Indian J Dairy Sci 71(5): 509-516
RESEARCH ARTICLE
Patterns and determinants of organized dairy industry growth: A panel study
Shiv Raj Singh and K K Datta
Received: 24 March 2018/Accepted: 21 August 2018
Abstract: Milk processing in India is around 35 per cent, of
which the organized dairy industry accounts for 13 per cent of
the milk produced, the remaining 22 per cent is processed in the
unorganized sector. The locational pattern of organised dairy
factories in India depicted a skewed distribution across the states
and regions during the study period. Andhra Pradesh, Tamil
Nadu, Maharashtra and Gujarat were the leading states in
organised dairy manufacturing which together accounted for 70
per cent of the total factories in India. The region-wise analysis
showed that the maximum number of dairy factories were located
in the Southern region followed by Western, Central, Northern
and Eastern regions, respectively. In India, growth rate of
organised dairy factories was around 8 per cent over the study
period. However, at regional and state level the growth rates
were not uniform. Across different regions, growth rates of
organised dairy factories were positive except for Eastern region.
As per the results of two-way fixed effect model, productivity of
milch animals negatively influenced the throughput of milk used
in organised dairy industry. On the other hand female bovine
population positively influenced the throughput of milk in the
organised dairy industry. It is important to note that the
expenditure on milk and milk products negatively influenced the
throughput of milk in the organised dairy industry. Buffalo-cattle
ratio significantly positive influenced the throughput of milk.
Similarly, at regional level, various factors behaved differently
(sign) and their magnitude differed substantially. As expected,
Shiv Raj Singh ()
Department of Agricultural Economics,
C.P. College of Agriculture, SDAU, S.K. Nagar, Gujarat-385506, India
E-mail: shivagritech2007@gmail.com; Mobile: +919427138530
K K Datta
Central Agricultural University, School of Post Graduate Studies,
Umroi Road, Umiam, Meghalaya – 793 103, India
509
female bovine population positively influenced the throughput
of milk across the Central, Northern and Southern regions.
Similarly, buffalo-cattle ratio was important factor in the Southern
region of India. However, in Northern and Western regions
productivity of milch animals has negatively influenced the
throughput of milk used in the organised dairy industry.
Keywords: Fixed effect model, Dairy industry, Panel data
Introduction
Indian dairy sector has shown tremendous growth in terms of
milk production, from 17 million tonnes (1950-51) to 165.4 million
tonnes (2016-17) (Department of Animal Husbandry, Dairying
and Fisheries, 2017-18). This transition from deficiency to
sufficiency has been achieved by a series of policy interventions
by the government. It has been found that in the first phase of
‘Operation Flood’, growth rate of value-added products was 0.93
per cent per annum, but in the third phase, it became 9.10 per cent
per annum (Singh & Datta, 2010). Milk processing in India is
around 35 per cent, of which the organized dairy industry
accounts for only 13 per cent of the milk produced with the
remaining 22 per cent being processed in the unorganised sector
(MOFPI, 2006-07). The Indian dairy sector is different from other
dairy producing countries as India places its emphasis on both
cattle and buffalo milk. Out of all the bovine population in India,
40 per cent are indigenous cows, 46 per cent are buffaloes and 14
per cent are European or North American cattle cross breeds.
Out of the nation’s total milk production, about 55 per cent comes
from buffaloes and remainder from dairy cows (Rao, 2017). CRISIL
(2018) foresees revenue from value-added dairy products growing
at a healthy 14-15 per cent annually over the next three fiscals.
NDDB 2007-08 statistics indicate that cooperative sector procured
82 per cent of milk from six states, i.e., Andhra Pradesh, Rajasthan,
Tamil Nadu, Karnataka, Maharashtra and Gujarat. But Uttar
Pradesh, which is the highest milk producing state, is unable to
take that advantage. Therefore, there may be some other factors,
which influence the growth of industry in particular location.
Different studies were conducted to access the growth of dairy
industry across the states overtime. Most of these studies showed
that across the states in different time horizons growth of dairy

