done to study and compare the purchase pattern followed by the processing units by employing elementary statistical tools like averages, percentages etc. 3.3.2 Demand pattern Detailed information regarding the quantity of milk processed, processed milk products demand and fluctuation in milk products demand was gathered from the ledger accounts and sales register of respective processing units. Simple tabular analysis was used to study and compare the variations in demand and processing in the processing units by adopting simple statistical tools like percentages, ratios and averages. 3.3.3 Cost analysis The processing cost of the finished products of the eight selected units were analyzed by simple tabular analysis. The cost of processing of all the products was considered together instead of individually. The data on processing costs, product mix and product price and quantity of finished products were obtained for the year 2007 from the balance sheet and the profit and loss account and through discussion with the head of processing section of the

processing units. In addition to the above mentioned data, the information on installed capacity and its utilization was also gathered. The cost of processing was broadly categorized into two groups. a. Fixed costs b. Variable costs3.3.3.1 Fixed cost The items included under fixed costs are depreciation on machinery and equipments, buildings, furnitures and fixtures and vehicles; rent, interest rates and taxes; salaries for permanent employees; repairs , maintenance and insurance. i. Depreciation charges Depreciation at a flat rate of 12 percent per annum on machineries and equipments, bui ldings, furniture and fixtures and vehicles were calculated based on the information available from the management records. ii. Rents, interest rates and taxes The amount paid as rent for hired assets, interest rates paid on loans, all other taxes except excise duty paid by the processing units were considered as rent rates and taxes. iii. Salaries The wages paid to the permanent staff of the factory as salaries were considered here. In addition, bonus and provident fund contribution to the staff were also included. iv. Repairs and maintenance All costs incurred in the upkeep of factory, machinery and buildings along with the repair charges were included under this head. v. Insurance charges The amount paid for insurance premium was considered as insurance charges. 3.3.3.2 Variable costs Variable costs include, cost of raw material (milk), sugar, packaging costs, wages for

casual workers, power and fuel and water charges, advertisement and miscellaneous expenses. i. Raw material costs (milk) The price paid by the unit, as value of milk purchased, formed the raw material costs. It was the total value of milk utilized in producing processed milk products. ii. Sugar This cost included the price paid to purchase sugar. It is the value of sugar utilized in producing processed milk products. iii. Packaging costs This included the costs towards packaging materials like sachets, pouches, bottles, cans, carton boxes, closures and labels which were used to pack the processed milk and milk products. iv. Wages It included the wages paid to the labourers who were directly involved in processing activities. v. Advertisement expenses Expenses incurred on popularizing the brands of the company were considered as advertisement charges. vi. Power and fuel Electricity charges, expenses incurred on furnace oil, petrol/diesel charges for the vehicles and generators were included as power and fuel charges. vii. Miscellaneous expenses The expenses due to the use of colours, essence, stationary articles, travelling, postage service and audit fee were included under this head.3.3.4 Pattern of marketing The marketing channels adopted by the processing units for distribution of processed

milk and milk products from different processing units were studied. 3.3.5 SWOT Analysis SWOT analysis was carried out to evaluate the strengths, weaknesses, opportunities, and threats involved in the processing units. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. 3.4 CONCEPTS AND TERMS REFERRED IN THE STUDY The following are the terms and concepts referred in the study. 3.4.1 Procurement related terms i) Flush season It is defined as the period of six months between September to February during which quantity of milk procured is more than average procurement for the year. During this period, the procurement is high and more milk is diverted for preparation of milk products. ii) Lean season The period between March to August is referred to as the lean season, during which the quantity of milk procured will be less than average for the year. During this period, supply remain less than demand, therefore, the milk powder is reconstituted into mi lk to cater to the demand of liquid milk. iii) Procurement promotional activities Various activities carried out by union for increasing milk procurement are referred to as the procurement promotional activities. The activities include conducting programmes on dairy development for the benefit of milk producers, to educate them to improve the production and quality of milk and advantage of supplying milk to the collection centers. iv) Procurement transportation cost Cost incurred in procuring the milk from collection centers or chilling centers is

referred to as procurement transportation cost. It is the charge paid to the transport contractor. The fixation of rate to the contractor is based on the distance and condition of the road. The units cost is calculated by dividing the total cost of the route by the quantity procured. 3.4.2 Processing related terms i) Cost of milk processing The cost of processing of milk is calculated by covering all dairy expenses and other costs which are considered as the overheads. Cost of processing per unit is obtained by dividing the total cost by quantity of milk processed. ii) Processing of milk Processing does not mean only change in the form of milk, but also a heat treatment followed by cooling to increase the self-life of milk. In other words, processing refers to conversion of raw milk into pasteurized milk and milk products. iii) Product mix It refers to the combination of different products being manufactured by the units. The product mix of the union includes milk, ghee, pedha, butter, lassi etc.3.4.3 Marketing related terms i) Channels of distribution It is defined as the pathway which directs the flow of milk and its products from manufacturer to the ultimate consumers. ii) Commission agent It refers to those functionaries who sell the milk and milk products of the union or units on commission basis. iii) Distribution cost The cost incurred in distributing milk from the plant to the commission agent. The transportation cost per litre is calculated by dividing the total charges paid to contractor by the

quantity of milk distributed. iv) Marketing Marketing is defined as the total system which includes four Ps viz., product, price, promotion and place (distribution). The term distribution is a part of marketing and an important aspect of marketing. v) Promotional techniques It is defined as short-term incentive to encourage the consumer to purchase the product. It includes advertising, personal selling, publicity and sales promotion. 3.5 PROCESSING OF MILK INTO PASTEURIZED MILK AND MILK PRODUCTS 3.5.1 Pasteurized milk The milk received from different places is first weighed and then chilled. After chilling, the milk will be sent to cream separator, the cream and skim milk is obtained. The skimmed milk powder is then mixed with whole milk in order to obtain a desired level of fat and SNF. Then homogenization is done to equalize distribution of SNF and fat in complete batch of milk. Followed by pasteurization, heating at 720 C for 15 seconds then chilling to less than 50 C is carried out. The chilled milk is then packed in half litre and one litre sachets. The packed milk is stored at cold storage at temperature 5°C. The Fig. 3.6 depicts the flow chart for processing the milk into milk and milk products. 3.5.2 Ghee manufacturing The cream obtained is fed to butter churner, the butter and ghee is obtained. The butter is first melted at 35° to 40°C and then boiled to 115° to 120°C to obtain ghee. This is allowed to settle for approximately 12 hours then ghee is clarified to separate minute particles

of ghee residue. The ghee is then packed in sachets of 200 g and 300 g and stored at room temperature. 3.5.3 Pedha manufacturing The whole milk is mixed with sugar at the rate of 7 per cent of milk and heated continuously for 4 to 6 hours with vigorous stirring. The solid mass is formed which is allowed to cool to room temperature, then it is moulded into pedha of approximately 50 grams each. The pedha are packed in two sized carton boxes weighing 250 grams and 500 grams. 3.5.4 Curd preparation The whole milk after pasteurization and cooling added with 1 per cent culture (previous day’s curd) is packed in sachets and allowed to settle. If lactic acid is 0.6 per cent then it is sweet curd and if lactic acid is 1.0 per cent then it is sour curd. The sachets are stored at room temperature.3.5.6 Lassi preparation Lassi is prepared from curd by adding water to get desired acidity based on sourness, curd and consistency. Sugar is added (15 – 20%) and stirred well so as to mix uniformly. The lassi thus prepared is packed in sachets of 200, 250 and 300 ml and stored.4. RESULTS The overall objective of the study was to evaluate the performance of milk processing units in co-operative and private sectors. In this chapter, the results of the study are presented under the following heads. 4.1 Procurement management in processing units 4.2 Demand and product management in processing units 4.3 Value addition in the selected units 4.4 Sales management in selected units 4.5 Problems faced by the processing units 4.1 PROCUREMENT MANAGEMENT IN PROCESSING UNITS

Success of milk processing units largely depends upon the procurement of raw milk. The raw milk forms an important input in milk processing units. The processing units procure raw milk covering more than three districts. Procurement management has become the main stay of the performance of processing units. In this context, a study on the procurement management of processing could focus on its management performance. 4.1.1 Quantity of milk procured and cost involved in procurement of milk by the co-operative unit during 2007 Table 4.1 shows the average monthly quantity of milk procured and cost involved in procurement of milk by co-operative unit. The co-operative unit, on an average, procured 20.77 lakh litres of raw milk per month at a price of Rs. 11.65 per litre of the value Rs. 242.44 lakhs along with transportation and handling cost of Rs. 15.28 lakh. The wastage value accounted for Rs. 20000.00 per month and commission charge accounted for Rs. 7.26 lakhs. The quantity of milk procured and the value of procured product was highest in the month of November i.e., 25.48 lakh litres and Rs. 302.29 lakhs, respectively, followed by in December and October months, whereas the price per litre was highest during March. Transportation and handling cost and wastage value were highest in January and October, respectively. The quantity procured and their values were the lowest in the month of June. 4.1.2 Quantity of milk procured and cost involved in procurement of milk by the private large scale sector during 2007 Table 4.2 shows the average monthly quantity of milk procured and cost involved in the procurement of milk by Private large scale units. The private large scale units on an average procured 9.36 lakh litres of raw milk per month at a price of Rs. 13.08 per litre of the value Rs. 119.87 lakhs along with transportation and handling cost of Rs. 15.08 lakh. The wastage value accounted for Rs. 5000.00 per month and commission charge was to an extent of Rs. 4.68 lakhs per month.

The quantity of milk procured and the value of procured product was highest in the month of December i.e., 10.69 lakh litres per month and Rs. 144.00 lakhs, respectively, followed by November and October months and the price per litre was also highest in these months. Transportation and handling cost and wastage value were the highest in the month of December and April, respectively. The quantity procured and their values were the lowest in the month of February. 4.1.3 Quantity of milk procured and cost involved in procurement of milk by the private small scale sector during 2007 Table 4.3 shows the average monthly quantity of milk procured and cost involved in the procurement of milk by Private small scale units. The private small scale units on an average procured 0.30 lakh litres of raw milk per month at a price of Rs. 13.86 per litre of the value Rs. 4.28 lakhs along with transportation and handling cost of Rs. 0.02 lakhs. TheTable 4.1: Quantity of milk procured and cost involved in procurement of milk by the co-operative unit during 2007 Month Total quantity procured (lakh lit) Price (Rs/lit) Total Value (lakh Rs) Transportation and handling cost (lakh Rs) Wastage value (Rs) Commission

(lakh Rs) Jan 22.34 11.94 266.84 15.65 15000.00 7.82 Feb 19.74 11.63 229.68 15.11 16000.00 6.91 Mar 19.14 11.99 229.52 14.73 20000.00 6.70 Apr 17.83 11.93 212.78 15.23 23000.00 6.24 May 18.06 11.85 214.06 15.60 12000.00 6.32 June 17.21 11.18 192.41 15.02 6000.00 6.02 July 18.93 11.23 212.67 15.40 14000.00 6.63 Aug 20.02 11.21 224.46 15.38 13000.00 7.01 Sep 20.83 11.16 232.55 14.92 33000.00 7.29 Oct 24.45 11.97 292.68 15.53 40000.00 8.56 Nov 25.48 11.86 302.29 15.19 38000.00 8.92 Dec 25.21 11.87 299.31 15.56 12000.00 8.83 Average 20.77 11.65 242.44 15.28 20000.00 7.26Table 4.2: Quantity of milk procured and cost involved in procurement of milk by the private large scale sector during 2007 Month Total quantity procured (lakh lit) Price (Rs/lit) Total Value (lakh Rs) Transportation and handling cost (lakh Rs) Wastage value (Rs)

Commission (lakh Rs) Jan 8.71 13.00 110.00 15.06 6000.00 4.36 Feb 7.65 13.06 97.79 14.46 6000.00 3.83 Mar 8.50 13.52 113.18 15.10 8000.00 4.25 Apr 8.10 13.46 106.90 13.79 9000.00 4.05 May 8.53 13.37 111.41 14.50 8000.00 4.27 June 9.74 12.84 123.11 15.88 4000.00 4.87 July 10.10 12.62 124.00 15.22 4000.00 5.05 Aug 9.60 12.67 118.16 15.30 4000.00 4.80 Sep 9.73 12.60 119.49 15.33 4000.00 4.87 Oct 10.43 13.00 131.41 14.76 4000.00 5.22 Nov 10.56 13.29 139.01 15.36 4000.00 5.28 Dec 10.69 13.53 144.00 16.19 5000.00 5.35 Average 9.36 13.08 119.87 15.08 5000.00 4.68Table 4.3: Quantity of milk procured and cost involved in procurement of milk by the private small scale sector during 2007 Month Total quantity (lakh lit) Price (Rs/lit) Total Value (lakh Rs) Transportation and handling cost (lakh Rs)

Wastage value ( Rs) Commission (lakh Rs) Jan 0.33 14.55 4.83 0.02 300 0.33 Feb 0.29 14.55 4.34 0.01 400 0.29 Mar 0.36 14.55 5.37 0.01 400 0.36 Apr 0.36 14.55 5.28 0.01 500 0.36 May 0.28 14.55 4.21 0.01 500 0.28 June 0.23 13.00 3.09 0.02 100 0.23 July 0.24 13.00 3.13 0.02 100 0.24 Aug 0.24 13.00 3.21 0.02 200 0.24 Sep 0.26 13.00 3.42 0.02 100 0.26 Oct 0.35 13.85 4.92 0.03 200 0.35 Nov 0.35 13.85 4.92 0.03 200 0.35 Dec 0.33 13.85 4.66 0.02 200 0.33 Average 0.30 13.86 4.28 0.02 300 0.30wastage value accounted for Rs. 300 per month and commission charge was to an extent of Rs. 0.30 lakhs per month. The quantity procured and the value of procured product was highest in the months of October and November i.e., 0.35 lakh litres and Rs. 4.92 lakhs, respectively followed by December and January months. The price per litre was highest in the months ranging from January to May. Transportation and handling cost and wastage value was highest in the month of October, November and April, May respectively. The quantity procured and their values were the lowest in the month of June. 4.1.4 Quantity and value of raw materials procured by co-operative and

different private sector processing units during 2007 The Table 4.4 depicts the average quantity and value of raw materials procured annually by co-operative and different private sector processing units. The co-operative sector unit procured highest raw materials as compared with private (large and small scale) units. Of these, it procured sugar to the tune of 64.05 tonnes which was much higher than that compared to the private large scale unit (18.20 tonnes) and private small scale unit (0.22 tonnes), respectively. Of all these raw materials, packing materials constituted the highest cost component in all the units (ranging from 85-90 %), followed by sugar (4-6%) and other raw materials (5-7%). 4.1.5 Seasonal fluctuations in milk procurement by co-operative and different private sector processing units during 2007 The average procurement and wastage per day during the lean season and flush season, the flush-lean ratio and cost of transportation and handling are given in Table 4.5 for all the three sectors studied. The average procurement of milk during both flush and lean season was the highest in co-operative unit, followed by large scale private and small scale private units, respectively and so is the average procurement for the year. The flush-lean ratio was 1.24 in co-operative sector, 1.06 in large scale private sector and 1.11 in small scale private sector. The average procurement, transportation and handling cost during flush and lean season was much higher in co-operative unit when compared with small scale private sector units. Since the procurement was higher in co-operative unit, the wastage was also high in co-operative unit. 4.2 DEMAND AND PRODUCT MANAGEMENT IN

