USAID PEEP PROJECT

Study on Milk Supply Chain In Punjab Province of Pakistan

June 2017 This publication was produced for review by the USAID. It was prepared by KPMG Taseer Hadi & Co. under an assignment commissioned by Chemonics International under the USAID Punjab Enabling Environment Project.

Study on Milk Supply Chain In Punjab Province of Pakistan

PUNJAB ENABLING ENVIRONMENT PROJECT (PEEP)

CONTRACT NO. AID-391-C-14-00002

Disclaimer This study is made possible by the support of the American people through the United States Agency for International Development (USAID). The contents are the sole responsibility of KPMG Taseer Hadi & Co and do not necessarily reflect the views of USAID, the United States Government or Chemonics International.

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Contents

DISCLAIMER ...... 3 1. EXECUTIVE SUMMARY ...... 4 2. INTRODUCTION AND BACKGROUND ...... 10 3. PUNJAB DAIRY SECTOR OVERVIEW ...... 13 4. HIGHLIGHTS OF THE SURVEY ...... 19 5. KEY FINDINGS ...... 25 6. KEY RECOMMENDATIONS...... 38 7. FINANCIAL ANALYSIS ...... 46 8. DETAILED ANALYSIS ON MILK SUPPLY CHAIN IN PUNJAB ...... 53 9. STATISTICAL ANALYSIS ...... 111 10. ANNEXURES ...... 134

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

DISCLAIMER This report and any accompanying material (together the “Punjab Milk Supply Chain Study”), is being provided to a limited number of parties (for information purposes only) selected in Task Order dated 06 October 2016 issued by Chemonics International Inc. (“the Client”) under the Indefinite Quantity Subcontract for USAID Punjab Enabling Environment Project (PEEP). This document constitutes the holistic Milk Supply Chain Study in the Punjab Province of Pakistan for the PEEP beneficiary Livestock and Dairy Development Department of the Government of Punjab (“Punjab L&DD”), as identified by PEEP. This Punjab Milk Supply Chain Study is limited to the scope set out in the Task Order number KPMG_TAS_IQS_001/02 dated 06 October 2016 (“the Task Order”). There may be other issues of interest to the Client and/or Punjab L&DD which may not be included in this report. This Punjab Milk Supply Chain Study is confidential and for the internal use of the Client and Punjab L&DD only. It is not to be distributed or to be referred or quoted, in whole or in part, without our prior written consent except as specifically provided in the Task Order. KPMG Taseer Hadi & Co. (“the firm” or “KPMGTH”) does not accept or assume responsibility to anyone other than the addressees of this report, for its work, for this report or for any judgments, findings, conclusions, recommendations or opinions that the firm has formed or made. The work was undertaken and this report was issued, on agreed terms of engagement, in order that the firm might state to the addressees those matters on which it agreed to Punjab Milk Supply Chain Study and for no other purpose. This Punjab Milk Supply Chain Study may serve as a tool for analysis of any proposed activities and does not purport to contain all the information that the decision makers may require. While all efforts have been made to incorporate all information relevant to the intended use of this Punjab Milk Supply Chain Study, KPMGTH does not make any representations or warranties, express or implied as to the completeness of the information contained in this Punjab Milk Supply Chain Study. No decision should be based solely on the basis of the information provided through this Punjab Milk Supply Chain Study. Any decision by the Client and/or Punjab L&DD regarding whether or not to use the results of this Punjab Milk Supply Chain Study shall rest solely with the Client and/or Punjab L&DD. The report includes a chapter on Government Interventions for the development and strengthening of livestock and dairy sector in Punjab. The information about the interventions is based on the briefings given by the department of livestock and dairy development department of Government of Punjab and on the other publicly available information. Completeness, accuracy, effectiveness and impact of the interventions were not independently verified by KPMGTH. KPMGTH has not verified any of the information presented in this Punjab Milk Supply Chain Study, and has relied upon the information and representations provided by the persons interviewed and publicly available information, for which sources of information have been identified in the Punjab Milk Supply Chain Study. KPMGTH’s work and this Punjab Milk Supply Chain Study were not planned or prepared in contemplation, or for the purpose, of anyone other than the addressees’ interests or needs. Therefore, items of possible interest to others may not have been specifically addressed for the purposes of this Punjab Milk Supply Chain Study. The use of professional judgment, and the assessment of issues or their relevance (as appropriate) for the purpose of the KPMGTH’s work and this Punjab Milk Supply Chain Study, mean that matters may have existed that would have been assessed differently by others for their purposes. KPMGTH does not warrant or represent that the information in this Punjab Milk Supply Chain Study is appropriate for their purposes. This Punjab Milk Supply Chain Study was not created for, and should not be treated as suitable for, any purpose other than that set out in the Punjab Milk Supply Chain Study itself and/or in the terms of our contract with the Client.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

1. EXECUTIVE SUMMARY As per economic survey of Pakistan 2016, with almost 80 million livestock (cattle and buffalos) population, Pakistan is the fourth largest milk producer in the world. The Livestock sector having contribution of 58.55 percent in the agriculture and 11.6 % to the overall GDP recorded a positive growth of 3.63 percent during 2015-16 compared to 3.99 percent growth during the same period last year. The Province of Punjab is most rich in terms of agricultural land and livestock population. As per Pakistan livestock census 2006, around 57% of total national livestock population pertains to the province of Punjab.

However, there have been divergent views on the reliability of data about livestock population in Pakistan and there are even suggestions among some stakeholders that actual livestock population may have actually decline over last few years due to various challenges faced by grass root farmers.

Notwithstanding above, rising and critical importance of the dairy subsector in Pakistan cannot be denied, however, there is little corresponding emphasis on analyzing its problems in the supply chain, as well as future prospects in the overall sector developmental plans. The biggest problem is loose ends in its collection and supply chain, availability of excess milk during the flush period months and low production or lean season months. Given this situation, the Livestock and Dairy Development Department, Government of Punjab (“Punjab L&DD Department” or “the Department”) intends to introduce economic and fiscal policy reforms in the dairy sector, based on empirical research in the sector.

To achieve the abovementioned objective, the Punjab L&DD Department approached Punjab Enabling Environment Project (“PEEP”), a USAID funded project implemented by Chemonics International, for technical assistance through Transaction Advisory Service (TAS) program in conducting an analysis of the current situation of milk production, collection, transportation and processing and help developing a business model to convert the access milk available during the flush months into whole and skimmed milk powder by the installed units or through new investments in the sector.

Responding to the Department’s request, PEEP signed a sub-task order with KPMG Taseer Hadi & Co. (“KPMGTH”) titled “Milk Supply Chain Study and Business Model development for the value addition/conversion of milk into whole and skimmed milk powder, in the flush season in the province of Punjab” on 6th October 2016. The objective of this sub-task order was to develop a detailed milk supply chain study and business model for the value addition/conversion of milk into whole and skimmed milk powder in the flush season in Punjab.

Our approach towards execution of the assignment followed a systematic and logical sequence with regular updates to the stakeholders. Given the length and breadth of the assignment, a phased approach was adopted where results of each phase complemented the objectives of subsequent phase. In the planning phase, a detailed inception report was developed containing outline of the project execution and reporting phases.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

The methodology adopted for collecting requisite information for studying the milk supply chain in the Punjab province encompassed both primary and secondary research techniques. In depth review and analysis of relevant literature and statistics related to all elements of the mill supply chain in the province was performed in lieu of the secondary research. Whereas, as advised by the Department, primary research on the milk supply chain was carried out in the nine selected districts of Punjab. The selected districts were Okara, Sahiwal, Pakpattan, Khanewal, Kasur, Vehari, Bahawalnagar, Jhang and gawala colonies of Lahore and Faisalabad.

In addition to this, feasibility study of milk powder plant was carried out. Please refer annexure M for details.

Players in the milk supply chain i.e. the producers, middlemen, collection centers and processors were approached to conduct the study. Comprehensive questionnaires were developed for conducting the surveys. The questionnaires were structured in a way to ensure collection of information necessary for carrying out comprehensive and focused analysis of key elements of the study. The results were collated in a way to address the objectives of this study.

Despite the unmatched blessings of abundant livestock resources and rich agricultural backdrop, the dairy sector in the country remains under stress. The gap in demand and supply of milk is widening and projected to touch 2.7 million metric tonne by 2025 (IFCN report). The situation in the Punjab province is no different than rest of the country.

Although Punjab is a major producer of livestock products, the overall state of the livestock sector is plagued with multiple challenges resulting in diminishing interest of producers and eventual exit from the milk business.

Low milking yields, inadequate availability of feed and fodder, poor breeding practices, poor management and husbandry practices, high economic losses due to diseases, inadequate marketing and financial infrastructures, and unorganized marketing are some of the major factors blamed for low productivity of livestock systems.

Following pertinent issues were identified from the study which require urgent and coherent efforts from all key stakeholders to reverse declining trend and protect key segment.

A comprehensive, reliable, updated and consensus data on livestock segment is not publicly available which makes a meaningful analysis and resulting corrective measures cumbersome and problematic.

The results of a comprehensive profitability analysis of various categories of the milk producers indicate that the milk production does not present profitable business case. Losses to the tune of PKR 0.6 million for small scale producers and PKR 3.45 million for medium scale producers are estimated for ten year business cycle. The situation further aggravates when non-availability of land and sales to intermediaries are taken into consideration. Low price fetched for milk produced and high costs of production are primary reasons for worsening business case.

Financial constraints faced by the milk producers particularly the small and medium ones are so significant that they cannot afford to improve the quality and quantity of their herd. 5

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Survey with farmers indicated a trend of declining herd size among small and medium farmers. This is primarily due to heavy losses suffered by them in milk production. The major factors that contributed to loss included a) unfavorable sale prices of milk; b) high cost of feed; and c) low milk yield.

Low yield, use of imported powdered milk for preparation of milk by the processors, lack of adequate equipment and insufficient production quantities are other key barriers in achieving profitability.

Milk is included in the list of essential items and consumer prices are notified by the DCOs from time to time. It was noted that the price of milk is fixed arbitrarily without giving due consideration of complete cost of production.

Lack of appropriate transportation prevents the producers from selling the milk produced directly to the consumers resulting in loss of value due to involvement of intermediaries.

There is a lack of robust animal markets ensuring availability of high quality animals at affordable prices.

Food safety regulation of Pakistan and hygiene standards for milk production, processing and marketing are developed however, a robust mechanism to ensure its implementation have not been devised.

Driven mainly by the financial constraints, there is a lack of proper management of herd impregnation cycle as the producers generally follow a practice of inseminating their entire herd at once. Ineffective insemination arrangements further exacerbate the situation. There is generally a lack of proper research and development in semen for local buffalo breeds and lack of requisite skills for perfecting artificial insemination of local and imported cows.

Availability of quality feed particularly the specialized feed for enhancing milk yield (wanda, khal etc.) at reasonable prices is a key bottleneck in achieving profitability. There is acute shortage of water in areas close to the Cholistan desert. The producers also lack appropriate storage facilities resulting in loss of excess feed produced in the flush season.

It was observed that the producers mostly use traditional ways of feeding the milking animals and lack knowledge with regards to modern research and development in feed combinations, quantities etc. to maximize milking yield.

With the availability of expensive imported animals in the local market, the option sounds attractive to the producers as the imported animals present higher yields, although with a lower fat content. However, the success of imported animals depends on a lot of factors most of which require abundant financing. For example, the imported animals require specialize feed, pertinent medical care & vaccination, temperature controlled secluded habitat etc. Failure to provide these pre-requisites results in higher mortality and low yield.

Currently the milk powder market in the country remains fragmented with a mix of supplies through imports, smuggled milk powder, value addition products by few large player and low quality supplies from some milk processors. Availability of smuggled powder milk and low duty structure for legal imports has made domestic production of powder milk a financially unviable business preposition. Absence of domestic milk powder production industry in the country

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN results in lack of demand for milk during flush season which badly hurts small to medium milk producers, eventually forcing them to decrease or exit altogether from milk production. A detailed financial feasibility of domestic production of powder milk was carried out which is given in annexure M of the report.

In case of middlemen (dhodhys) and collection centers, lack of adequate transportation with specialized storage equipment installed, financial constraints, lack of adequate testing equipment required to ensure procurement of required quality milk, volatility of prices, ambitious milk collection targets in the lean season and defaults by the customers despite provision of advance payments to producers are the key constraints.

In some cases, the middlemen have to resort to adulteration practices either to maintain quality of milk (e.g. mixing of ice or H2O2) or to cover their costs (e.g. price paid by consumers/processors/collection centers etc. is lower than price paid to producers).

The report also identifies following key recommendations for possible improvement in the overall milk supply chain.

There is a strong need for building consensus among all stakeholders in collecting and compiling comprehensive data on livestock population with detailed geographical and breed wise bifurcations, milk production statistics (sufficiently detailed with respect to breeds, yields, demand, supply, lactation period, inter-calving intervals, disease prevalence, pricing of animals & products produced etc.).

Detailed analytical studies need to be conducted to assess production of milk in various systems, proportion of milk hauled by various intermediaries, and actual urban and rural demand, and forecast in demand for raw and processed milk.

Financial support by the government in the form of direct cash subsidies to producers, subsidized insurances for herd as well as margins, availability of commercial loans on subsidized rates, provision of customized vehicles including adequate storing and chilling arrangements on subsidized rates for transportation and storage of milk or Provision of cold chain related equipment as grants or at subsidized rates.

Formation of farmer groups who can draw on their collective investment and human resources to quickly benefit from sharing of resources, costs, and experiences. Through formation of associations, the small scale farmers can reap benefits available to the large scale producers by pooling their interests.

Practice of fixing arbitrary price by DCOs resulting in substantial losses to producers ultimately culminating in declining overall production should be discontinued with and an enabling environment should be facilitated in which market forces may determine fair milk prices.

The government has undertaken a number of initiatives including customized medical kit mounted motor cycles and mobile veterinary hospitals linked through 9211 Virtual Governance System to deliver services at the doorstep of livestock farmers. Department may expand the scope of 9211 system by including production and trade data and ensure complete coverage and availability of vaccines and other medicines particularly for foot and mouth disease at all times and for all the producers across the province. 7

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Focused efforts are required to bring provincial research and development efforts at international level. Instead of fragmented and piecemeal research on adhoc basis a targeted result oriented research and development is required in milking animal breeds, semen, insemination, vaccinations etc.

Provision of technical and financial assistance to small & medium landless farmers for silage/hay making and conversion of least nutritive crop residues into high nutritive products.

Development of a commercial model to encourage private entrepreneurs to invest in silage and hay as an industry.

Government may collaborate with the commercial and microfinance banks for relaxing their eligibility criteria for the provision of loans to small scale producers who are currently not been able to obtain the loans from the commercial bank due to strict eligibility criteria of the bank.

