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Understating emerging value chains and business performance: evidence from

dairy industry in India
Article in Journal of Agribusiness in Developing and Emerging Economies · November 2022

DOI: 10.1108/JADEE-10-2022-0219
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Journal of Agribusiness in Developing and Emerging Economies
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Understating Emerging Value Chains and Business
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Performance:
Evidence from Dairy Industry in India
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Journal: Journal of Agribusiness in Developing and Emerging Economies
Manuscript ID JADEE-10-2022-0219.R1
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Manuscript Type: Research Paper
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Keywords: Dairy, Entrepreneur, Food safety

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Page 1 of 29 Journal of Agribusiness in Developing and Emerging Economies
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10 Understating Emerging Value Chains and Business Performance: Evidence from Dairy
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12 Industry in India
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14 Abstract
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16 Purpose
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The purpose of the study is to identify the factors affecting the entrepreneur’s choice of the
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20 dairy value chain and evaluates the impact of the value chain on farm performance (profit).
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Design/methodology/approach
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25 Primary data were collected from dairy entrepreneurs in India, covering 9 states. A
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27 multinomial treatment effect model (controlling for selection bias and endogeneity) was used
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31 Findings
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33 Dairy entrepreneurs operating in any recognized value chain other than the value chain driven
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35 by the consumer household, realize a comparatively lesser profit. Dairy farmers have
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37 established direct linkages with the customers in urban areas–who could pay premium prices
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for safe and quality milk. Food safety compliance is positively associated with profit and
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40 entrepreneurs (who have undergone formal training in dairying) preferred partnership with a
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42 formal value chain. The prospects of starting a dairy enterprise are slightly higher in villages
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compared to urban areas.
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46 Research limitations/implications
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48 Dairy entrepreneurs can make a shift in accordance with the study's findings and boost their
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50 profitability. It aids in comprehending how trainees (who obtained advice and training for
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52 raising dairy animals from R&D organizations) and non-trainee dairy farmers make value
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Journal of Agribusiness in Developing and Emerging Economies Page 2 of 29
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10 chain selections, which ultimately affect profitability. However, purposive sampling and a
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12 small sample size limit the universal implications of the study.
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14 Managerial or Policy implications
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17 We find out the most profitable value chain based on entrepreneurs’ choices. The budding
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dairy entrepreneurs will be benefited from emerging value chains.
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21 The government and policy maker needs to envisage value chain-based support for promoting
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dairy enterprises in rural catchments.
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25 Social Implications
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Developing entrepreneurial behavior and startup culture is at the center of policymaking in
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29 India. The findings imply that the emerging value chain not only enhances the profit of dairy
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31 farmers by resolving consumer concerns about food safety and the quality of milk and milk
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33 products but also builds consumer trust.
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35 Originality/value
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38 This article offers insight into how the benefits of dairy entrepreneurs vary with their
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39 participation in the different value chains. The impact of skill development/ training
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41 programs on value chain selection and farm profitability has not yet been fully understood.
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43 Here is an attempt to fill this gap. This paper through light on how trained and educated dairy
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entrepreneurs are able to establish a territorial market by approaching premium customers –
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46 this is an addition to the existing literature.
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49 Keywords: Dairy, entrepreneurs, food safety, multinominal logit regression, value chain
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10 Introduction
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13 The understanding of diary value chain is imperative from both producer and consumer
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perspective. India's journey to become the world's largest milk producer began in 1970 with a
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16 ground-breaking concept of a cooperatively coordinated value chain known as "Operation
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18 Flood". The success and profitability of the dairy value chain is linked with a system
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20 approach, which involves integrating production with processing and efficient marketing
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while continuing to uphold the product's quality (Thakur et al., 2021); "Better it is" when the
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23 chain is shorter (Thakur et al., 2020). The research conducted by Susanty et al. (2017) in
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25 Indonesia and Nguyen (2018) in Vietnam highlighted the other key components of successful
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27 dairy value chains. These components include providing financial support to the chain actors,
28 gaining the loyalty of dairy farmers, and establishing a partnership structure among value
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30 chain actors (i.e., farmers, cooperative, dairy companies, etc.). Kemitare (2021) placed an
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32 emphasis on the value chain and productivity enhancement as a means of improving trade
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performance of dairy sector in Uganda.
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36 The milk marketing system in India is predominantly informal. Only around a quarter of the
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38 total milk produced is procured by the formal sector (mainly cooperatives and private
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processors, including multinationals). The informal sector includes consumer households,
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41 local milk traders, small-scale dairy processors and local sweet makers (Birthal et al., 2017;
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43 Kumar et al., 2019). Studies have suggested increased profits and food security (measured in
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45 terms of household consumption expenditure and net returns) with the integration of dairy
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farmers into the formal value chains (Birthal et al., 2017; Kumar et al., 2019). Studies in
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48 developed countries highlight the central role of formal value chains on technology adoption,
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50 investments, and modernization of procuring systems through vertical integration and
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52 spillover effects (Janssen & Swinnen, 2019; Dries et al., 2009). However, the role of value
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10 chains on technology transmission in terms of better feed and hygienic practices in India
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12 seems minor (Janssen & Swinnen, 2019). Vertical integration of supply chains is driven by
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14 cooperatives, contract farming, and producer organizations, which provides inputs to
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producers like credit, information and technology. Thus, it improves farm efficiency, income,
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17 and employment (Birthal et al., 2009). There are several studies on milk marketing in India,
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19 but only a few (i.e., Dries et al., 2009; Kumar et al., 2011; Sharma, 2015; Birthal et al., 2017;
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21 Singh, 2018; Janssen & Swinnen, 2019; Kumar et al., 2019) that have analyzed the farm level
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22 efficiency, determinants, financing and impact of dairy value chains. Further, to the best of
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24 our knowledge, there is limited empirical literature that critically examines dairy
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26 entrepreneurs’ (who received guidance and training for rearing dairy animals from Research
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28 & Development (R&D) institutions) the choice of a value chain and its impact on farm
29 performance. Therefore, this study is an effort to fill this research gap.
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32 As the study identifies the most profitable value chain, the entrepreneur can shift accordingly
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and increase their profits. This adds to the literature in several ways. One, we use data from
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35 dairy entrepreneurs from across the nation (8 states and one union territory). Two, we use
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37 multinomial treatment effect model to control for selection bias and endogeneity. Three, we
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39 find out the most profitable value chain based on entrepreneurs’ choice of value chain. Thus,
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dairy entrepreneurs, policymakers and researchers are likely to benefit from this study. The
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purpose of this paper is to identify the correlates of entrepreneur’s choice of the value chain
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44 and to evaluate its impact on farm performance (profit).
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Developing entrepreneurial behavior and startup culture is in the center of policymaking in
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48 India. However, there is no evidence available in literature on the choice of milk marketing
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50 channels by Indian dairy entrepreneurs/dairy startups, and whether they are well off in terms
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52 of getting higher profit with choice of modern value chains. Here, the hypothesis is ‘Dairy
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10 startup’, maintaining quality and safety would lead to improved market accessibility and
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12 thereby enhance profitability. Thus, the objective of this study was to identify the factors
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14 influencing dairy entrepreneurs’ choice of milk value chains and to estimate its impact on
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entrepreneur’s profit. We use survey data from 50 dairy entrepreneurs pan India and a
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17 multinomial treatment effect model to incorporate selectivity bias.
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20 The next section of this paper presents the survey design, data and the analytical methods
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23 and provides some policy implications.
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26 Data and Methodology
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28 A total of 50 dairy entrepreneurs were purposively selected for this study across India
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30 covering states of Andhra Pradesh, Delhi, Gujarat, Haryana, Jharkhand, Punjab, Rajasthan,
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32 Uttarakhand and Uttara Pradesh. The sample included 25 dairy entrepreneurs technically
33 trained and guided by the Technology Business Incubator (TBI) unit of ICAR-National Dairy
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35 Research Institute (NDRI), Karnal. The sample consisted of equal number of dairy farms that
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37 have not received any institutional training on commercial dairy farming as the control group.
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The list of dairy entrepreneurs/ incubatee was obtained from TBI, and telephonic interview Commented [ad1]: Deleted as per remarks of the reviewer