PROCESSING UNITS 4.2.1 Output and capacity utilization by the co-operative processing unit Table 4.6 and Fig. 2 reveals the output and capacity utilization by the co-operative

processing unit. Capacity utilization is one of the important indicators of operational efficiency of a processing plant. It is generally recognized that a high level of capacity utilization is imperative for reducing the overhead costs of production. It could be observed from the table that, both installed capacity and quantity processed was the highest in the case of milk with 19284.72 tonnes of processing against 20000.00 tonnes of installed capacity, with a capacity utilization of 96.42 per cent. Khowa was the product of co-operative processing unit which had least installed capacity (2.25 tonnes/year) and quantity processed (2.01 tonnes/year). In terms of capacity utilization, the co-operative unit has achieved maximum capacity utilization in lassi and MBM with a value of 99.88 per cent each. The overall capacity utilization in co-operative is 95.39 per cent of its installed capacity. 4.2.2 Output and capacity utilization by the private large scale processing units The average output and capacity utilization by the large scale private processing units are presented in the table 4.7 and Fig. 2. It can be observed from the table that milk was processed in highest quantity i.e., 9497.37 tonnes as against the installed capacity of 11000.00 tonnes with a capacity utilization of 84.34 per cent. The next important product processed was curd with installed capacity of 825 tonnes and utilized capacity of 746.77 tonnes. MBM and lassi were the next important products processed in terms of their installedTable 4.4: Quantity and value of raw materials procured by co-operative and different private sector processing units during 2007 Co-operative sector Private sector (large scale) Private sector (small scale) Sl. No. Raw materials Quantity (tonnes per year) Value (lakh

Rs) Per cent Quantity (tonnes per year) Value (lakh Rs) Per cent Quantity (tonnes per year) Value (lakh Rs) Per cent 1 Sugar 64.05 9.28 6.07 18.20 3.16 3.68 0.22 0.035 4.76 2 Packing material - 132.06 86.34 - 77.94 90.73 - 1.240 88.76 3 Other raw materials (litres/year) 6.53 11.59 7.58 2.37 4.79 5.58 0.02 0.005 6.46 Total - 152.94 100.00 - 85.89 100.00 - 1.28 100.00Table 4.5: Seasonal fluctuations in milk procurement by cooperative and different private sector processing units during 2007

Sl. No. Particulars Units Co-operative sector Private sector (large scale) Private sector (small scale) 1 Average procurement during flush season liters/day 76718.08 32114.61 1076.44 2 Average procurement during lean season liters/day 61786.40 30327.68 968.96 3 Average procurement for the year liters/day 69252.24 31221.15 1022.70 4 Flush-lean ratio Ratio 1.24 1.06 1.11 5 Average procurement, transportation and handling cost during the flush season Rs/day 51108.78 50657.68 87.21 6 Average procurement, transportation and handling cost during lean season Rs/day 50768.96 49902.49 68.63 7 Average procurement transportation cost during the year Rs/day 50938.87 50280.09 77.92 8 Average wastage during flush season liters/day 74.29 13.40 0.67 9 Average wastage during lean season liters/day 43.63 16.79 0.86 10 Average wastage for the year liters/day 58.96 15.09 0.76 * Flush season-September to February

* Lean season-March to AugustTable 4.6: Output and capacity utilization by the co-operative processing unit Sl. No Products Annual installed capacity (tonnes) Annual quantity processed (tonnes) Installed Capacity (kg/day) Quantity Processed (kg/day) Capacity Utilized (%) 1 Milk 20000.00 19284.72 54794.52 52834.85 96.42 2 Curd 3200.00 3169.85 8767.12 8684.53 99.06 3 SMP 325.00 315.27 890.41 863.76 97.01 4 Butter 250.00 234.08 684.93 641.30 93.63

5 MBM 225.00 222.93 616.44 610.77 99.08 6 Pedha 175.00 160.49 479.45 439.70 91.71 7 Lassi 150.00 148.62 410.96 407.18 99.08 8 Ghee 140.00 126.92 383.56 347.72 90.65 9 Paneer 7.00 6.85 19.18 18.78 97.91 10 Khowa 2.25 2.01 6.16 5.51 89.38 Overal l Capacity Utilized% 95.39Fig. 2. Capacity utilization by the dairy processing unitsTable 4.7: Output and capacity utilization by the private large scale processing units Sl. No. Products Annual installed capacity (tonnes) Annual quantity processed (tonnes) Installed Capacity (kg/day) Quantity Processed (kg/day)

Capacity Utilized (%) 1 Milk 11000.00 9497.37 30136.99 26020.20 84.34 2 Curd 825.00 746.77 2260.27 2045.93 90.52 3 Butter 15.00 14.98 41.10 41.05 99.89 4 MBM 407.50 405.00 1116.44 1109.59 99.39 5 Pedha 1.00 0.78 2.74 2.13 77.80 6 Lassi 400.00 366.07 1095.89 1002.93 91.52 7 Ghee 200.00 176.57 547.95 483.76 88.29 8 Paneer 22.00 20.07 60.27 54.99 91.24 9 Khowa 4.00 3.49 10.96 9.57 87.30 10 Mysore pak 2.00 1.57 5.48 4.30 78.55 Overall Capacity Utilized% 87.38Table 4.8: Output and capacity utilization by the private small scale processing units Sl. No Products Annual installed capacity (tonnes)

Annual quantity processed (tonnes) Installed Capacity (kg/day) Quantity Processed (kg/day) Capacity Utilized (%) 1 Milk 198.00 179.94 542.47 492.98 90.88 2 Curd 19.30 18.18 52.88 49.82 94.22 3 Butter 3.70 3.35 10.14 9.19 90.65 4 MBM 1.06 0.92 2.91 2.51 84.24 5 Lassi 2.25 2.00 6.16 5.48 88.87 6 Ghee 6.50 6.02 17.81 16.50 92.66 7 Paneer 1.95 1.74 5.34 4.75 88.97 8 Khowa 9.10 8.12 24.93 22.24 89.22 9 Cream 2.00 1.74 5.48 4.77 87.00 10 Shrikand 1.60 1.39 4.38 3.80 86.64 Overal l Capacity Utilized% 89.58capacity. Pedha was the least important product in terms of installed capacity and utilized

capacity. In terms of capacity utilization, the product which stood at the top position was butter with 99.89 per cent. The overall capacity utilized was 87.38 per cent. 4.2.3 Output and capacity utilization by the private small scale processing units The annual average output and the capacity utilization of the small scale private sector processing units are presented in table 4.8 and Fig. 2. It can be observed from the table that in small scale private sector units milk was processed in highest quantity at 179.94 tonnes as against the installed capacity of 198.00 tonnes with a capacity utilization of 90.88 per cent. Next important product processed by the small scale private sector units based on their annual production were curd, khowa, ghee, butter and lassi with annual processing of 18.18, 6.02, 3.35 and 2.00 tonnes respectively. MBM was processed in least quantity. The average capacity utilization was 89.58 per cent. Of all the products, the maximum capacity utilization was seen in the case of curd processing i.e. (94.22%). 4.2.4 Cost of carrying inventory of finished products by the co-operative unit Cost of carrying inventory of finished products by co-operative sector processing unit is presented in Table 4.9. Storage and maintenance cost and the interest on carrying inventory at 14 per cent were the two items of cost in the case of carrying inventory of finished products. These cost were calculated on per kg per day basis and expressed in terms of rupees. The cost of carrying inventory of finished products was maximum in case of paneer (Rs.5.04/kg/day) followed by khowa (Rs.4.05/kg/day), SMP (Rs.0.21/kg/day), pedha (Rs.0.20/kg/day) and butter (Rs.0.16/kg/day). The same was the lowest in curd (Rs.0.02/kg/day). Among the products of co-operative sector ghee was stored for longer duration (45

days), followed by butter and SMP which were stored on an average for 30 days each. The products like curd, MBM and lassi were stored only for one day. The interest on carrying inventory ranged from Rs.0.01 to Rs.0.09 and highest was in the case of MBM. 4.2.5 Cost of carrying inventory of finished products by the private large scale units Cost of carrying inventory of finished products by large scale private processing units is presented in Table 4.10. In large scale private sector units nine different products were produced and stored on an average from one to sixty days. Ghee was the one which stored for long period (60 days) while butter and panner were stored on an average for 15 days each. Next to follow the order were khowa (5 days), mysore pak (4days), pedha (3days), curd, MBM and lassi were stored only for one day on an average. The total cost of carrying inventory of finished products was maximum in pedha (Rs 8.23/kg/day), khowa (Rs 1.39/kg/day). All other products had very less (less than one rupee/kg/day) cost on carrying inventory. 4.2.6 Cost of carrying inventory of finished products by the private small scale units Cost of carrying inventory of finished products by small scale private sector processing unit is presented in Table 4.11. A cursory look at the table suggests that the small scale private processing units were specialized in nine different products. The total cost of carrying inventory of finished products was by and large very low in all the products compared to the other two sectors studied. The maximum cost was in the case of panner (Rs 2.02/kg/day). In all other products the cost was less than one rupee. Among the products, paneer was stored for longer duration (6 days), while butter and khowa were stored for 5 days each on an average basis. It is really interesting to see thatTable 4.9: Cost of carrying inventory of finished products by the co-operative unit

Products Quantity Stored (kg/day) Price (Rs/kg) Value of processed and stored products (Rs) No. of days stored Storage and maintenance cost (Rs/ kg/day) Interest on carrying inventory @ 14% (Rs/ kg/day) Total cost (Rs/ kg/day) Curd 4000.00 18.00 72000.00 1 0.01 0.01 0.02 SMP 500.00 140.91 70455.00 30 0.16 0.05 0.21 Butter 1500.00 151.79 227685.00 30 0.10 0.06 0.16 MBM 250.00 15.00 3750.00 1 0.02 0.09 0.11

Pedha 500.00 115.84 57920.00 7 0.16 0.04 0.20 Lassi 500.00 25.00 12500.00 1 0.08 0.01 0.09 Ghee 1200.00 177.27 212724.00 45 0.08 0.07 0.14 Paneer 30.00 115.00 3450.00 2 5.00 0.04 5.04 Khowa 10.00 130.00 1300.00 2 4.00 0.05 4.05Table 4.10: Cost of carrying inventory of finished products by the private large scale units Products Quantity Stored (kg/day) Price (Rs/kg) Value of processed and stored products (Rs) No. of days stored Storage and maintenance cost (Rs/ kg/day) Interest on carrying inventory @ 14% (Rs/kg/day)

Total cost (Rs/ kg/day) Curd 5500.00 19.45 107000.00 1 0.01 0.01 0.02 Butter 1000.00 125.00 125000.00 15 0.15 0.05 0.20 MBM 650.00 13.30 8650.00 1 0.10 0.01 0.11 Pedha 10.00 117.92 1179.20 3 8.19 0.05 8.23 Lassi 400.00 25.00 10000.00 1 0.10 0.01 0.11 Ghee 2000.00 165.00 330000.00 60 0.05 0.06 0.11 Paneer 250.00 115.00 28750.00 15 0.61 0.04 0.65 Khowa 30.00 100.00 3000.00 5 1.35 0.04 1.39 Mysorepak 25.00 150.00 3750.00 4 6.19 0.06 6.25Table 4.11: Cost of carrying inventory of finished products by the private small scale units Products Quantity Stored (kg/day) Price (Rs/kg) Value of processed and stored products (Rs) No. of days stored Storage and maintenance

cost (Rs/ kg/day) Interest on carrying inventory @ 14% (Rs/ kg/day) Total cost (Rs/ kg/day) Curd 15.00 20.00 300.00 1 0.05 0.03 0.08 Butter 5.00 160.00 800.00 5 0.03 0.06 0.09 MBM 2.00 15.00 30.00 1 0.04 0.02 0.06 Lassi 2.00 25.00 50.00 1 0.04 0.02 0.06 Ghee 5.00 210.00 1050.00 1 0.00 0.08 0.08 Paneer 4.40 139.00 614.00 6 1.97 0.05 2.02 Khowa 20.00 120.00 2400.00 5 0.02 0.05 0.07 Cream 2.00 135.00 270.00 1 0.05 0.03 0.08 Shrikand 2.00 80.00 160.00 3 0.05 0.03 0.08Table 4.12: Demand management of milk and milk products in different milk processing units Sl. No. Product Unit Quantity Processed (tonnes) Processed Value

(lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes) Quantity Deficit (Tonnes) Co-operative 1607.06 231.18 1606.82 230.36 141.44 140.96 Private large scale units 791.45 122.88 787.37 122.19 68.54 86.18 1 Milk Private small scale units 14.99 2.40 14.94 2.39 0.71 0.41 Co-operative 264.15 47.55 261.71 47.11 24.70 19.81 Private large scale units 74.68 14.55 74.46 14.51 6.36 8.99

2 Curd Private small scale units 1.52 0.30 1.51 0.30 0.06 0.04 Co-operative 26.27 37.02 24.77 34.91 3.48 0.49 Private large scale units - - - - - 3 SMP Private small scale units - - - - - Co-operative 19.51 29.61 18.80 28.54 2.37 0.96 Private large scale units 1.25 1.56 1.18 1.47 0.16 0.05 4 Butter Private small scale units 0.28 0.42 0.28 0.42 0.01 0.01 Co-operative 18.58 2.79 18.62 2.79 1.40 1.49 Private large scale units 54.00 8.08 56.28 8.42 3.49 8.89 5 MBM Private small scale units

0.18 0.03 0.18 0.03 0.01 0.01 Co-operative 13.37 15.49 13.33 15.44 1.19 1.10 Private large scale units 0.10 0.11 0.09 0.11 0.01 0.01 6 Pedha Private small scale units - - - - - Co-operative 12.39 3.10 12.42 3.10 0.93 1.00 Private large scale units 30.51 7.63 32.17 8.04 1.62 6.28 7 Lassi Private small scale units 0.40 0.10 0.40 0.10 0.02 0.02 Co-operative 10.58 18.75 10.20 18.08 1.17 0.42 Private large scale units 14.71 24.28 14.73 24.31 1.16 1.68 8 Ghee Private small scale units 0.50 1.05 0.50 1.05 0.02 0.01Table 4.12: Contd….. Sl.

No. Product Unit Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes) Quantity Deficit (Tonnes) 9 Paneer Co-operative 0.57 0.66 0.57 0.65 0.05 0.05 Private large scale units 1.67 1.92 1.69 1.94 0.11 0.19 Private small scale units

0.14 0.20 0.14 0.20 0.01 0.01 10 Khowa Co-operative 0.17 0.22 0.17 0.22 0.01 0.02 Private large scale units 0.29 0.29 0.29 0.29 0.02 0.04 Private small scale units 0.68 0.81 0.68 0.81 0.03 0.02 11 Co-operative - - - - - - Mysore pak Private large scale units 0.31 0.47 0.29 0.43 0.03 Private small scale units - - - - - 12 Cream Co-operative - - - - - Private large scale units - - - - - Private small scale units 0.15 0.20 0.15 0.20 0.01 0.01 13 Shrikand Co-operative - - - - - Private large scale units - - - - - Private small scale units

0.12 0.11 0.12 0.11 0.01 0.01 ghee, the product which was stored for longest duration in other two sectors was stored only for a day on an average here. Obviously the storage and maintenance cost was maximum in the case of panner. 4.2.7 Demand management of milk and milk products in different milk processing units The Table 4.12 reveals the quantity demanded and processed of milk and milk products and their respective values in co-operative and private sector units. In case of milk and curd, the total quantity processed and sold monthly was highest in co-operative unit with 1607.06 tonnes, of value Rs. 231.18 lakhs and 264.15 tonnes, of value Rs. 47.55 lakhs respectively, followed by private large scale units and private small scale units. Similarly, the quantity sold and sold value was also highest in co-operative unit with 1606.82 tonnes of value Rs. 230.36 lakhs and 261.71 tonnes of value Rs. 47.11 lakhs, followed by private large scale units and private small scale units. The excess and deficits were also higher in cooperative unit, followed by private large scale units and private small scale units. The total quantity of SMP processed and sold annually in co-operative unit was 26.27 tonnes, of value Rs. 37.02 lakhs. Similarly, the quantity sold and sold value in co-operative unit were 24.77 tonnes and Rs. 34.91 lakhs respectively. There was no processing of SMP in private units (either large or small scale). In butter, the total quantity processed and sold monthly were highest in co-operative unit with 19.51 tonnes of value Rs. 29.61 lakhs, followed by private large scale units and private small scale units. Similarly, the quantity sold and sold value were also highest in co-operative unit with 18.80 tonnes of value Rs. 28.54 lakhs, followed by private large scale units and private small scale units. The excess and deficits were also higher in co-operative unit, followed by private large scale units and private small scale units.

