Chapter One Introduction

1.1 INDUSTRY OVERVIEW

Milk producing animals have been domesticated for thousands of years. It was in reality a recent event in the long history of man. Reed (1959) points out that in spite of the prolific literature, the central problems concerning the origins and early history of animal domestication remained unsolved. However on the other basis of evidence that he and others have accumulated, he mentioned that goats were probably domesticated 8000 to 9000years ago whereas cattle and sheep were domesticated sometimes thereafter. There is a fairly definite proof that cattle had been domesticated by about 5000 to 6000 years before to present of 3000 to 4000 B.C.

The selection of cows on the basis of milk production is credited to nomadic Aryans of central Asia. As the cow population expanded throughout the world and as milk production became a specialized space of agriculture, new methods were developed. In

the more recent past, people in agricultural societies owned dairy animals that they milked for domestic and local (village) consumption. With industrialization and urbanization the supply of milk became a commercial industry with specialized breeds of cow being developed for dairy. So now many countries around the world produce milk and the milk production in the world as per continent is mentioned below. Table 1. Cow milk production in the world (000 Tons) , FAO Report 2007
Country Europe EU-25 Extra EU-25 1999 2000 2001 2002 2003 2004 2005 2006 145.114 144.936 66.195 64.856 84.113 58.637 93.666 23.484 19.211 144.103 143.912 144.194 142.116 142.390 142.009 66.570 83.174 68.135 85.103 67.707 85.339 62.326 68.046 85.519 63.912 67.684 88.365 63.654 67.569 90.563 66.024

Northern America 81.968 Latin America Asia Oceania Africa World 57.522 90.393 21.440 18.289

60.123 61.115

97.637 102.015 110.177 117.359 124.124 134.867 24.058 25.553 24.497 23.880 25.292 23.375 24.659 23.228 24.810 24.053

20.060 21.032

480.922 488.904 495.726 506.865 518.121 525.620 534.104 549.897

Source :FAO Report 2006 Sri Lanka lies just off the South east tip of India. The surface land area of the country is 65525 square kilometers including water lobbies. In 1999 there was an estimated human population of 19.04 million with a population density of 304 per square kilometer a modest population growth rate of 1.4% , 72.2% of the people lived in rural areas and 6.8% in the estate sector and the rest 22 % in the urban area (Central Bank 2000). In the same year 1999 average per capita expenditure on milk and milk products was generally 3.3% (MLDEI 2000). The dairy industry is important and has tremendous potential in developing the economy in the country. Milk product has been a traditional industry that has survived thousands of years. For many reasons milk an important food item needs to be available in the market without any shortages. It plays a key role in infant feeding and eliminating nutritional poverty in all other group ages.

Sri Lanka is a tropical country with a greenery and sunshine. Still we are importing good part of milk powder from countries. In year 2006 alone we have imported 70,000 MT of milk powder worth of Rs million. In the recent years prices of packet milk
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powder started to sky rocket. 83% of the milk powder market is in the hand of multinational companies for example: Fonterra (Newzeland Milk Lanka (Pvt) Ltd, Nestle Company etc. apart from that there are local companies also involved in milk powder industry. They have a market share about 17%. Example for the local milk powder companies are Milco, Kotmale holdings Ltd (NLDB 2006). Sri Lanka is endowed with abundance of lands amidst marvelous mountains and valley as well green land in low lands. In every part of the country there are cattle farms of them are some big farms all other are small cattle farms. These dairy production systems can be classified in different ways. So the dairy production system of Sri Lanka can be classified as shown in table 1.2.

The growth rate of the local dairy industry over the last decade has been estimated to be around 2.5% per annum, in contrast to the projected market growth rate of 5.2%. During the same period average monthly milk production of cow milk has increased from 14.4 to 21.7 million liters (MLDEI 2000).

Table 1.2 Main Dairy Production Systems in Sri Lanka No. Production Area 01 02 03 04 05 Hill country Mid country Coconut triangle Low country wet zone Low country dry zone Average Dairy 6-8 4-5 3-3.5 3-3.5 1-1.5 Milk Popular management system Intensive Semi- intensive Tethered Tethered Extensive

Production per cow (liters)

Source: MLDRI (1995)

Cow milk provides abundance of nutrient needed for health and body growth. They include a range of essential including fat, carbohydrate, minerals, vitamins, proteins etc. Vitamin A, D, E, K and many acids the body needs but cannot product its own is supplied in cows milk fat which is dispersed right through the milk globules. This and the pleasant taste and texture of fresh cows milk is its special character.