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40 was conducted to select the respondents based on the present status and their responsiveness.
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42 Corresponding control respondents from the same states/region were selected. Snowball
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44 sampling technique was employed wherever the desired control respondents from the
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Websites were not found.
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48 Detailed data on managerial, economic, and marketing aspects of selected 50 dairy
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50 enterprises were collected through interview schedules by undertaking field visits during
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2019-2020. The data were collected on various factors such as herd size, input-output
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53 variables, channels and value chain adopted by the entrepreneurs and profit realized.
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10 Additionally, data on relevant food safety practices were collected from experts/ veterinary
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12 professionals/food technologists.
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A brief description of the variable such as herd size, farm productivity, location of dairy farm
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16 and choice of marketing channels, food safety index are given below.
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19 The herd size of dairy enterprises were standardized by using conversion coefficients of
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Standard Animal Units (SAU’s) (Sirohi et al., 2015). Further, dairy enterprises were
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22 groupped into small, medium, and large categories based on herd size by employing the
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24 cumulative square root frequency method. There was strong presence of crossbred cattle
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26 based dairy farms, accounting to 46% of total sampled dairy farms. Nonetheless, there was
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27 coexistence of buffalo (18%), indigenous cattle (14%), crossbred + buffalo (18%) and
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29 indigenous + cattle (4%), based dairy enterprises (Appendix-1).
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32 The farm production and productivity varied with number of lactating animals, type of
33 animals, and also with the level of management. Table-1 presents the milk production and
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35 productivity of the selected dairy enterprises. Overall, average milk production was of 450
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37 L/day/farms with 56 lactating animals. The productivity of small farms (in milk animals)
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was recorded as 16.67 % and 4.59% higher than that of medium and large farms, respectively
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40 (Table-1). Overall, the average productivity of surveyed farms (i.e., 15.40 L/day per milking
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42 animal) is much higher than that of the national average milk productivity (5.97 L/day)
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44 (Department of Animal Husbandry and Dairying, GoI, 2021-2022). The higher productivity
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was because of the managerial and marketing skill of these selected dairy entrepreneurs. They
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47 were found to be skillful in effectively managing feeding, breeding and veterinary services.
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49 Artificial insemination (AI) with good quality semen (in some cases, imported semen from
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51 USA (ABS Global/New Zealand/ Brazil) was given top priority. Simultaneously, some farms
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had own bull and bull-buffalo of pure breeds, which they used for natural services and not for
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10 any draft purpose. Majority of these farm had contract arrangement with veterinarian. During
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12 survey, they informed the threshold level of production (3000 L/animal/year) for economic
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14 viability of a commercial dairy farm.
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16 The location of the dairy enterprise plays an important role in reducing costs and tapping the
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18 local demand. The majority of dairy enterprises were located nearby the demand center, i.e.,
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20 towns/urban areas. For instance, 42% of farms were located within 5 kms of the nearest town
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and 30% between 5 to 10 kms. Only 28 % of farms were located more than 10 kms away
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23 from urban areas. Overall, the location of these dairy farms was conducive for the producers
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25 to supply milk with fewer transaction costs and to obtain remunerative prices. There was a
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27 coexistence of formal and informal dairy value chains. The entrepreneurs had the choice to
28 sell their milk to formal value chains driven by cooperative society, private milk processing
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30 units and corporate sector; and informal value chains driven by vendors/middlemen
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32 ((Dudhiya) and processed at farm level. Table-2 shows the prices received by different value
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chains. The direct marketing to consumers as well as to corporate sector (contractual
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35 agreements between buyers– corporate/ hostels and sellers–entrepreneurs), fetched higher
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37 price than other channels. None of the chains partners had written contract. However, Birthal
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39 et al. (2017) in their study conducted in Punjab find that multinationals written agreement
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with large farms (owning 25 or more milch animals).
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43 Dairy cooperatives procured milk from small categories of farms while private processing
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45 units from all categories of farms. It was observed that medium category enterprises selling
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milk directly to consumers received an average price of INR 49.04 per litre. The majority of
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48 the indigenous cattle-based dairy enterprises fell in the medium category; and they were
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50 selling A2 milk directly to consumers at premium prices. This could be the possible reason
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52 for the higher price realization by medium category dairy enterprises. These dairy
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10 entrepreneurs were mainly involved in the business of selling raw milk. However, some units
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12 were doing processing and value addition to fraction of their produce. Here, price realization
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14 has not been estimated due to lack of data availability on input-output coefficient of milk
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processing.
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18 Further, the profit realized by the trainee (what we call it NDRI startups) and non-trainee
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20 dairy farms (as control) across different value chains was calculated as the difference
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between gross profit (returns for sale of milk, dung and animals) minus total cost (fixed and
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23 variable cost). It was observed that the trainee-farms were able to realize comparatively
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25 higher profits than non-trainee farms (Table-3). In the sample, some farms of both the
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27 categories (trainee and non-trainee) were associated with more than one value chain. We
28 considered the dominating chain based on higher share.
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31 The better management, marketing and value addition skills imparted to trainees might be
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one of the reasons for their higher profits. Profit found to be increased with herd size. The
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34 average net profit per SAU, realized by trainee farms was INR 31.90/day, whereas the non-
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36 trainee group of enterprises realized only INR 22.14/ day. The average herd size of the
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38 trainee enterprses was higher than that of the non-trainee farm (Table-3). Hence, it can be
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said that training may be determinant of herd size. An average herd size with dairy farmers
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41 increased from 7.68 to 9.21 after the training (Sharma et al., 2014), endorsed our
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43 observations.
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Food Safety Adoption Index
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48 The value chains with higher food safety adoption index (FSAI) values fetch better prices in
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50 the market (Thakur et al., 2021). So, FSAI was developed using standard dairy practices
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relevant for maintaining hygiene and quality of milk. Based on litureature, we listed (47
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53 practices) and classified in four sections, namely, milking hygiene ( 8 practices), milk
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10 handling (8 practices), animal health care (8 practices) and general Management practices (23
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12 practices) by referring literature and scientific group discussion. The default scores to each
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14 practice and weightage to each category was given. These scores and weightage were
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rectified based on opinions of 50 experts from various fields, i.e., Animal Nutrition,
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17 Livestock Production Management, Animal Breeding, Animal Physiology, Veterinarian,
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19 Dairy Technology, Dairy Microbiology, Dairy Economics and Dairy Extension. Based on
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21 experts’ opinion, the maximum obtainable score for all practices arrived at 200 with one
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22 weightage. Highest score of 80 and a weightage 0.34 was given to milking hygiene, followed
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24 by milk handling (score-60 and weightage-0.28); animal health care (score 30, weightage-
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26 0.20); Management practices (score-30 and weightage-0.18). Overall, FSAI was developed
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28 based on an obtained weighted score of an entrepreneur divided by the maximum obtainable
29 weighted score, expressed in percentage. The developed FSAI Index was used to evaluate the
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31 level of food safety adoption by the individual dairy enterprise under this study.
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Empirical methods
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36 During survey, dairy farmers were found to be involved in different value chain such as direct
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38 sale to consumer households, vendors/ middlemen (Dudhiya), cooperative societies, the
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corporate sector, private milk processing units, and on-farm processing and value addition.
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41 The impact of the choice of the value chain on entrepreneurs’ profit (𝑦𝑖) can be assessed
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43 using the multinomial treatment effect model (Equation 1) of the following form:
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46 𝑦𝑖 = 𝑥𝑖𝛽 + 𝜃1𝑖𝑇1𝑖 + 𝜃2𝑖𝑇2𝑖 + 𝜃3𝑖𝑇3𝑖 + 𝜗𝑖 … (1)
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48 The selection of value chain by the entrepreneur is endogenous and is jointly estimated along
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50 with the determinants of profit 𝑥𝑖 . These include observable characteristics such as age,
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10 education, social group (caste), family size, herd size, land holding, herd composition (share
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12 of crossbred), food safety score and training received on dairying.
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𝜃𝑠 will be unbiased estimates of impact if the selection of value chain is only based on the
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16 observables. More often than not in survey data, self-selection bias persists and it cannot be
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18 resolved only by using control covariates (Deb & Trivedi, 2006b). Because the error term (𝜗𝑖)
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20 consists of unobservable characteristics (𝑙𝑗𝑖) common to the selection of jth value chain by ith
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22 individual (Birthal et al., 2017). It can be expressed as:

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24 𝜗𝑖 = ∑𝑗𝜆𝑗𝑙𝑗𝑖 + 𝜀𝑖 … (2)
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27 𝜀𝑖 is the random error term, which is idiosyncratic and independently distributed (iid). The
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29 latent propensity of the entrepreneur (𝑃𝑖𝑗) to choose a particular value chain j can be written
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33 𝑃𝑖𝑗 = 𝑍𝑖𝛼𝑗 + 𝛿𝑗𝑙𝑗𝑖 + 𝜇𝑗𝑖 … (3)
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Where, 𝑍𝑖 - exogenous covariates
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𝜇𝑗𝑖 - random error terms assumed to be independent of 𝜀𝑖
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40 The latent variables 𝑙𝑗𝑖 determine the entrepreneur’s profit (1) and the choice of the value
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42 chain (3). The multinomial treatment effect model, or in other words, the joint distribution of
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44 selection and outcome factors, is conditional on the underlying factors (𝑙𝑗𝑖) can be expressed
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as,
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48 Pr (𝑌𝑖 = 𝑦𝑖, 𝑇𝑗𝑖 = 1│𝑋𝑖, 𝑍𝑖, 𝑙𝑗𝑖)
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(
= 𝑓 𝑥𝑖𝛽 + 𝜃1𝑖𝑇1𝑖 + 𝜃2𝑖𝑇2𝑖 + 𝜃3𝑖𝑇3𝑖 + ∑ 𝜆 𝑙 ) ∗ 𝑔(𝑍 𝛼 + 𝛿 𝑙 )
𝑗
𝑗 𝑗𝑖 𝑖 𝑗 𝑗 𝑗𝑖
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10 Maximum simulated likelihood procedure is used to estimate the multinomial treatment
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12 effect model (Deb & Trivedi, 2006a; We used Stata routine, ‘mtreatreg’ as followed by
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14 Birthal et al., 2017. Location and distance variables were used for identification in this model.
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16 Results of multinomial logistic model
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19 Selection of dairy value chain: Stage 1
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Commercial dairy farms have to select the value chains to dispose of their milk and milk
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23 product. The value chains, typically, have formal and informal players. Formal chains include
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25 cooperatives, private milk plants and corporates (restaurants, hospitals, hostels, etc.), while
26 informal chains include local vendors/middlemen ((dudhiya), consumer households, and
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28 processing and value addition at the farm. It was observed that only six entrepreneurs were
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30 selling milk through more than one channel. Here, we retained the dominant channel
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32 considering the volume of sales. Formal channels include cooperative society, private and
33 corporate sector. While others were considered as informal. A direct sale to the consumer is
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35 the base category.
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We used a multinomial treatment effects model to simultaneously estimate correlates of
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39 commercial dairy farms’ choice of the value chain and the impact of this choice on their
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41 performance. The results of the selection equation of the multinomial treatment effects model
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43 is summaized in Table-4. The coefficient value of a locality in both the value chains is
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positive and significant in the formal chain. This means relatively more chance of a
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46 commercial dairy value chain to be formal if it is situated near city/metros, implying a higher
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48 presence of formal buyers. The distance coefficient from farm to nearest sale center is
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50 negative and insignificant. Some of the dairy farms situated far from urban areas (i.e., >10
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kms) are selling milk directly to consumers. Interestingly, entrepreneurs catch the urban elite
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53 customers rather than dependent on rural consumers alone.
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10 Quite a contradiction in the results of two variables for location (i.e., one as a dummy
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12 (village) and another distance as a quantitative variable) is apparent. The logic behind it is the
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14 distance varies from production to consumption/ sale point (it may be within a village or
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urban center). Here, the village dummy is positive because of the spillover effect via the
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17 availability of feed and green fodder at reasonable prices. Moreover, better transport and
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19 communication facilities let them to explore premium customers. According to Birthal et al.
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21 (2017), remote village farms sell directly to consumers, and lesser prospects of value chain
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22 development in these areas may be due to logistical constraints. However, in our study,
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24 entrepreneurs are using innovative marketing strategies. Recently established dairy
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26 entrepreneurs in the outskirt of the National Capital Region (NCR) (Delhi, Faridabad, Sonipat
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28 and Noida) provided direct home delivery. However, there are some terms and conditions,
29 that is, (i) product delivery timing (once or twice a day), (ii) preference to regular customers,
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31 (iii) order for additional demand or cancellation of demand should place at least 3-4 hours
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33 well in advance from the time of delivery. This would have been possible due to digital
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transformation in food retails.
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37 We found during the survey that milk of indigenous cattle (Sahiwal, Gir, Kankrej) fetches
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higher prices in the NCR region on account of swadeshi nudge (A2 milk). One of the reasons
39
40 for higher prices realized by the dairy farms (in NCR regions) is the compliance with food
41
42 safety norms, as these farms are addressing consumer concerns of food safety and the quality
nd
43
44 of milk/ milk products. Conclusively, it can be said that direct sale to consumer (higher share)
45 is not always in the absence/ lesser development of a formal value chain in the area located at
46
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47 a distance from city. Still, it depends more on the marketing strategies of the entrepreneurs–
48
49 how they establish linkages with customers and how they maintain food safety and quality.
50
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The coefficient of the education level of the entrepreneur is negative and significant in both
52
53 the value chains over the base (consumer-household). This means that more educated
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10 entrepreneurs are more skillful in market segmentation and positioning; hence, better price
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12 realization. More educated dairy entrepreneurs explored the territorial market (approaching
13
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14 directly to premium customers, particularly in cities, metros, who are paying premium prices
15
for quality milk and nudging effect (A2 milk). Besides, delivering quality milk from a trusted
16
17 source is also convenient for consumers. A holistic territorial market approach enables
ss
18
19 market relations with farmers (Wegerif & Martucci, 2019), and in doing so (constructing a
20
21 market outside the corporate value chain, i.e., ‘nested markets’), entrepreneur/farmers secure
in
22 greater value for themselves (der Ploeg et al., 2012).