industry shows major shifts (Singh and Datta, 2010; Verma and
Rana, 1997 and Singh et al., 2013, Reddy & Kumari, 2014).
Regarding the factor responsible for growth of dairy industry
limited studies was conducted. As per the Verma and Rana (1997)
study the factor contributing to the growth of dairy industry
attributed by milk production and net value of output lagged by
two years. As we know that most of the studies adopted OLS
approach to estimate the determinants for the growth or by using
the descriptive statistics. These studies suffer from the limitation
that researchers do not given the due importance to the spatial
and time effects, in absence of these effect some time estimates
are not efficient as by considering these effects (Platoni et al.,
2012). Therefore, to study the determinants of growth of dairy
industry we adopted fixed effect approach of regression. So, that
estimates provide efficient estimates which help to access the
importance of different determinant variables and to formulate
the policies which augment the growth of dairy industry across
the regions.
With this background, this study is mainly focused on to access
the growth of organized dairy industry across the states and
over the time as well as to study the determinants of growth.
Materials and Methods
The study is based on secondary data. The Annual Survey of
Industries (ASI) is the only agency, which collects yearly data
on various aspects of the manufacturing unit (factory) in the
organized manufacturing sector. The unit level data for organised
dairy products manufacturing factories was collected from Annual
Survey of Industries (ASI) from Central Statistical Organization
(CSO), Ministry of Statistics and Programme Implementation,
Government of India, New Delhi. In this study, unit level data
was used for the period 1994-95 to 2007-08. Other data was
collected from Department of Animal Husbandry, Dairying and
Fisheries and Ministry of Statistics and Programme
Implementation (National Sample Survey Organization).
Analytical tools
To meet the objectives of the study, tabular analysis and two-
way fixed effect regression analysis were employed. State level
analysis mainly confine to major 17 states1.
Dairy processing industry refers to the manufacturing sector
that processes raw materials from dairy sector. Organised dairy
processing industry is defined as comprising of units using ten
or more workers with the aid of power or twenty or more workers
without aid of power (based on Factory Act, 1948).
The Compound Growth Rate (CGR) of the dairy processing
industry has been estimated to comprehend the increase or
decrease of dairy processing factories/plants over the study
period. It was estimated at state and country level in order to
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Indian J Dairy Sci 71(5): 509-516
understand the spatial and temporal patterns of growth of the
dairy processing units.
Compound annual growth rate of organised dairy processing
factories was estimated from time series data for the period 1994-
2008. The exponential growth model used is specified below:
where,
=Number of dairy processing units in t-year
= Constant term
= Regression coefficient
= Time period
= Error Term
Based on the estimated slope parameter (b), the CAGR (%) was
calculated as:
CAGR (%) = [Antilog of (b*)-1] x 100
where b*=Log b
To describes the econometric framework that was used to estimate
the determinants of growth of dairy industry. The econometric
model specification involves regressing throughput of milk
against the regressor variables, while controlling for state and
time effects variable affecting the throughput of milk used in the
industry. The reference period used was 1994-1995 to 2005-2006
for organised dairy processing sector. By using ASI data sets at
state level, panel data was arranged regarding the throughput of
milk used in organised dairy industry for the study period.
Whereas for regressor variables, panel data was collected from
Department of Animal Husbandry, Dairying and Fisheries and
Ministry of Statistics and Programme Implementation. The
regressand i.e., throughput of milk was regressed on milk
productivity, buffalo-cattle ratio, adult female bovine population
and consumption expenditure on milk and milk products.
Y= f (a, b, c, d) … (1)
where,
Y= Quantity of milk going for industrial use (throughput
of milk)
Indian J Dairy Sci 71(5): 509-516
a= Milk productivity
b= Buffalo-Cattle ratio
c= Adult female bovine population
d= Consumption expenditure on milk and milk products
The logical way of assessing the relationship between throughput
of milk used in the industry and its determinants as mentioned in
equation (1), is the static panel data models. In this study, the
panel-data analysis technique was preferred as it has an
advantage of containing the information necessary to deal with
both the inter-temporal dynamics (time) and the individuality of
the entities (states) being investigated.
There are basically three types of panel-data methods namely, a
pooled Ordinary Least Squares (OLS) regression model, panel
model with random effects and panel model with fixed effects.
Considering the extended functional form of equation (1), a pooled
OLS regression model can be specified as follows:
Log(Qit )  0  1Logait  2 Logbit  3Logcit  4 Logdit  it
(2)
where, i denotes state, t denotes time and remainder εit is the error
term which is assumed to be white noised and varies over both