In case of MBM, the total quantity processed and sold monthly were highest in private large scale units with 54.00 tonnes of value Rs. 8.08 lakhs, followed by co-operative unit and private small scale units. Similarly, the quantity sold and sold value were also highest in private large scale units with 56.28 tonnes of value Rs. 8.42 lakhs, followed by co-operativeunit and private small scale unit. The excess and deficits were also higher in private large scale units, followed by co-operative unit and private small scale units. The total quantity processed and sold of pedha monthly was highest in co-operative unit with 13.37 tonnes of value Rs. 15.49 lakhs, followed by private large scale units. Similarly, the quantity sold and sold value were also highest in co-operative unit with 13.33 tonnes of value Rs. 15.44 lakhs, followed by private large scale units. There was no processing of pedha in private small scale units. The excess and deficits were also higher in co-operative unit, followed by private large scale units. In lassi, the total quantity processed and sold monthly were maximum in private large scale units with 30.51 tonnes of value Rs. 7.63 lakhs, followed by co-operative unit and private small scale units. Similarly, the quantity sold and sold value were also highest in private large scale units with 32.17 tonnes of value Rs. 8.04 lakhs, followed by co-operative unit and private small scale units. The excess and deficits were also higher in private large scale units, followed by co-operative unit and private small scale units. In case of ghee, the total quantity processed and sold monthly were highest in private large scale units with 14.71 tonnes of value Rs. 24.28 lakhs, followed by co-operative and private small scale units. Similarly, the quantity sold and sold value were also highest in private large scale units with 14.73 tonnes of value Rs. 24.31 lakhs, followed by co-operative and private small scale units. It is seen that the co-operative handled about 1.17 tonnes of excess quantity over their production, while private large scale units faced a deficit of 1.68 tonnes per month. The total quantity of paneer processed and sold monthly was highest in private large scale units with 1.67 tonnes of value Rs. 1.92 lakhs, followed by co-operative unit and private

small scale units. Similarly, the quantity sold and sold value were also highest in private large scale units with 1.69 tonnes of value Rs. 1.94 lakhs, followed by co-operative unit and private small scale units. The excess and deficits were also higher in private large scale units, followed by co-operative unit and private small scale units. In khowa, the total quantity processed and sold monthly were highest in private small scale units with 0.68 tonnes of value Rs. 0.81 lakhs, followed by private small scale units and co-operative unit. Similarly, the quantity sold and sold value were also highest in private small scale units with 0.68 tonnes of value Rs. 0.81 lakhs, followed by private small scale units and co-operative unit. During the study period private small scale units handled 0.03 tonnes of excess quantity monthly over processed quantity while private large scale unit faced the problem of deficit at 0.04 tonnes monthly. Mysore pak was the minor product of dairy industry, which was specialized only by private large scale units. They processed milk into Mysore pak at a rate of 0.31 tonnes per month with a value of 0.47 lakh rupees. Cream and shrikand were two other minor products of small scale private units with monthly production of 0.15 and 0.12 tonnes respectively and they were valued at 0.20 and 0.11 lakh rupees. 4.3 VALUE ADDITION IN THE SELECTED UNITS

4.3.1 Product mix in co-operative and private sector milk processing units during 2007 Table 4.13 and Fig. 3, gives the details of quantity and proportion of various processed products prepared in the co-operative and private sectors. Per year about 23609.04 tonnes of finished products were produced by the co-operative unit, as against 10917.01 tonnes of finished products produced by the private large scale units and private small scale units prepare only 222.26 tonnes of finished products. Although, the co-operative sector produced a wide range of products, it mainly concentrated on seven major items

namely liquid milk, curd, SMP, butter, MBM, pedha and ghee. These items constituted 99.96 per cent of the total processed products manufactured by the co-operative sector unit, paneer and khowa together represent 0.04 percent of total processed products. The Table also represents quantity and proportion of the various processed products by private large scale processing units. The private large scale units confined to a product line consisting of groups of items such as liquid milk, curd, MBM, lassi and ghee. The unit concentrated mainly on the liquid milk, which accounted for 86.54 per cent of the total processed items, followed by curd, MBM, lassi, ghee, paneer, butter, khowa, pedha andmysore pak to an extent of 6.82, 3.87, 1.77, 0.81, 0.09, 0.06, 0.02, 0.01 and 0.01 per cent, respectively. The Table also reflects the quantity and proportion of the various products processed by the private small scale processing units. The private small scale units confined to a product line consisting of groups of items such as liquid milk, curd, khowa, ghee and butter. Around 80 per cent of the total processed products were constituted by liquid milk alone. Other items processed from the unit include, curd, khowa, ghee, butter, lassi, paneer, cream, shrikand and MBM to an extent of 8.18, 3.65, 2.71, 1.51, 0.91, 0.78, 0.78, 0.50 and 0.33 per cent, respectively. 4.3.2 Cost structure of processing of milk in co-operative and private sector processing units An establishment of processing unit in milk encompasses various fixed and variable costs. These costs directly have an impact on the performance of the unit in terms of efficiency of production, resource utilization and product development. In this context it may be quite advisable to study cost structure of processing units which highlights various cost items responsible for indication of performance of the units. The costs associated with the processing of milk which are broadly categorized into two heads, namely, fixed costs and variable costs. A stream of data on fixed and variable cost were examined to realize the

objectives. The detailed components of these two cost items are presented in Table 4.14. The major items under fixed costs consisted of depreciation, rent, repairs and maintenance, insurance, salaries paid to the permanent employees and administrative costs. Similarly, the variable cost comprised of items like raw milk, sugar, packaging material, labour cost, electricity, fuel and water, miscellaneous cost, etc. Table 4.14 reflects the costs associated with the processing of milk. It could be observed that, variable costs occupy a major share of total costs with more than 90 per cent in all the three kinds of processing units. It was also observed that the total quantity of milk processed and cost of processing (per tonne) worked out to be 24930.81 tonnes and Rs. 13912.08 in case of co-operative unit, 11239.61 tonnes and Rs. 15292.14 in case of private large scale units and 368.17 tonnes and Rs. 15940.65 in private small scale units respectively. The net returns depended on both variable costs as well as fixed costs of production. The total fixed and variable cost of processing per tonne of milk formed Rs. 308.80 lakhs (8.90 per cent) and Rs. 3159.59 lakhs (91.10 per cent), respectively in cooperative unit, Rs. 145.22 lakhs (8.45 per cent) and Rs. 1573.55 lakhs (91.55 per cent), respectively in the private large scale units and Rs. 5.17 lakhs (8.80 per cent) and Rs. 53.52 lakhs (91.20 per cent), respectively in private small scale processing units. Among the fixed costs, salaries for permanent employees formed the major part in the case of both co-operative unit and private small scale processing units, whereas depreciation cost accounted for major proportion in private large scale units. In the case of variable cost, the cost of raw milk was the highest accounting for more than 80 per cent in all the units followed by packaging materials cost and electricity, fuel and water charges. 4.3.3 Sales realization in co-operative and private sector units Sales realization per tonne of milk processed by co-operative and private (large and small scale) milk processing units is represented in Table 4.15. It showed that, the gross

returns, milk processed and gross returns per tonne by co-operative unit was much higher Rs. 4574.59 lakhs, 24930.81 tonnes and Rs. 18349.15 respectively. In the case of private large scale units, the same were Rs. 1892.87, 11239.61 tonnes and Rs. 16841.04 respectively and in the case of private small scale units they were of the order Rs. 66.16 lakhs, 368.17 tonnes and Rs. 17968.56. Of the total sales realization, the sale of milk amounted maximum in all the units with 19281.85 tonnes of value Rs. 2764.34 lakhs in co-operative unit, 9448.47 tonnes of value Rs. 1466.31 lakhs in private large scale units and 179.27 tonnes of value Rs. 28.66 lakhs in private small scale units, followed by other products. The price per tonne in co-operative, private large scale and private small scale units was highest in case of ghee at Rs. 1.77 lakh, Rs. 1.65 lakh and Rs. 2.10 lakh, respectively. The products which were sold the least in co-Table 4.13: Product mix in co-operative and private sector milk processing units during 2007 (per annum) Co-operative sector Private large scale units Private smallscale units Sl. No. Products Quantity (tonnes) Per cent Quantity (tonnes)

Per cent Quantity (tonnes) Per cent 1 Milk 19281.85 81.66 9448.47 86.54 179.27 80.65 2 Curd 3140.55 13.30 744.55 6.82 18.18 8.18 3 SMP 297.29 1.26 - - - 4 Butter 225.64 0.96 7.07 0.06 3.35 1.51 5 MBM 223.50 0.95 422.13 3.87 0.74 0.33 6 Pedha 159.93 0.68 0.73 0.01 - 7 Lassi 149.00 0.63 193.05 1.77 2.01 0.91 8 Ghee 122.39 0.52 88.40 0.81 6.02 2.71 9 Paneer 6.83 0.03 10.13 0.09 1.73 0.78 10 Khowa 2.05 0.01 1.75 0.02 8.11 3.65 11 Mysore pak - - 0.72 0.01 - 12 Cream - - - - 1.74 0.78 13 Shrikand - - - - 1.11 0.50 Total quantity (tonnes) 23609.04 100.00 10917.01 100.00 222.26 100.00Fig. 3. Product mix in co-operative and private sector milk processing units during 2007Table 4.14: Cost structure of processing of milk in co-operative and private sector processing units Co-operative sector Private large scale sector Private small scale sector Sl. No. Particulars Amount (Rs. lakhs) % to total

Amount (Rs. lakhs) % to total Amount (Rs. lakhs) % to total A. Fixed costs 1. Depreciation cost 27.30 0.79 69.45 4.04 0.40 0.68 2. Rent of premises 0.00 0.00 0.00 0.00 1.86 3.16 3. Repairs and maintenance 12.00 0.35 3.48 0.20 0.11 0.19 4. Insurance 2.50 0.07 1.62 0.09 0.49 0.84 5. Salary 210.00 6.05 49.68 2 .89 2 .28 3.88 6. Administration cost 57.00 1.64 21.00 1.22 0.03 0.04 Sub-total (A) 308.80 8.90 145.22 8.45 5.17 8.80 B. Variable costs 1. Raw milk 2909.30 83.88 1438.53 83.70 51.42 87.62 2. Sugar 9.29 0.27 3.17 0.18 0.04 0.06 3. Other raw materials 11.60 0.33 4.79 0.28 0.05 0.09 4. Packaging material 132 .06 3.81 77.94 4.53 1.24 2.11 5. Labour cost 12.00 0.35 4.55 0.26 0.00 0.00 6. Electricity, fuel and water charges 83.75 2.41 43.87 2.55 0.70 1.20 7. Miscellaneous cost 1.60 0.05 0.70 0.04 0.07 0.12 Sub-total (B) 3159.59 91.10 1573.55 91.55 53.52 91.20 Grand total (A+B) 3468.39 100.00 1718.78 100.00 58.69 100.00 1. Total quantity of milk processed (tonnes) 24930.81 - 11239.61 - 368.17 -

2. Cost of milk processed (Rs/tonne) 13912 .08 - 15292 .14 - 15940.65 -operative, private large scale and private small scale units was khowa, mysore pak and MBM, respectively. 4.3.4 Cost and returns in co-operative and private milk processing units Table 4.16 and Fig. 4 reflects the costs and returns associated with processing of one tonne of milk. The gross returns per tonne were Rs. 18349.15, Rs. 16841.04 and Rs. 17968.56 in co-operative, private large scale and private small scale units, respectively. The total costs came upto Rs. 14963.25, Rs. 16439.38 and Rs. 16149.99 in co-operative, private large scale and private small scale units, respectively. It could be observed that of the total costs (per tonne of milk processed), cost of processing amounted to maximum with Rs. 13912.08 (92.97%), Rs. 15292.14 (93.02%) and Rs. 15940.66 (98.07%) in co-operative, private large scale and private small scale units, respectively. The least cost was that of cost of carrying inventory. The net returns depend on both variable costs as well as fixed costs of production. The net returns for co-operative, private large scale and private small scale units were Rs. 3385.90, Rs. 401.66 and Rs. 1818.57, respectively, similarly the B:C ratio were 1.23, 1.02 and 1.11 for these units in the respective order. 4.3.5 Comparative price at different stages of marketing of processed products by milk processing units Table 4.17 gives the details of ex-factory price, margin and M.R.P of various processed products in the co-operative and private (large and small scale) units. In cooperative unit, the ex-factory price, margin and M.R.P per litre were highest for ghee at Rs. 177.27, Rs. 17.73 and Rs. 195 respectively, whereas in private large scale units it was highest in case of ghee at Rs. 165, Rs. 25 and Rs. 190 respectively. While, in private small scale units there was no margin, the products were directly sold to the consumers, hence the ex-factory price itself formed the M.R.P and it was highest in case of ghee. The product with

least ex-factory price, margin and M.R.P per litre was milk in all the units. 4.4 SALES MANAGEMENT IN SELECTED UNITS

4.4.1 Annual cost of marketing of processed products by co-operative sector unit The cost of marketing of processed products by co-operative processing unit is presented in Table 4.18. The total cost of marketing was Rs. 222.481 lakh, of which transportation cost accounted for maximum with Rs. 141.654 lakh followed by carriage and hamali charges of Rs. 70.827 lakh and advertisement expenses of Rs. 10 lakh. The total marketing cost was highest in milk with Rs. 181.704 lakh, followed by other products. The total quantity sold was 23609.041 tonnes. Of all the products, the marketing cost was highest in milk, followed by other products. The least marketing cost was observed in case of khowa. 4.4.2 Annual cost of marketing of processed products by private large scale units The cost of marketing of processed products in private large scale processing units is presented in Table 4.19. The total cost of marketing was Rs. 114.170 lakh, of which transportation cost accounted for maximum (Rs. 76.419 lakh), followed by carriage and hamali charges (Rs.32.751 lakh) and advertisement expenses (Rs. 5 lakh). The total marketing cost was highest in milk with Rs. 98.812 lakh, followed by other products. The total quantity sold was 10917.011 tonnes. Of all the products, the cost of marketing was highest in milk, followed by other products. The least cost was observed in case of mysore pak. 4.4.3 Annual cost of marketing of processed products by private small scale units The cost of marketing of processed products in private small scale processing units is presented in Table 4.20. The total cost of marketing was Rs. 0.230 lakh, of which carriage and hamali charges accounted for maximum (Rs. 0.100 lakh), followed by transportation cost