23
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25 Further, the coefficient of the social group, age, land holding, herd size, and household size,
26
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27 which represent the socio-economic status of the entrepreneurs, are all non-significant,
28 implying no effect of these on the choice of the value chain. The summary statistics of these
29
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30 variables are presented as Appendix-II. The coefficients of training and food safety score are
31
32 positive and significant in the case of formal value chains. This indicated that the dairy
33
entrepreneurs who have participated in formal training in dairying – following the food safety
pin
34
35 protocols – are more likely to be in the formal chains. TBI unit of NDRI imparts training in
36
37 commercial dairy production and processing of milk. However, State Agricultural University
38
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39 (SAU) and other R&D institutes provide similar kinds of training, sometimes sponsored by
40
the National Bank for Agriculture and Rural Development (NABARD).
41
42
nd
43 For this study, we have purposively selected 50% of the sample, who have attended
44
45 entrepreneurship programming at NDRI. The purpose of such programme/training is to make
46
the entrepreneur acquaint with proven techniques and technology for safe milk production,
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47
48 value addition, and marketing strategies. Higher profit realization is evident for maintaining
49
50 milk quality across selected value chains. Another reason as also noted by Birthal et al.,
51
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52 (2017), is the importance on food safety and quality standards given by the formal value
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10 chains which prefer contracts with farmers who are capable of complying with these
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12 standards.
13
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Finally, the coefficient value of commercial dairy farms in the high milk-producing states
15
16 (Uttar Pradesh, Rajasthan, Gujarat, and Andhra Pradesh) among the sample farms is positive
17
ss
18 and significant. The commercial dairy farms in these states are more likely to be in the formal
19
20 chain, possibly because of the already available organized market. Our results are in line
21
in
with the results of Kumar et al., (2019); Birthal et al. (2017) and Sharma (2015). They found
22
23 formal value chains present in states where dairy development is high, like Gujarat, Punjab,
24
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25 and Maharashtra.
26
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27 Outcome equation: Stage 2

