INFORMAL AND INORGANIZED SECTOR

According to the data we collected we can say that In Pakistan, small sized traditional farming in terms
of both agricultural land and livestock forms the backbone of the agricultural economy.

Dairy farming in the country is mainly practiced by the private sector in both uban and rural areas
however the production system the marketing and the value chain of the dairy sector are disorganized,
fragmented, inefficient and subsistence which is one of the crucial problems that is holding back the
potential dairy industry. Dairy sector was never given the importance and commercial structure it
needed to bloom to its potential and it was rather treated as a byproduct of the agricultural sector.
Throughout the history to the present days Most of the dairy farming is carried out in mixed crop-
livestock system. Historically the farmers kept bullocks on their lands to provide draught power for
ploughing drawing etc and the milk production came only as a byproduct and till now the dairy sector
cannot be divorced from the agricultural sector of pakistan. There has been an emergence of peri urban
dairy farming sectors recently which only focuses on milk production. Despite having a massive
population of livestock the daiy sector is the least commersialized sector of the country because
majority of the livestock is distributed in small untis throughout the country.. the bulk of the milk supply
of the country comes from 55 million smallholders or landless farmers.

The main reasons which lead to the informal and inorganized structure are:

1.Production systems
The dairy production systems in pakistan can be divided in four categories based on the location,
number of animals and arm sizes.

Smallholder subsistence production systems

This is the most common production system in pakistan. 70 percent of smallholder milk producers
belong to this system. Small holder farmers in rural areas where there are no formal markets for buying
milk produce milk for their family at minimal cost. The average herd size in this system is usually 3
buffalos and the average milk production is 3 litres per anmal per day. The feeding requirments are
fullfilled by grazing and the input includes family owned land and the family members work at the farm
daily. even if they are able to produces surplus milk they don’t sell milk because it prohibits their
tradition.
Smallholder market-oriented production system

With the passage of time rural subsistence production system is evolving into small holder market
oriented production system. These farmers have excess to nearby formal markets so they produce
surplus milk than the family requirement and market it. In this this system the production unit is family
owned and herd size is five to seven animals per household including buffalos and cows both. Among
these there are usually three to four adult females with two female followers and one or two male
calves. The livestock is fed fodder and wheat straws, more care is given to lactating animals. About
seventy percent of the milk produced is sold through different channels, either directly to retailers in
nearby cities or through intermediaries or agents of dairy processing organizations.

Rural commercial production system

From 2006 the dairy sector started to commercialize. The recent developments has encouraged some
progressive farmers to invest in the sector. Less than one percent of dairy farms in the country fall in this
category. A typical rural commercial farm has about 30 animals of which seventy percent are female.
The feed provided is mostly fodder crops and straw and concentrates are also used. Average milk
production is 10 litres per animal per day and more than 90 percent of the milk produced is sold. The
marketing channel has evolved from traditional to commercial milk collection companies.

Peri-urban production system

Per urban production system is practiced in commercial scale units in the outskirts of major urban cities.
It has been developed with the growing demand for milk in urban areas. The number of dairy farms
under this category is 200 located throughout the country. The herd sizes kept in this system is 20 to 200
in small systems and 200 to 2000 in large systems. Ninety percent of these animals are buffaloes and
rest are cows. Usually family members are employs but labours are hired too. These animals are fed
chopped green fodder and wheat straw and concentrate mixture Major cost of production is animal
shelter, veternity care, transport cost, water and electricity bills, labor costs and feed cost. milk is
directly sold to the retailers in the city or to intermediaries under contracts .milk is transported to
market twice a day.

According to a FOA study 80% of the milk in Pakistan is produced by the rural substance and rural
commercial production systems combined. The peri urban systems contribute 15% and the urban only
5% to the total production. According to the 2006 livestock census, 51 percent of the 8.4 million
reported dairying households owned 1–4 animals, 28 percent of dairying households maintained herd
sizes of 5–10 animals, 14 percent had herd size of 11–50 animals. Only 7 percent of the dairy farms in
the country had herd sizes of more than 50 animals and can be categorized as large.

The problem with the whole dairy industry lying in the rural subsistence and commercial production
system is that it doesn’t attract investments because it doesn’t ensure profits and security. Investors are
keen in investing in large commercials farms which constitutes only 1to 2 percent of the total dairy
farming. It is also difficult to obtain loans for subsistence farming. Dairy farmers in Pakistan are not
provided with subsidies similar to agriculture farmers.
Since most of the production takes place in rural areas almost 20 percent of the milk produced is wasted
because the farmers don’t have proper storage facilities. Milk is a perishable item and rural small holder
farmers cannot afford electrical appliances, even if they can most of the rural areas lack electricity
supply. The time till milk is collected to be deleivered to markets, a big amount of the product goes bad.
Due to lack of capital and small areas of land machinery and tools cannot be used for dairy farming and
entirely traditional methods of farming are used.