(Rs. 0.080 lakh) and advertisement expenses (Rs. 0.050 lakh). The total marketing cost wasTable 4.15: Sales realization in co-operative and private sector units Co-operative sector Private large scale sector Private small scale sector Sl. No. Particulars Quantity sold (tonnes) Price per tonne (lakh Rs) Value (lakh Rs) Quantity sold (tonnes) Price per tonne (lakh Rs Value (lakh Rs) Quantity sold (tonnes) Price per tonne

(lakh Rs) Value (lakh Rs) 1 Liquid milk 19281.85 0.14 2764.34 9448.47 0.16 1466.31 179.27 0.16 28.66 2 Curd 3140.55 0.18 565.30 744.55 0.19 145.10 18.18 0.20 3.64 3 SMP 297.29 1.41 418.91 0.00 0.00 0.00 0.00 0.00 0.00 4 Butter 225.64 1.52 342.51 7.07 1.25 8.84 3.35 1.52 5.08 5 MBM 223.50 0.15 33.52 422.13 0.15 63.15 0.74 0.15 0.11 6 Pedha 159.93 1.16 185.26 0.73 1.18 0.87 0.00 0.00 0.00 7 Lassi 149.00 0.25 37.25 193.05 0.25 48.26 2.01 0.25 0.50 8 Ghee 122.39 1.77 216.97 88.40 1.65 145.86 6.02 2.10 12.64 9 Paneer 6.83 1.15 7.86 10.13 1.15 11.65 1.73 1.40 2.43 10 Khowa 2.05 1.30 2.67 1.75 1.00 1.75 8.11 1.20 9.73 11 Mysorepak 0.00 0.00 0.00 0.72 1.50 1.08 0.00 0.00 0.00 12 Cream 0.00 0.00 0.00 0.00 0.00 0.00 1.74 1.35 2.35 13 Shrikand 0.00 0.00 0.00 0.00 0.00 0.00 1.11 0.92 1.02 Gross returns (lakh Rs) 4574.59 1892.87 66.16 Milk processed (tonnes) 24930.81 11239.61 368.17 Gross returns per tonne (Rs/tonne) 18349.15 16841.04 17968.56Table 4.16: Cost and returns in co-operative and private milk processing units (Rs/ tonne of milk processed) Sl. No. Particulars Co-operative unit

Private large scale units Private small scale units 1 Gross returns/ton 18349.15 16841.04 17968.56 2 Cost of Processing 13912.08 (92.97) 15292.14 (93.02) 15940.66 (98.70) Carrying inventory 108.81 (0.73) 101.44 (0.62) 105.85 (0.66) Marketing 942.36 (6.30) 1045.80 (6.36) 103.48 (0.64) 3 Total cost 14963.25 16439.38 16149.99

4 Net returns 3385.90 401.66 1818.57 5 Benefit cost ratio 1.23 1.02 1.110 2000 4000 6000 8000 10000 12000 14000 16000 Processing Carrying inventory Marketing Co-operative unit Private large scale units Private small scale units Rs./tonne Fig. 4. Costs in co-operative and private milk processing units Fig.4. Costs in co-operative and private milk processing unitsTable 4.17: Comparative price at different stages of marketing of processed products by milk processing units (Rs/ Kg) Co-operative sector Private large scale sector Private smallscale sector Sl. No. Products Exfactory price Margin M.R.P Ex-

factory price Margin M.R.P Exfactory price Margin M.R.P 1 Milk 14.34 0.66 15.00 15.52 1.54 17.06 15.99 - 15.99 2 Curd 18.00 2.00 20.00 19.45 2.51 22.00 20.00 - 20.00 3 SMP 140.91 14.09 155.00 - - - - - 4 Butter 151.79 18.21 170.00 125.00 18.00 143.00 160.00 - 160.00 5 MBM 15.00 5.00 20.00 13.30 5.00 19.96 15.00 - 15.00 6 Pedha 115.84 12.16 128.00 117.92 15.00 133.16 - - 7 Lassi 25.00 5.00 30.00 25.00 5.00 30.00 25.00 - 25.00 8 Ghee 177.27 17.73 195.00 165.00 25.00 190.00 210.00 - 210.00 9 Paneer 115.00 10.00 125.00 115.00 10.00 125.00 139.00 - 139.00 10 Khowa 130.00 - 130.00 100.00 5.00 105.00 120.00 - 120.00 11 Mysore pak - - - 150.00 10.00 160.00 - - 12 Cream - - - - - - 135.00 - 135.00 13 Shrikand - - - - - - 80.00 - 80.00Table 4.18: Annual cost of marketing of processed products by cooperative sector unit Products Total quantity sold

(tones) Carriage and hamali charges (lakh Rs) Transportation cost (lakh Rs) Advertisement expenses (lakh Rs) Total Marketing Cost (lakh Rs) Milk 19281.854 57.846 115.691 8.167 181.704 Curd 3140.546 9.422 18.843 1.330 29.595 SMP 297.290 0.892 1.784 0.126 2.802 Butter 225.645 0.677 1.354 0.096 2.126 MBM 223.497 0.670 1.341 0.095 2.106 Pedha 159.929 0.480 0.960 0.068 1.507 Lassi 148.998 0.447 0.894 0.063 1.404 Ghee 122.393 0.367 0.734 0.052 1.153 Paneer 6.835 0.021 0.041 0.003 0.064 Khowa 2.054 0.006 0.012 0.001 0.019 Total 23609.041 70.827 141.654 10.000 222.481Table 4.19: Annual cost of marketing of processed products by private large scale units Products Total quantity sold (tones) Carriage and hamali charges (lakh Rs)

Transportation cost (lakh Rs) Advertisement expenses (lakh Rs) Total Marketing Cost (lakh Rs) Milk 9448.470 28.345 66.139 4.327 98.812 Curd 744.553 2.234 5.212 0.341 7.787 MBM 422.134 1.266 2.955 0.193 4.415 Lassi 193.049 0.579 1.351 0.088 2.019 Ghee 88.402 0.265 0.619 0.040 0.925 Paneer 10.132 0.030 0.071 0.005 0.106 Butter 7.070 0.021 0.049 0.003 0.074 Khowa 1.752 0.005 0.012 0.001 0.018 Pedha 0.732 0.002 0.005 0.000 0.008 Mysore pak 0.718 0.002 0.005 0.000 0.008 Total 10917.011 32.751 76.419 5.000 114.170Table 4.20: Annual cost of marketing of processed products by private small scale units Products Total quantity sold(tones) Carriage and hamali charges (lakh Rs) Transportation cost (lakh Rs) Advertisement

expenses (lakh Rs) Total Marketing Cost (lakh Rs) Milk 179.269 0.100 0.080 0.040 0.220 Curd 18.180 - - 0.004 0.004 Khowa 8.110 - - 0.002 0.002 Ghee 6.022 - - 0.001 0.001 Butter 3.353 - - 0.001 0.001 Lassi 2.012 - - - Cream 1.738 - - - Paneer 1.734 - - - Shrikand 1.107 - - - MBM 0.737 - - - Total 222.263 0.100 0.080 0.050 0.230highest in milk with Rs. 0.220 lakh, followed by other products. The marketing cost was the least in the case of MBM. 4.5 PROBLEMS FACED BY THE PROCESSING UNITS

In order to analyse the problems faced by the processing units, a set of questionnaire was developed in order to document the problems faced by the units and their suggestions towards stated problems. The suggestions and opinions were culled out to ascertain the major problems affecting the units and industry. This study revealed that the most striking problem faced by the processors of the co-operative sector as well as private sector (large and small scale) unit was erratic power supply and maintenance of machinery. The list of various problems faced by the milk processing units, their respective scores and ranking are given in Table 4.21 and 4.22, respectively. The units considered for the study faced similar kinds of problems, but the extent of

severity varied from unit to unit and therefore, the ranking of each problem varied with the unit. The problems faced by the units were identified as problems regarding infrastructure facilities, procurement of raw material, processing, marketing and finance. In the co-operative sector unit, the problem regarding processing, infrastructure facility, finance, procurement of raw milk and sales were identified as major problems, which constituted 60, 42, 40, 28 and 23 per cent, respectively. The private large scale units identified as the first three major problems which finance, sales, procurement of raw milk, constituted 55, 53 and 49 per cent, respectively, followed by infrastructural facility and processing to the extent of 42 and 32 per cent, respectively. Similarly, the private small scale units identified and ranked the problems namely finance, procurement of raw milk, processing of raw milk lack of infrastructure facility and sales and which constituted 90, 58, 54, 52 and 45 per cent, respectively.Table 4.21: Problems faced by co-operative and private sector processing units Sl. No. Problems Co-operative sector Private large scale sector Private small scale sector A Infrastructural facility 1 Location 2 3 2 2 Avai lability of land 2 3 7 3 Avai lability of Electricity 8 8 9 4 Water 7 6 6 5 Approach roads 2 2 2 Total 21 21 26

B Procurement of milk 1 Availability of raw milk 2 6 6 2 Price of milk 3 8 8 3 Quality 3 4 5 4 Transport facility 2 5 4 5 Transport cost 5 6 2 6 Cold chain 2 2 9 Total 17 30 35 C Processing 1 Cost effective technology 7 4 7 2 Avai lability of labour 3 3 5 3 Maintenance of machinery 8 3 4 Total 18 10 16 D Sales 1 Avai lability of transport vehicle 2 5 3 2 Transportation cost 2 6 4 3 Commission/taxes 3 6 7 Total 7 16 13 E Finance 1 Avai lability of funds 4 7 9 Total 4 7 9Table 4.22: Ranking of problems Co-operative sector Private large scale sector Private small

scale sector Sl. No. Description of problem Maximum score points Points scored by problem Percentage of points scored Rank of problem Points scored by problem Percentage of points scored Rank of problem Points

scored by problem Percentage of points scored Rank of problem A Infrastructural facility 50 21 42 II 21 42 IV 26 52 IV B Procurement of milk 60 17 28 IV 30 49 III 35 58 II C Processing 30 18 60 I 10 32 V 16 54 III D Sales 30 7 23 V 16 53 II 13 45 V E Finance 10 4 40 III 7 55 I 9 90 I5. DISCUSSION The findings of the study, which were presented previously, are discussed in this chapter under the following headings to arrive at a meaningful interpretation. 5.1 5.2 5.3 5.4 5.5 5.6 Procurement management in processing units Demand and product management in processing units Value addition in the selected units Sales management in selected units Problems faced by the processing units SWOT analysis of the dairy processing units

5.1 PROCUREMENT MANAGEMENT IN PROCESSING UNITS

In this section, a comparative account on the pattern of procurement and use of main raw materials, namely, raw milk by co-operative and private sector processing units are presented. Seasonal fluctuation in milk procurement by both sectors are also compared and discussed below. 5.1.1 Quantity of milk procured and cost involved in procurement of milk by the co-operative unit during 2007 Table 4.1 reveals the average quantity procured and cost involved in procurement of milk by the co-operative unit. The table highlights the domination of procuring of raw milk in the month of November, followed by December, October, January and other months, since these months come under flush season during which quantity of milk procured was more than the average monthly procurement. The major portion of procurement during these months was diverted for preparation of milk products. Since, the demand for milk is more or less constant during these months and demand for value added products would be more due to marriage and festivals, the processors would derive more benefits by procuring higher quantity of milk and diverting it for preparation of milk products. The price per litre was highest in summer months i.e., March and April. The supply of milk used to be low owing to lesser productivity of animals during these months due to non availability of sufficient green fodder. Added to it, chances of spoilage also would be very high in these months. These will have direct effect on total supply of milk and thus on the prices. Surprisingly, the price of milk was higher also during the peak procurement months. The wastage of milk was exorbitant during these months. The quantity procured and its value was lowest in the month of June, since this is a lean season month, during which the quantity of milk procured in the hinterlands will be less. During this period, supply remains less than demand; hence, milk powder is reconstituted into milk to cater to the demand of liquid milk.

5.1.2 Quantity of milk procured and cost involved in procurement of milk by the private large scale sector during 2007 The Table 4.2 revealed the average quantity and cost involved in procurement of milk by the large scale private units. Raw milk procurement was the highest during December month followed by November and October months. These are the flush season months for milk procurement. Since, the demand being inelastic, the milk procured in excess was diverted for preparation of milk products to augment the increased demand for value added products resulted due to marriage and festivals during the season. The value of procured milk and price per litre were also highest in the respective month mentioned above, whereas the wastage was highest in the month of April. However this is not a healthy sign for the development of dairy industry. The milk producing farmer will be at double disadvantage during these months. On one hand the productivity will be low during these months due to non availability of green fodder leading to lower income to the farmer and on the other hand the wastage value. Wastage may be due to improper handling or may be due to spoilage of milk due to dry and hot weather conditions. In the case of farmer, the wastage can be minimized through formal trainings for proper handlings of such raw materials. The quantity procured and value was lowest in the month of February due to short supply of milk. 5.1.3 Quantity of milk procured and cost involved in procurement of milk by the private small scale sector during 2007 The Table 4.3 revealed the average quantity and cost involved in the procurement of milk by the small scale private sector unit. Raw milk procurement was the highest during October and November months, followed by December and January months, which are the flush season months for milk procurement. Since, the demand being inelastic, the milk procured in excess was diverted for preparation of milk products to augment the increased demand for value added products resulted due to marriage and festivals during the season.