28
29
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30 Table-5 presents the result of the second stage of the multinomial treatment effect model. The
31
32 estimates show effect of choice of the value chain on performance (profit/farm) of these
33 commercial dairy farms. The inverse mills ratios (Lambda) are found to be non-significant,
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34
35 clearing all the suspicions about the presence of any selectivity bias. Our results indicate
36
37 significant differences in the profits of different value chains. Entrepreneurs operating in
38
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value chains other than selling to consumers realize significantly less profit than the
39
40 consumer-households value chain. Our result is contrary to Vandeplas et al., 2013; Kumar et
41
42 al., 2018 who found that farmers selling to the informal sector were less profitable and
nd
43
44 inefficient than multinationals and cooperatives. The cooperative membership of dairy
45
farmers resulted in higher yield and profit (Kumar et al., 2018). Our explanation is that dairy
46
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47 startups/entrepreneurs have established territorial markets, where they are directly selling to
48
49 the preferred customers–who could pay premium prices for quality products. Profit increases
50
51 with increased herd size and land holding where economies of scale operate. Our results
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52
corroborate the findings of Birthal et al. (2017) that land size influenced the milk yield
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10 through greater availability of feed and fodder; and herd size is an important correlate of
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12 price as well as the profit of dairy farms in Punjab.
13
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14
Further, formal trained entrepreneurs who comply with food safety standards reap
15
16 significantly higher profits. Our results are commensurate with Kumar et al. (2020), who
17
ss
18 found that adopting additional food safety measures (FSM) increases milk yield by about 1%
19
20 and profitability by about 2.3%. The coefficients of the latent variables, Lambda
21
in
(vendors/small scale processors) and Lambda (Cooperative, private processing plants and
22
23 corporates), are both positive but non-significant. It suggests that individuals who are more
24
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25 likely to choose either type of value chain relative to the consumer value chain (base
26
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27 category), based on their unobserved characteristics, get higher profit.

28
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10 Conclusions and implications
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11
12
13 In this paper, dairy entrepreneurs’ choice of the value chain and its impact on farm
ine
14
profitability have been evaluated using farm-level data in India and a multinomial logistic
15
16 model. This study revealed that both formal (cooperative, corporate and private processing
17
ss
18 units) and informal (vendors/middlemen (dudhiya), small-scale processors (halwai and

19
20 consumer-household) were engaged in dairy value chains. The informal value chain driven
21
in
by consumer-household was more prominent. Results showed that dairy entrepreneurs

22
23 operating in value chains other than selling to consumer-household realized a comparatively
24
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25 lesser profit. Educated entrepreneurs were found to be skillful in market segmentation and
26
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27 positioning. Indigenous cow milk (A2 milk) hasa nudging effect on demand in metros. In
28 such a scenario, dairy entrepreneurs could explore niche markets by approaching premium
29
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30 customers who were quality and taste conscious.