state and time. However, while using a pooled OLS regression
model, states’ unobservable individual effects were not
considered. Heterogeneity of the states under consideration for
analysis can influence measurements of the estimated parameters.
Further, using a panel-data model with incorporation of individual
effects, has a number of benefits, for example, among others, it
allows us to account for individual heterogeneity. Indeed, Birthal
and Negi (2012) and Verma and Rana (1997) mentioned that states
differ in terms of livestock population, productivity, land and
livestock holdings, consumption expenditure on milk and milk
products and their geographical locations and climatic conditions
etc. And, if this heterogeneity is not taken into consideration, it
will inevitably bias the results, no matter how large the sample is.
Therefore, by incorporating states’ unobservable individual
effects in equation (3) the model becomes:
Log(Qit )  0 i  1Logait  2Logbit  3Logcit  4Logdit it . (3)
Where, being states’ unobservable individual effects. The
difference between a pooled OLS regression and a model
considering unobservable individual effects, lies precisely in .
When we consider the random-effect model, equation (3) will be
same. However, in that case , is presumed to have the property
of zero mean, independent error term εit, has constant variances
 2 , and is independent of the explanatory variables.
However, there may be a correlation between states’
unobservable individual effects and throughput of milk. If there
is no correlation between states’ unobservable individual effects
and throughput of milk, the most appropriate way of carrying out
the analysis is by using a panel model of random effects. On the
contrary, if there is a correlation between states’ individual effects
and throughput of milk, the most appropriate way of carrying out
the analysis is to use a panel model of fixed effects.
To test for the possible existence of a correlation the Hausman
test was used. This test postulates the null hypothesis of non-
existence of a correlation between unobservable individual effects
and the throughput of milk, against the alternative hypothesis of
an existence of a correlation. If the null hypothesis is not rejected
it can be concluded that correlation is not relevant and therefore
a panel model of random effects is the most appropriate way of
carrying out the analysis of the relationship between throughput
…. of milk and its determinants. On the contrary, if the null
hypothesis is rejected, it can be concluded that correlation is
relevant and therefore a panel model of fixed effects is the most
appropriate way to carry out the analysis.
Overall, pooled OLS and one-way fixed and random effect model
have their own limitations to explain the two-way error component.
Therefore, in this study two-way fixed effect model was used in
which two-way error component was present.
As this study utilised time series data across different states
spread throughout the country, the analysis must include a
mechanism to represent spatial and temporal effects in this study.
Econometrically, these time and spatial effects can be tested by
running the model as a two-way fixed effects method. The model
can be estimated as a panel considering time and state fixed
effects in the linear regression model as follow:
Log(Qit ) 0 i t 1Logait 2Logbit 3Logcit 4Logdit it ….4
where, is throughput of milk for the period of 1994-1995 to 2005-
2006 for organized dairy processing sector θt is fixed time effects
and the equation includes αi as a fixed state (cross) effects. There
are two reasons to include this time and state fixed effects: Firstly,
the state fixed effects can absorb unobserved time invariant
determinants of the dependent variable. Secondly, the time effect
θt controls the time differences in the dependent variable which
are common across states.
To show two way fixed effects regressors, assume
ait , bit , cit and d it
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, , and are all assumed to be included in the
matrix:
Log (Qit )   0   i  t  1 LogX it   it
then, the fixed effect two-way estimator for , , and in (4) is b2 as
follows (Greene, 2011):
15 14
b  [ ( xit  xi xt  xi )( xit  xi  xt  xi )']  [ ( xit  xi xt  xi )( yit  yi  yt  yi )']
15 14
1
i 1 t 1
i 1 t 1
…(6)
Now, the regression constant term is:
ˆ  y  x 'b
and fixed effect two-way estimator for other coefficients are:
for fixed states effects:  i  ( yi  y )  ( x i  x) ' b
and for fixed time effects:
t  ( yt  y )  ( x t  x ) ' b
where the bar symbol represents the average in the above
formulas. For instance, is average of X for states in a fixed year
and is average of X in all years and states (Baltagi, 2013).
Estimates obtained from two-way fixed effect model were also
compared with the pooled OLS and one-way fixed effects model
(only state effects), to judge the superiority of two-way fixed
effect estimates.
Regressors
Milk Productivity (a)
This variable was measured in terms of average milk production
per milch cattle unit (MCU) in order to standardize the
productivity of both milch cow and buffalo. The milch bovines
were considered for estimating average milk production per milch
animals. The conversion coefficients for local cow was used as a
standard (1 MCU) with buffalo and cross bred cow, being taken
as 1.4, 1.3 MCU respectively and based on relative milk yielding
capacity of these three species (Patel and Kumbhare, 1980).
Buffalo-Cattle Ratio (b)