The value of procured milk was highest in the month of March and the price per litre was also high during this month. The wastage was highest in the months of April and May, followed by February and March months. The milk producing farmer will be at double disadvantage during these months. On one hand the productivity will be low during these months due to non availability of green fodder leading to lower income to the farmer. Wastage may be due to improper handling or may be due to spoilage of milk due to dry and hot weather conditions. In the case of small scale units, the wastage can be minimized through formal trainings for proper handlings of such raw materials. Further, it can be seen that of all the units, the quantity and value of raw milk procured, transportation and handling cost and wastage cost was the highest in case of cooperative unit followed by large scale private and small scale private unit, whereas the commission charges were found to be highest in case of small scale private unit, followed by large scale private and co-operative unit. 5.1.4 Quantity and value of raw materials procured by co-operative and different private sector processing units during 2007 The quantum of raw materials procured by different sector milk processing units is the indicator of capacity of processing of the units. Of the three different sectors studied, the cooperative sector was found to be the major player in milk processing business. It is quite understandable that Karnataka milk federation is the operation flood driven cooperative sector organization established since long time. It has wide spread network of procurement centres in roots and corners of the villages and operate through milk collection centres and milk collection vans. It has horizontal linkage between different units to meet the demand for finished products. Hence, obviously its volume of business would be very high. Therefore, to meet the needs of its processing plant the cooperative unit has to procure raw material in large quantities. Because of the similar reasons, the next in the order were large scale private

followed by small scale private processing units in terms of their volume of raw material procurements. Of the different raw material procured, the cost of packing materials was the maximum followed by that other raw materials and sugar. Packaging provides value addition and in turn induces more demand for the products. Hence, it is quite imperative for all the three sector processing units to invest more on packing materials to make it more appealing to grab major share of the total demand for the product in the market. 5.1.5 Seasonal fluctuations in milk procurement by co-operative and different private sector processing units during 2007 From the results of the study (Table 4.5), it is clear that the average procurement of raw milk was more in flush season in general and co-operative unit in particular. The average procurement were to the tune of 76718.08 liters per day in co-operative, 32114.61 litres per day in large scale private sector units and 1076.44 litres per day in small scale private sector units during the months of September to February. This was due to the reason that during flush season, production of milk was high due to cold climate which was conducive for animals, availability of green fodder and chance of grazing in the field for the animals. The average wastage during flush season was also high compared to lean season in co-operative, whereas it was reverse in the case of both large and small scale private sector units. The flush-lean ratio was highest in co-operative unit compared to private large and small scale units, since the procurement and sales was high in co-operative unit. 5.2 PRODUCT MANAGEMENT IN PROCESSING UNITS 5.2.1 Output and capacity utilization by the co-operative processing unit The co-operative milk processing unit studied has utilized about 95 per cent of cent of its installed capacity, which in turn speaks off the success of co-operative movement in the study area. Out of the different products processed, milk processing utilized 96.42 percent of DEMAND AND

its installed capacity highest among the products in terms of their capacity utilization. Curd, SMP and Butter are next in that order. Co-operatives have well established hinterland as for as milk is concerned. With a well connected network of collection points and refrigerated transport vans they can usher to the needs of processing unit. The horizontal integration between different milk unions operating throughout the country would provide siphoning effect to meet the installed capacity of the individual unions. The other products are processed according to local needs and demands. Hence, their capacity utilization would largely depend upon the demand in the immediate following market. 5.2.2 units As that of co-operative milk processing units, large scale private sector units also concentrated more for processing of milk and utilized 84.34 per cent of its installed capacity. Private processing units establish their processing plants based on the demand and availability of raw milk, since they do not afford to waste their investment. Hence, they always try to meet the full capacity. The other important products processed by the large scale units in the order of their important were curd, MBM and lassi. Processing of milk into pedha was in least quantity owing to its fewer quantity of demand in the local market. When one sees the capacity utilization of different products processed, butter utilized maximum (99.89 %) of its installed capacity. MBM, lassi, paneer and curd were the next important products in terms of their capacity utilization. 5.2.3 units In terms of annual quantity processed, milk was processed in highest quantity followed by curd, khowa, ghee and other products. The product which was processed in least Output and capacity utilization by the private small scale processing Output and capacity utilization by the private large scale processing

quantity was MBM. In terms of capacity utilization, the highest capacity utilized was in case of curd and the least capacity utilized was in MBM. The overall capacity utilized in small scale private unit was 89.58 per cent. The small scale private sector units also as that of co-operative and large scale private sector units, tried to meet that full capacity. But these small scale units have much product diversification to meet the local demand. Hence, the specialize in those commodities which have local demand. Therefore, products like shrikand and cream were prepared by them. Since, these product preparations were highly demand initiative the full capacity utilization may not be practically possible. However, they try to reach the full capacity in order to meet atleast the over head expenditure. Further, it was also observed that, higher quantity processed and capacity utilization was observed in co-operative sector unit because the efficiency per unit of consumption of raw materials was very high. They have set up modern processing technology. Plant has significantly increased the processing over the years in co-operative sector unit. In large scale private units the quantity processed was higher compared to small scale private units but the capacity utilized was lower since the installed capacity was much higher than the actual quantity processed in private large scale units. The overall capacity utilized was 95.39 per cent in co-operative unit, which was highest, may be due to the high demand for the products, followed by small scale private (89.58%). The capacity utilized was lowest in large scale private (87.38%), may be due to the reason that of the two units selected under this category, one unit was recently established and may not be utilized to the full capacity. 5.2.4 Cost of carrying inventory of finished products by the co-operative unit It could be observed from the Table 4.9 that, the co-operative processing unit on an average stored the finished products upto a maximum of 45 days. The total cost of carrying inventory was considered as necessary evil with respect to most of the agro-processing units.

The commodity which was stored for maximum duration was ghee, since it was less perishable compared with other products. The average total cost was found to be highest in the case of paneer Rs. 5.04 per kg per day, because the storage and maintenance cost was high. The total cost was least in the case of curd since the storage and maintenance cost was less as it was stored maximum of one day. The interest on carrying inventory was also less in the case of curd. 5.2.5 Cost of carrying inventory of finished products by the private large scale units It is observed from the Table 4.10 that the large scale private processing units on an average stored the finished products upto a maximum of 60 days. The commodity which was stored for maximum duration was ghee, since it was less perishable compared with other products. Usually ghee is not prepared every now and then. Whenever the excess of butter left out in the processing unit they convert it into ghee and store until it is marketed. Though ghee was stored for longer duration (60 days), the cost of storage was maximum in the case of pedha (Rs 8.19/kg/day) which was stored only for 3 days on an average. Ghee can be stored even in room temperature and staked in the bottles one over the other, but pedha has to be stored in particular temperature and cannot be heaped or staked in large quantities. Hence, storage space per unit quantity was also more in the case of pedha. Therefore it had taken more storage and maintenance cost. The total cost was least in case of curd since the storage and maintenance cost and the interest cost was very less for this product. 5.2.6 Cost of carrying inventory of finished products by the private small scale units It is observed from the Table 4.11 that the small scale private processing units on an average stored the finished products upto a maximum of 6 days. The commodity which was stored for maximum duration was paneer. The average total cost was found to be highest in

case of paneer with Rs. 2.02 per kg per day since the storage and maintenance cost was high as compared to other products. The total cost of carrying inventory was the least in the case of lassi and MBM since the interest cost was less for this product. Small scale private sector units had been established with very little investment and hence they did not have proper infrastructure to store the commodities for long. At the same time they cannot keep their investment locked up in stored product. Hence, they specialize in fast moving products in the locality and produce those products depending upon day to day demand. The evidence is there in the table itself, that they produced more quantity of curd and khowa and produced two new products, cream and shrikand to meet the local demand. Hence, production behaviour of small scale private sector units would largely depend upon the local demand of the product rather than the aggregate demand in the market The difference in the cost incurred on carrying inventory by co-operative and private sector processing units was due to differences in per tonne price of different finished products and the number of days it was stored. Hence, there is a need to reduce the storage and maintenance cost and rate of interest on carrying inventory capital, as these reflect in the pricing of finished products while marketing. 5.2.7 Demand management of milk and milk products in different milk processing units From the Table 4.12, it was found that, the total quantity processed and demanded and the value of milk, curd, butter and pedha was highest in case of co-operative unit, followed by private large scale units and private small scale units, as discussed earlier in this chapter, the co-operatives had a wide spread and well knit network of procurement as its area of operation was also very large and the excess of milk procured was diverted towards the production of curd, butter and pedha since the demand for these products produced under their brand name “Nandini” was high. Hence, obviously its volume of business would be very high. Similarly the quantity sold and the sold value of these products was highest in co-

operative unit. The excess and deficit were also highest in co-operative unit, since the quantity processed was highest in this unit compared to all the units. SMP was processed only in co-operative unit. They are very large scale producing units and have to balance the supply of milk regularly to the regular customers. Hence, during flush season they prepare skimmed milk powder (SMP) and store them to use during lean season to offset the demand, by reconstituting SMP into milk. Private units, either small or large scale units solely depend on fresh milk only to meet consumer demand. Hence, only the co-operatives were found producing SMP. In case of MBM, lassi, ghee and paneer, it was found that, the total quantity processed and demanded and the value of the processed product was highest in case of private large scale units, followed by co-operative unit and private small scale units, marketability of many of the dairy products goes with their brand name, and usually the customers are brand loyal. Hence, there used to be a regular demand for a product of particular brand. Similarly the quantity sold and the sold values were highest in these unit. The excess and deficits were also higher in private large scale units, followed by co-operative unit and private small scale units. In khowa, it was found that, the total quantity processed and demanded and the value of the processed product was highest in case of private small scale units, followed by private large scale units and co-operative unit. It is already discussed in the previous sections that production of certain products were highly demand specific. Mysore pak was processed only in private large scale units, and Cream and shrikand were processed only in private small scale units. These small units produce these products in small quantities to meet 1ocal demand. The large units cannot take up production of these products as these products are demanded in small quantities and that too only by a small section of the community. 5.3 VALUE ADDITION IN THE SELECTED UNITS

5.3.1 Product mix in co-operative and private sector milk processing units during 2007 The co-operative sector unit produced a wide range of products (Table 4.13) which include the product groups like liquid milk, curd, SMP, butter, MBM, pedha and ghee formed bulk of product line (99.96 per cent) followed by paneer (0.03 per cent) and Khowa (0.01 per cent). In private large scale units, liquid milk constituted major share accounting for 86.54 per cent of the total product line followed by curd, MBM, lassi, and ghee to an extent of 6.82, 3.87, 1.77 and 0.81 per cent, respectively. In private small scale units, liquid milk constituted major share accounting for 80.65 per cent of the total product line followed by curd, khowa, ghee and butter to an extent of 8.18, 3.65, 2.71, and 1.51 per cent respectively. Thus, the large and small scale private units mainly concentrated on liquid milk, where as the co-operative sector on many product lines such as curd, SMP, butter, MBM, pedha, ghee, paneer and khowa. The product mix of a unit largely depends on the quantum of demand in the market. Depending upon the type of product demanded by the customers, each unit whether it is private or co-operative go for the product mix, supporting the assumption that the production of a given preparation is demand driven. 5.3.2 Cost structure of processing of milk in co-operative and private sector processing units The cost of processing for all the products together was considered and the results presented in the previous chapter are discussed below. The costs associated with the processing of milk were broadly categorized in to two heads, namely, fixed costs and variable costs. The major cost components under fixed costs were salaries, administrative cost, depreciation, and repairs and maintenance. These costs together constituted 8.90 per cent of the total cost in the co-operative sector (Table 4.14). In the private large scale sector the

same costs accounted for 8.45 per cent of total cost whereas in private small scale sector they accounted for 8.80 per cent of total cost. Higher depreciation and maintenance costs in the co-operative sector unit reflected the state of technology used in processing implying that the unit has no modern sophisticated machines. The major items, which constituted the variable costs in processing of milk were raw milk, packing, electricity and other raw materials. These costs accounted for 91.10 per cent of total cost in the co-operative sector unit and 91.55 per cent of the total cost in private large scale and 91.20 per cent private small scale units. The private (large and small scale) sector units, in order to earn more reasonable profits has to make effects of reduce cost per tonne of processed product. Subramanyan and Sudha (1992) also observed that raw material and packing were the two major items of total cost of processing. As the raw milk is the basic raw material for processing units it accounted for highest in the total cost of processing per tonne of processed products in both co-operative and private sector units. It accounted for 83.88 per cent of total cost in co-operative sector, while the same accounted for 83.70 per cent in private large scale and 87.62 in private small scale sector unit. 5.3.3 Sales realization in co-operative and private sector units Gross returns from one tonne of milk (Table 4.15) was Rs. 18349.15, Rs. 16841.04 and Rs. 17968.56 in co-operative, private large scale sector and private small scale sector unit respectively. In all the units, main product which constituted in sales realization was liquid milk followed by other products. Sales realization was more in co-operative sector unit, because quantity sold was more, brand name and the prices associated with them. 5.3.4 Cost and returns in co-operative and private milk processing units Table 4.16 showed that the average cost per tonne incurred on milk processing. In case of co-operative unit it was less i.e., Rs. 13912.08 when compared to private large scale units and private small scale units which were Rs. 15292.14 and Rs. 15940.66, respectively. The co-operative units process large quantity of milk. The economy of large scale operation

operates here. Therefore, the processing cost per unit was lower in cooperative units. Still, it was observed during the investigation that the cooperative unit uses the old technology and old machinery and equipments. The efficiency of these machinery and equipment are low as compared to sophisticated equipments used in private (large and small) units, which were established recently. Hence, cooperatives could reduce their cost of processing still more if they replace their old machinery, equipments and technology with the modern ones. The cost of marketing was also high in private (large and small scale) units compared to co-operative sector unit, due to relatively high transportation costs by the private large scale units. Co-operative units had their own distribution unit, equipped with own transport and distribution equipments and personnel, while the private large scale unit had to depend upon other agencies to do these works. Obviously the cost of marketing per unit would be more in private large scale units. Since there were no huge transportation and handling cost in the case of products processed in private small scale units, the cost of marketing was very less in these units. The total cost was low in co-operative unit compared to private (large and small scale) units, which resulted in higher net returns in co-operative unit. Among the different products processed in both the sectors, the benefit cost ratio was high in co-operative sector (1.23), where as in private large scale units it was only 1.02 and 1.11 in private sector small scale units. Among the two private sector large scale units, one was established very recently and has not utilized its full capacity. Hence, the unit cost would escalate leading to higher cost of processing. The returns per unit also being lesser as compared to co-operative unit the B:C ratio in private large scale sector was low. In small scale private sector units the quantity handled were less. Other things being the same due to non-operation economy of scale thus units had to incur more costs, which has resulted in lower benefit cost ratio. 5.3.5 Comparative price at different stages of marketing of processed

products by milk processing units The comparative prices of processed products at different stages (Table 4.17) revealed that, in co-operative unit the margin was highest in case of butter i.e., Rs. 18.21, followed by ghee, SMP, pedha, paneer and other products. The least margin was observed in case of milk. The M.R.P was also highest in ghee, followed by butter, S.M.P, pedha and margin was also very high in these products. In private large scale units the margin was highest in ghee i.e., Rs. 25, followed butter, pedha, paneer and other products. The least margin was observed in case of milk. The M.R.P was high in ghee, followed by mysore pak, butter, pedha, paneer and other products. In private small scale units, there was no margin for any of the products, hence the ex-factory price itself formed the M.R.P. The M.R.P was high in ghee, followed by butter, paneer, cream and other products. 5.4 SALES MANAGEMENT IN SELECTED UNITS

5.4.1 Annual cost of marketing of processed products by co-operative sector unit It was found that the transportation cost by co-operative unit accounted for maximum in the case of marketing of finished products (Table 4.18), since their area of operation was very large, followed by carriage and hamali charges and advertisement expenses. Some times the milk was lifted to other union to balance the demand. High risk was also associated with long distance transportation like to spoilage and other calamities. All these would add up to the marketing cost to budge. Among all these products the cost under all the categories was highest for milk followed by other products. 5.4.2 Annual cost of marketing of processed products by private large scale units From the Table 4.19, it was found that transportation cost accounted for maximum by private large scale units also as that of co-operative units. These private units had to depend

on private truck or van owners to transport milk and processed products to the sales counters. The distance to be travelled was also very long. Hence, obviously the transportation cost has to be higher in these large scale units. Khowa, pedha and Mysorepak had least cost of marketing as these commodities were transported in milk carrying vans along with milk and their sales were also concentrated in near by cities and towns only. Hence, their marketing costs were lower. 5.4.3 Annual cost of marketing of processed products by private small scale units It was found that carriage and hamali charges accounted for maximum by private small scale units in the case of marketing of processed products (Table 4.20), followed by transportation cost and advertisement expenses, respectively. Among all the products, the marketing cost was highest for milk, followed by other products. It can be seen that the total cost involved in marketing of processed products was highest in co-operative unit, followed by private large scale and private small scale units, respectively. The co-operative units had large area of operation and they had well established brand loyalty to induce demand for the products of co-operative units. This was not the case in private small scale sector. 5.5 PROBLEMS FACED BY THE PROCESSING UNITS