31
32
Profit was found to increase with increased herd size due to economy of scale and land
33
pin
34 holding via the availability of feed and fodder. Formal training in dairying and food safety
35
36 compliance were significantly associated with higher profits. The village dummy's positive
37
38 and significant coefficient indicated the greater prospect of dairy enterprise in rural areas. The
ga
39
study implied that training/ entrepreneurship development programme in dairying needs to be
40
41 promoted with more emphasis on food safety and quality throughout the value chain. The
42
nd
43 results also showed that the productivity of commercial dairy startups is much higher than the
44
45 national average, forcing us to think about a paradigm shift from dairy farming in households
46
to commercial dairy farming. Hence, value chain-based support (in the form of training,
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48 technology and financing), is envisaged from government, R&D, and financing intuitions for
49
50 promoting dairy enterprises in rural catchments.
51
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52 Acknowledgements
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10 We thank ICAR-National Institute of Agricultural Economics and Policy Research, New Delhi
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11 for their funding under network project on ‘Promoting value chain of major agricultural
12 commodities in India’. The authors also thank Dr. R. Malhotra, Principal Scientist for his kind
13 suggestions. The authors acknowledge the valuable suggestions Dr. Ashok K. Mishra, editor
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14 of the journal and anonymous reviewers.
15
16
17
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18 References
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48 Thakur, A., Dixit, A.K., Sharma, A.K., Kumar, S., Sendhil, R. & Singh, A.K. (2021).
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11 Income and Efficiency Effects of Supply Chain Governance in India. Journal of
12 Agricultural Economics, 64(1), 217-244.
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14 Wegerif, M. C. A & Martucci, R. (2019). Milk and the City Challenging the Value Claims of
15 Value Chains. Agroecology and Sustainable Food System, 43(10),1077-1105.
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4 Table 1 Structure of milk production of selected dairy farm
5
6 Average Average
7 Average number of lactating animals
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8 Category Milk productivity of
9 per farm
10 Production in milk animals
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11 Cattle Buffalo Total (L/day/farm) L/day/animal
12
13 21 7 28 244.25 16.32
ine
14 Small
15 (4.67) (6.29) (10.95) (77.49)
16
17 36 23 59 451.80 13.60
Medium
ss
18 (6.26) (8.43) (14.69) (105.81)

19
20 77 81 158 1273.00 15.57
21 Large
in
22 (8.58) (11.55) (20.12) (154.81)

23
24 34 22 56 450.54 15.40
Overall
D
25 (3.43) (4.62) (10.22) (56.82)

26
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27 Note: figures in parentheses are standard errors

28 Source: Authors estimation
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32
33
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38
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42
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2
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3 Table 2 Volume of milk flowing and prices realized across value chains
4
sin
5 Directly to Processing and
6 Vendor/ middlemen Corporate sector Cooperative Private milk
Category consumer house value addition at
7 (Dudhiya) (hostels) societies processing units
ess
8 hold farms
9 Value chain (I) (II) (III) (IV) (V) (VI)
10
Vol. Price Vol. Price Vol. Price Vol. Price Vol. Price
in
11 Vol. (L/day)
12 (L/day) (INR/L) (L/day) (INR/L) (L/day) (INR/L) (L/day) (INR/L) (L/day) (INR/L)
13 1058
De
3932 702 844 303
14 Small 37.86 36.00 - - 30.50 (45.84) 32.25
15 (35.2) (39.55) (100) (0.92)
ve
16
17
4875 1024 338 540
Medium 49.04 - - 43.50 - - 45.26
(43.76) 100) (14.65) (16.40)
lop
18
19 1073
20 2332 912 2448
Large 31.12 (60.45) 32.66 - - - - 32.05
(20.94) (39.51) (74.38)
ing
21
22
23 Overall 11139 41.76 1775 34.33 1024 43.57 844 30.50 2308 34.33 3291
24 Note: The figures in parentheses represent the percentage of the total column
an
25
26
dE
27
28
29
me
30
31
32
rgi
33
34
ng
35
36
37
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38
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40
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9 Table 3 Profits across group of dairy enterprises associated with value chain
10 (INR/day/farm)
us
11 Vendor/ Overall Profit
12
13Group of middlemen
Corporate Private
Processing profit (INR/day
ine
14enterprise Directly to (dudhiya), Cooperative & value /
15s (hostels, milk
consumers small scale society addition SAU)
16 hospitals) processors
17(SAU) processor at farms
(halwai)
ss
18
19Channel (I) (II) (III) (IV) (V) (VI)
20
21Trainee
in
22( 94.16) 3065 3043 3685 856 2932 3319 3004 31.90
23Non-
24
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25trainee
26(82.25) 2037 2347 2849 595 1452 1347 1821 22.14
ev
27 Source: Authors estimation based on field survey

28
29
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3 Table 4 Multinomial logit model of the choice of value chain (base category: consumer),
Ag
4
5 n=50
6 Informal Formal (Cooperative
7
rib
(Vendors/middlemen society/ private processing
8 (dudhiya)) units/ Corporate: hostels,
9
10
hospitals)
-0.03 0.02
us
11 Age (years)
12 (0.08) (0.08)
13 -0.61* -0.63**
Education
ine
14 (0.35) (0.35)
15 Social group
16
17 1.06 1.08
SC or ST = 1, zero otherwise
(2.02) (1.74)
ss
18
19 -0.24 1.77
20
OBC = 1, zero otherwise
(1.62) (1.63)
21 -0.20 0.10
in
22 Household size (No.)