The reasons for selecting adult female buffalo-cattle ratio as a
determinant was due to the fact that milk processing in dairy
processing industry depends upon the relative milk yielding
capacity of buffalo and cow. As observed earlier, buffalo has
consistently out-performed to cow, as the major source of milk in
Indian J Dairy Sci 71(5): 509-516
the country and the per capita availability of milk is relatively
more in the states Punjab, Haryana, Gujarat where the buffalo to
cattle ratio is high.
….. (5) The ratio between adult female buffalo and cattle was estimated
by the following formula:
Buffalo-cattle ratio = Total Adult Female Buffaloes/ Total
Adult Female Cattle
1 Adult Female Bovine Population (c)
The adult female bovines, which had completed at least one
lactation were considered as productive females. Total adult
female bovine population was obtained as a sum of adult female
population of buffalo, crossbred cow and local cow. This gives
an idea about the number of productive bovines population in
each state.
Consumption Expenditure on Milk and Milk Products (d)
The milk processing in dairy processing industry is driven by
demand of milk and milk products. The consumption expenditure
on milk and milk products in India is increasing rapidly due to
several factors such as increase in income, increasing awareness
about nutritive values of dairy products, and changes in
consumer’s tastes and preferences. At the state level consumption
expenditure on milk and milk products varies because it is
determined by factors such as economic, social and aesthetic,
which are changing across states. Thus the milk processing in
dairy processing industry is enormous in the state where
consumption expenditure on milk and milk products is relatively
high. It also provides vital linkages and harnesses synergies
between industry and agriculture.
The consumption expenditure on milk and milk products was
calculated with the following formula:
Consumption expenditure on milk and milk products = Average
consumption expenditure on milk and milk products in the state
x sample weights
Results and Discussion
Commensurate with the objectives set forth for the study, the
results of the study and discussions thereon are presented in
this section under the two broad sections.
Distribution and growth of organised dairy industry
The locational pattern of dairy factories in India depicted a skewed
distribution across the states and regions during the study period
(Table 1). There were only 539 factories engaged in manufacturing
of dairy products in 1994-95 which increased to 1199 in 2005-06.
The maximum increase was registered during the 2000-01 to 2005-
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06. Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat were
the leading states in dairy manufacturing together accounting
for 70 per cent of the total factories in India in 2005-06. Andhra
Pradesh had the distinction of having maximum number of dairy
factories followed by Maharashtra, Tamil Nadu and Gujarat. But
in 1989-90, Maharashtra had maximum number of dairy factories
followed by Gujarat (Verma and Rana, 1997). It clearly shows that
Andhra Pradesh and Tamil Nadu are the two leading states in
terms of new establishment of dairy factories in post liberalised
period. Region-wise analysis shows that the maximum number of
dairy factories were located in the Southern region (41.78%)
followed by Western (34.78%), Central (11.43%), Northern (7.51%)
and Eastern (4.50%) regions, respectively.
In India, growth rates of organised dairy factories were positive
and higher during the different periods (Table 2). However, at
regional and state level the growth rates were not uniform. If we
look at the growth rates between 1994-95/2000-01 it was 7.16 per
cent and in the subsequent period (2000-01/2005-06) it has
accelerated to 7.96 per cent therefore overall growth rate between
the period 1994-95/2005-06 was 7.69 per cent. Across different
regions, except for Eastern region in all other regions growth
rates of organised dairy factories were positive. However, within
the regions i.e., at the state level, growth factors behaved
differently over the time. The Southern, Western and Northern
regions were having higher growth rates of 10.00, 6.25 and 7.32
per cent, respectively during 1994-95/2005-06 as compared to
other regions. In the same period, Bihar and West Bengal
registered negative growth rates and therefore the organised
dairy factories were relatively less in number. In the recent years
(2000-01/2005-06) organised dairy sector showed double digit
positive growth in Andhra Pradesh, Kerala, Tamil Nadu and
Uttaranchal, whereas negative growth was registered in
Rajasthan and Bihar.
Determinants of growth of dairy industry
In previous section, we discussed growth of organised dairy
industry, but findings mainly explained either cross-sectional or
temporal changes only. It is well-known that over all industrial
growth is equally affected by the other factor also (external
environment or macro factors). Since earlier studies predominantly
focused on either pure cross-sectional and temporal dimensions
to study the determinants of dairy industry growth (Verma &
Rana, 1997), they were unable to capture both the effects
simultaneously i.e., cross sectional and temporal effects. To
capture both the effects a panel data set is the solution, which
has both cross-sectional as well as temporal dimensions, therefore