Specific breeds suitable to particular districts in accordance with their habitat requirements may be identified and farmers may be encouraged/mandated to produce only those species in their districts. A detailed research on the different breeds is required to determine their suitability with the environment of distinct districts with an objective to identify breeds for different areas where farmers can obtain maximum yields for the respective breeds.

Government may develop policies for the regularization of the existing animal markets and establishment of modern markets.

Government of Punjab may devise a comprehensive set of policies and regulations for hygiene requirements of dairy sector duly aligned with international best practices.

Government may further strengthen awareness program to educate milk producers on a) hygiene requirements; b) optimum feed combination; c) animal health; and d) herd impregnation cycle to improve inter-calving intervals etc.

Comprehensive regulations need to be formulated and strictly implemented for setting minimum sale price of milk and maximum feed costs to ensure that farmers are not forced to sell their product below their production cost and reasonable profit.

The government may disseminate appropriate awareness and provide capacity building support to the farmers and distributors on alternate and innovative practices including establishment of specialized centers for selling pure buffalo milk particularly in flush season and adoption of calf raising practices to utilize excess milk in the flush season resulting in improved returns for the farmers.

Urgent and critical intervention is required to make domestic milk powder production feasible to ensure that small to medium milk producers are not of business during flush season. Development and growth of local milk powder manufacturing industry is largely dependent on making price of locally manufactured powder milk competitive against imported powder milk by streamlining tariff structure in line with regional countries’ practices.

Currently, there is 20% import duty on powdered milk for sourcing from SARC countries and 25% for imports from other countries which is substantially lower than some of the other countries including Turkey where import duties on milk power are at 160% while in India the current import duty tariff is at around 68%. 8

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Accordingly, for deriving the investment in the domestic milk powder production segment, in addition to taking stringent measures for blocking the supply of smuggled milk powder, the Government needs to regulate the sector through enhanced duty structure for imports in consultation with all supply chain stakeholders.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

2. INTRODUCTION AND BACKGROUND

2.1. STUDY CONTEXT The Punjab Enabling Environment Project (PEEP), implemented by Chemonics International, is a USAID-funded project aimed to support the Government of Punjab in Pakistan in improving business environment for the livestock, dairy and horticulture subsectors. PEEP's stakeholders include private sector entrepreneurs, sector associations, chamber of commerce's, local universities, and the Government of Punjab.

PEEP has developed Transaction Advisory Services (TAS) Program to facilitate the potential investors interested in opportunities arising from policy and regulatory reforms. In support of this goal, Chemonics has entered into an Indefinite Quantity Subcontract (IQS) with KPMG Taseer Hadi & Co., and its consortium partners as the TAS provider firm on August 3, 2015. The overarching purpose of this IQS is to rapidly and responsively deliver technical assistance related to TAS Program in support of the PEEP’s mandate to spur investments and create jobs in selected subsectors.

Despite rising and critical importance of the dairy subsector in Pakistan, there is little corresponding emphasis on analyzing its problems in the supply chain, as well as future prospects in the overall sector developmental plans. The biggest problem is loose ends in its collection and supply chain, availability of excess milk during the flush period months (October to April), and low production or lean season months (May to August). Given this situation, Livestock and Dairy Development Department, Government of Punjab intends to introduce economic and fiscal policy reforms in the dairy sector, based on empirical research in the sector. The Department approached PEEP for technical assistance through Transaction Advisory Service (TAS) program in conducting an analysis of the current situation of milk production, collection, transportation and processing and help developing a business model to convert the access milk available during the flush months into whole and skimmed milk powder by the installed units or through new investments in the sector. This analysis will facilitate Government of Punjab in evaluating the current milk supply situation and help attract potential investors to take investment decisions to re-start and expand existing milk processing and powder production capacities in the province.

Responding to the Department’s request, PEEP signed a sub-task order with KPMGTH titled “Milk Supply Chain Study and Business Model development for the value addition/conversion of milk into whole and skimmed milk powder, in the flush season in the province of Punjab” on 6th October 2016. The objective of this sub-task order was to develop a detailed milk supply chain study and business model for the value addition/conversion of milk into whole and skimmed milk powder in the flush season in Punjab.

The scope of work for this study pertain to conducting an analysis of milk production, transportation, and processing industry and development of a business model which will help Government of Punjab to build a business case to incentivize the local milk supply chain and offer subsidy to conversion of excess milk into whole and skimmed milk powder, in the flush season in Punjab to compete against the imported dry milk powder (DMP). Please refer Annexure I for mapping of scope of work with report.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

2.2 APPROACH & METHODOLOGY The approach and methodology for this study were documented in the inception report presented to and approved by PEEP and Secretary L&DD Department, GoPb. on 26th October 2016. Following is our methodology overview:

Planning Execution Reporting

Stream 2: Project Planning Stream 1: Desk Research Field work Compilation of results and quality control reviews Analysis Draft report Dairy Sector International/National Phase 2: Phase 1: Client Buy‐in Information milk supply chain Full Execution/ Prototype Final Report Collection Research reports implementation

Review of relevant Identify industry Information Benchmarks Team deployment at Team Formulation the selected district Development of tools Team deployment at for study Perform interviews mandated district with selected Brainstorming sessions individual/ entity Update tools on the with L&D Expert basis of experiences Discussions/ Meeting learned during phase 1 Selection of area/ with stake holders

Output location to Perform interviews perform study Compile interview with selected findings individual/ entity Sampling to reflect adequate coverage Updated Evaluate findings Compile interview tools for field for study against benchmark findings work Develop project Evaluate findings Implementation plan against benchmark

Update inception report Inception report

Progress Client Course Reporting Feedback Adjustment

Following key activities were performed for carrying out the milk supply chain study in the province of Punjab and development of this report:

 Comprehensive questionnaires developed for conducting surveys. The questionnaires were structured in a way to ensure gathering information necessary for carrying out analysis of the in-scope elements of the study. The questionnaires are properly documented and serve as supporting documentation for this report. The questionnaires were developed at following levels of milk supply chain (please refer Annexure K of this report for questionnaires used for this study): a. Producers, b. Distributors, and c. Processors.

 As advised by the L&DD Department, GoPb milk supply chain study was carried out in the nine selected districts of Punjab. These included Okara, Sahiwal, Pakpattan, Khanewal, Kasur, Vehari, Bahawalnagar, Jhang and gawala colonies of Lahore and Faisalabad.

 The surveys were conducted in two phases viz., pilot phase (in one selected district of Okara) and full deployment phase (in remaining eight districts).

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

 Livestock Census 2006 and population estimates were used as baseline data for identification of areas for conducting surveys in each of the in scope district. Following sample sizes were determined for surveys in each area:

— A total number of 298 surveys were conducted with the producers. The producers were selected in a systematic way to ensure that adequate coverage is provided to all levels of producers i.e. small, medium, large, corporate etc.

— A total number of 121 surveys were conducted with the distributors/dhodhys. Selection was made in a way to ensure coverage of all levels of distributors i.e. small, medium, large etc.

— A total of 18 collection centers were visited, and the sample was made to ensure coverage of all districts visited.

— A total number of 8 (out of total 16 identified by L&DD, GoPb) processing units were approached for the surveys. However, only one processor allowed access to their premises.

— A total number of 8 Khoya makers were approached for surveys in Okara district.

 The sample size determined for conducting surveys was bifurcated in various tehsils/towns of each district on the basis of UCs in each of the tehsil/town.

 Independent review of the information provided by the producers, distributors and processors was not carried out. The figures obtained regarding number of animals, their milk production, mortality rate, nutrition, veterinary costs were based on the estimates of farmers, due to absence of formal data recording system through which it could be verified. The figures obtained regarding transportation costs and fluctuation in selling prices, attributable to seasonal factors, were based on the estimates of farmers and distributors, due to absence of formal data recording system.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

3. PUNJAB DAIRY SECTOR OVERVIEW As per economic survey of Pakistan 2016, with almost 80 million livestock (cattle and buffalos) population, Pakistan is the fourth largest milk producer in the world. The Livestock sector having contribution of 58.55 percent in the agriculture and 11.6 % to the overall GDP recorded a positive growth of 3.63 percent during 2015-16 compared to 3.99 percent growth during the same period last year. Livestock has been a consistent major contributor to the growth of Pakistan’s agriculture sector.

According to the economic survey of Pakistan 2015-16, nearly 8 million families are involved in livestock raising deriving more than 35% income from livestock production activities.

According to the Background Paper titled “Developments in the livestock and dairy development sector, Punjab, Pakistan” published by Pakistan Institute of Legislative Development and Transparency (PILDAT) in November 2016, Pakistan has a shortfall in milk supply of around 4.5 billion liters annually.

As per FAO’s publication, Pakistan’s export of milk declined by 7.8% in 2015 from the preceding three year average. It is estimated that more than 10% of Pakistan’s total exports are contributed by the livestock sector. Milk derived from cows and buffaloes constitute major portion of the annual production. Around 97% of the total milk produce in 2015-16 was from cows and buffaloes. As per the figures, gross production of milk in Pakistan during 2015-16 amounted to 54,328 thousand tons out of which 19,412 and 33,137 thousand tons of milk was from cows and buffaloes.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

The Province of Punjab is most rich in terms of agricultural land and livestock population. In general, economy of the village folk depends on Agro-Livestock basis. The land holding is mostly very small and the rural folk usually depend on the Livestock Sector. In the Punjab Province, livestock sector is the largest women engagement in any economic activity as a rural woman spends 59% of her daily life in livestock related activities. As per Pakistan livestock census 2006, 57% of total national livestock population pertains to the province of Punjab (49% of cattle and 65% of buffaloes). Following tables reflect the composition of total livestock population in Pakistan according to Pakistan livestock census 2006 (for 2006 figures) and economic survey of Pakistan (for all remaining years):

Livestock population – Pakistan Millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cattle 29.56 30.70 31.80 33.00 34.30 35.60 36.90 38.30 39.70 41.20 42.80

Buffaloes 27.34 28.20 29.00 29.90 30.80 31.70 32.70 33.70 34.60 35.60 36.60

Total 56.90 58.90 60.80 62.90 65.10 67.30 69.60 72.00 74.30 76.80 79.40

Data for Punjab livestock population is not publicly available for recent years. Hence, the livestock census 2006 figures were used as base figures and latest figures are projected using the same proportion as of year 2006. Following table reflects the results of such projections:

Livestock population – Punjab Millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cattle 14.48 15.04 15.58 16.17 16.81 17.44 18.08 18.77 19.45 20.19 20.97

Buffaloes 17.77 18.33 18.85 19.44 20.02 20.61 21.26 21.91 22.49 23.14 23.79

Total 32.26 33.37 34.43 35.61 36.83 38.05 39.34 40.67 41.94 43.33 44.76

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

However, as per Punjab Development Statistics for the year 2010, published by Bureau of Statistics Punjab, Punjab livestock population constitutes 13.14 million cattle and 16.01 million buffaloes reporting difference of 3.67million cattle and 4.01 million buffaloes as compared to the federal figures for the same year. For details of division and district wise composition of provincial figures, refer Annexure A.

Using the same proportion of in-milk animals as provided in federal government figures, composition of in-milk animals in Punjab is depicted in the following table:

Livestock population in Punjab - In-milk animals Millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cattle 4.05 4.21 4.36 4.52 4.70 4.88 5.06 5.25 5.44 5.64 5.86

Buffaloes 6.23 6.43 6.61 6.82 7.02 7.23 7.46 7.68 7.89 8.12 8.34 Total 10.28 10.64 10.97 11.34 11.72 12.10 12.51 12.93 13.33 13.76 14.21

Similar approach was used for calculation of total milk production figures for the province of Punjab as the same percentages, 49% for cattle milk and 65% for buffalo milk, were applied on the total national milk production for each year, as given in the table below:

Annual milk production – Punjab 000' tons 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cattle 6,569 6,817 7,074 7,341 7,618 7,905 8,203 8,512 8,833 9,166 9,512

Buffaloes 16,070 16,552 17,055 17,568 18,101 18,651 19,217 19,728 20,314 20,917 21,539

Total 22,639 23,370 24,129 24,909 25,719 26,556 27,420 28,240 29,147 30,083 31,051

As per the data available for 2013, a total number of 3100 chillers were installed by Nestle across Pakistan, 1127 by Engro, 428 by Haleeb, 78 by Millac and 65 by Gourmet. Data on chillers installed by large scale distributors and retailers was not available as they function in an informal environment.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

District wise number of veterinary facilities is provided in the table below:

Number of veterinary hospitals, dispensaries, and centers by division and district, 2013-14

Veterinary Hospitals Veterinary Dispensaries Veterinary Centers Punjab 566 1,654 1,424 Bahawalpur Division 64 193 243 Bahawalpur 16 77 56 Bahawalnagar 21 81 95 R. Y. Khan 27 35 92 D. G. Khan Division 46 218 118 D. G. Khan 12 62 19 Layyah 9 55 35 Muzaffargarh 16 89 35 Rajanpur 9 12 29 Faisalabad Division 87 183 182 Faisalabad 40 50 116 Chiniot 5 38 3 Jhang 22 69 3 Toba Tek Singh 20 26 60 Gujaranwala Division 98 184 268 Gujranwala 18 72 20 Gujrat 17 41 34 Hafizabad 8 35 6 Mandi Baha-ud-Din 12 16 50 Narowal 20 10 74 Sialkot 23 10 84 Lahore 62 220 46 Lahore 23 20 15 Kasur 14 80 25 Nankana Sahib 12 45 6 Sheikhpura 13 75 - Multan Division 50 92 144 Multan 15 23 44 Khanewal 10 15 57 Lodhran 6 13 17 Vehari 19 41 26 Rawalpindi Division 49 169 183 Rawalpindi 13 55 74 Attock 10 35 54 Chakwal 14 66 21 Jhelum 12 13 34 Sahiwal Division 33 212 16 Sahiwal 10 72 - Okara 15 93 2 Pakpattan 8 47 14 Sargodha Division 77 183 224 Sargodha 32 108 90 Bhakkar 10 47 41 Khushab 16 22 44 Mianwali 19 6 49

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Government initiatives:

During series of meetings with the Livestock & Dairy Development Department, Government of Punjab, several initiatives undertaken by the department to overhaul and improve the status of livestock sector in Punjab were highlighted, including the following:

Punjab Livestock Breeding Act 2014. In accordance with the requirements of the Act, the Punjab Livestock Breeding Services Authority was established in April 2015 and is responsible for framing and implementing breeding standards, animal registration and the prohibition of the sale of unregistered animals.

The standards and Procedures for Breeding Animals, 2015 were promulgated for the Punjab Livestock Breeding Services Authorities, outlining various Standard Operating Procedures (SOPs) for the Authority’s functions; e.g. SOPs for progeny testing, performance recording, breeding objectives, tagging and registration of animals and training of technicians.

The Punjab Animals Slaughter Control (Amendment) Bill 2013 was also implemented by banning the slaughter of female animals in order to restock Punjab's depleted livestock. Additionally, the Punjab Animal Slaughter Control Act and the Punjab Poultry Production Act were formulated.