(0.36) (0.39)
23
24 Training in dairying = 1, zero -0.07 1.14*
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25 otherwise (1.45) (1.30)

26 0.02 -0.01
Herd size (No.)
ev
27 (0.01) (0.02)
28 -0.02 -0.01
29 Land holding (acres)
(0.05) (0.05)
elo
30
31 Food safety index (FSI), adoption 0.02 0.06
32 score (%) (0.04) (0.05)
33 -0.94 -2.34
% of crossbred in the herd
pin
34 (1.41) (1.52)
35 Locality 2.04 4.92**
36
37
Village = 1, zero otherwise (1.92) (2.07)
38 Distance between production to -0.18 -0.09
ga
39 sale centre (0.16) (0.13)

40 2.50 -4.80
41 Constant term
(6.42) (7.18)
42 Note: ** (p<0.05); * (p<0.10)
nd
43
44
45
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3 Table 5 Multiple treatment effect regression estimates with endogenous value chain,
Ag
4
5 n=50
6 Profit
7
rib
Difference form base category: 1 if private vendors/processors, 0 otherwise -0.73***
8
(0.31)
9
10 Difference form base category: 1 if private/cooperative, 0 otherwise -0.50**
(0.26)
us
11
12 -0.02
13
Age (years)
(0.01)
ine
14 -0.04
15 Education
(0.06)
16
17 Social group
-0.23
ss
18
SC or ST = 1, zero otherwise
19 (0.33)
20 -0.17
21 OBC = 1, zero otherwise
in
(0.24)
22
23 0.05
Household size (No.)
24 (0.06)
D
25 0.54***
Training in dairying = 1, zero otherwise
26 (0.25)
ev
27 0.01***
28 Herd size (No.)
(0.00)
29
0.01**
elo
30 Land holding (acres)

31 (0.01)
32 0.01**
33
Food safety index (FSI), adoption score (%)
(0.01)
pin
34 -0.20
35 % of crossbred in the herd
(0.21)
36
37 5.71***
Constant term
38 (1.04)
ga
39 1.07***
40
Ln (alpha)
(0.22)
41 Lambda (private vendors/processors) -0.02
42
(0.20)
nd
43
44 0.13
Lambda (Private/cooperative)
45 (0.15)
46 Chi2 62.79***
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47
48
Note: *** (p<0.01); ** (p<0.05)
49
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3 Appendix-1
Ag
4
5
6 Distribution of dairy farms based on herd size and type of bovine animals
7
rib
8
9 Dairy farms rearing bovine animals (No)
10 Total
us
11 Category Cross Cross bred
12
Indigenous Indigenous dairy
(SAU) bred Buffalo cattle +
13 cattle cattle +buffalo farms
cattle buffalo
ine
14 (No)
15
16
Small
18 (36) 4 (8) 3 (6) 2 (4) 1 (2) 28 (56)
17 (<64.34)
ss
18 Medium
19
20
(64.35- 3 (6) 4 (8) 4 (6) 3 (6) 1 (2) 15 (30)
21 118.58
in
22 Large
23 2 (4) 1 (2) 0 (0) 4 (8) 0 (0) 7 (14)
24
(>118.58)
D
25 Total dairy
26 23 (46) 9 (18) 7 (14) 9 (18) 2 (4) 50 (100)
farms
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27
28
Note: The figures in parentheses are percent to total sample size
29
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3 Appendix-II
Ag
4
5
6
Summary statistics of the variables
7
rib
8 Formal
9 (Cooperative society/
10 Informal private processing units/
us
11 Consumer (Vendors/middleman/ Corporate: hostels,
12 HHs dudhiya) hospitals) Total
13
Variables Mean SE Mean SE Mean SE Mean SE
ine
14
15 Age 41.18 1.80 44.60 3.33 40.08 2.25 41.60 1.32
16 Male 1.07 0.05 1.10 0.10 1.00 0.00 1.06 0.03
17 Family size 5.29 0.42 5.70 0.54 5.83 0.42 5.50 0.28
ss
18
19
Distance 8.21 1.18 5.10 1.62 8.92 1.42 7.76 0.82
20 Training 0.57 0.10 0.40 0.16 0.42 0.15 0.50 0.07
21 11.6
in
22 Herd size 75.39 8.03 162.31 48.22 77.01 11.38 93.16 9

23 Milk yield 15.61 0.90 14.90 0.80 15.33 1.08 15.40 0.58
24
Milk 49.6 450.5 57.4
D
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26 production 397.82 1 721.20 230.13 348.00 62.05 4 0
ev
27 2624.4 343. 2412. 252.

28 Profit 2 31 2480.62 645.87 1860.60 436.01 34 90
29 Land (1/0) 0.71 0.09 0.60 0.16 0.83 0.11 0.72 0.06
elo
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Land
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32 holding 9.30 2.44 17.00 8.37 8.17 1.81 10.57 2.19
33 Food safety
score 72.32 2.97 73.00 5.59 78.58 3.39 73.96 2.15
pin
34
35 SCST 0.21 0.08 0.30 0.15 0.33 0.14 0.26 0.06
36
OBC 0.39 0.09 0.40 0.16 0.50 0.15 0.42 0.07
37
38 Locality 0.29 0.09 0.40 0.16 0.67 0.14 0.40 0.07
ga
39 Credit 0.36 0.09 0.70 0.15 0.42 0.15 0.44 0.07