Table 1: Number of dairy processing factories in organised sector

States/Regions 1994-95 2000-01 2005-06

Andhra Pradesh 81 104 213
Karnataka 43 83 79
Kerala 20 11 57
Tamil Nadu 52 70 152
South 196 268 501
Jammu & Kashmir 3 5 8
Punjab 24 39 52
Haryana 14 16 18
Uttaranchal NA 3 12
North 41 63 90
Uttar Pradesh 43 67 92
Madhya Pradesh 20 26 45
Central 63 93 137
Maharashtra 117 200 264
Gujarat 60 105 114
Rajasthan 20 56 39
West 197 361 417
Orissa 6 27 15
Bihar 17 22 12
West Bengal 19 11 24
Jharkhand NA 4 3
East 42 64 54
India* 539 847 1199
Note:* India here refers to total of Southern, Northern, Central, Western & Eastern regions.
Estimates obtained by using the Annual Survey of Industries (2010-11) recent procedure for number of factories.

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estimates obtained from panel data differ in some important
aspects with respect to pure cross-sectional and time series
datasets. As per subjectivity is concerned in our panel data,
states over the years are fixed, therefore fixed effect in the study
is more significant. Before estimating the model, it is important to
decide whether effects in the model or study are random or fixed.
The fixed effect (FE) and random effect (RE) models were
compared using Hausman test, which first tested for the
orthogonality of the stochastic term and the regressors by
comparing the estimated coefficients of the FE and RE models.
Baum (2006) explains that if the orthogonality assumption is
violated, the inconsistent RE estimates will differ significantly
from the FE estimates. Thus, the null hypothesis that the difference
is not systematic and RE can be accepted as preferred estimator.
The test results are reported in Table 3, which ultimately gave a
Chi-square statistic of 94.59, which when compared with a 1%
critical value of Chi-square as 13.28 implied that the RE model
should be rejected in favour of the FE model.
Results of two-way fixed effect model have been compared with
pooled OLS and one-way fixed effect (state) model at all India
level for dairy industry (Table 3).
Determinants of growth of organised dairy industry at all India
level
In this section, first the results of pooled Ordinary Least Squares
(OLS) and its limitations have been discussed to explain the real
phenomena (cross sectional and temporal effects) under the
study. The focus of the study then turned to estimate the more
precise estimates by using the one-way fixed effect model, which
captured the cross sectional effect. Thereafter the results of two-
way fixed effect model have been discussed through which both
(cross and time effect) the phenomena have been explained.
The Table 3 provides preliminary results for determinants of
growth of organised dairy sector by using pooled OLS method.
Overall, explanatory power of the model was observed to be
quite low, as reflected by adjusted R-square value of 0.49. The
coefficients of productivity of milch animals, buffalo-cattle ratio
and female bovine population were observed to be significant at
1 per cent level on throughput of milk. But among them
productivity of milch animals had a negative and significant effect
on throughput of milk used in the organised dairy industry which
is not as per the working hypothesis. In order to obtain more
precise estimates, the determinants were estimated by using one-
way fixed effect model (to capture the cross or state-wise effects).
The findings of this model differed substantially from the results
of pooled OLS method. The analysis suggests that productivity
of milch animals positively affected the throughput of milk used
in the organised dairy industry. A perusal of the results of one-