Livestock & Dairy Development Policy of the Punjab has been formulated which envisages the transformation of role of Livestock & Dairy Department Punjab from Disease Attendant to Livestock Asset Manager of the Province with associated Shift from curative to preventive side of sector management.

Additional regulatory reforms included enactment of Punjab Animal Health Act, SPCA Act, Punjab pasteurized milk Act, Punjab Dairy Development Act and Punjab animal feed stuff and compound feed Act 2015.

We were informed that the L&DD department has also taken following initiatives:

— Introduction of virtual governance model of service delivery to ensure direct participation of stakeholders in the governance process. — Training of 11,074 farmers on better animal husbandry practices. — Tribunal with a full time Judge has been established and made functional for speedy and dedicated trials under the Breeding Act. — The Livestock and Dairy Development Department (L&DD) Department developed the 9211 Virtual Governance System, which acts as a comprehensive database with real-time updates of farmers and their livestock in the Province. — Capacity building of 7,128 employees of L&DD Department for using the 9211 system. — A total of 7.3 million farmers, 65.95 million livestock, with coding of 25,892 villages of the Punjab have been incorporated into the 9211 system. — The L&DD Department successfully pleaded the Lahore High Court and Drug Regulatory Authority of Pakistan (DRAP) to get recombinant bovine growth hormone (RBST) deregistered after 16 years of use in the livestock sector and its adverse effects on the quality of livestock output.

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— Development of a newly created highly mobile platform of services’ delivery comprising 7,300 plus customized medical kit mounted motor cycles and 327 mobile veterinary hospitals linked through 9211 Virtual Governance System is delivering 425 services at the doorstep of livestock farmers. — Capacity building of 1,789 private Artificial Inseminators (AITs). — First ever mass vaccination of livestock animals in Pakistan undertaken in Punjab, in 4 rounds in 2014-15. — First cross sectional survey of diseases in the Punjab up to village level; the resulting use of specific anti-biotic medication resulting in a decrease in medicine budget by 70%. — A total of 315 different tests being performed on livestock across Punjab, with delivery of test results through Urdu SMS Using 9211 system, thereby eliminating the need for farmers to collect results themselves. — Facilitation in replicating Punjab livestock department model to other provinces including GB, AJK and FATA. — Four Mass Vaccination and de-worming campaigns for animals with shift of focus from curative to preventive livestock health. — Introduction of 273 mobile veterinary Units and 7300 medical kit mounted motorcycles backed by ICT based 9211 System capable of providing services at farmers door step. — Need based, Area specific mineral supplementation to livestock and supporting educational Institutes. — Establishment of reference laboratories at Divisional level — Cross sectional survey of livestock diseases and survey of Vector Born Diseases in the Punjab. — Provision of free of cost heifers (Cattle & Buffalo) to 16,548 rural women and widows with insurance and 3 years free service delivery

Other agriculture initiatives pertain to improved seeds, increase in vaccine production, mechanized farm operations, capacity building of farmers and envisaging the establishment of the University of Veterinary and Animal Sciences in Bahawalpur.

As per department they are also working with private sector on the following  Fetching foreign investment in the area of Breeding and Genetics of Livestock  Formalization of private semen production units  Training and capacity building of private A.I Technicians.  Facilitation to entrepreneurs of milk supply chain and livestock breeding chain.  Facilitation to animal feed and compound feed industry  Establishment of livestock farmers organizations / Societies  Collaboration with telcos and financial institutions for extending livestock services to farmers.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

4. Highlights of the survey

4.1 Key issues highlighted in survey

4.1.1 Producers

■ Lack of profitable business case for Milk Production due to high feed cost, low sale price and low milk yield

■ Arbitrary price control as price is fixed without giving due consideration to cost of input factors

■ Reducing herd sizes due to deteriorating business case for milk production

■ Increasing Demand-Supply Gap in milk production and consumption due to high rate of increase in population as compared to growth in milk production

■ Exploitation of small scale fragmented rural farmers by paying them significantly low prices of milk due to their lack of access to direct customers.

■ Publicly available comprehensive, updated and reliable livestock database, on which there is all across consensus, is required for effective planning and adequate designing of reforms’ for the livestock sector of Pakistan

■ Use of cheap Imported Milk as an alternate to local milk production resulting in exploitation of local milk producer

■ Lack of adequate equipment with farmers to test contents of their milk resulting in exploitation of collection centers.

■ Insufficient quantity of milk production, with small farmers to avail bulk quantities incentives paid by collection centers

■ Poor sensitization with hygiene requirements resulting in higher animal mortality rate and unhygienic milk supply to end user.

■ Lack of access to financing facilities due to small scale farmers are forced to acquire low yield animals

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

■ Non-availability of pedigree of animals result in purchase of animal with health issues

■ Sale of animals subjected to unhealthy practices

■ Lack of proper management of herd impregnation cycle by farmers resulting in imbalance in milk production during lean and flush season

■ Ineffective insemination arrangements contributing in gender imbalance which ultimately resulted in production loss

■ Need for effective supply of important vaccines & medicines

■ Focus should be on running more effective awareness campaigns to ensure all farmers are duly updated with vaccination schedule and other key information

■ Further strengthening of mobile health facilities by the government and capacity building of veterinaries is required.

■ Lack of transportation facilities in emergency situation for transportation of animals to hospital due to financial constraints

■ Lack of adequate shelter facilities with farmers result in compromised health of animal and loss in milk production

■ Financial constraints do not allow small farmers to provide quality feed to their animals

■ Water constraints cause dehydration in animal ultimately resulting in loss of milk production

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

4.1.2 Dhodhys & Collection Centers

■ Lack of adequate transportation including insulated containers and refrigeration deteriorate the milk quality and forced dhodhys for un intentional adulteration

■ Financial constraints for dhodhys restrict dhodhys in improving milk containers, transportation facilities and milk testing equipment ultimately resulting poor quality of milk supply to end user.

■ Pricing not linked with cost inputs

■ Defaults to dhodhys in milk supply chain

■ Ambitious milk collection targets linked with incentives in lean season resulting in adulteration

4.1.3 Processors

■ Low quality of milk produced resulting in less collection in country and import of milk powder

■ Procurement challenges, as primary source of raw milk in small scale farmers who are widely dispersed geographically resulting in import of powder milk

■ Collection of milk during lean season due to low production of milk becomes challenge and resulting in import of milk powder

■ Closer coordination and liaison with policy makers is required to set adequate policies resulting in harmony in efforts to improve dairy supply of Pakistan.

4.2. Key recommendations

4.2.1 Producers & Dhodhys

■ A comprehensive, updated and reliable livestock database on which there is consensus among key stakeholders should be publicly available for effective planning and adequate designing of dairy sector uplift reforms.

■ The L&DD Department has undertaken a 9211 virtual governance system which includes registration of farmers and their livestock. However, the system currently

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caters to the health related aspects of livestock, which may be enlarged to include production and trade related data.

■ Financial support by the government in the form of: - direct subsidies paid in cash; - subsidized financing; - subsidized insurance; - provision of customized vehicles including adequate storing and chilling arrangements - provision of cold chain related equipment; and - business data sets from the 9211 system after having built the capacity of 9211 vide production related data of livestock and issuance of unique identifier against individual animal for vertically linking primary production system with end consumers.

■ Provide enabling environment for accessing commercial financing through collaboration with financial institutions for softening eligibility criteria

■ As per the L&DD Department, agreements are entered with UFONE/ UBANK, UBL Omni, Tameer/ Easy Paisa, which on the basis of 9211 system’s historical data are ready to extend credit to landless farmers without the condition of fixed asset as a collateral.

■ Formation of milk producers associations and village level dairy cooperative societies who can draw on their collective investment and human resources to quickly benefit from sharing of resources, costs, and experiences. Through formation of associations, the small scale farmers can reap benefits available to the large scale producers by pooling their interests

■ As per the L&DD Department, the government is planning various interventions for development of such associations and provision of financial assistance.

■ Improved research and development ensuring a targeted result oriented research and development in marketing and financial system that are dictating the production output of milking animal breeds, semen, insemination, vaccinations etc.

■ Improving Farmers Access to Market.

■ As per the L&DD Department, the government has introduced livestock and access to market project (LAMP) in four districts of Southern Punjab which may be further strengthened and extended in other districts of Punjab.

■ Selection of breed for distinct districts to ensure alignment with the environment of distinct districts to obtain maximum yields for the respective breeds.

■ L&DD Department Government of Punjab has already developed livestock breeding act which includes provisions for selection of breed for distinct districts to ensure alignment

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

with the environment of the districts in order to obtain maximum yields for the respective breeds. The Department has identified district wise suitable breeds however, the implementation of the said act is in initial stages. As per the department, government is keen to implement the act which will have positive impact in milk production in Punjab.

■ Availability of proper feed and water to be ensured through development of silage and hay facilities and availability of requisite minerals at subsidized rates.

■ As per L&DD department a project is underway for provision of requisite minerals including molasses blocks, rock salt, mineral mixture and anmol wunda at subsidized rates at the doorstep of the farmers after due mapping of mineral deficiencies.

■ Availability of vaccines to be ensured to control the menace of disease outbreak and their catastrophic effects on the financial condition of producers.

■ Robust mechanism of Price monitoring and control for setting minimum sale price of milk or deregulating the milk sale price and maximum feed costs.

■ Regularize animal markets including development of robust data base to record details of the animal including vaccination record, pedigree details of the animal etc.

■ Develop comprehensive regulations on hygiene requirements duly aligned with international best practices to ensure availability of high quality milk

■ Government has developed comprehensive regulations on hygiene requirements including Animal Health Act and Livestock Dairy Development Act however, as per the L&DD department, the developed acts have been submitted to relevant/ competent authority for enactment/ approval.

■ Awareness program to educate milk producers on a) hygiene requirements; b) optimum feed combination; c) animal health; d) herd breeding cycle to improve inter- calving intervals etc

■ Establishment of dairy regulatory authority with an overall mandate to set prices of milk and feed, test quality of milk produced and sold, regulate prices of processed milk, evaluate overall performance of dairy sector, oversight on processing plants, test and certify the quality of vaccinations and medicine available in the markets, regulate the middlemen, test and certify the quality of feed being prepared by different feed manufacturers.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

4.2.3 Processors

■ Regulate imports of milk and whey powder through formulating comprehensive policies and regulations and increase in import duty. Encourage revival of powder milk production facilities.

■ Key Success Factors for dairy processing industry include operating within their means and managing the businesses in professional manner, continued commitment to invest in infrastructure, technology, brands and human resource capital, continuous learning and understanding of the industry, attracting foreign investment, leverage international technical expertise, position themselves in specific niches and markets, tapping wider market potential and also entering into more value added products.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

5. KEY FINDINGS

This section of the report consolidates our findings at various levels of the milk supply chain identified through our surveys conducted in the in-scope areas of the Punjab province as well as research on the basis of available information.

5.1 MILK PRODUCERS

5.1.1 Comprehensive, updated and reliable livestock database on which there is all across consensus

Currently, the primary resource for livestock data on national level is the Livestock Census carried out by the Pakistan Bureau of Statistics with a gap of ten years. Consequently, the latest livestock database available is for the year 2006. Estimated statistics by using the 2006 census results are generated on annual basis. The Punjab L&DD has developed a system of collecting and verifying the database in the province of Punjab. However, there is lack of consensus on database developed at various levels.

As per the Punjab L&DD Department, an ICT based database collection and maintenance system, termed as “the 9211 system”, has been introduced recently. Through this system, real time database of livestock farmers comprising of 7.3 million livestock farmers having 65.9 million livestock animals spread across 25,892 villages of province has been developed. The Punjab L&DD Department is also planning to launch a livestock census all over the province in 2017.

5.1.2 Lack of profitable business case for Milk Production

A comprehensive profitability analysis of various categories of the milk producers was performed by taking into account revenues from sale of milk to various buyers and all associated costs of production and supply. The analysis was based on the information collected during the surveys performed for the study.

On an overall basis, the milk production does not present a profitable business venture particularly for the small and medium rural farmers. As per the feedback received in the surveys, the profitability has deteriorated over the years due to a) high feed and other costs; b) low sale price of milk; and c) low milk yield of animals. Some of the farmers interviewed also mentioned that the low profitability has lead them to reduce their herd size over the years.

The following table provides summary of our profitability analysis:

PER DAY PROFITABILITY ANALYSIS - AVERAGE Small Farmer Medium Farmer Large Farmer Owned Land Market Purchase Owned Land Market Purchase Owned Land Market Purchase Flush Lean Flush Lean Flush Lean Flush Lean Flush Lean Flush Lean Revenues Average milk production ‐ per day (litres) 6.90 6.40 6.90 6.40 9.60 8.90 9.60 8.90 14.46 12.80 14.40 12.80 Average price per litre ‐ per day 50.00 52.00 50.00 52.00 51.13 53.45 51.13 53.45 60.00 62.53 60.00 62.53 Average revenue per day 345.00 332.80 345.00 332.80 490.85 475.71 490.85 475.71 867.60 800.38 864.00 800.38 Costs Average quantity of feed ‐ per day (kg) 70.00 70.00 70.00 70.00 70.00 70.00 70.00 70.00 70.00 70.00 70.00 70.00 Average feed cost per day 235.00 271.00 436.00 436.00 235.00 271.00 436.00 436.00 420.00 333.00 521.00 415.00 Other costs 45.00 58.00 45.00 58.00 117.00 137.00 117.00 137.00 200.00 226.00 200.00 226.00 Earnings / (loss) per day 65.00 3.80 (136.00) (161.20) 138.85 67.71 (62.15) (97.30) 247.60 241.38 143.00 159.38

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The tabled analysis above is based on averages and estimates. For a detailed profitability analysis refer to financial analysis section where results derived from a comprehensive financial model built for the purposes of evaluating profitability, have been discussed in detail.

5.1.3 Reducing herd sizes

Our survey with farmers indicated a trend of declining herd size among small and medium farmers. This is primarily due to heavy losses suffered by them in milk production. The major factors that contributed to loss included a) unfavorable sale prices of milk; b) high cost of feed; and c) low milk yield.

5.1.4 Low and inconsistent pricing of milk

Significant variations in the per liter price of milk were observed. The prices vary based on the geographical location of the milk producer and its proximity to urban areas. As per the information collected from milk producers, the per liter price of milk obtained ranges from PKR 34 to PKR 90 in flush season and PKR 40 to PKR 90 in lean season.

From a producer’s perspective, the rate offered per liter to producers is lowest at dodhy level and highest when sold directly to households in urban areas. In between the two extremes, milk collection centers are a mid-way from a per liter price perspective. It is pertinent to mention that vide the dodhy mode of distribution, multiple layers of middlemen were seen across the value chain, depending on the infrastructure of the village / union council / district. In order to access the lucrative markets, producers must have a transportation facility in tandem with sufficient storage and chilling capacity however, during the course of the market study, we observed that majority of producers were unable to access milk markets/collection centers/end consumers due to lack of transportation facilities and storage capacity. Financial conditions of majority, if not all producers were such that there was not enough finance available to producers to own a vehicle with enough working capital in place along with a chilled storage capacity.