The prevalence of problems in the processing units is somewhat different and these are no exception. The opinions of sample processors on different problems are discussed. In case of co-operative unit, the main problem of the milk processors was processing, because of difficulty in maintenance of machinery, cost effective technology and also moderate availability of skilled labour. In case of private (large and small scale) units, the main problem was finance leading to under utilization of plant which affected their processing capacities. Similar problems were also reported by Venkatasheshaiah (1992) while studying the

processing units. In co-operative unit processing was the most acute problem whereas in case of private (large and small scale) finance occupied the 1st rank. The problems of infrastructural facility and sales was the second major problem in cooperative and private large scale processing units, respectively. All the units complained about the problem of high taxation of the products which constituted major share in total cost. The various studies conducted by Government of India showed that the processed food products have been subjected to high tax incidence at various stages of processing. The problem of finance was the third major problem in co-operative unit, because of moderate availability of funds and high rate of interest where as in case of private sector (large and small scale) units the same problem was considered as the most acute, complaining about the high rate of interest. The major constraints observed in milk processing units were the lack of cost effective technology, irregular power supply, higher taxes for processed products. These could be overcome by proper planning of processing technologies. The units should create some more channels in order to reduce the commission and the competition. The government policies also need to be changed to regulate regular power supply and appropriate tax policies for processed products. 5.6 SWOT ANALYSIS OF THE DAIRY PROCESSING UNITS

5.6.1 SWOT analysis of co-operative processing unit Strength • Regular and guaranteed supply of raw milk from the milk co-operative societies • As it is located in between Dharwad and Hubli it has a spatial advantage • Large area of operation • Maximum capacity utilization • Economy of large scale operation

• Lesser commission and procurement charges • Largest network of artificial insemination centers help to get quality milk from the farmer through societies • Due to horizontal integration, ability to meet the demand and withstand competitiveness even during varied procurement is possible • Well established brand name Weakness • Seasonal fluctuation in supply of raw milk • Due to institutional management losses during handling is higher • Obsolete equipment and technologies • Chronic lack of technical and management skills Opportunities • Increased demand for milk and milk products • Diversification of products • Scope for modernization of the unit Threats • High raw material cost • Strong competition from private companies • Extremely challenging climatic condition 5.6.2 SWOT analysis of large scale processing units Strength • Professional and scientific management • Efficient distribution channels • Use of modern equipments and technology which helps in efficient production • Spatial advantage • Established brand name

• Economy of large scale operation Weakness • Seasonal fluctuation in supply of raw milk • High investment • Lower margins • More number of intermediaries in procurement of milk Opportunities • Increased demand for milk and milk products • Diversification of products Threats • High raw material cost • Strong Competition from local milk vendors and co-operative unit • Extremely challenging climatic condition 5.6.3 SWOT analysis of small scale processing units Strength • Use of less labour keeping the production cost relatively low • Marketing cost is minimized through localized sales and non-use of any sophisticated equipments • Higher demands for products like cream, shrikhand, etc., which are not produced in other units • Intimate relationship with the consumers • Production of those products and quantity as per the demand hence wastage is minimized Weakness • Inadequate institutional and infrastructure facilities like no cold storage non existence

of modernized processing equipments • Inefficient supply chain • Lack of organized marketing of milk • Lack of scientific and profession management • Lack of capital investment • The small scale dairy units are faced with daunting challenges in the area of infrastructure, financial insecurity, quality assurance, price regulation, untrained man power and seasonality Opportunities • Potential demand for milk and milk products • Scope for better marketing network and advertisements • Substantial scope for adoption of modern production, processing and marketing technologies • Key issues for promoting small scale dairy units would be organize farmers; integrate production with marketing, upgrade milk marketing chains and through adoption of modern technology • On the other hand, collective marketing by small processors can result in increased revenue • To ensure product quality, proper transportation of milk should have interconnected cold chains Threats • Inability of processors to collect milk required due to transport and cold chain problems • Lack of affordable milk collection and processing equipment of appropriate capacity and employing appropriate technologies • Extremely challenging climatic conditions

• Very high interest rates for loans • Existence of competition from big units with strong marketing channel and huge advertising budget 6. SUMMARY AND POLICY IMPLICATIONS Milk processing industry in India derives its significance from its high potential for employment at low capital cost, use of local resources, possibilities for forward and backward linkages and its scope for earning more output. With a share of about 14 per cent in world milk production. Milk has achieved a unique status in terms of its output value exceeding Rs. 1,00,000 crores and has made a rapid stride both in terms of number of milk producers and quantity of milk produced. The milk production in India was 17 million tonnes in 1950-51. This could meet only 25 per cent of the domestic demand; the remaining 75 per cent of the demand was met by importing the milk solids. The production was stagnant for two decades till 1970, with annual growth rate of milk production of one per cent. Thanks to the vision and foresight of Dr. Kurien, in 1970 NDDB launched “Operation Flood Programme” with the objective of ending milk famine in the country and turning farmer’s co-operatives into a powerful catalyst for transforming India into a major milk producer in the world. Further, by providing milk producers a remunerative price round the year, milk production in India touched 74 million tonnes in 1997. By the year 2006, India has emerged as the largest milk producer with a production of 100.9million tonnes. This is as a result of India’s “White Revolution” in milk production. Karnataka has always remained in the forefront of all agricultural development initiatives in the country and dairy development is no exception. Dairy farming in Karnataka, like in elsewhere in the country, is largely characterized by the prevalence of dairy enterprises that are mostly subsidiary occupations alongside the main agricultural activity of the farmer. Specialized dairy enterprises do exist but not only is their number abysmally low as compared

to regular types, but also are restricted mostly to urban areas and their surroundings. Karnataka stands eleventh in milk production in the country and it occupies third position with respect to milk production under co-operative sector in the country. The milk production was around 4124 thousand tonnes during the year 2006-07. The KMF is covering 27 districts, with 7000 dairy co-operative societies, around 17000 villages involving 1.5 million farmers collecting around 20 lakh litres of milk daily. The basic functions of any dairy enterprise are procurement, processing and marketing. This type of operation is known as “Anand pattern of dairying”. The management of dairy enterprise should be very careful in these activities. The procurement of milk includes milk collection centers (dairy societies). The other important decision in milk procurement is pricing of milk. The two axis system of milk pricing is commonly used i.e., based on Fat and SNF content of milk. Seasonal fluctuation is another important aspect which needs adequate attention to ensure regular and sufficient milk throughout the year. Since, milk is a perishable commodity, it has to be processed (chilling or pasteurizing) immediately after procurement, otherwise, it gets spoiled. The processing activity cannot be neglected as it converts the milk in consumable form to more value addition forms. 6.1 Supply chain management with perspective to dairy

industry of India: Milk supply chains are more concerned with controlling of milk quality and supply fluctuations which are unique to this sector. Perishable goods like milk require a time efficient supply chain. This perishable factor can affect the milk supply chain. Supply chain management has seen as a source of gaining competitive advantage in the business world. Due to pressures from increased competition resulting from globalization of supply, processing and distribution networks, high levels of service expectations and competitive pricing, the supply chain management has become more important in recent years. For the

success of a dairy industry/firm efficient supply chain management is a pre-requisite. Thus, the supply chain performance of the processing units is a deciding factor for the success of the unit. The Indian supply chain for milk products is affected by abnormal wastage and poor handling. The wastage occurs because of multiple points of handling. Shortage of cold storage facilities and refrigerated transport equipment lead to inefficiencies in handling milk products. There is a compelling requirement for appropriate infrastructure for storage and transportation such as temperature controlled warehouses and vans. By practicing improved supply chain management practices, there will be significant reduction in the wastages of milk and milk products which in turn will benefit both the farmers as well as the consumers by means of increased returns and decrease in price respectively. Given the fragmented nature of the milk supply chain, few companies have access to capital and the ability to invest in supply chain. A detailed study of business performance of milk processing unit would be of immense use to know whether co-operative or the private sector follows the sound supply chain management practices. Keeping in view all these facts, an attempt is being made to assess the management of dairy processing units in Karnataka. The specific objectives are; 1) To analyze the procurement management in different types of dairy processing units. 2) To analyze the demand management and product management. 3) To ascertain the value addition in different products. 4) To analyze the sales management of milk and its products by the units. 5) To analyze the problems faced by the selected units in management of dairy processing. The overall objective of the study was to examine the supply chain management in milk processing units. For the purpose of the study the milk processing sectors were considered. Eight milk processing units representing one from the co-operative sector, two

from private large scale and five from private small scale sectors have been chosen for the study. The Dharwad Milk Union (DMU) processing unit under co-operative, Sri Krishna milks Pvt. Ltd. and Vijaykant milk and food products Pvt. Ltd., under private large scale and Shankar milk centre, Ram Rahim milk centre, Al-Rehman (mote) milk centre, Waghmode and Mullannanavar milk centre under private small scale were selected. Milk processing units are extensively established in and around Dharwad milk union jurisdictions. Being called as educational cities there is a huge demand for milk and its products and it offers a ready market for processed milk products. A brief description of the selected units is presented below. The data relating to procurement management, demand management, sales management and value addition were obtained from the relevant records maintained by the three sectors during the period 2007. The views of processors about the milk processing as well as constraints faced there on were also obtained. The data collected were presented in tabular form to facilitate easy comparisons. Tabular analysis was used to workout averages and percentages for the procurement management, demand management, sales management and value addition. 6.2 Findings of the study

1. The quantity and cost of milk procurement indicated that co-operative unit procured the highest quantity (20.77 lakh litres/month), followed by private large scale and private small scale units. In case of cost involved in procurement of milk, the transportation and handling cost accounted for maximum for all the units. 2. The Procurement pattern of prime raw materials shows that, packing materials accounted for maximum cost, followed by sugar and other raw materials by all the sectors. 3. The seasonal fluctuation in milk procurement revealed that, the procurement of milk

during both flush and lean season was highest in co-operative unit, followed by private large scale and private small scale units, respectively. The flush-lean ratio was 1.24 in co-operative sector, 1.06 in large scale private sector and 1.11 in small scale private sector. 4. In terms of capacity utilization, the top place was occupied by co-operative unit (95.39%), followed by private small scale units (89.58%) and private large scale units (87.38%), respectively. 5. The cost of carrying inventory of finished products indicated that, cooperative unit stored the maximum quantity followed by private large scale units, but the private large scale units stored the products for a maximum duration of 60 days. The quantity stored in private small scale units was very negligible when compared with other units. The total cost incurred on storing the products was found to be high in private large scale units followed by co-operative unit. 6. The demand management of processing units depicted that, the demand for milk, curd, butter and pedha was highest in co-operative unit, whereas private large scale units had the highest demand for MBM, lassi, ghee and paneer. The private small scale units had the highest demand for khowa. Products like SMP, mysore pak, cream and shrikand were demanded and processed only in some sectors. 7. The co-operative sector unit produced a wide range of products which include the product groups like liquid milk, curd, SMP, butter, MBM, pedha and ghee, which formed bulk of product line (99.96 per cent), whereas in private large scale and private small scale units, liquid milk constituted major share accounting for 86.54 per cent and 80.65 per cent, respectively, followed by other products. Thus, the large and small scale private units mainly concentrated on liquid milk, where as the cooperative sector on many product lines such as curd, SMP, butter, MBM, pedha, ghee, paneer and khowa.

8. The major cost components were variable costs, which accounted for 91.10 per cent, 91.55 per cent and 91.20 per cent in the case of co-operative, private large scale and private small scale units, respectively and the rest was made up by fixed costs. The major items, which constituted the variable costs in processing of milk, were raw milk, packing, power and other raw materials. The private (large and small scale) sector units, in order to earn more reasonable profits has to make effects of reduce cost per unit of processed product. 9. Gross returns from one tonne of milk was Rs. 0.18 lakh, Rs. 0.17 lakh and Rs. 0.18 lakh in co-operative, private large scale sector and private small scale sector unit respectively. In all the units, main product which constituted in sales realization was liquid milk. 10. The analysis of costs and returns of processing indicated that on an average, the total cost amounted to Rs. 14963.25, Rs. 16439.38 and Rs. 16149.99 per tonne of milk processed in co-operative, private small scale and private large scale units, respectively. Further, the average gross returns per tonne of milk processed was highest in co-operative unit with Rs. 18349.15, followed by private small scale units (Rs. 17968.56) and private large scale units (Rs. 16841.04), respectively. The B:C ratio was also highest in co-operative unit (1.23), followed by private small scale units (1.11) and private large scale units (1.02). 11. In terms of comparative prices of processed products, in co-operative unit, the M.R.P was highest in ghee, followed by butter, S.M.P, pedha since the margin was also very high in these products. In private large scale units, the margin was high in ghee, followed by Mysorepak, butter, pedha, paneer and other products. In private small scale units, there was no margin for any of the products, hence the billing itself formed the M.R.P. The least margin was observed in case of milk in all the sectors.

12. In case of cost of marketing of processed products, commission charges accounted for maximum in the case of co-operative and private large scale units, followed by other costs like transportation cost, carriage and hamali charges and advertisement expenses. The marketing costs of private small scale units was very less compared to that of co-operative and private large scale units. Further it can be seen that the total cost of marketing of processed products was highest in co-operative unit, followed by private large scale and private small scale units, respectively. This was because of more commission charges by both co-operative and private large scale sector and also accompanied by high transportation costs incurred by both the units, which was not the case in private small scale sector. 13. The constraints observed in milk processing in case of co-operative unit was processing, whereas in case of private (large and small scale) units, the main problem was finance which affected their processing capacities. From the above analysis, it can be concluded that among the three sectors studied the performance efficiency of the co-operative sector unit was superior than that of the private (large and small scale) units. 6.3 POLICY IMPLICATIONS

1. The results indicated that the investment in private processing units was quite high compared to the co-operative sector unit. The performance with respect to economies of scale can be realized through additional investment. The co-operative sector unit should update the production technologies through additional investment and modern equipments and improve efficiency of production. 2. The procurement pattern of raw milk by the private sector unit involved many intermediaries like contractors and sub-contractors. So, the private sector units should evolve a system by reducing the number of intermediaries organizing by farmers producer groups for better procurement.

3. The installed capacity of private sector unit is higher than the co-operative sector unit but the percentage capacity utilization is less in the private sector unit. So, the private sector unit should accelerate their capacity utilization by increasing procurement of raw milk, adequate planning and increased market sales. 4. The number of by products produced in the private sector unit is comparatively less than co-operative sector unit. So, the private unit should increase product mix through product diversification to increase their sales realization. 5. The results of the study have revealed that private small scale units are realizing higher returns for their products due to high demand from the customers due to high quality and good services. The units may be provided with additional funds to produce more processed products to meet the future demands. 6. The private small scale units are producing certain products of local demand and thus increasing their sales realization and inturn net profit. The co-operatives as well as private large scale units can think of establishing sub units exclusively for producing the locally demanded products like Shrikand and cream which will not only add up to their revenue but also bring product competitiveness in the local market. 7. High sales tax has become a serious impediment for promotion of sale of some of the products. Inorder to maintain the tempo of operation flood and white revolution encouragement from the side of the policy is highly imperative. Policy makers think in these like to sustain the growth of dairy industry. 8. Finance has become a serious bottleneck in development of dairy industry. The sector itself being of prime in nature, the subsidy facilities can be extended to the private dairy units also to augment the flow of dairy industry in right direction. REFERENCES

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Kaveri, R. and Bindhu, N.V.U., 2004, Value addition and acceptability of selected Indian recipes with whole and defatted soya flour, Indian J. Nutr. Diet., 41(10): 426-434. Lichtenberg, E. and Zilberman, D., 2000, Storage Technology and the Environment, working paper Department of Agricultural and Resource Economics, University of Maryland, (00/16): 28. Lindgreen, A. and Hingley, M., 2003, The impact of food safety and animal welfare policies on supply chain management- the case of the Tesco meat supply chain, British Food J., 105 (6): 328-349. Madhuri, P. and Kamini Devi., 2003, Value addition to watermelon fruit waste, J. Food Sci. Tech., Mysore, 40 (2): 222-224. Mahesh, M.S. and Nagaraja, K.V., 2002, Coating of cashew kernel baby bits for value addition, J Food Sci. Tech., Mysore, 39 (2): 124-128. Mangla, S., 1995, Reduction in the cost of sugar production and effective management of sugar factories. Indian Sugar, 45: 9-15. Malleswari, M.N., 1996, Mango processing in Andhra Pradesh: Potential infrastructure and constraints. Indian J. Agril. Mkting, 10: 18-27. Maurya, O.P., Singh, G.S. and Kashwaha, R.K.S., 1995, Economics of production and processing of Anola in district Varanasi, Uttar Pradesh: A case study. The Bihar J. Agril. Mkting, 3: 145-151. McCool, A., 1996, Pricing and cost management for the in-flight food service industry, Bottom line, 11 (7): 14-19. Mohammed Ali, 1992, An analysis of fruit and vegetable processing: A comparative study of private and public sector units. M. Sc. (Agri.) Thesis, Univ. Agric. Sci., Bangalore. Narayana Reddy, P., 2004, Efficiency benefits pass on to consumers: New development in retail market environment in India, Indian J. Mkting, pp.23-25.