40 Crossbred 0.58 0.09 0.45 0.13 0.52 0.14 0.54 0.07
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Anil Kumar Dixit is a Principal Scientist (Agricultural Economics) in the Division of Dairy
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Economics, Statistics and Management (DES&M) at the ICAR-National Dairy Research
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10 Institute, Karnal, India. He has 19 years of teaching & research experience, handled several
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12 research projects. Also good number of published work in his credit. He is recipient of Young
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14 Scientist Award 2010 by the Indian Society of Hill Agriculture and Dr Rajendra Prasad Puruskar
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for technical books in Agricultural and Allied Sciences 2015 by Indian Council of Agricultural
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17 Research.
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21 Smita Sirohi is a Joint Sectary, Ministry of Agricultural and farmer welfare. She has earlier
22 served as Advisor Embassy of India, Brussels, Belgium; and also Principal Scientist & HoD,
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24 Dairy Economics, Statistics and Management Division in ICAR-National Dairy Research
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26 Institute, Karnal. She has 29 years of experience in academics, research and administration. She
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has good publications in national and international journals of repute.
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31 Ravishankar K M has worked as Senior Research Fellow in network project of ICAR-NIAP
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33 entitled policy imperatives for promoting value chain of agricultural commodities in India.
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36 A. G. Adeeth Cariappa is an young Agricultural Economist and presently working in NITI
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38 Aayog (Agriculture & Allied Sectors Vertical), Government of India, New Delhi. His doctorate
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40 work was on Randomised Control Treatment (RCT) and good number of publications in his
41 credit.
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45 Shiv Kumar is working as a Principal Scientist (Agricultural Economics) in National Institute of

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Agricultural Economics and Policy Research, New Delhi. He has more than 25 years of services
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48 in teaching and research. He has been the PI of sever network and externally funded projects. His
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50 area of interest in Agricultural development, Agricultural Policy and Impact Assessement
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52 Gunjan Bhandari is scientist in the Division of Dairy Economics, Statistics and Management
53 (DES&M) at the ICAR-National Dairy Research Institute (Deemed-to-be University), Karnal,
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3 India. Her are of interest is agricultural marketing, natural resources economics and impact
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5 analysis.
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Gunjan Bhandari is a scientist (Agricultural Economics) in Division of Dairy Economics,
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10 Statistics and Management in ICAR-National Dairy Research Institute in India. She received her
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12 PhD from the same institute while her post-graduation in Agricultural Economics is from
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14 University of Agricultural Sciences, Bengaluru (India). Her professional interest includes impact
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assessment, trade and consumer behaviour. She is currently working on projects related to
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17 impact assessment of diseases, dairy technologies and farmer collectives besides being engaged
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19 in teaching post-graduate students.
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22 A. K. Sharma is a Principal Scientist of Computer Applications in Agriculture in the Division of
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24 Dairy Economics, Statistics and Management (DES&M) at the ICAR-National Dairy Research
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26 Institute (Deemed-to-be University), Karnal, India. His research interests have been mainly
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attributed to Web-based information systems and predictive analytics with emerging artificial
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29 intelligence and machine learning algorithms especially through their application to animal
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31 sciences and dairy/food research.
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Gaganpreet Kaur Bhullar has worked as Senior Research Fellow in network project of
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36 ICAR-NIAP entitled policy imperatives for promoting value chain of agricultural commodities
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38 in India. Presently she is working as food technologist in Maple Leaf Foods Wetaskiwin,
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40 AB(Alberta). Canada
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43 Amit Thakur is currently a Ph.D. research scholar in Division of Dairy Economics, Statistics and
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45 Management at ICAR-National Dairy Research Institute (NDRI), Karnal. He is recipient of Dean

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Merit Award and institutional fellowship from NDRI during his Masters in Agricultural
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48 Economics (2017-19). He has worked on newer aspects of value chain of informal dairy sector.
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50 His research interest includes food safety, value chain analysis and profitability analysis.
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53 Arti Thakur is presently working as Asstt. Professor in Department of Agricultural Economics
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55 Institute of Agriculture, Visva-Bharati University, West Bengal. Earlier she has worked as has
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Understating emerging value chains and business performance: evidence from

Article in Journal of Agribusiness in Developing and Emerging Economies · November 2022

Anil Kumar Dixit A G Adeeth Cariappa

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Shiv Kumar Gunjan Bhandari

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Keywords: Dairy, Entrepreneur, Food safety

22 individual (Birthal et al., 2017). It can be expressed as:

22 greater value for themselves (der Ploeg et al., 2012).

27 Outcome equation: Stage 2

27 category), based on their unobserved characteristics, get higher profit.

18 units) and informal (vendors/middlemen (dudhiya), small-scale processors (halwai and

by consumer-household was more prominent. Results showed that dairy entrepreneurs

30 customers who were quality and taste conscious.

in Indian Punjab. Journal of Rural Studies, 54, 288-303.

25 in India. Indian Journal of Agricultural Economics, 64(3), 481-496.

34 Development- 2021-2022. https://dahd.nic.in/division/overview (Aceessed on Sept

39 and the European Union. Journal of Peasant Studies 39 (1), 133-173.

Development, 37(11), 1742-1758.

25 Sharma, V. P. (2015). Determinants of Small Milk Producers’ Participation in Organized

43 Development, 16(SS):508-511. https://doi.org/10.35716/ijed/NS20-041.

18 (6.26) (8.43) (14.69) (105.81)

22 (8.58) (11.55) (20.12) (154.81)

25 (3.43) (4.62) (10.22) (56.82)

27 Note: figures in parentheses are standard errors

27 Source: Authors estimation based on field survey

22 Household size (No.)

25 otherwise (1.45) (1.30)

39 sale centre (0.16) (0.13)

30 Land holding (acres)

22 Herd size 75.39 8.03 162.31 48.22 77.01 11.38 93.16 9

27 2624.4 343. 2412. 252.

39 Credit 0.36 0.09 0.70 0.15 0.42 0.15 0.44 0.07

45 Shiv Kumar is working as a Principal Scientist (Agricultural Economics) in National Institute of

45 Management at ICAR-National Dairy Research Institute (NDRI), Karnal. He is recipient of Dean

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