The market of milk industry is changing now many companies both local and multinational companies are now moving in to fresh milk market. For example Anchor milk marketers now market now market Newdale fresh milk with different flavors and taste because they have identified the development of fresh milk market in Sri Lankan context. Also Sri Lankan government own milk Milco has put up many fresh milk stalls to sell fresh milk and other dairy. In rural and remote areas, many fresh milk marketers are also increasing supply to urban and suburbs.
1.2

Research Problem
Dairy industry is a growing industry in Sri Lanka like other industries (see table

03). Dairy product market is changing and growing due to population growth, awareness of people regarding nutrient power, increase level of income, government policies and competition etc. In 1981 under the trade liberalization and privatization government took a decision to close the national milk board and signed an agreement with nestle to develop the diary industry. So after 20 years, there was no fresh milk available in the market and the entire milk food sector was in the hand of just two or three multinational companies which market only milk powder imported from west.

Table 1.3 Livestock Production, Average monthly production (000 liters) Years Cow milk Source: Census and Agriculture Department 2008
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2000

2001

2002

2003

2004

2005

2006

2007

2008

12604 12730 12737 13045 13308 13485 13748 14144 14370

At present the domestic milk production only constitute 17 percent of the requirement and the rest imported. The import bill on dairy production is around 15 billion rupees. The government policy on diary industry in development is aimed at 50 percent of countries requirement of milk by the year 2015. As if the milk production could improve the outflow of foreign currency will decrease (Q. Perera Asian Tribune.com).

So now both government and private companies like Nestle, Anchor, Milco, Maliban are involve in the milk market by marketing milk products such as Milk Powder, Liquid milk drinks, Yogurt etc. majority of the Sri Lankan population is living in urban and suburbs. According to the Census and Statistic departments data in 2001, population density for per square km in Colombo and Gampaha respectively was 3330 and 1539. And the population in both districts respectively was 2,251,274 and 2.063,684. So the population both of this district similar approximately to 25% whole population of Sri Lanka (18,797,257). Colombo is the most urbanized district in Sri Lanka and so there are many urban and suburbs in Colombo district. So the diary companies available in Sri Lanka, market all their products heavily in this particular market. As milk powder started to dominate in the market from 1981 fresh liquid milk was not available in the urbanized areas much. So still the major method that the people fulfill their dairy need is milk powder. After the prevailing government coming into power the milk production and fresh milk availability raised as government gave hand for diary sector. Even though still the market is dominated by milk powder. So it could be seen a huge customer loyalty towards milk powder. But it not apparent that kind of loyal consumer group towards fresh milk is not there. Fresh milk is a nutrient food for children and elders too. But fresh milk market is not considerably broadened in urban and suburbs in Colombo. Fresh milk could be a high potential market for entrepreneurs to invest. But it is needed to understand the customer behavior towards fresh liquid milk. So the basic problem of this study is to study the consumer behavior towards fresh milk in urban and suburbs Colombo.

1.3 Research objectives

This research study is done to reach particular objectives. Those objectives can be identified as key objectives and specific objectives. They are as follows.

Key objective of the study To understand nature of the demand for fresh milk in urban and suburbs

Specific objectives of the study To identify opportunities in the fresh milk market ( sales & distribution) To identify threat to the fresh milk market. To find out average population consume fresh milk in the market and the effective demand for fresh milk

To identify key determinants of demand for fresh milk

1.4 Research questions

How is the consumption pattern of fresh milk in urban and suburbs in Colombo? What are the factors that affect to the demand for fresh milk in urban and suburbs?

What are the barriers of sellers in the fresh milk market? What is the best selling market, urban or suburbs? How far advertising and promotional effort are effective?

1.5

Significance of the study

This research study is significant from several aspects.