Table 2 Growth rates (%) of organised dairy processing industry

States/Regions 1994-95 to 2000-01 2000-01 to 2005-06 1994-95 to 2005-06
Andhra Pradesh -12.71 14.75 10.09
Karnataka 16.88 3.61 5.06
Kerala -4.31 34.71 10.21
Tamil Nadu 3.23 20.2 14.63
South 1.76 15.1 10
Jammu & Kashmir 7.77 8.99 6.36
Punjab 8.08 -0.08 7.2
Haryana -0.14 -1.78 4.5
Uttaranchal NA 31.92 NA
North 5.74 0.17 6.25
Uttar Pradesh 11.6 3.87 4.17
Madhya Pradesh -3.63 5.98 8.66
Central 8.73 4.41 5.35
Maharashtra 11.87 5.2 7.65
Gujarat 16.27 1.21 5.87
Rajasthan 28.26 -10.28 8.37
West 15.23 1.89 7.32
Orissa 42.38 -2.9 8.82
Bihar 5.94 -9.36 -0.79
West Bengal -10.97 5.63 -0.04
Jharkhand NA -5.85 NA
East 11.35 -0.96 4.12
India* 7.16 7.96 7.69
Note:* India here refers to Southern, Northern, Central, Western & Eastern regions.

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way fixed effect model revealed that the expenditure on milk and
milk products was significant whereas buffalo-cattle ratio was
not significant. But in case of pooled OLS method, the results
were opposite i.e., the effect of expenditure on milk and milk
products was not significant while that of buffalo-cattle ratio
was significant. To capture the cross (state) and time effects,
two-way fixed effect model was employed to estimate the
determinants of growth and performance of organised dairy
industry. The results from two-way fixed effect analysis is
presented in the Table 3. Overall, explanatory power of model is
substantially improved (due to state and time effects), as reflected
from higher value of adjusted R-square value of 0.92.
A perusal of the results of two-way fixed effect model revealed
that the effect of productivity of milch animals was negative
influence on throughput of milk used in organised dairy industry
over the study period. As per the general hypothesis productivity
of milch animals is expected to positively effect the milk
processing in the industry. Before discussing this issue one thing
should be clear that if we consider only cross sectional effects
(state effects) then this variable was positively affecting the
throughput of milk in organised dairy industry (one-way fixed
effect model), but in two-way fixed effect model it effect was
negative because this model considers both cross and time
effects. As per a recent study (Birthal & Negi, 2012), growth in
milk yield of cross-bred cows decelerated from 1.8 per cent during
the 1990s to 0.7 per cent during the 2000s and that of buffaloes
from 1.7 per cent to 1.2 per cent. Similarly, growth in productivity
of local cow decelerated from 1.7 per cent to 1.1 per cent from
1990s to 2000s. The trends in milk yields indicated that growth in

Table 3 Determinants of throughput of milk used in organised dairy processing industry (India)

Variables Ordinary Least One-way Fixed Two-way Fixed

Square Method Effect Model Effect Model
Intercept 24.1489*** - 24.619***
Productivity of milch animals -0.4039** 0.5877** -0.5206**
(0.1914) (0.2702) (0.2638)
Buffalo to cattle ratio 0.3798*** 0.484 0.3561
(0.0547) (0.3156) (0.264)
Adult female bovine population 1.0464*** 0.5208*** 0.2599***
(0.0972) (0.1024) (0.0882)
Expenditure on milk & milk products 0.457 -0.1012*** -0.1544**
(0.0546) (0.0287) (0.0674)
F-Statistic 47.53*** 74.88*** 77.29***
Adj. R-Square 0.4896 0.8727 0.9219
Hausman Test - 15.52*** 94.59***
Number of observations 195 195 195
Note: *** Significant at 1%,** Significant at 5%. Robust standard errors in parentheses.