Following key factors contribute towards lower and inconsistent prices obtained by the milk producers:

 “Exploitation of small scale fragmented rural farmers” due to lack of access to direct customers. The end users pay the highest prices, whereas, sales to the intermediaries including middlemen (commonly known as “dodhys”) and collection centers result in lower prices obtained by the producers. Producers particularly the smaller ones residing mainly in the rural areas lack direct access to the consumers due to distances involved and lack of requisite storage and transportation means for delivery. Further, the collection centers established by large scale distributors and corporate milk processors (Nestle, Engro etc.) are limited in number and are generally located in semi-urban and urban areas and are hence inaccessible to limited scale producers. Accordingly, the producers have to settle for less profitable sales to dodhys.

 “Arbitrary price control”. Milk is included in the list of essential items fixed under the Price Control and Prevention of Profiteering & Hoarding Act, 1977 implemented by the Industries, Commerce and Investment Department of the GoPb and consumer prices are notified by the DCOs from time to time. Price of milk is fixed arbitrarily without giving due consideration of complete cost of production. Please refer Annexure B of this report for 26

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

details of variations between notified consumer price of milk and actual price in the market in various districts covered under this study.

 “Use of Imported Milk”. Another factor influencing the milk pricing is use of imported milk and whey powders mainly by the formal milk processors and retailers. As per the information provided by a milk processing unit surveyed during this study, milk prepared by using powdered products costs around PKR 45 per liter.

 “Lack of adequate equipment” The price obtained by the producers from sale of milk to dodhys and collection centers depends on the basis of fat content and Lactometer Reading LR in the milk where higher concentrations fetch better rates. The producers lack adequate equipment to pre-test their merchandize to avoid potential exploitation.

 “Insufficient production quantities” The collection centers, particularly the centers established by the corporate milk processors, offer bulk quantity incentive (e.g. PKR 2 per kg on supply of more than 100 liters of milk). However, this incentive is availed by the dodhys as individual producers have limited supply.

5.1.5 Poor sensitization with Hygiene requirements:

Food safety regulation of Pakistan and hygiene standards for milk production, processing and marketing are developed however, a robust mechanism to ensure its implementation have not been devised.

It was observed that majority of the farmers were not following the hygiene standards including milking of the animal in clean environment, storage of milk in clean utensils etc..

5.1.6 Lack of Robust Animal Market

Following constraints faced by the farmers in procurement of milking animals were identified in the surveys conducted:

 “Lack of access to financing facilities resulting in acquiring low yield animals” As per the information collected in the surveys conducted, the price of an average Nilli Ravi Buffalo varies between PKR 130,000 to PKR 195,000 and the price of an average Sahiwali Cow ranges between PKR 115,000 to PKR 175,000. However, livestock owners rarely have any access to formal financial systems to obtain loans. Most of the farmers do not have enough finance to purchase high yield animal. Moreover, farmers do not have enough resources to bear the feed and other expenses of high yield animals therefore they have to purchase low yield animals. Most of the milk producers are small to medium scale farmers with animal holdings of less than ten livestock heads. Most of these producers do not have their own lands. Accordingly, provision of security for acquiring loan for purchase of livestock animals is impossible.

 “Non-availability of pedigree of animals” There is no vaccination history and pedigree of cows for the animals available in market which made the purchase of animal risky. Non vaccinated animals can catch diseases easily which increase the treatment expenses and also result in higher mortality rate.

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 “Sale of animals subjected to unhealthy practices” As per the information collected in the surveys, milking animals kept by milk producers in large urban centers are subject to artificial techniques for increasing milk yield which severely impacts physical health and increase in calving interval. At the end of a lactation period, such animals are generally sold in the rural areas at a lower price. Producers close to the cities are rather profit centric and their practices are relatively unorthodox as compared to the producers in the rural areas of Punjab. The producers near to the cities purchase milking animals prior to the season and are concerned solely to extract as much milk as possible from the animals in the lucrative season. Furthermore, use of oxytocin is quite common by the producers of the cities affecting the animal health and resulting in increased inter calving intervals.

5.1.7 Lack of proper management of herd impregnation cycle

It has been observed that most producers tend to inseminate their entire herd at once as it is a cheaper option. However, this creates a lot of cash flow issues as the herd’s feed requirements surge at the same time and the entire heard tends to stop milking at the same time. Moreover, most producers tend to inseminate their herd during flush season, between August and November. As the animal enters the dry period from the 7th month of pregnancy till birth, which is usually during the lean season, the producers loose their only source of revenue and are forced to borrow money which in most cases has to be repaid with interest. This is also one of the main reasons for lower milk production during the lean season.

Eventually towards the end of the lean season the animals start milking again. As per our survey, on average, the inter-calving interval is 15-18 months which puts the next insemination cycle at the start of the flush season.

If a proper milking and impregnation ratio is implemented, producers would have a more stable and thought-out schedule of milk production which would lead to steady cash flows throughout the year. Also, this would most likely increase the milk production during lean season.

Mostly farmers do not have sufficient land for the new animals due to which farmers cannot expand their herd size. Due to unavailability of land for growing feed farmer have to purchase feed from market which is very expensive.

5.1.8 Ineffective insemination arrangements

Milk production is dependent on a number of factors, one of which is readily available reproductive resources for the livestock in order to ensure timely gestation and subsequently, lactation. Insemination is carried out through natural as well as artificial methods using specialized semen.

Following issues were highlighted by the survey respondents in relation to insemination arrangements for reproduction of livestock animals:

 In case of Nili Ravi buffaloes, natural means of reproduction are mostly used as the artificial insemination is not entirely sustainable for buffaloes. As per the Punjab L&DD Department, field experiments were conducted for the use of exotic undertrial bulls’ semen in the province of Punjab. However, as per the Punjab L&DD Department, it was not possible to differentiate between the good and undesirable traits progeny animals. 28

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 For different breeds of cows (Sahiwali, cross breed imported cows), local as well as imported semen is generally available for artificial insemination. Artificial insemination, however, requires precision and skills of a qualified veterinarian.

 Some of the producers interviewed highlighted concerns regarding quality of semen, expertise of the vet staff and consequent results of the artificial insemination. However, based on our discussions with Livestock & Dairy Development Department, we understand that they are revamping livestock breeding services through strengthening of semen production units and incentivizing service providers for each successful insemination. Further according to the department, breeding males for provision of natural service have also been accounted through incentive for keeping breeding males subject to screening against venereal diseases. Breeding service is been made traceable from production to progeny with confirmation of progeny through DNA analysis.

5.1.9 Need for improvements in animal health and vaccination arrangements

Optimum animal health plays a vital role in improving milk yield, shortening of calving interval, increase in lactation period and improved reproduction. Effective vaccinations aid in this regard to counter different diseases which could affect animal health. Punjab government has installed a system of veterinary hospitals equipped with animal healthcare facilities and veterinarians to serve the producers in relation to health of their livestock. As per the data available with L&DD Department Punjab a total of over 7.3 million producers with total of 65.9 million animals from 25,892 villages in Punjab are registered with the department.

Following key observations were made by the producers surveyed during the study: a. Vaccination related issues

Prevention of illness or disease is a primary step taken to ensure optimum health of the livestock. Probability of known diseases can be sufficiently reduced by timely vaccinations of animals, so that the animals are immune to the impacts of any disease that may harm their health and hinder their growth. We are informed by Livestock & Dairy Development Department, Government of Punjab that they have undertaken efforts to make major districts of the province as Foot and Mouth Disease (FMD) free. According to department declaring one union council in each tehsil as disease control compartment is a step towards creation of animal disease control zones as in these zones, susceptible animal population was being served with FMD vaccine abiding by the international standards being supervised by technical team including the experts from FAO.

Following concerns were raised by the producers with regards to the availability and adequacy of medicines and vaccination arrangements:

— With regards availability of vaccines please refer annexure J for details.

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— Producers in Bahawalnagar, Khanewal and Jhang districts identified the need for improvement in vaccine availability especially for foot and mouth disease, as well as other prevalent diseases;

— In certain cases, the private veterinarians hired by large scale producers exceeded the recommended vaccine dosage; and

— Lack of adequate vaccines (particularly FMD) and medicines have resulted in high mortality rates in certain cases. Please refer Annexure C for details.

b. Effectiveness of awareness campaigns

Livestock & Dairy Development Punjab has engaged large number of livestock farmers through 9211 system for connectivity and awareness. Specific, need based messages in local languages and Robo-calls in local accent and lingo are sent to livestock farmers. However, the awareness campaigns are required to be more frequently conducted, educating the public with regards to essential factors including nutrition, general health, vaccinations, identification of cost effective techniques, identification of ways to optimize production levels etc. Following issues were identified by the producers interviewed:

— Some of the producers in the districts visited claimed that adequate awareness campaigns are not carried out.

— Few of the producers claimed to be unregistered with the Punjab L&DD Department. However, the producers may be factually unaware of their registration with the department. The textual notifications sent by the department may go unnoticed.

— In certain cases, the producers were unaware of the usefulness of timely vaccinations and booster shots, and neglected such an activity. c. Transportation constraints

On the backdrop of financial conditions of producers, majority of producers are unable to afford private veterinary care for their herd. In cases of emergency they need to transport sick animals to the government veterinary medical centers. In most of the cases, the producers do not own transport and high costs of hired transport refrain them to respond quickly to medical emergencies, which contribute in the increased mortality rates.

Now government has embarked upon an alternate strategy through which efforts are being made to provide veterinary services at the door step of farmers in over 25,000 villages in Punjab. (Data has been provided by the Punjab L&DD, Department) d. Lack of adequate shelter facilities

Animal upbringing is a vital aspect in terms of growth and milk production. There are several factors affecting animal upbringing, one of which is the availability of shelter.

The table given in Annexure D shows the number of producers with and without the availability of shelters for animal habitability. The highest number of shelter available can be

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN seen in the urban districts of Faisalabad and Lahore. A total of 206 producers in the sample had no availability of adequate shelter and had their animals restrained.

5.1.10 Feed related constraints

Quality and quantity of milk produced is heavily dependent on feed provided to the milking animals. Owing to financial conditions of producers, feed cost remains the paramount constraint for producers in expanding their dairy farming business. a. Financial constraints

It was observed that most of the producers remained unable to provide adequate food to animals due to lack of available finances. As per the information provided by the producers during the surveys conducted, average food cost per milking animal per day (local breed) amounts to PKR 236 in lean season and PKR in 224 flush season for own grown feed. The cost of feed increases significantly when procured from market due to non-availability of sufficient land for self-cultivation of animal feed. The per milking animal feed cost amounts to PKR 336 in flush season and PKR 377 in lean season, when procured from the market. Please refer Annexure E and Annexure F for detailed comparison.

Most of the small and medium producers surveyed highlighted that due to lack of requisite finances and sufficient land for cultivation of feed, they are forced to reduce the feed quantity to milking animals resulting in low milk yields. b. Water constraints

Adequate intake of water by animals plays a vital role in milk production. The producers identified tube-wells and their own water resource through boring water wells as the sources of water. Boring water wells are constructed entirely on the expense of the producer.

Producers, especially in Bahawalnagar and Pakpattan identified that water availability is a serious concern and drastically affects their livestock and its milking yield. Furthermore, producers of Tehsil Chunian of Kasur district reported that the water supply in the area is contaminated and not suitable for human and/or animal consumption.

During the lean season fodder production is lower as compared to the flush season despite utilizing similar resources. Water requirements of animal feed cultivated in the summer and winter vary. During the summer time, there are higher water requirements due to heat and humidity levels for Jawar and Makai. On the other hand, the winter crops have lower water requirements and due to sufficient rainfall during that time, the producers do not need to water the crops as regularly or incur any extra cost and effort. As a result, feed availability is low in lean season as compared to the flush season. c. Transportation hurdle in feed availability

In areas where fodder was mainly market purchased rather than grown and harvested by producers, producers had to bear carriage cost for fodder procurement. Consequently, the price of fodder with the carriage cost is considerably high for the producer which ultimately shrinks margins earned. d. Poor Feed Quality 31

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

In certain instances, producers were not satisfied with the quality of Wunda, Khal and Tukra prepared by various manufacturers. We were informed by the producers that these feed items were adulterated, and even infected with fungus. Further, mechanism and appropriate facilities have not been established with a mandate to certify the quality of feed. Government of Punjab has recently enforced Punjab Animal Feed stuff and compound feed act which addresses issues of feed quality. e. Unavailability of storage facilities and lack of feed preservation

It was observed that production of fodder during the lean season is substantially lower than the fodder in flush season. In flush season, the major source of fodder is Barseem whereas, in lean season the major source of animal fodder is corn (Makai). The productivity of Barseem is much higher than Makai. We observed in majority of the districts visited, Barseem is harvested 5 to 7 times in the season from October to April, whereas Makai is only harvested one time in the season from May to September. Due to unavailability of resources for converting feed in to silage or hay, excessive feed cannot be preserved for the next season. Excessive production of feed in flush season cannot be preserved by making silage due to unavailability of resources including storage facility such as storage space/ silo. f. Variances in feed prices

Feed prices vary significantly from district to district due to number of reasons. District wise differences in prices of fodder are due to following major reasons:

— Source of obtaining fodder such as a) cultivated on owned land; b) cultivated on government leased land; c) cultivated on rented land; and d) obtained from market;

— District wise variation in the yield of land/ fertility of land. In certain districts, a single acre of land could yield higher quantity of feed as compared to others. The fertility not only affected the quantity of yield per unit area but also the number of cuttings per season as in certain areas Barseem can have five cuttings while in certain areas Barseem can have up to 7 cuttings per season.

— The other main cost related to transportation was found to be dependent on whether the feed is grown in the district or transported from other districts. For instance, in certain districts where land is barren, fodder could only be transported from other districts due to which the prices were higher on the backdrop of distribution costs incurred on their transportation. g. Lack of proper Combination of feed used by the producers

Producers do not have enough guidance regarding the feed combination. Producer has to vary feed combination from season to season and animal to animal. However, it was observed that producers were not varying feed combinations in line with animal requirements due to lack of adequate guidelines and awareness resulting in low yield and deterioration of animal health.

Further, it was observed that the producers mostly use traditional ways of feeding the milking animals and lack knowledge with regards to modern research and development in feed combinations, quantities etc. to maximize milking yield.