There are different types of competitors in the fresh milk market. Those competitors can be divided into two major parts. They are direct and indirect competitors. Few examples for direct competitors are powdered milk, malted milk, tea, etc. and examples for indirect competitors are soft drink, fruit drink, water etc. if fresh milk market improves it will directly affect to those direct as well indirect competitors. So those competitive market players can learn about the extent of threat that fresh milk can do interns of their market from this research and based on that they can take decision for the future.

As well in this sector government organizations have also involved in. so they can also take decision based on this research as if what kind of influence should be done by government owned milk companies. Milk is not just a drink. It is a nutritional drink. Government has been taking many steps to reduce malnutrition within the country from a long time. So this research study gives a clear picture about the consumption level of milk in the urban and suburbs. So government can take decision to build up a healthy country.

There are many people and organizations in the country looking forward for new investment opportunities. This research gives a clear picture about the emerging nature

of demand towards fresh milk in urban and suburbs. The investors can take investment based on this research study by reviewing the potentiality of the market in future.

Also this research could benefit for those who start doing a research similar to this title. So that, they can use information found from this research as secondary data. Most importantly this information can be used by school children too in the aspect of malnutrition, livestock production (agriculture) etc. Therefore the teachers can use these findings when they teach children of above mentioned subjects.

Government institutions are a major party that needs information of this milk market. Because the milk market is a huge market in Sri Lanka and its contribution is so important to the countrys economy as well as health of people in the country. Millions of rupees outflow from the country due to milk market. So government can utilize this study for their decision making. As well government can determine the magnitude of mal nutrition in urban and suburbs. It helps government institutions when drafting policies.

1.6

Hypotheses

H0: Price of fresh milk change the demand for fresh milk in urban and suburbs in Colombo

H1: Price of fresh milk does not change the demand for fresh milk in urban and suburbs in Colombo

H0: Availability of fresh milk change the demand for fresh milk in urban and suburbs in Colombo

H1: Availability of fresh milk does not change the demand for fresh milk in urban and suburbs in Colombo

Ho: Income of the people in urban and suburbs in Colombo change the demand for fresh milk in urban and suburbs in Colombo

H1: Income of the people in urban and suburbs in Colombo does not change the demand for fresh milk in urban and suburbs in Colombo

H0: Price of milk powder change the demand for fresh milk in urban and suburbs in Colombo

H1: Price of milk powder does not change the demand for fresh milk in urban and suburbs in Colombo

H0: Quality of fresh milk change the demand for fresh milk in urban and suburbs in Colombo

H1: Quality of fresh milk does not change the demand for fresh milk in urban and suburbs in Colombo

1.7

Research methodology
In research methodology the researcher describes the sources of data collection,

how sampling is done, and the data presentation and analytical method.

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1. 7. 1 Source of data collection The researcher mainly paid attention on both primary and secondary data sources.
o

Primary data: by self administrated questionnaire distributed to a sample of people selected in urban and suburbs in Colombo.

Secondary data: Findings of research already done, data from censes and statistic department, central bank report, news paper articles/magazines, world wide web

1. 7. 2 Sampling plan Population of this research is all the households consume milk products & individuals in urban and suburbs in Colombo area. Sample is randomly selected 100 households in urban and suburbs in Colombo.

1. 7. 3 Data presentation and analytical method Data presented using pie charts, bar charts, tables. Data are analyzed by using Ms Excel formats and other statistical analysis method also uses SPSS as a supplement.

1.8

Limitation of the study

Sample representing the population is limited Demand for fresh milk is not only decided by the factors taken in the study. Other factors may also affect Respondents give fake answers

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Respondents are not giving answers keenly People avoid answering open type questions Lack of secondary information about this subject.

1.9

Organization of chapters
Chapter 01:

Discuss briefly about all the topics on the research from the background of the industry, research problem, research objective, significance of the study, and other related parts. Chapter 02:

Discuss Literature review. The theories, concepts, definitions and previous research findings Chapter 03:

Discuss conceptualization and operationalization. Under this conceptual framework and variables defined. Chapter 04:

Discuss research Methodology. Formulation of hypotheses, data collection method, and sampling method are coming under this. Chapter 05:

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Data analysis by using statistical analytical methods and presentation by using charts and diagram is done in this chapter. Chapter 06:

The last chapter is allocated for the summery of overall study, conclusions and suggestions from the study and also for appendix, bibliography, and references.

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