Table 4 Determinants of throughput of milk used in organized sector across the regions :Two-way Fixed Effect Model

Central East North South West

Intercept 2.0038 16.0672*** 24.5488*** 23.6361*** 23.6370***
(-20.6035) (-5.2807) (-4.3589) (-5.3481) (-4.989)
Productivity of milch animals 2.5876 0.28 -1.9762 -0.932 -7. 6047
(-2.8337) (-0.4816) (-1.1014) (-0.6559) (-4.1453)
Buffalo to cattle ratio 3.4887 -0.3591 0.0946 1.0891*** 2.9937
(-2.5229) (-0.6718) (-1.5399) (-0.4111) (-2.899)
Adult female bovine population 0.9950*** 0.3037 0.7083** 0.5814*** -0.2223
(-0.2424) (-0.2151) (-0.344) (-0.1669) (-0.2857)
Expenditure on milk & milk products 1.0052 0.1615 0.00012 0.0366 0 .2578
(-0.9512) (-0.2818) (-0.201) (-0.2475) (-0.1934)
F-Statistic 27.98*** 6.78*** 41.82*** 9.53*** 18.13***
Adj. R-Square 0.9483 0.7324 0.9557 0.7605 0.8902
Number of observations 26 39 39 52 39

Note: *** Significant at 1%,** Significant at 5%. Robust standard errors in parentheses.

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milk production is becoming number driven. As per the finding
of two-way fixed effect model, female bovine population positively
influenced the throughput of milk in the organised dairy industry.
These results corroborate with the discussion that in the post-
1990s period incremental growth of milk production is due to the
increase in dairy animal population and not much because of
productivity gains. It is important to note that the expenditure on
milk and milk products have negatively influenced the throughput
of milk in the organised dairy industry. This may be due to the
supply side bottlenecks and incremental demand of milk and milk
products have not translated into real consumption. As far as
buffalo-cattle ratio is concerned, its effect was positive and
significant at 18 per cent level of significance on throughput of
milk.
As discussed at all India level, different determinants play
important role to explain the throughput of milk used in the
organised dairy industry. Similarly, at regional level also these
factors behaved differently in terms of sign and size.
The results of two-way fixed effect regression analysis across
the different regions are presented in the Table 4. Overall,
explanatory power of this model was found to be quite good as
reflected by adjusted R-square value in the range of 0.73 to 0.96.
Moreover, as expected, female bovine population positively
influenced the throughput of milk across the Central, Northern
and Southern regions. Similarly, buffalo-cattle ratio was important
factor in the Southern region of India. Consumption expenditure
across the regions has observed negative growth at constant
price and throughput of milk observed positive growth over the
study period but causal relationship between the variables are
not significant. The per capita consumption expenditure on milk
and milk products has increased during the study period (2004-
05 to 2007-08) from Rs. 31.54 to Rs. 72.30 in nominal terms whereas
in real term it was increased 1.15 times only (NSSO, 2004-05 &
2007-08).
Conclusions
The locational pattern of dairy factories in India depicted a skewed
distribution across the states and regions during the study period.
In India, growth rate of organised dairy factories was around 8
per cent over the study period. However, at regional and state
level the growth rates were not uniform. The study points out
that growth of organized sector is disconnected with the
productivity of dairy animals and demand led factors, whereas it
is mainly guided by the number driven growth of dairy animals
which has serious implication on the growth of organized dairy
516
Indian J Dairy Sci 71(5): 509-516
industry. The throughput led growth of organized dairy industry
is only possible if focus is put on strengthening forward and
backward linkages. Forward linkages may be in the form of product
innovation, advertisement, cold chain support to retails,
innovative retail models and market research. Back ended
infrastructure need to be robust in order to procure milk directly
from farmer for processing, organizational innovation in the form
of cooperative and producers companies. Along with these
providing quality veterinary services, extension services and
other services (finance facility, insurance of dairy animals and
input supply etc.), improving productivity of dairy animals
through the breeding and balance nutrition programmes are the
options to for throughput led growth of organized dairy industry.
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