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5.1.11 Issues specific to the imported animals

A rising trend has been observed in Punjab that the producers, particularly the large scale producers are inclined towards imported breeds i.e. Jersey and Holstein Friesian. The reason for such inclination towards imported breeds was mainly due to be their high milking yields as compared to local breeds. a. High mortality rate

There is a serious concern in terms of their high mortality due to the unsuitable conditions prevalent in Pakistan for the imported breeds. These unfavorable conditions include high temperatures in the summer, non-availability of adequate vaccines & medicines, non- availability of qualified & trained doctors for providing medical care to imported animals etc. As per information collected in the surveys, mortality rate of imported cows ranges between 20% to 30% as compared to mortality rate of Nili Ravi ranging between 5% to 15% and Sahiwali ranging between 10% to 20%.

Imported animals do not have the natural immunity the other local breeds have so special attention needs to be paid to their medicinal requirements. There have been reported instances of strains of diseases which particularly affect imported animals for which there are no vaccinations. Cases were also noted where vaccinations suitable for domestic animals have been effective on imported animals. The general unavailability of vaccination, both in veterinary hospitals and the market, specific to imported animals has led to an increase in the mortality rate of the imported breed. b. Feed constraints

Nutritional requirements of imported cows are different from the local cows and buffaloes. They need large quantity of minerals in their diet which can fulfill their dietary requirements. Diet given to local animals such as Barseem/Jawar, Makai, Wanda and Toori cannot fulfill the dietary requirements of imported cows. During survey it is observed that most of the producers having imported cows use same dietary combinations as used for local cows and buffaloes. Furthermore it is also observed that many farmers are not aware of dietary requirements of imported animals which result in diminished yield.

In certain areas required minerals and supplements are not available due to which farmers cannot provide sufficient nutrition to them. Usually the diet required by the imported animals is very expensive and farmer cannot get the reasonable milk prices which can cover feed cost therefore farmers have to rely on less expensive diet. c. Lack of specialized habitat

Imported animals require suitable environmental conditions such as moderate temperature, excessive water etc. for their survival. Infrastructure such as proper shed, clean floor, water sprinklers and open area must be provided to imported animals for their existence in local environment. It is observed that most of the farmers kept imported animals in same environment as provided to local animals. It is observed that in most of the areas farmers do not have sufficient infrastructure for imported animals.

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It was observed that in most of the farm houses imported cows are kept with other local animals. They are fed, cared, vaccinated, milked and kept in same way as are local animals. Separate herd of imported animals are not maintained due to which they are exposed to higher risk of catching diseases resulting in drop in yield, higher mortality, infertility etc.

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5.2 Distributors (dodhys’) and Collection Centers

5.2.1 In-adequate Transportation

It was analyzed through the survey that out of total milk production, of selected producers in the sample, 46% of milk production is collected by dodhys on cycle/ motorcycle from the door step of the farmers. It was observed that most of the dodhys do not have adequate containment which meets the hygiene requirement for the transportation of milk. In certain instances milk is collected in plastic tubs/ containers which adversely effects the quality of milk.

We were informed by some dodhys that in the absence of availability of adequate transport facilities, cold chain facilities, chilled/ insulated containers, dodhys are required to do involuntary adulteration to avoid wastage of milk. Majority of dodhys use ice and H2O2 chemical to avoid spoilage of milk especially in summers.

5.2.2 Financial constraints

We were informed by a number of dodhys that due to lack of available finances, dodhys remained unable to improve their a) milk containers; b) transport facilities; and c) milk testing equipment. We were further informed that most of the dodhys do not have access to loans as majority of the dodhys do not meet the eligibility criteria set by financial institutions for the provision of loans. Dodhys who meet the criteria are not willing to obtain the loan facility due to higher finance cost.

5.2.3 Lack of testing equipment

It was observed that few dodhys perform LR test at the time of collection of milk to identify the fat content of the milk. Majority of dodhys performing LR test are those who are paid on the basis of fat contents in the supplied milk.

Majority of dodhys do not have milk quality testing equipment to test the milk at the time of milk collection from farmers/ producers. We were informed by majority of dodhys that they ensure their presence at the time of milking the animal. In few cases dodhys informed us that they have complete reliance on the farmers for quality of milk being produced.

In the absence of milk testing equipment at the time of collection of milk the quality of milk being collected cannot be assured.

5.2.4 Significant variances in margins among middlemen of different districts

Significant variations in purchase and sale prices of milk were observed in different districts. Detailed analysis of price variations is provided in the section __. The purchase of milk is varied in the range from PKR 44 to PKR 86 whereas sale price is varied in the range between PKR 54 to PKR 92.

The milk purchase price variation is largely based on source of collection of milk, geographical location, quality of milk collected and scale of milk production.

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Whereas sale price variation is largely dependent on a) area of sale; b) quality of milk; c) customer type such as household, retailer, collection center and other dodhy.

In few instances it was observed that price of milk sold by dodhy to household was less than price paid for the purchase of milk such as in one district, milk was purchased at PKR 75 however, it was sold at PKR 60. Upon enquiry we were informed that in few cases consumers are not ready to pay the price of milk accordingly dodhys are forced to do adulteration to secure their margins. Adulterations made by dodhys include a) inclusion of water; b) extraction of cream from milk; and c) addition of milk prepared from powdered milk.

5.2.5 Pricing not linked with cost inputs resulting in Adulteration

We were informed due to low margins being paid by collection centers dodhys made adulterations in supply of milk to secure their margins. Adulterations include a) inclusion of water; b) inclusion of vegetable oil to increase the fat content in the milk; c) inclusion of washing detergent and whey powder to increase the SNF contents; d) Formaline to enhance preservative properties of milk; e) Salt to increase SNF percentage etc.

It was observed that certain collection centers do not have latest and advanced systems in place to test the quality of milk purchased.

5.2.6 Defaults in milk supply chain

Most of the dodhys have provided advances/ loans to small scale producers to ensure uninterrupted supply of milk at the competitive prices however, it was informed that in case of animal mortality the supply of milk is either reduced or stopped. Further the recoverability of advance provided to farmers becomes doubtful.

Majority of dodhys are supplying milk to household on monthly credit basis. It was informed that in few cases dodhys remained unable to recover the bill where the household were on rented property and changed their place of residence without paying the debt of dodhys.

5.2.7 Ambitious milk collection targets in lean season

Certain processors set targets for their individual collection centers tied up with handsome incentives on achieving the targets especially in the lean season when the milk production is at its lowest. We were informed that certain collection centers are attracted to do adulteration for achieving the milk collection targets and to achieve incentives.

5.3 Processors

During our discussion with the representative of processor we were informed that following are key issues faced by processors in the collection of milk: a. Quality of milk produced does not meet the quality standards of the processors; b. Cost of milk produced in the country is more than the cost of powdered milk being imported; c. Due to the additional cost of processing and packaging, processed milk has to compete in the market with open raw milk

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN d. Procurement challenges, as primary source of raw milk is small scale farmers who are widely dispersed geographically. e. During the lean season the collection of required quantity of milk becomes challenge due to low production of milk in lean season; and f. Closer coordination and liaison with Policy makers is required to set adequate policies.

5.3.1 Performance of processors in Pakistan

Review of publicly available research reports was performed on the history of milk processors in Pakistan. It was analyzed that in past certain players entered in dairy sector business however, they could not sustain their business. Some of the key factors that lead to these failures were: a. Number of dairy plants which were established during 70’s and 80’s was driven by the government support in taxation and other relieves and unfortunately didn’t have any direction for long term sustainability or commercial intent. b. Some of the venturists had no prior industrial background. They ventured into dairy only because of their strong agricultural backgrounds and therefore unable to manage industrial and commercial venture. c. Players who had established businesses in other industrial sectors also tried to venture into dairy, sensing its future potential, but not realizing the sensitivity and the complexities of this business. d. Though there was a huge market potential but the market size was too small and needed time and investments to grow. Not too many players entered with this mind set therefore had to abandon because either those players didn’t have deep enough pockets or they were not willing to invest. e. Sourcing and delivering good quality milk at competitive market prices has always been a challenge for the industry. Those who tried to compromise one way or the other had to face the consequences.

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6. KEY RECOMMENDATIONS

This section of the report provides key recommendations for improvement in the overall milk supply chain in the province of Punjab. The recommendations are based on the gaps identified during the surveys conducted with various players of the milk supply chain as well as extensive desk research.

6.1. Availability of comprehensive, updated and reliable livestock database

There is a strong need for development of comprehensive database for livestock sector of Pakistan for effective planning and adequate designing of dairy sector uplift reforms’. A comprehensive mechanism should be devised for collecting and compiling complete data on livestock population with detailed geographical and breed wise bifurcations, milk production statistics (sufficiently detailed with respect to breeds, yields, demand, supply, lactation period, inter-calving intervals, disease prevalence, pricing of animals & products produced etc.). Detailed analytical studies need to be conducted to assess production of milk in various systems, proportion of milk hauled by various intermediaries, and actual urban and rural demand, and forecast in demand for raw and processed milk.

The available channel of Livestock Census may be made more frequent to ensure availability of reliable and updated data for the key interventions by the government as well as the private sector. Accurate, complete and updated data needs to be made accessible to general public through internet for research and targeted policy formulations.

Government has already taken the initiative and developed an ICT based live database through registration of farmers and their livestock along with electronic mapping of each of 425 animal health and breeding related services out of which 315 are various types of medical and diagnostic tests. This also includes electronic mapping of bull number on the 9211 system by private AITs. . As of now, government has registered over 7.3 million farmers with over 65.9 million of their livestock with exact geographical details across 25,892 villages in Punjab. However, the 9211 system caters to health related aspects of livestock management and as per paradigm shift envisaged through the first livestock and dairy development policy of Punjab; from disease attendant to livestock asset manager, requires capturing of production related data of registered farmers’ livestock i.e. milk production statistics etc. For the aforesaid, issuance of unique identifier of each of animal is a pre-requisite. This gap area must be covered at the earliest.

6.2 Financial support by the government

The dairy sector is facing tough times in wake of falling prices globally. Many governments in the developed countries are supporting the agriculture and livestock sector by provision of various financial assistance. As per the data published in meat Atlas 2014, the OECD countries’ estimated milk related subsidies amount to USD 15.3 billion in 2012. In view of the poor financial conditions of majority of the milk producers in the province (as per data published by Punjab L&DD Department, 90% of the breeders are small landless milk producers), the government may provide financial support to the small and medium farmers to revive the milk supply chain and make it a sustainable venture. As identified in the key

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN findings section, all players in the milk supply chain (producers, dhodhys, retailers, etc.) are facing financial constraints of varying nature and extent.

The following forms of financial assistance may be considered in this regard:

 In some countries, the government pays direct cash subsidy to support the dairy farmers. For example, as per the USDA, the Turkish government gave subsidies amounting to US$293 million to the milk producers. These include breeding female cattle and buffalo subsidies, calf subsidy, feeder material production subsidy, feeder male cattle subsidy, subsidies for animal diseases compensation etc. The Punjab government may introduce similar subsidies for small and medium scale producers. However, such intervention would require collection of reliable data for planning purposes, development of pertinent eligibility criteria and transparent execution and monitoring.

 In countries like the US, the government runs a Margin Protection Program for Dairy. The margin protection allows farmers to insure their production at a certain price. When the price falls below that level the insurance policy will cover the difference. The Punjab government may consider such an option for milk producers in the province. However, such intervention would require collaboration with insurance companies for provision of insurance policies at a subsidized rate to the farmers by payment of differential of commercial prices and subsidized rates by the government to the insurance company. As in previous point, development of comprehensive eligibility criteria including mechanism for determining margin price and adequate arrangements for transparent execution and monitoring of the scheme would be required.

 Availability of commercial loans at subsidized rates: the government may collaborate with commercial financial institutions, particularly microfinance banks having outreach in rural and underdeveloped areas of the province, for provision of subsidized loans to the farmers. The loans may be provided for procurement of milking animals, feed costs of the animals, procurement of modernized equipment (milking machines, chillers, PHE testing equipment, etc.), purchase of vehicles for transportation of milk directly to consumers/collection centers, storage of feed and milk etc. As in the case of insurance arrangements, the government can develop specialized financing schemes with the financial institutions where differential will be borne by the government.

 Another possible form of financial assistance by the government could be through provision of customized vehicles including adequate storing and chilling arrangements on subsidized rates for transportation and storage of milk. As identified in the key findings section, producers as well as dhodhys lack adequate transportation arrangements. Most of the producers do not own any type of vehicle for transporting the milk to distant consumers/collection centers. Whereas, most of the dhodhys surveyed also lack properly equipped vehicles.

 Provision of cold chain related equipment as grants or at subsidized rates. The existing milk marketing chain is highly inefficient, unhygienic, and chilling facilities are very limited at collection, storage, and transport points. The government may consider provision of cooling tanks for producers, insulated road tankers for middlemen and refrigerators for retail vendors.

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6.3 Access to finance

Government should collaborate with the commercial and microfinance banks for relaxing their eligibility criteria for the provision of loans to small scale producers who are currently not been able to obtain the loans from the commercial bank due to strict eligibility criteria of the bank. For relaxation in the eligibility criteria for the provision of loans, government should build the capacity of the commercial banks in relation with the recovery of loans and ensure provision of necessary support to banks in the implementation of relaxed criteria for provision of loans.

As per the L&DD Department, agreements are entered with UFONE/ UBANK, UBL Omni, Tameer/ Easy Paisa, which on the basis of 9211 system’s historical data are ready to extend credit to landless farmers without the condition of fixed asset as a collateral.

6.4 Formation of milk producers associations

As identified in the key findings section, the price obtained by the producers is dependent on many factors of which type of buyer is the primary factor. Best value is obtained from the consumer which erodes with the involvement of intermediaries like dhodhys, collection centers, retailers, corporate processors etc. The small scale producers need vertical integration into the marketing chain leading to increased returns. One way of achieving this could be through the formation of farmer groups who can draw on their collective investment and human resources to quickly benefit from sharing of resources, costs, and experiences. Through formation of associations, the small scale farmers can reap benefits available to the large scale producers by pooling their interests. Formation of associations at district and regional levels will also enable the small farmers to actively participate in providing input for dairy policy making at the government level. On a larger scale, formal and informal interactions between associations (workshops, seminars, meetings etc.) could result in blending of their wisdom and experience to attain optimal potential of the regional breeds.

The Punjab government may collaborate with reputed NGOs, particularly the rural support programs (e.g. National Rural Support Program, Punjab Rural Support Program etc.), who have already facilitated formation of village/community based organizations/associations across the country. The existing associations can be targeted as a starting point to integrate milk producers and by utilizing the experience of NGOs, the formation of further associations where required can be accelerated.

Government has taken initiatives to facilitate producers, livestock transporters and retailers. In addition, Government has also planned to develop associations at producer level, transporter level and retailer lever. For producer level association government has offered to pay the financial cost of obtaining loans to purchase chillers has and also offered to pay financial costs of loans obtained by transporters’ association for purchasing customized vehicles for milk transportation with required milk quality. Further, government has offered to pay the financial cost of loans obtained by the retailers’ associations to purchase refrigerators for improving milk shelf life. Government offer to pay the financial cost is subject to branding of government and provision of access to government officials to test the quality.