Natarajan, K.V., 1990, Marketing of milk and milk products, Indian Dairyman, 42(4): 202-204. Nein Pichu and Roan Shiiwen., 2004, Development of a software for the integration of feed formulation and inventory management, J. Chinese Soc. Animal Sci.,, 33 (2): 109116. Prem Kumari, 1992, A study of marketing planning of milk co-operative in Himachal Pradesh – A case study of shimla unit. Indian Co-Op Rev., 29 (3): 285-299. Rachhpal, S. and Darshan, S., 1996, Performance of co-operative sector infrastructure in agro-processing – A case of Punjab market canneries. Indian J. Agril. Mkting, 10: 145-161. Rajesh, S. and Joginder, S., 1996, Marketing pattern for fruits and vegetable processing units. Agril. Mkting, 39: 59-61. Ramandev, J. P., 1998, Management appraisal of cashew processing industry in Uttar Kannada, Karnataka. M. Sc. (Agri.) Thesis, Univ. Agril. Sci., Dharwad. Ramakrishnaiah, N., Pratape, V.M., Sashikala, V.B. and Narasimha, H.V., 2004, “Value addition to by-products from dhal milling industry in India”, Tech., Mysore. 41(5): 492-496. Roy, B. C., 1997, Growth and prospects of fruit and vegetables processing industry in India. The Bihar J. Agril. Mkting, 5: 356-365. Santhosh Kumar., Joshi, P. K. and Suresh Pal., 2003, Growing vegetables - role of research, Econ. Pol. Weekly, 38 (8): 692-694. Saravanan, M.P., Pannarasi, T. and Chandrakumar, M., 2002, Study on the efficiency of cashewnut processing units in Tamil Nadu. The Cashew, 16 (4): 19-24. Sawant, S.S., Naik, U.G. and Talath, J.M., 2001, Marketing mushrooms. Indian J. Agril. Mkting., 15 (2): 88-94. Shobha, 1998, Performance evaluation of fruit and vegetable processing units in North J. Food Sci. and

Karnataka. M. Sc. (Agri.) Thesis, Univ. Agric. Sci., Dharwad. Singh, G.N., Singh, S.N. and Harpal Singh, 1994, Economics of marketing and processing of pulses in districts Bhandra of Bundelkhand region Uttar Pradesh – A case study. Indian J. Agril. Mkting, 8: 230-245. Srinivas, T., Raju, V.T. and Shareef, S.M., 1996, Economics of agro-processing: A case of cashewnut processing in Andhra Pradesh. Indian J. Agril. Mkting, 10: 48-49. Subasinghe, S., 2003, Shrimp - an ideal candidate for value-addition, INFOFISHInternational, 5: 45-46, 48-50. Subramanyam, K. V. and Sudha, M., 1992, Economic feasibility of reestablishing a small scale co-operative processing unit in rural areas – A case study of tomato. Indian J. Agril. Mkting, 7: 23-29. Veena, G. and Tajinder, K., 2000, Performance analysis of Bhogpur and Jargaon sugar mills in Punjab. Indian J. Agril. Mkting, 14 (2): 73-76. Venkateshaiah, K., 1992, Evaluation of groundnut processing units and marketing of products in Cuddapa district of Andhra Pradesh. M. Sc. (Agri.) Thesis, Univ. Agric. Sci., Dharwad. Vickner, S.S., Trienekens, J.H. and Omta, S.W.K., 2002, Equity market valuation of supply chain management technology adoption, Paradoxes in Food Chains and Networks. Proceedings of the Fifth International Conference on Chain and Network Management in Agribusiness and the Food Industry, Noordwijk, Netherlands, 6-8 June 2002, pp. 352-357. APPENDIX APPENDIX I

Demand management of Milk in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes) Quantity Deficit (Tonnes) Jan 1825.95 272.79 1659.96 247.99 166.00 Feb 1648.11 246.41 1526.03 228.16 122.08 -

Mar 1681.27 256.44 1715.58 261.68 - 34.31 Apr 1407.42 196.42 1563.80 218.24 - 156.38 May 1406.73 195.87 1654.98 230.44 - 248.25 Jun 1269.87 139.12 1548.63 169.66 - 278.75 Jul 1497.52 255.47 1593.10 271.78 - 95.59 Aug 1592.33 223.90 1624.83 228.47 - 32.50 Sep 1607.12 226.12 1575.61 221.69 31.51 Oct 1790.24 252.50 1642.42 231.65 147.82 Nov 1746.39 245.45 1559.27 219.15 187.11 Dec 1811.77 263.67 1617.65 235.42 194.12 1 Cooperative Average 1607.06 231.18 1606.82 230.36 141.44 140.96 Jan 859.24 131.87 781.12 119.89 78.11 Feb 778.64 119.68 720.97 110.82 57.68 Mar 690.32 103.65 750.35 112.66 - 60.03 Apr 611.95 95.42 695.40 108.43 - 83.45 May 598.16 93.69 703.72 110.22 - 105.56 Jun 665.75 102.74 832.18 128.43 - 166.44 Jul 755.12 116.66 770.53 119.04 - 15.41 Aug 757.35 117.57 742.50 115.27 14.85 Sep 755.31 118.81 719.34 113.15 35.97 Oct 879.99 132.05 799.99 120.04 80.00 Nov 1028.98 160.38 935.44 145.80 93.54 -

Dec 1116.57 182.09 996.93 162.58 119.63 2 Private large scale units Average 791.45 122.88 787.37 122.19 68.54 86.18 Jan 18.03 2.82 16.93 2.65 1.10 Feb 15.30 2.41 14.78 2.33 0.52 Mar 19.13 3.05 19.82 3.16 - 0.69 Apr 18.42 2.94 19.09 3.05 - 0.67 May 12.35 2.05 13.07 2.17 - 0.72 Jun 9.06 1.47 9.49 1.54 - 0.43 Jul 9.60 1.56 9.84 1.60 - 0.25 Aug 10.26 1.66 10.31 1.67 - 0.05 Sep 10.41 1.71 10.47 1.72 - 0.05 Oct 19.32 3.07 19.03 3.03 0.29 Nov 19.70 3.13 19.03 3.02 0.67 Dec 18.36 2.87 17.40 2.72 0.96 3 Private small scale units Average 14.99 2.40 14.94 2.39 0.71 0.41

APPENDIX II

Demand management of Curd in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh

Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 307.59 55.37 279.62 50.33 27.96 Feb 310.98 55.98 287.94 51.83 23.04 Mar 423.24 76.18 431.87 77.74 - 8.64 Apr 230.03 41.41 255.59 46.01 - 25.56 May 213.16 38.37 250.77 45.14 - 37.62 Jun 142.59 25.67 173.89 31.30 - 31.30 Jul 177.73 31.99 189.07 34.03 - 11.34 Aug 216.36 38.94 220.78 39.74 - 4.42 Sep 212.23 38.20 208.07 37.45 4.16 Oct 295.35 53.16 270.97 48.77 24.39 Nov 326.36 58.74 291.39 52.45 34.97 Dec 314.24 56.56 280.57 50.50 33.67 1 Cooperative Average 264.15 47.55 261.71 47.11 24.70 19.81 Jan 122.24 24.45 111.13 22.23 11.11 0

Feb 120.35 24.07 111.43 22.29 8.92 0 Mar 109.50 21.90 119.02 23.80 - 9.52 Apr 111.00 22.20 126.13 25.23 - 15.14 May 62.06 12.15 73.02 14.29 - 10.95 Jun 47.12 9.02 58.89 11.28 - 11.78 Jul 43.38 8.34 44.27 8.51 - 0.89 Aug 54.61 10.58 53.54 10.37 1.07 Sep 55.24 10.66 52.61 10.15 2.63 Oct 74.57 14.33 67.79 13.03 6.78 Nov 88.29 16.89 80.26 15.35 8.03 Dec 89.96 17.19 80.32 15.35 9.64 2 Private large scale units Average 74.68 14.55 74.46 14.51 6.36 8.99 Jan 1.63 0.33 1.53 0.31 0.10 Feb 1.46 0.29 1.41 0.28 0.05 Mar 1.50 0.30 1.55 0.31 - 0.05 Apr 1.50 0.30 1.55 0.31 - 0.05 May 1.45 0.29 1.53 0.31 - 0.08 Jun 1.36 0.27 1.43 0.29 - 0.06 Jul 1.42 0.28 1.46 0.29 - 0.04 Aug 1.45 0.29 1.46 0.29 - 0.01 Sep 1.56 0.31 1.57 0.31 - 0.01

Oct 1.60 0.32 1.57 0.31 0.02 Nov 1.61 0.32 1.56 0.31 0.05 Dec 1.65 0.33 1.57 0.31 0.09 3 Private small scale units Average 1.52 0.30 1.51 0.30 0.06 0.04

APPENDIX III

Demand management of SMP in co-operative and private sector processing units

Sl. No.

Unit Month

Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 54.73 77.13 49.76 70.11 4.98 Feb 12.41 17.49 11.49 16.19 0.92 Mar 34.98 49.28 35.69 50.29 - 0.71 Apr 0.74 1.04 0.82 1.15 - 0.08 May 0.74 1.04 0.87 1.22 - 0.13

Jun 0.27 0.38 0.33 0.47 - 0.06 Jul 21.19 29.86 22.54 31.77 - 1.35 Aug 28.54 40.22 29.13 41.04 - 0.58 Sep 16.45 23.18 16.13 22.72 0.32 Oct 35.70 50.30 32.75 46.15 2.95 Nov 51.46 72.52 45.95 64.75 5.51 Dec 58.07 81.83 51.85 73.06 6.22 1 Cooperative Average 26.27 37.02 24.77 34.91 3.48 0.49 Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 2 Private

large scale units Average - - - - - Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 3 Private small scale units Average - - - - - -

APPENDIX IV

Demand management of Butter in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs)

Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 28.61 43.43 26.01 39.48 2.60 Feb 29.48 44.74 27.29 41.43 2.18 Mar 21.46 32.58 21.90 33.24 - 0.43 Apr 12.47 18.93 13.86 21.04 - 1.39 May 8.65 13.13 10.17 15.44 - 1.52 Jun 8.74 13.27 10.66 16.19 - 1.91 Jul 4.10 6.22 4.36 6.62 - 0.26 Aug 12.98 19.71 13.25 20.11 - 0.26 Sep 17.79 27.00 17.44 26.47 0.35 Oct 21.44 32.54 19.67 29.85 1.77 Nov 33.81 51.32 30.19 45.82 3.62 Dec 34.54 52.43 30.84 46.81 3.70 1 Cooperative Average 19.51 29.61 18.80 28.54 2.37 0.96 Jan 0.56 0.70 0.51 0.64 0.05 Feb 0.43 0.53 0.39 0.49 0.03 -

Mar 0.29 0.36 0.31 0.39 - 0.02 Apr 0.39 0.49 0.44 0.56 - 0.05 May 0.44 0.55 0.52 0.65 - 0.07 Jun 0.41 0.51 0.51 0.64 - 0.10 Jul 0.68 0.85 0.70 0.87 - 0.01 Aug 0.96 1.21 0.95 1.18 0.02 Sep 0.71 0.89 0.68 0.85 0.03 Oct 3.42 4.27 3.11 3.88 0.31 Nov 2.98 3.72 2.71 3.38 0.27 Dec 3.72 4.65 3.32 4.15 0.40 2 Private large scale units Average 1.25 1.56 1.18 1.47 0.16 0.05 Jan 0.30 0.46 0.29 0.43 0.02 Feb 0.27 0.41 0.26 0.40 0.01 Mar 0.29 0.43 0.30 0.45 - 0.01 Apr 0.28 0.42 0.29 0.44 - 0.01 May 0.26 0.40 0.28 0.42 - 0.01 Jun 0.25 0.37 0.26 0.39 - 0.01 Jul 0.25 0.38 0.26 0.39 - 0.01 Aug 0.26 0.39 0.26 0.40 - Sep 0.28 0.43 0.29 0.43 - Oct 0.29 0.45 0.29 0.44 - -

Nov 0.30 0.46 0.29 0.45 0.01 Dec 0.31 0.46 0.29 0.44 0.02 3 Private small scale units Average 0.28 0.42 0.28 0.42 0.01 0.01

APPENDIX V

Demand management of MBM in co-operative and private sector processing units

Sl. No.