2. Milk marketing chain

There are two types of diary marketing chain in Pakistan informal supply chain and formal supply chain.
Due to the lack of knowledge and technology, and consumer preferences, 95 % of the milk produced is
marketed as loose milk through informal supply chain and the rest 5% is supplied to the processing
industries and marketed through the formal chain. The main differences between two types of chains
are based on the management, handling and storage practices and infrastructure.

Informal marketing chain

Milk collection

In the informal marketing chain the farmers are linked with a network of mill collecting agents locally
known as dhodis, they are the most important milk procurers in pakistan. They serve as a link between
farmers and markets.

Milk bulking

80 percent of the milk produced in Pakistan is produced by rural small holder farmers of which 60
percent is consumed by the family itself and 40% is sold through doodhis. The dodhis sell 85% of the
milk to contractors, 10% to agents of dairy processing industries and 5% to bakeries. The contractors
further sell the milk to retail shop bakeries and processing plants.

Peri urban farmers produce 15% of country’s milk of which 80 % is sold directly to consumers, 15 % to
retailers and 5% to dodhis. Urban producers contribute 5% to total production of which 85% is sold
directly to consumers and rest to retail milk shops.

Milk quality testing and cooling

Since the type of marketing chain is informal there is no quality control checks on the product. Milk is a
perishable item and due to lack of proper infrastructure and cold chains, dhoodis store milk in a non-
food grade containers and add harmful chemicals for its preservation and to make it appear more dense
and creamy.it is often reported that they add ice( made of unsafe water) to keep the milk from spoiling
in summers.

Milk processing

The informal processing industry uses manual labour or basic technology such as mixers, ovens and
furnaces. Hygiene maintenance is ignored and the end products are often sold unpackaged. Products
provided by the informal processing industry are relatively affordable for local, mostly low-income,
consumers.

Formal marketing chain

The formal milk marketing chain comprise the large-scale corporations engaged in producing ultra-high
temperature (UHT) processed milk. The three large market players are Nestle, Engro Foods and
Chaudhry Dairies. In this market chain there is check and balance of hygiene and quality of product at
every step. The processing industries use latest technology and efficient methods for processing and
deleivering to their costumers. Unfortunately formal marketing chain is not widely used in the supply of
milk in pakistan.

The dairy sector cannot be transformed in to a formal and organized sector until the informal marketing
chain is replaced by the formal marketing chain . the value chain is the most important part of the
operation of any industry, the problems of the dairy sector cannot be tackled until the value chain is
organized in a way which ensures the quality, hygiene and efficient transport of the product.
Analysis

In the recent years there has been an increase in investment by the private sector in the provision of
inputs such as formulated feed, veterinary medicine, and cattle breeding through artificial insemination.
Large corporations such as nestle,, engro foods etc have started to invest in the processing of UHT milk.
The formal dairy processing sector is working towards the establishment of cold chains in remote milk
producing areas, and in spreading the awareness of quality-based procurement. Both the government
and donors have made huge investments in dairy development projects recently. The government has
also exempted import duty for the development of dairy. But all these initiatives have critical problems
within them and are not commercially driven.

Many projects instead of developing and organizing the informal sector are aiming to link the rural small
holder farmers to the formal supply chain without considering that formal chain only supplies 5% of the
total milk in the country. The rest 90 to 95 % is supplied by the informal sector which is being neglected.
These projects threaten the role of dhodis who are the main milk procurers in the country. Such projects
only focus on working on hygienic milk collection, handling and storage with only farmers excluding
doodhis who are the important part of the informal supply chain. Almost all government policies related
to taxes and imports also only apply to the formal sector.

Moreover many projects only address elements of the value chains in isolation which decreases the
sustainability of end results and doesnt impove the marketing structure as a whole. Most projects focus
only on increasing the total yield of milk but there is no research on finding the foundation source of
problems such as our under developed feed industry and lack of cross breeding policies.

Before implementing policies and projects government neglects the fact that, since most of the
subsistence farming is practiced in fragments throughout the country there is no coordination in
marketing activities of the farmers. Most farmer’s carryout production and marketing in isolation.  The
highly fragmented production base hinders farm development and profitability. It also results in
exploitation of many farmers and lack of access to knowledge on how to reap the benefits of various
programs and policies by the government and access to more markets.