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6.5 Improved research and development

Focused efforts are required to bring provincial research and development efforts at international level. Instead of fragmented and piecemeal research on adhoc basis a targeted result oriented research and development is required in milking animal breeds, semen, insemination, vaccinations etc.

Despite having the advantage of local environment and conditions, it was observed that the local milking animal breeds have lower milking yield in terms of per day milk produced as compared to imported cows, although the local breed contains higher fat content. Lack of adequate research could be one factor resulting in lower yield of local breeds.

In addition to the per day yield, the average lactation period is declining and inter-calving interval is increasing resulting in further decrease of milking yield to the producers. Appropriate research needs to be carried out for identifying reasons for this situation and finding permanent solutions.

6.6 Selection of breed for distinct districts

A detailed research on the different breeds should be carried to determine their suitability with the environment of distinct districts with an objective to identify breeds for different areas where farmers can obtain maximum yields for the respective breeds.

L&DD Department Government of Punjab has already developed livestock breeding act which includes provisions for selection of breed for distinct districts to ensure alignment with the environment of the districts in order to obtain maximum yields for the respective breeds. The Department has identified district wise suitable breeds however, the implementation of the said act is in initial stages. As per the department, government is keen to implement the act which will have positive impact in milk production in Punjab.

6.7 Availability of proper feed and water

The gap between the requirement and availability of feed and fodder for livestock is increasing. It is imperative to arrange sufficient good quality feed and fodder for efficient utilization of genetic potential of the various livestock species and for sustainable improvement in productivity. As per the Punjab Livestock and Dairy Development Board, the total fodder requirement for Punjab is 200 Million metric ton whereas only 44 Million metric ton is available. The shortage of 78% is being met by feeding least nutritive commodities like wheat straw, sugar cane baghas and other greens having no/low nutritive value. Development of silage feeding facilities is imperative to ensure uniform feeding round the year. The government needs to enhance its efforts in the following areas:

 Provision of technical and financial assistance to small & medium landless farmers for silage/hay making and conversion of least nutritive crop residues into high nutritive products.

 Development of a commercial model to encourage private entrepreneurs to invest in silage and hay as an industry.

 Availability of requisite minerals at subsidized rates. 41

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

The importance of clean drinking water, its availability and awareness amongst farmers is generally lacking. Appropriate schemes enabling availability of clean water for milking animals are required.

As per L&DD department a project is underway for provision of requisite minerals including molasses blocks, rock salt, mineral mixture and anmol wunda at subsidized rates at the doorstep of the farmers after due mapping of mineral deficiencies.

6.8 Availability of vaccines

As identified in the key findings section, the producers are generally of the view that there is room for improvement with reference to availability of vaccines and other medicines, quality of medicines, expertise of the veterinary staff employed by the government and measures in cases of emergency/outbreaks. As per the Punjab L&DD Department, the economic losses of preventable diseases are in billions of rupees. FMD alone causes losses to the tune of PKR 8 billion a year.

A robust system of surveillance, prevention and control mechanisms need to be employed on urgent basis. Availability of vaccines and requisite quality medical staff should be ensured by the government to control and reduce the losses borne by the producers due to various diseases.

6.9 Price monitoring and control

Although milk falls under the essential items list regulated through relevant laws, however, it was noted that formal price regulations for sale of milk are not strictly implemented. However, prices are generally capped through unfair market practices and cartelization. There is need to identify and map all such informal price capping induced by the unfair market. On the other side, the prices of feed for milking animals particularly wanda, khal etc. are not regulated formally or informally. As per the information collected in the surveys, the prices/costs related to feed have increased in higher proportion than increase in milk prices resulting in erosion of margins leading to exit from milk supply business by many producers.

Comprehensive regulations need to be formulated and strictly implemented for setting minimum sale price of milk or deregulating the milk sale price and maximum feed costs. Regulations should include a detailed mechanism for the setting the prices duly considering all relevant necessary factors having impact on price. While setting the price government should obtain inputs from the relevant stakeholder. As identified in the key findings section, the milk production and distribution/sales business is becoming unviable option. Following steps may be taken with respect to pricing to improve profitability:

 Control supply of adulterated milk which increases the volume of available milk. Through strict monitoring and control over inflated volume of milk due to adulterations (such as adding water, conversion of substandard powdered milk etc.), the supply of milk can be optimized resulting in higher prices.

 Surveillance of milk retailers to check supply of adulterated milk supply.

 Strict monitoring of feed providers to ensure provision of fodder at reasonable prices.

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6.10 Regularize animal markets

Government should develop policies for the regularization of the existing animal markets and establishment of modern markets. Policies for the animal market should include development of robust data base to record details of the animal including vaccination record, pedigree details of the animal etc.. Animal markets should employ/ hire services of qualified veterinary for certification of animals after thorough examination of the animals’ health.

Department has already developed a database which includes the details of farmers, number, type and nature of animals with the registered farmers along with geographical distribution type, nature frequency and delivery of services etc. provided to farmers however, details of individual animals that are captured in the database is not being used for business purposes and its display through the executive dashboard is also limited to the extent of coverage of health related interventions in the form of services’ delivery. If put to business use in the form of relevant set of informatics, it can revolutionize the agricultural landscape across business and commercial activities of Punjab i.e. a dedicated module on the pattern of existing 9211 system regarding electronic capturing of sale and purchase amongst private individuals (Livestock farmers, producers, consumers) should be developed.

6.11 Develop comprehensive regulations on hygiene requirements

Government of Punjab should devise a comprehensive set of policies and regulations for hygiene requirements of dairy sector duly aligned with international best practices. A mechanism to implement these policies and regulations should be devised.

Government has developed comprehensive regulations on hygiene requirements including Animal Health Act and Livestock Dairy Development Act however, as per the L&DD department, the developed acts have been submitted to relevant/ competent authority for enactment/ approval.

6.12 Awareness program

Government should initiate an awareness program to educate milk producers on a) hygiene requirements; b) optimum feed combination; c) animal health; d) herd impregnation cycle to improve inter-calving intervals etc.

6.13 Establishment of dairy regulatory authority

Government should establish a dairy regulatory authority with an overall mandate as follows: a. To set the price of feed;

b. To set the price of milk;

c. To test the quality of milk being produced and supplied to end users;

d. To regulate the prices of processed milk;

e. To evaluate the overall performance of dairy sector;

f. To oversight the processing plants;

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g. To test and certify the quality of vaccinations and medicine available in the markets;

h. To regulate the middlemen. Government should impose mandatory condition for all middlemen to obtain license for milk supplies;

i. To test and certify the quality of feed being prepared by different feed manufacturers; etc.

6.14 Regulate imports of milk and whey powder

One of the reasons for declining state of milk supply chain is the use of imported milk and whey powders for milk preparation. As per the discussions with a corporate milk processor surveyed, average cost of milk produced from using imported milk and whey powders is lower than the cost paid to local producers for procurement of fresh milk. According to the United Nations Comtrade database, in 2012 approximately 35 million kg valuing US$102.1 million and in 2013 approximately 22 million kg valuing US$70.7 million worth of milk powder was imported by Pakistan. In 2012 and 2013, whey powder imports were 19.5 million kg valuing US$13.4 million and 18.3 million kg valuing US$15 million respectively.

Following key measures may be taken by the government to regulate imports of milk and whey powders:

 Regulate imports of milk and whey powders in the country through formulating comprehensive policies and regulations encompassing analysis of demand supply situation of milk, specialized requirements of imported powdered milk for example powdered milk for infants/children, quality standards, allocation of import quotas, banning of imports beyond essential requirements etc.

 Increase in import duty on milk and whey powders. Currently, import duty in Pakistan is 20% in SAARC and 25% in rest of the world. In contrast duty in India is 68% and 180% in Turkey.

 Abolish illegal smuggling of powdered milk.

 Encourage revival of powder milk production facilities. As per the available information, most of the powder milk production facilities in the country were closed due to a number of reasons including availability of cheaper imported substitute, lack of requisite quality milk locally for conversion in powdered milk, lack of adequate collection mechanism resulting in inadequate quality milk etc. However, a comprehensive study in this area is required to identify all reasons of shut down of facilities, bottlenecks in revival of production units (financial constraints, raw material availability, un-competitiveness due to availability of cheaper alternates etc.), excess milk available in flush season which can be utilized in conversion of powdered milk etc. In the absence of requisite information, concrete recommendations for revival of powdered milk facilities cannot be formulated. (Please note that the scope of work of this study included analysis of powdered milk facilities, however, access to milk processing facilities were not provided).

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6.15 Key Success Factors for dairy processing industry

Following are the important factors relevant for the overall efficacy of dairy processing plants:

Operating within their means and managing the businesses in professional manner. a. Continued commitment to invest in infrastructure, technology, brands and human resource capital as they grew. b. Developed continuous learning and understanding of the industry and adapted the business needs accordingly with time. c. Attracting foreign investment in the sector thereby having more opportunities and financial depth to capitalize upon market potential. d. Leveraging through international technical expertise and experiences to improve upon business operations especially in the areas of milk procurement and processing. Hence improving product quality and reducing cost of doing business. e. Position themselves in specific niches and markets, keeping focus and investing to turn these to sizeable and profitable markets for them. f. Diversifying into various sectors of the industry. Taping wider market potential and also entering into more value added products.

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7. Financial Analysis A detailed profitability analysis of the dairy farmer business has been carried out. The analysis is based on the financial data, with respect to different revenue and cost streams, collected through survey in selected districts of Punjab. Data with respect to a) milking yield of different breeds; b) pricing of milk sale to different categories customer including sales to household, retailers, collection center and dhodys; c) feed requirements for different breed; d) prices for feeds available in market in lean and flush season; e) cost of feed in case cultivated in own land; f) mortality rate in different breeds at different age and e) other cost streams were collected and analyzed in the financial analysis. Details with respect to assumptions applied for the analysis are provided in the annexure G. We have performed the financial analysis for small, medium and large scale producers. 7.1. Small Across the rural small category, the profitability position was as under:

RURAL - SMALL

HERD SIZE MORTALITY CLIENTAGE % PRICES Flush Lean PROJECT RETURNS Nili Ravi 2 7% Dodhi 69 Dodhi 49.20 49.70 NPV (526,259) Sahiwal 1 5% Milk Col l ector 9 Mi l k Collector 45.53 50.80 Profit / (loss)per month (4,385) Imported ‐ 0% Retailer 5 Retailer 49.60 49.60 Profit / (Loss) per year Cros s bree ‐ 0% Households 17 Households 61.70 62.60 1,000,000 Total 3 12% 800,000 Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 600,000 Revenues 166,128 160,828 152,878 191,264 267,388 308,384 364,031 467,640 538,464 1,515,865 400,000 Feed Costs 255,439 255,439 255,439 261,534 385,191 431,745 516,973 644,693 768,350 840,955 PKR 200,000 Utilities 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 - Additional costs for Large Farm ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (200,000) Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (400,000) Cos ts write off due to mortality (31,925) (31,925) (31,925) (32,636) (47,062) (52,494) (62,437) (77,338) (91,764) (100,235) ear 10 Profit / Loss (75,586) (80,886) (88,836) (55,835) (88,941) (89,068) (108,705) (117,916) (156,322) 756,946 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Y Across the small category, dairy farming business remained loss making. On average, in-milk herd sizes for small farmers in rural areas comprised of 2 Nili Ravi and 1 Sahiwali. 69% of small farmers’ clientele remained Dodhys where an average price of 49.20 and 49.70 was being provided to farmers in Flush and Lean seasons respectively. On average, households remained the highest price category for small farmers, however, percentage of sales to this category remained 17% only. Average yields in the small category remained low. For details, please refer Annexure G.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN With current prices and sales mix, it can be observed that small farmers in rural areas remained unable to cover animal feed costs which comprised of feed costs for adult animals, additional costs for milking animals and feed for calves which is 45% of feed cost of adult animals. Revenue increase can be observed after Year 4 owing to the fact that female calves are added to the milking herd for the first time in Year 4, thereon average additions to the female milking herd takes place after every intercalving period. The increase in loss can also be attributed to the fact that additions enhance the milking herd over the projection period after Year 4 however, feed costs being linked to the herd size increase hence increasing the loss gap. During the lifecycle, male calves at an average age of 6 month are sold which enhance the revenues in Year 1, and Year 3 to 10. However, inflows remained insufficient to even reach breakeven. In Year 10, we have assumed that the entire herd is disposed off hence resulting in a net profit at Year 10. It is pertinent to mention that mode of sales for majority of small farmers in rural districts remained the ‘advance’ mode of sales which presents an even bleak profitability picture as shown under.

ADVANCE SALES - PROFITABILITY ANALYSIS PROJECT RETURNS Profit / (Loss) per year NPV (601,436) 800,000 Profit / (loss)per month (5,012) 700,000 600,000 500,000 Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 400,000 Revenues 157,371 152,071 144,121 180,832 252,668 291,269 342,875 441,122 507,658 1,478,968 300,000 PKR 200,000 Feed Costs 255,439 255,439 255,439 261,534 385,191 431,745 516,973 644,693 768,350 840,955 100,000 - Utilities 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 (100,000) Additional costs for Large Farm ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (200,000) (300,000) Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Cos ts write off due to mortality (31,925) (31,925) (31,925) (32,636) (47,062) (52,494) (62,437) (77,338) (91,764) (100,235) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Profit / Loss (84,344) (89,644) (97,594) (66,266) (103,660) (106,182) (129,861) (144,434) (187,128) 720,048 Year 10 With current levels of per day yields, unavailability of quality feed; Sailage and above all low selling prices per litre, small farmers in Punjab are incurring losses. In addition, the profitability analysis is for farmers having owing land where feed for animals is sown and harvested. The profitability position even worsens when tested for sensitivity option under market purchase mode as the source of feed

47

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN Profitability for the aforesaid appears as under:

CASH SALES AND MARKET PURCHASE - PROFITABILITY ANALYSIS PROJECT RETURNS Profit / (Loss) per year NPV (2,107,271) 100,000 Profit / (loss)per month (17,561) - (100,000) Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 (200,000) (300,000) Revenues 166,128 160,828 152,878 191,264 267,388 308,384 364,031 467,640 538,464 1,515,865 (400,000) Feed Costs 488,777 488,777 488,777 503,552 738,091 826,429 992,329 1,236,718 1,471,257 1,652,300 PKR (500,000) (600,000) Utilities 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 18,200 (700,000) Additional costs for Large Farm ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (800,000) (900,000) Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Cos ts write off due to mortality (59,147) (59,147) (59,147) (60,871) (88,234) (98,540) (117,895) (146,407) (173,770) (194,892) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Profit / Loss (281,702) (287,002) (294,952) (269,617) (400,669) (437,705) (528,603) (640,871) (777,223) 40,257 Year 10

Under market purchase, which is the mode used for source of feed by majority of the farmers across the districts visited, small farmers incur an estimated loss of PKR 17,561 every month. From the small farmers visited; 41 percent in Bahawalnagar, 59 percent in Jhang, 50 percent in Khanewal and 70 percent of small farmers in Vehari were reliant on the market purchase mode as the source of feed.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