Unit Month

Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 19.01 2.85 17.28 2.59 1.73 Feb 34.19 5.13 31.65 4.75 2.53 Mar 59.99 9.00 61.21 9.18 - 1.22 Apr 24.66 3.70 27.40 4.11 - 2.74 May 21.53 3.23 25.33 3.80 - 3.80 Jun 4.27 0.64 5.21 0.78 - 0.94

Jul 3.21 0.48 3.42 0.51 - 0.21 Aug 2.42 0.36 2.47 0.37 - 0.05 Sep 14.41 2.16 14.12 2.12 0.28 Oct 14.71 2.21 13.49 2.02 1.21 Nov 12.38 1.86 11.05 1.66 1.33 Dec 12.18 1.83 10.87 1.63 1.30 1 Cooperative Average 18.58 2.79 18.62 2.79 1.40 1.49 Jan 13.03 1.95 11.85 1.78 1.18 Feb 317.09 47.56 293.60 44.04 23.49 Mar 116.08 17.41 126.17 18.93 - 10.09 Apr 164.81 24.72 187.28 28.09 - 22.47 May 67.32 10.01 79.20 11.78 - 11.88 Jun 11.63 1.70 14.54 2.12 - 2.91 Jul 2.84 0.43 2.90 0.44 - 0.06 Aug 3.49 0.52 3.42 0.51 0.07 Sep 3.22 0.48 3.07 0.46 0.15 Oct 10.41 1.56 9.46 1.42 0.95 Nov 10.43 1.56 9.48 1.42 0.95 Dec 5.35 0.79 4.78 0.70 0.57 2 Private large scale

units Average 54.00 8.08 56.28 8.42 3.49 8.89 Jan 0.18 0.03 0.17 0.03 0.01 Feb 0.19 0.03 0.18 0.03 0.01 Mar 0.18 0.03 0.19 0.03 - 0.01 Apr 0.18 0.03 0.19 0.03 - 0.01 May 0.18 0.03 0.19 0.03 - 0.01 Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 3 Private small scale units Average 0.18 0.03 0.18 0.03 0.01 0.01

APPENDIX VI

Demand management of Pedha in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 15.13 17.53 13.76 15.93 1.38 Feb 12.01 13.91 11.12 12.88 0.89 Mar 13.42 15.55 13.69 15.86 - 0.27 Apr 10.49 12.15 11.66 13.50 - 1.17 May 11.04 12.78 12.98 15.04 - 1.95 Jun 9.92 11.50 12.10 14.02 - 2.18 Jul 12.03 13.93 12.79 14.82 - 0.77 Aug 13.44 15.57 13.72 15.89 - 0.27 Sep 16.37 18.96 16.05 18.59 0.32 Oct 16.88 19.56 15.49 17.94 1.39 Nov 14.21 16.46 12.69 14.70 1.52 Dec 15.55 18.01 13.88 16.08 1.67 1 Cooperative Average 13.37 15.49 13.33 15.44 1.19 1.10 Jan 0.04 0.04 0.03 0.04 - Feb 0.03 0.04 0.03 0.03 - Mar 0.02 0.02 0.02 0.03 - Apr 0.05 0.06 0.06 0.07 - 0.01 May 0.02 0.02 0.02 0.03 - Jun 0.05 0.06 0.06 0.07 - 0.01

Jul 0.04 0.05 0.04 0.05 - Aug 0.07 0.09 0.07 0.08 - Sep 0.06 0.07 0.05 0.06 - Oct 0.25 0.29 0.22 0.27 0.02 Nov 0.24 0.28 0.22 0.26 0.02 Dec 0.07 0.09 0.07 0.08 0.01 2 Private large scale units Average 0.10 0.11 0.09 0.11 0.01 0.01 Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 3 Private

small scale units Average - - - - - -

APPENDIX VII

Demand management of Lassi in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value

(lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 12.67 3.17 11.52 2.88 1.15 Feb 22.79 5.70 21.10 5.28 1.69 Mar 39.99 10 40.81 10.20 - 0.82 Apr 16.44 4.11 18.26 4.57 - 1.83 May 14.35 3.59 16.89 4.22 - 2.53 Jun 2.85 0.71 3.47 0.87 - 0.63 Jul 2.14 0.54 2.28 0.57 - 0.14 Aug 1.61 0.40 1.64 0.41 - 0.03 Sep 9.60 2.40 9.42 2.35 0.19 Oct 9.81 2.45 9.00 2.25 0.81 -

Nov 8.25 2.06 7.37 1.84 0.88 Dec 8.12 2.03 7.25 1.81 0.87 1 Cooperative Average 12.39 3.10 12.42 3.10 0.93 1.00 Jan 24.84 6.21 22.58 5.65 2.26 Feb 32.39 8.10 29.99 7.50 2.40 Mar 58.57 14.64 63.67 15.92 - 5.09 Apr 78.97 19.74 89.74 22.44 - 10.77 May 66.40 16.60 78.12 19.53 - 11.72 Jun 14.65 3.66 18.31 4.58 - 3.66 Jul 7.41 1.85 7.56 1.89 - 0.15 Aug 9.60 2.40 9.41 2.35 0.19 Sep 11.13 2.78 10.60 2.65 0.53 Oct 19.34 4.84 17.58 4.40 1.76 Nov 21.49 5.37 19.54 4.88 1.95 Dec 21.27 5.32 18.99 4.75 2.28 2 Private large scale units Average 30.51 7.63 32.17 8.04 1.62 6.28 Jan 0.43 0.11 0.40 0.10 0.03 Feb 0.39 0.10 0.38 0.09 0.01 -

Mar 0.40 0.10 0.41 0.10 - 0.01 Apr 0.39 0.10 0.41 0.10 - 0.01 May 0.39 0.10 0.41 0.10 - 0.02 Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 3 Private small scale units Average 0.40 0.10 0.40 0.10 0.02 0.02

APPENDIX VIII

Demand management of Ghee in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit

(Tonnes) Jan 13.56 24.03 12.32 21.84 1.23 Feb 12.55 22.24 11.62 20.59 0.93 Mar 24.62 43.64 25.12 44.53 - 0.50 Apr 3.38 5.99 3.75 6.65 - 0.37 May 3.23 5.73 3.80 6.74 - 0.57 Jun 1.72 3.05 2.10 3.72 - 0.38 Jul 10.12 17.94 10.76 19.08 - 0.65 Aug 1.25 2.21 1.27 2.25 - 0.03 Sep 10.02 17.77 9.83 17.42 0.20 Oct 12.98 23.01 11.91 21.11 1.07 Nov 20.93 37.10 18.69 33.13 2.24 Dec 12.57 22.28 11.22 19.90 1.35 1 Cooperative Average 10.58 18.75 10.20 18.08 1.17 0.42 Jan 14.99 24.73 13.62 22.48 1.36 Feb 14.02 23.14 12.98 21.42 1.04 Mar 14.75 24.33 16.03 26.45 - 1.28 Apr 11.26 18.58 12.80 21.11 - 1.54 May 11.79 19.45 13.87 22.88 - 2.08 Jun 12.57 20.73 15.71 25.92 - 3.14 Jul 16.88 27.85 17.23 28.42 - 0.34 Aug 12.80 21.12 12.55 20.70 0.25 -

Sep 19.96 32.93 19.01 31.36 0.95 Oct 17.52 28.91 15.93 26.28 1.59 Nov 16.22 26.76 14.75 24.33 1.47 Dec 13.83 22.82 12.35 20.38 1.48 2 Private large scale units Average 14.71 24.28 14.73 24.31 1.16 1.68 Jan 0.52 1.10 0.49 1.03 0.03 Feb 0.47 0.99 0.45 0.95 0.02 Mar 0.52 1.09 0.54 1.13 - 0.02 Apr 0.53 1.11 0.55 1.15 - 0.02 May 0.46 0.96 0.49 1.02 - 0.03 Jun 0.44 0.93 0.46 0.97 - 0.02 Jul 0.45 0.95 0.47 0.98 - 0.01 Aug 0.47 0.99 0.48 1.00 - Sep 0.51 1.07 0.51 1.07 - Oct 0.54 1.14 0.54 1.12 0.01 Nov 0.55 1.16 0.53 1.12 0.02 Dec 0.55 1.15 0.52 1.09 0.03 3 Private small scale units

Average 0.50 1.05 0.50 1.05 0.02 0.01

APPENDIX IX

Demand management of Paneer in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold

(tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 0.64 0.74 0.58 0.67 0.06 Feb 0.57 0.65 0.53 0.60 0.04 Mar 0.59 0.68 0.60 0.69 - 0.01 Apr 0.44 0.51 0.49 0.57 - 0.05 May 0.51 0.58 0.60 0.68 - 0.09 Jun 0.47 0.54 0.57 0.66 - 0.10 Jul 0.44 0.51 0.47 0.54 - 0.03 Aug 0.54 0.62 0.55 0.63 - 0.01 Sep 0.62 0.72 0.61 0.70 0.01 Oct 0.70 0.80 0.64 0.74 0.06 Nov 0.65 0.75 0.58 0.67 0.07 Dec 0.69 0.79 0.61 0.70 0.07 1

Cooperative Average 0.57 0.66 0.57 0.65 0.05 0.05 Jan 0.95 1.10 0.87 1.00 0.09 Feb 1.47 1.69 1.36 1.56 0.11 Mar 1.18 1.35 1.28 1.47 - 0.10 Apr 1.72 1.98 1.95 2.25 - 0.23 May 1.17 1.34 1.37 1.58 - 0.21 Jun 1.56 1.79 1.94 2.24 - 0.39 Jul 1.79 2.06 1.82 2.10 - 0.04 Aug 2.97 3.41 2.91 3.35 0.06 Sep 3.61 4.15 3.44 3.95 0.17 Oct 1.19 1.36 1.08 1.24 0.11 Nov 1.35 1.55 1.22 1.41 0.12 Dec 1.14 1.31 1.01 1.17 0.12 2 Private large scale units Average 1.67 1.92 1.69 1.94 0.11 0.19 Jan 0.16 0.23 0.15 0.21 0.01 Feb 0.15 0.21 0.14 0.20 0.01 Mar 0.15 0.21 0.15 0.21 - 0.01 Apr 0.15 0.21 0.15 0.22 - 0.01 May 0.14 0.19 0.15 0.20 - 0.01

Jun 0.12 0.17 0.13 0.18 - 0.01 Jul 0.12 0.17 0.13 0.18 - Aug 0.13 0.18 0.13 0.18 - Sep 0.14 0.19 0.14 0.19 - Oct 0.16 0.22 0.15 0.21 - Nov 0.16 0.22 0.15 0.21 0.01 Dec 0.16 0.23 0.15 0.21 0.01 3 Private small scale units Average 0.14 0.20 0.14 0.20 0.01 0.01

APPENDIX X Demand management of khowa in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan 0.18 0.24 0.17 0.22 0.02 Feb 0.26 0.33 0.24 0.31 0.02 Mar 0.12 0.16 0.12 0.16 - -

Apr 0.14 0.18 0.16 0.20 - 0.02 May 0.44 0.58 0.52 0.68 - 0.08 Jun 0.13 0.17 0.16 0.21 - 0.03 Jul 0.07 0.09 0.08 0.10 - 0.01 Aug 0.09 0.11 0.09 0.11 - Sep 0.08 0.10 0.08 0.10 - Oct 0.07 0.08 0.06 0.08 0.01 Nov 0.28 0.36 0.25 0.32 0.03 Dec 0.16 0.20 0.14 0.18 0.02 1 Cooperative Average 0.17 0.22 0.17 0.22 0.01 0.02 Jan 0.22 0.22 0.20 0.20 0.02 Feb 0.20 0.20 0.18 0.18 0.01 Mar 0.31 0.31 0.33 0.33 - 0.03 Apr 0.26 0.26 0.29 0.29 - 0.04 May 0.25 0.25 0.30 0.30 - 0.05 Jun 0.26 0.26 0.32 0.32 - 0.06 Jul 0.29 0.29 0.30 0.30 - 0.01 Aug 0.28 0.28 0.28 0.28 0.01 Sep 0.29 0.29 0.27 0.27 0.01 Oct 0.55 0.55 0.50 0.50 0.05 Nov 0.24 0.24 0.22 0.22 0.02 Dec 0.35 0.35 0.31 0.31 0.04 -

2 Private large scale units Average 0.29 0.29 0.29 0.29 0.02 0.04 Jan 0.73 0.88 0.69 0.83 0.04 Feb 0.68 0.81 0.65 0.79 0.02 Mar 0.68 0.82 0.70 0.84 - 0.02 Apr 0.69 0.83 0.72 0.86 - 0.03 May 0.62 0.75 0.66 0.79 - 0.04 Jun 0.60 0.72 0.63 0.75 - 0.03 Jul 0.59 0.70 0.60 0.72 - 0.02 Aug 0.60 0.72 0.60 0.72 - Sep 0.69 0.83 0.69 0.83 - Oct 0.73 0.87 0.72 0.86 0.01 Nov 0.76 0.91 0.73 0.88 0.03 Dec 0.75 0.90 0.71 0.85 0.04 3 Private small scale units Average 0.68 0.81 0.68 0.81 0.03 0.02

APPENDIX XI

Demand management of Mysore pak in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold

Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 1 Cooperative

Average - - - - - Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug 0.09 0.13 0.08 0.13 - Sep 0.14 0.21 0.13 0.20 0.01 Oct 0.51 0.76 0.46 0.70 0.05 Nov 0.59 0.88 0.53 0.80 0.05 Dec 0.24 0.36 0.22 0.33 0.03 2 Private unit (large scale) Average 0.31 0.47 0.29 0.43 0.03 Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - -

Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 3 Private unit (small scale) Average - - - - - -

APPENDIX XII

Demand management of Cream in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes) Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan - - - - - Feb - - - - - -

Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 1 Cooperative Average - - - - - Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - -

Dec - - - - - 2 Private unit (large scale) Average - - - - - Jan 0.16 0.22 0.15 0.21 0.01 Feb 0.15 0.20 0.14 0.19 - Mar 0.15 0.20 0.15 0.21 - 0.01 Apr 0.15 0.20 0.15 0.20 - 0.01 May 0.13 0.18 0.14 0.19 - 0.01 Jun 0.12 0.17 0.13 0.17 - 0.01 Jul 0.13 0.17 0.13 0.18 - Aug 0.12 0.17 0.13 0.17 - Sep 0.15 0.20 0.15 0.20 - Oct 0.16 0.21 0.15 0.21 - Nov 0.16 0.21 0.15 0.20 - Dec 0.16 0.22 0.15 0.21 0.01 3 Private unit (small scale) Average 0.15 0.20 0.15 0.20 0.01 0.01

APPENDIX XIII

Demand management of Shrikand in co-operative and private sector processing units

Sl. No.

Unit Month Quantity Processed (tonnes) Processed Value (lakh Rs) Quantity Sold (tonnes)

Sold Value (lakh Rs) Quantity Excess (Tonnes)

Quantity Deficit (Tonnes) Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 1 Cooperative

Average - - - - - Jan - - - - - Feb - - - - - Mar - - - - - Apr - - - - - May - - - - - Jun - - - - - Jul - - - - - Aug - - - - - Sep - - - - - Oct - - - - - Nov - - - - - Dec - - - - - 2 Private unit (large scale) Average - - - - - Jan 0.13 0.12 0.12 0.12 0.01 Feb 0.12 0.11 0.11 0.10 - Mar 0.12 0.11 0.12 0.12 - Apr 0.12 0.11 0.12 0.11 - May 0.12 0.11 0.12 0.12 - 0.01 Jun 0.09 0.08 0.10 0.09 - Jul 0.10 0.09 0.10 0.09 - -

Aug 0.10 0.09 0.10 0.09 - Sep 0.12 0.11 0.12 0.11 - Oct 0.13 0.12 0.12 0.11 - Nov 0.12 0.11 0.12 0.11 - Dec 0.13 0.12 0.12 0.11 0.01 3 Private unit (small scale) Average 0.12 0.11 0.12 0.11 0.01 0.01

SUPPLY CHAIN MANAGEMENT IN DAIRY PROCESSING UNITS - A COMPARATIVE ANALYSIS OF PRIVATE AND CO-OPERATIVE UNITS

NITHIN R. R. MAJOR ADVISOR

2008

Dr. R. A. YELEDHALLI

ABSTRACT Supply Chain Management (SCM) is the process of planning, implementing and controlling the operations of the supply chain as efficiently as possible. Milk supply chains are more concerned with controlling of milk quality and supply fluctuations. For the success of a dairy industry, efficient supply chain management is a pre-requisite. Hence, an effort was made to assess the management of dairy processing units in co-operative and private

sectors. The study revealed that both co-operative and private sector units procured highest quantity of raw milk during flush season, due to high production. Of all the three sectors, the co-operative unit utilized maximum installed capacity compared to other sectors. The benefit cost ratio was also high in co-operative sector, followed by private small scale and private large scale units. The total quantity of milk processed and demanded was highest in cooperative unit, followed by private large scale and private small scale units. The large and small scale private units mainly concentrated on liquid milk, where as the co-operative sector concentrated on many product lines such as curd, butter, pedha, ghee, paneer and khowa. The variable costs were the major cost component in processing of milk in all the three sectors. The total cost of marketing of processed products was highest in co-operative unit, followed by private large scale and private small scale units, since co-operative unit had large area of operation and well established brand loyalty. Sales realization was more in cooperative sector unit compared to other units, because quantity sold was more. In cooperative unit processing was the most acute problem whereas in case of private (large and small scale) units, finance was the major problem. The major constraints observed in milk processing units were the lack of cost effective technology, irregular power supply and higher taxes for processed products.

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