7.2. Medium Across the rural medium category, the profitability position was as under:

RURAL - MEDIUM

HERD SIZE MORTALITY CLIENTAGE % PRICES Flush Lean PROJECT RETURNS Nili Ravi 4 6% Dodhi 61 Dodhi 48.40 50.50 NPV 234,847 Sahiwal 2 4% Milk Collector 9 Milk Collector 46.10 51.40 Profit / (loss)per month 1,957 Imported ‐ 0% Retailer 12 Retailer 52.10 52.10 Profit / (Loss) per year Cros s bree 1 3% Households 18 Households 57.90 59.80 2,500,000 Total 7 13% Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 2,000,000 Revenues 594,258 583,801 575,087 691,442 945,280 1,105,010 1,325,918 1,647,173 1,870,109 4,070,797 1,500,000

Feed Costs 602,850 602,850 602,850 617,071 910,370 1,049,465 1,265,907 1,567,332 1,858,600 2,013,407 PKR 1,000,000 Utilities 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 500,000 Additional costs for Large Farm ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ - Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Cos ts write off due to mortality (83,295) (83,295) (83,295) (85,123) (122,833) (140,717) (168,545) (207,300) (244,749) (264,652) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Profit / Loss 29,703 19,246 10,532 114,494 112,743 151,262 183,556 242,141 211,258 2,277,043 Year 10 Within the medium category, business remained profitable presenting comparatively better than small farmers however as per the results, we estimated an average of PKR 1,957 profit per month by medium farmers operating under an owned land assumption. On average, in-milk herd sizes for medium farmers in rural areas comprised of 4 Nili Ravi, 2 Sahiwali and 1 Cross breed. 61% of medium farmers’ clientele remained Dodhys where an average price of 48.40 and 50.50 was being offered to farmers in Flush and Lean seasons respectively. We observed that prices per litre were slightly lower than prices provided to small farmers however, the ‘cash’ mode of sales remained prevalent in the medium category unlike small farmers. Another reason for improved profitability position of medium scale rural farmers remained better per day yields in contrast with small farmers which resulted in comparatively higher revenues for medium farmers. Furthermore, on average in-milk herd sizes for medium farmers comprised of 1 cross breed which were more productive yielding an average 11.28 liters of milk per day. For Average daily milk yields for medium category breed, please refer Annexure G.

However, as per the information collected that formed inputs to the financial model, we observed that dairy farming remained unviable in rural areas across the medium category when tested for sensitivity option of ‘market purchase as the feed source. Prime reasons for the losses in ‘market purchase’ sensitivity remained farmers’ inability to cover feed costs from revenues while utilities added further to the net loss margin each

49

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN year. Herd increment and sale of calves’ trend remained the same as in the small farmers’ category. The increase in loss can also be attributed to the fact that additions enhance the milking herd over the projection period after Year 4 however, feed costs being linked to the herd size increase hence increasing the loss gap. For source of feed being market purchase and cash being the mode of sales, the profitability position appears as under:

CASH SALES AND M ARKET PURCHASE - PROFITABILITY ANALYSIS PROJECT RETURNS NPV (3,454,315) Profit / (Loss) per year Profi t / (loss)per month (28,786) 1,000,000 500,000 Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 - Revenues 594,258 583,801 575,087 691,442 945,280 1,105,010 1,325,918 1,647,173 1,870,109 4,070,797

Feed Costs 1,147,306 1,147,306 1,147,306 1,181,779 1,735,733 1,997,284 2,413,960 2,987,613 3,536,642 3,932,881 PKR (500,000) Utilities 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 (1,000,000) Additional costs for Large Farm ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (1,500,000) Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Cos ts write off due to mortality (153,296) (153,296) (153,296) (157,729) (228,951) (262,579) (316,152) (389,907) (460,497) (511,442) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Profit / Loss (444,751) (455,208) (463,922) (377,609) (606,501) (674,695) (816,890) (995,532) (1,251,036) 604,358 Year 10

With sensitivity analysis options, we observed that with the transition of feed source from owned land to market purchase renders the project unviable with an estimated loss of PKR 28,786 per month, the profit at the Year 10 vide sale of herd turns shrinks rendering the overall dairy farming operation into a loss making venture. Among the medium farmers visited; 83 percent in Bahawalpur, 47 percent in Kasur, 56 percent in Sahiwal and 50 percent in Vehari fed their herds vide market purchased feed.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

7.3. Large

Across the rural large category with cost base for feed being ‘owned land’, the profitability position was as under:

RURAL - LARGE

HERD SIZE MORTALITY CLIENTAGE % PRICES Flush Lean PROJECT RETURNS Nili Ravi 14 4% Dodhi 13 Dodhi 51.70 53.50 NPV 14,168,003 Sahiwal 5 2% Milk Col lector 77 Milk Collector 51.50 53.70 Profit / (loss)per month 118,067 Imported 9 6% Retailer 8 Retailer 65.90 65.90 Profit / (Loss) per year Cros s bree 8 4% Households 2 Households 71.00 77.00 16,000,000 Total 36 17% 14,000,000 Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 12,000,000 Revenues 5,661,806 5,662,306 5,627,639 6,865,296 10,146,678 12,259,847 14,063,820 17,602,236 20,560,994 27,891,484 10,000,000 8,000,000 Feed Costs 3,948,721 3,948,721 3,948,721 4,050,849 6,477,658 8,309,719 9,008,642 11,463,892 13,874,450 15,799,847 PKR 6,000,000 Utilities 76,000 76,000 76,000 76,000 76,000 76,000 76,000 76,000 76,000 76,000 4,000,000 Additional costs for Large Farm 620,000 620,000 620,000 620,000 620,000 620,000 620,000 620,000 620,000 620,000 2,000,000 - Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Cos ts write off due to mortality (774,120) (774,120) (774,120) (791,141) (1,195,610) (1,500,953) (1,617,440) (2,026,649) (2,428,408) (2,749,308) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Profit / Loss 1,791,205 1,791,705 1,757,039 2,909,589 4,168,629 4,755,081 5,976,619 7,468,992 8,418,952 14,144,945 Year 10 Across the large farmers’ category, business operations were lucrative. On average, in-milk herd sizes for large farmers in rural areas comprised of 14 Nili Ravi, 5 Sahiwali and 9 Imported and 8 Cross breed. 77% of large farmers’ customer portfolio remained milk collectors where an average price of 51.50 and 53.70 per liter was being offered to farmers in Flush and Lean seasons respectively. Drivers behind the profitability of large scale consumers remained better per day yields and the inclusion of high yielding breeds i.e. imported and cross breed in the herd. For average per day yields for large farmers, please refer Annexure G. We observed that average yields per day among large scale farm herds were the highest which explains the better profitability position. In addition, inter-calving period for imported breed with a comparatively smaller dry period however and cross breed with average per day yields of 17.8 - 18 liters per day remained the prime factor in the increased profitability of large farms. Moreover, large farmers being financially better off than the small and medium category, rarely go for the advance mode of sales.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

For source of feed being market purchase and cash being the mode of sales, the profitability position appears as under:

CASH SALES AND MARKET PURCHASE- PROFITABILITY ANALYSIS PROJECT RETURNS Profit / (Loss) per year NPV 393,586 Profit / (loss)per month 3,280 9,000,000 8,000,000 7,000,000 Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 6,000,000 5,000,000 Revenues 5,661,806 5,662,306 5,627,639 6,865,296 10,146,678 12,259,847 14,063,820 17,602,236 20,560,994 27,891,484 4,000,000 PKR Feed Costs 6,048,763 6,048,763 6,048,763 6,229,010 9,665,334 12,029,000 13,597,963 17,103,234 20,500,159 23,259,970 3,000,000 2,000,000 Utilities 76,000 76,000 76,000 76,000 76,000 76,000 76,000 76,000 76,000 76,000 1,000,000 Additional costs for Large Farm 620,000 620,000 620,000 620,000 620,000 620,000 620,000 620,000 620,000 620,000 - Finance Cos ts ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Cos ts write off due to mortality (1,124,127) (1,124,127) (1,124,127) (1,154,168) (1,726,889) (2,120,833) (2,382,327) (2,966,539) (3,532,693) (3,992,662) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Profit / Loss 41,170 41,670 7,004 1,094,454 1,512,233 1,655,680 2,152,185 2,769,541 2,897,527 7,928,175 We deduced that vide market purchased feed, dairy farming for large farmers still remains feasible but with significantly lower margins yielding an estimated profit of PKR 3,280 per month.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

8. DETAILED ANALYSIS ON MILK SUPPLY CHAIN IN PUNJAB 8.1 INTRODUCTION The livestock sector being a major player in the national economy, is accepted as an economy engine for country. According to economic survey of Pakistan 2015-16, its contribution to agriculture value added is approximately 58.6 percent and 11.6 percent to the overall GDP during 2015-16 compared to 56.4 percent and 11.7 percent during the corresponding period last year, respectively. Gross value addition of livestock at constant cost factor of 2005-06 has increased from PKR 1247 billion (2014-15) to PKR 1292 billion (2015- 16), showing an increase of 3.63 percent over the same period last year.

The livestock sector contributed more to GDP value addition in FY 2015 than large-scale manufacturing, according to the State Bank of Pakistan’s annual State of the Economy report. The contribution of livestock was 11.6pc against 10.9pc of large-scale manufacturing (LSM), the report reveals; but the sector itself grew only 3.6pc, below the 4pc level growth it had recorded in FY 2015.

Since the beginning of this century, the livestock sector has been growing steadily however more growth in the sector has come through value-addition in milk and meat processing and less through increase in animal headcount.

In order to comprehensively understand the milk supply chain, it has been broken down into four major components, (a) producers, (b) distributors, (c) collection centers, and (d) processors.

Producers Households

Distributors Distributors Collection center Retailers

Retail Processor market

The process flow diagram broadly illustrates the entire however, it is involves a number of factors which are discussed in detail in the following paragraphs. The producers are the first component of the supply chain, who are responsible for the primary goal of this entire chain,

53

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN milk production. Distributors/ dodhis act as intermediaries linking the producers to the components generating demand for milk, which are as follows:

— Collection centers;

— Processors; and

— Households/ retailers.

Variation in milk yield is mainly due to the seasonal variations. The year is divided into two seasons depending on variation in supply and demand of milk as follows:

— Flush season

— Lean season

Flush season

It includes months from September to March. The supply of milk in these months increases as compared to the demand mainly due to the following reasons:

— Suitable environment for animals as the temperatures are relatively low;

— Increased nourishment in available fodder (Barseem) and water availability; and

— Change in herd composition on the basis of dry and milking animals, as it was observed that majority of the animals commenced their lactation period by the start of the flush season.

Due to excessive supply of milk and decrease in demand in flush season, milk prices reduce.

Lean season

It includes period from April to August. The supply of milk in these months decreases as compared to demand mainly due to these following reasons:

— Unsuitable environment for animals; as the temperatures are high and such temperatures affect the milk yield due to reduced water retention;

— Fodder available is comparatively rougher than that available during the flush season, and constricted water availability; and

— Change in herd composition on the basis of dry and milking animals.

Due to decrease in supply of milk and increase in demand in lean season, milk supply and prices increase.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

The subsequent sections highlights each component of the supply chain, providing a useful basis for the extensive analysis made in each subsection.

8.2 PRODUCERS Milk producers are the most key component of milk supply chain in the country.

In order to obtain useful information from the grass root levels, a sample of producers in each districts were visited, and the input forms specifically designed for producers were filled. During the survey a total of 298 producers were interviewed and relevant information was obtained.

The producers have been classified based on the level of production into three main categories, which are as follows:

— Small scale producer;

— Medium scale producer; or

— Large scale producer.

The criteria to categorize producers in these respective categories is given below:

— Small scale producers are those producers whose daily milk production yield does not exceed 30 liters;

— Medium scale producers are those whose daily milk production yield ranges between 31 to 120 liters; and

— Large scale producers are those whose daily milk production yield exceeds 120 liters.

Small scale Below 30 litres

Between 31 & 120 Milk producers Medium scale litres

Large scale Above 120 litres

These classifications are solely based on the information obtained and does not reflect any previously established standards. It is mainly for better understanding of the milk production scales in the province and for obtaining more meaningful information for analysis purposes.

During our visits, various types of producers falling in each category, as mentioned above, were met with and vital information with regards to their mode of sale were gathered. This section now analyses the various types of sales made, if any. The following pictorial representation identifies the types of supply chains identified during the survey:

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Milk Producers

Milk producers Milk producers recording no recording sales sales

Milk distribution Self-Distributing Milk distribution to Collection Producers to Dodhis’ Centers

Milk producers have been broadly categorized into (a) milk producers recording zero sales, and (b) milk producers recording sales. Milk producers recording sales have been further classified into following categories:

— Self-distribution;

— Milk distribution to dodhis; and

— Milk distribution to collection centers.

Sales classification of producers' surveys

Household + retailers 26% Producers recording no sales Producers recording 4% sales 96% Collection Centers 10% Dodhis 60%

As the graphical representation illustrates above, 96 percent of the producers’ surveyed consist of producers selling milk and the remaining 4 percent producers’ surveyed were not selling any milk.

Out of the 96 percent producers selling milk, 60 percent producers sold milk produced to dodhis while 26 percent were selling directly to end users including households, retailers,

56

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN traditional milk processing points (milk processing into traditional products with longer shelf life such as khoya and sweets); and only 10 percent of producers sell milk directly to collection centers.

The following sections have been structured on the basis of the flowchart and the criteria tagged along. A detailed analysis of the producers’ surveys under each category have been explained including the process flows, sales mechanism, district wise categorized producer analysis, and reasons pertaining to the analysis provided.

8.2.1 Milk producers recording zero sales An analysis of the producers surveyed identified a total of 12 producers in the entire sample of seven districts and gawala colonies who were not selling any milk. It is worth mentioning that in all areas visited there were a large number of milk producers who reported zero sales due to the following reasons:

— The producer is operating on a very small scale; or

— The milk production yield does not exceed domestic usage; or

— The producer does not intend to sell the produced milk (recreational producer); or

— The operations have not commenced as of yet.

However, a large number of such producers were reluctant to cooperate in the provision of information for the producers’ survey forms emphasizing that their produce, if any, is not for sale.

District wise number of producers not selling any milk are illustrated in below graph:

Number of producers showing no sale 6

5

4

3

2 No. of producers 1

-

District

Based on the above analysis, a total of 12 producers were identified and their respective categorization is as follows. The table below showcases the district wise break-up of producers on the basis of their production scales. Out of the 12 producers identified 10 are categorized as small scale producers. These 10 producers are operating on a small scale and the daily milk production yield does not exceed their domestic usage. The 2 medium scaled producers recording zero sales, identified in Jhang and Kasur, do not intend to sell their

57

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN produce and are entirely using their produce for their own domestic use. Furthermore, there were no large scale dairy producers identified which recorded zero sales.

Producers with zero sales - categorized Districts Small Medium Large Bahaw alnagar 5 - - Faisalabad - - - Jhang - 1 - Kasur - 1 - Khanew al - - - Lahore - - - Okara 2 - - Pakpattan 1 - - Sahiw al 2 - - Vehari - - -

8.2.2 Milk producer supplying milk Following pie chart bifurcates milk producers into producers (a) selling directly to households and retailers (b) selling to dodhis, and (c) selling to collection centers.

Bifurcation of producers recording sales

Milk distribution to Collection centers 11%

Households & Retailers 27%

Milk distribution to Dodhis' 62%

As per survey conducted about 62 percent of the producers sell their milk to dodhis while 27 percent producers sell their milk to households and retailers and 7 percent producers sell their milk to collection centers.

A. Self-distributing producers (distributing to end users’)

Self-distributing producers are those producers who directly distribute the commodity to the end user. For this study, following have been considered as end users:

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

— Household consumers;

— Retailers; and

— Traditional milk processing points (milk processing into traditional products with longer shelf-life such as Khoya)

We were informed that in case the farmer left with excessive milk in remote rural areas with no regular access to market often convert additional milk into ghee and khoya to be sold later in nearby town.

The supply chain for such a process is relatively short and simple as it does not involve any intermediaries. Following diagram depicts the supply chain of such producers:

No intermediaries Producer End user

Following major reasons were identified for self-distribution:

— Sale to retailers and households are made on cash basis which reduces the risk of recovery.

— In most cases retailers pay cash on daily basis which reduces the risk of bad debt or extended credit.

— Usually retailers and households pay high rates than dodhis and collection centers.

— Retailers such as hotels are easily accessible in urban and semi urban areas.

Graph mentioned below shows the results of our survey report:

Self distributing producers 70%

60%

50%

40%

30% Percentage

20%

10%

0%

Small Medium Large

Above graph illustrates the percentage of self-distributing producers included in sample of our survey. The highest number of producers distributing directly to households identified in 59

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Faisalabad i.e. 14 producers. A large number of producers were distributing to households in districts like Jhang, Sahiwal, and Vehari.

Higher selling price was the main reason behind popularity of the self-distribution as many producers were interested in self-distribution, however, couldn’t do so due to unavailability of adequate resources.

The following analyses have been confirmed from the above graph based on the information obtained during the survey;

— Small scale producers of Lahore, Vehari and Pakpattan take up more than 50 percent of the self-distributing market share in their respective districts. Furthermore, small scale producers were rather inclined to sell their milk produce directly as it reduces the intermediaries in the supply chain;

— 57 to 60 percent of the self-distributing market share in the districts of Jhang, Sahiwal, Kasur and Bahawalnagar has been occupied by the medium scale producers; and

— In urbanized districts of Lahore and Faisalabad 50 to 57 percent of the self-distribution market share is made up of large scale producers.

Price analysis Using the information obtained from the self-distributing producers, the following graphical analysis on season wise prices charged by such distributors has been prepared.

The graph below showcases, the price analysis for self-distributing producers during the flush and lean season, for (a) Households, and (b) Retailers.

Price analysis - Self distributing producers - Flush season

100 90 80 70 60 50

PKR 40 30 20 10 -

Small Medium Large Small Medium Large Households Retailers

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Price analysis - Self distributing producers - Lean season

100 90 80 70 60 50 PKR 40 30 20 10 -

Small Medium Large Small Medium Large Households Retailers

a. Households

Flush season The bar graph shows the price analysis during the flush season for milk distribution directly to the households, while the line graph illustrates the same for retailers. Prices as high as PKR 90 per liter and PKR 88 per liter were observed in Lahore and Faisalabad respectively while the lowest price of PKR 45 per liter was observed in district Bahawalnagar.

A district wise analysis, bearing in mind, the three tiers of production levels as discussed earlier, the large scale producers get the highest selling prices out of the three tiers. Surprisingly, the prices charged by small scale producers are higher than the medium scale producers in all districts except Bahawalnagar, Khanewal and Pakpattan. Only four districts shows results of the large scale producers distributing milk directly to households, as the self- distributing market is dominated by the small scale producers in all districts.

The trend shows that the large scale producers benefit with the higher price, however, small scale producers dominate the market in terms of quantity. The medium scale producers rank in between the other two tiers in terms of both availability and price.

Lean season Using the information provided in the graphical representation above, it can be deduced that in majority districts small scale producers preferred direct sales to households due to the reason that it provides them the highest price among all supply chain options.

The highest price of PKR 90 per liter was obtained in Lahore district, while the lowest price of PKR 45 was witnessed in Bahawalnagar district. It is worth mentioning that producers in Sahiwal of all levels, did not prefer selling their produce to households during the lean season, while sales were recorded during the flush season. This may be due to the higher temperatures, and producers wish to sale their produce as soon as possible in order to avoid any losses owing to the critically less shelf life of milk which is not chilled. Therefore, sale to dodhis provides such producers with a simpler option which will be discussed later in the section, ‘Milk distribution to Dodhis’”.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

In comparison to the sale price during the flush season, price fluctuations ranging as high as PKR 5 per liter were noted in Bahawalnagar, Vehari, Faisalabad, Khanewal, and Pakpattan districts. Minimal fluctuations of PKR 1 or less were noted in the remaining districts. This can be due to the fact that a yearly agreed rate is predetermined with the households, hence eliminating flush or lean seasonal impacts for the consumers.

b. Retailers

Flush season The line graph above shows the analysis of the sale to retailers in the flush season. The analysis of the graph shows that selling milk directly to the retailers, though an option, was not commonly practiced as shown by the numerous zero values on the graph.

However, the following analyses were made based on the information obtained:

— The medium scale producers dominate this type of sale as they charge lower price than the large scale producers; as in the case of Sahiwal district, medium scale producers sell milk to retailers at PKR 62 per liter, while the large scale producers sold at PKR 80 per liter.

— The small scale producers are relatively nonexistent in this line of supply in comparison to medium and large scale producers. The lowest sale price is recorded in Pakpattan district, at PKR 48 per liter, therefore, the large scale producers in the district chose other profitable supply chain options for their milk produce.

— It is important to add that producers surveyed in the urban districts of Lahore and Faisalabad, regardless of their level of milk production, did not sell their produce to retailers as a larger profit share could be obtained through direct sale to households.

Lean season Similarly, the line graph shows the price variations in the districts visited, on all three tiers of production levels during the lean season for sale directly to retailers.

The information collected suggests that price varies district to district, similar to all previous cases, with the highest price of PKR 80 per liter was observed in Sahiwal district, while the lowest price was witnessed at PKR 50 per liter in Jhang, Khanewal and Pakpattan districts. Furthermore, in line with the observation during the flush season, producers of the urban districts do not sell their produce to retailers during the lean season as well.

To analyze the seasonal impact from flush to lean, the highest fluctuation recorded of PKR 5 per liter was witnessed in Bahawalnagar district, while all other districts showed negligible variations in the sale prices.

Medium scale producers of Sahiwal, and large scale producers of Sahiwal, Kasur, and Khanewal enjoy a higher price ranging between PKR 62 to PKR 80 as compared to the rest of the producers as prices do not rise more than 55 in other districts.

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN c. Traditional milk processing points A relatively small percentage of the milk is sold to traditional milk processing points as mostly traditional milk processing points are situated near to city and low price being paid to farmers. These traditional milk processor consumed the milk in preparation of yogurt, lassi, butter, Ghee, khoya etc.

Traditional milk processing points prefer buffalo milk due to high content of fat. We were informed that the priority of traditional milk processing points is to process the purchased milk in to yogurt, lassi, sweets etc however, in case they are left with additional milk they process it to khoya and ghee due to its longer shelf life.

During the survey it was analyzed that farmers do not prefer to sale their milk to these traditional milk processing points as they offer relatively low price for milk and located at distant locations however, it was noted in certain cases where farmer left with excess milk due to rejection on account of low quality from its regular clients, farmer sells this milk to traditional milk processing points at low rates.

B. Milk distribution to Dodhis

This section pertains to the producers who preferred sale of milk to dodhis. The following illustration identifies the supply chain for this method of sale:

End user

Producer Dodhi Collection centre

Processors

Dodhis act as the intermediaries in the supply chain, the produce is sold directly to dodhis and is further distributed by the dodhis to (a) end users, (b) collection centers, and/ or (c) processors.

Following are the major reasons for selling milk to dodhis:

— Transportation facilities are not available to producers;

— Dodhis financially bind producers by paying advances for subsequent sale of milk produce only to them;

— In certain cases, the dodhis tend to give loans to producers for the purchase of milking animals and in turn bind them to sell only to them;

— Areas where collection centers are distant, or do not provide with a profitable price; producers find it convenient to sell their milk to dodhis;

— Most producers do not have adequate storage capacity so they have to sell their milk during the limited shelf life to available dodhis;

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— Many producers lack resources such as, manpower to deliver milk, to (a) households, (b) milk retail shops, or (c) collection centers;

— In remote areas, producers are not well connected with the available supply options to (a) hotels, (b) restaurants, (c) collection centers, and (d) milk shops etc.;

— Dodhis tend to offer higher rates as compare to collection centers.

— Most of the producers surveyed, are geographically present in rural or semi-urban areas, therefore, they do not have smooth access to other profitable supply options other than the dodhis’.

— The collection centers operating in the areas visited, test the milk produce on a sample basis, and payment is made based on the testing criteria on the quality of milk. Therefore, producers find it convenient to sell to dodhis’ and avoid such limitations to their profits. (Discussed in detail in the section, “Milk distribution to collection centers”)

Graph given below shows the results of our survey conducted on producers that sell their produce to Dodhis’:

Milk distribution to dodhis

90%

80%

70%

60%

50%

Percentage 40%

30%

20%

10%

0%

Small Medium Large

According to the survey results illustrated in above bar graph, majority of the small scale producers of Sahiwal, Bahawalnagar, Khanewal, Okara and Pakpattan depend on dodhis for sale of their produce. Small scale producers of Lahore and Faisalabad, find it less profitable to sell their milk produce to the dodhis and therefore opt for other more lucrative means.

In case of medium size producers, 57 percent producers of Jhang, 46 percent producers of Kasur, and 50 percent producers of Pakpattan, take up the major shares of milk distribution to Dodhis in their respective districts. This trend can be accounted for by the fact that producers here lack sufficient transport facilities, as well as, nearby urban areas which acts as a nucleus for demand of milk and milk related products. Furthermore, 24 percent producers of 64

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Bahawalnagar and 29 percent producers of Vehari district showed their dependence on dodhis for sale of milk produced, hence majority of the medium scale producer sought other profitable means, which include, self-distributing to households and retailers.

Moreover, in regards to the large scale producers in the urbanized districts of Lahore (69 percent) and Faisalabad (54 percent) take up the major share of this particular milk supply chain. While, in all other districts, sale made to dodhis’ was relatively less prevalent for large scale producers.

Furthermore, the increased dependence of producers in Sahiwal, Bahawalnagar, Khanewal, and Pakpattan districts are due to unavailability of resources such as transport, human resource etc. for self-distribution and unavailability of collection centers in nearby locations. Furthermore, due to unavailability or lack of smooth access to retail markets in remote areas of the districts increases the dependency on dodhis.

Price analysis

Flush season Following graph shows district wise price fluctuations in terms of sale to dodhis. During the flush season, sale price to dodhis ranges between PKR 43 to PKR 80 per liter.

This vast variation in district wise price availability is mainly due to the urban-rural disproportion, therefore, prices soar high in urban areas like Lahore and Faisalabad district than in rural or semi urban areas e.g. Jhang, Bahawalnagar and Pakpattan. The only exception to this observation of price variation is district Kasur, as it being a semi-urban district, enjoys relatively higher prices for milk due to its geographical proximity to Lahore.

Analyses concerning the three tiers of production levels indicate a number of variations which are as follows:

— Small scale producers are getting a better price for their produce than medium scale producers, in districts like Jhang, Sahiwal, Faisalabad, Bahawalnagar, and Pakpattan, however, in comparison to other districts the price range is still low;

— Regardless of the scale of production, all three tiers are actively involved in this type of supply chain;

— The highest price per liter was observed in Lahore district for medium scale producers at PKR 80, and PKR 79 per liter for large scale producers; and

— The lowest price per liter was observed in Okara and Vehari district at PKR 43 per liter.

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Milk distribution to Dodhis - Flush season

90 80 70 60 50

PKR 40 30 20 10 -

Small Medium Large

Lean season The graph below illustrates the trend during the lean season regarding the sales made by producers to dodhis. The price of milk during the season ranges from PKR 40 to PKR 80 per liter. Similar to the urban-rural price disproportion in the flush season, such variations exists in the lean season as well. The lowest price recorded at PKR 40 per liter in Okara district, while the highest price of PKR 80 per liter recorded was in the urban district of Lahore.

Analyses concerning the three tiers of production levels indicate a number of variations during the lean season, which are as follows:

— Small scale producers are getting a better price for their produce than medium scale producers, in districts like Jhang, Sahiwal, Faisalabad, and Bahawalnagar, however, in comparison to other districts the price range is still low;

— Regardless of the scale of production, all three tiers are actively involved in this type of supply chain;

— In urban areas, price variation due to level of production is minimal.

Seasonal impact on urban cities Flus h Le an District Small Medium Large Small Medium Large Faisalabad 75 73 75 75 74 75

Lahore N/A 80 79 N/A 80 79 — Otherwise, in remaining districts large scale producers charge a higher price than the medium and small scale producers, apart from districts like Jhang, Sahiwal, Lahore, and Bahawalnagar.

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Milk distribution to Dodhis - Lean season

90 80 70 60 50 PKR 40 30 20 10 -

Small Medium Large

C. Milk distribution to collection centers

Some producers were selling milk directly to collection centers. Collection centers act as a point of sale or collection, which may be owned and operated by processors or private owners, where producers and dodhis sell their milk on a price based on the quality of milk being provided. The following diagram illustrates the simple supply chain in regards to the sales directed to collection centers:

No intermediaries Producer Collection centre

During the survey, villages were located where private and/ or processor owned collection centers were operating. Following factors were identified due to which the producers tend to distribute milk to collection centers:

— The concentration of collection centers is higher in certain districts due to which producers have easier access to collection centers;

— Collection centers have higher storage capacity;

— Large producers prefer collection centers owned by processors, as they can get them to agree on favorable terms and conditions; and

— Collection centers have fixed credit period and an efficient payment mechanism.

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Milk distribution to collection centers

120%

100%

80%

60% Percentage 40%

20%

0%

Small Medium Large

The graph above highlights the distribution of milk to collection centers. It shows a scattered representation, however, the following analyses have been made;

— No producer was identified in the districts of Sahiwal, Lahore, Faisalabad, Bahawalnagar, and Khanewal selling milk to collection centers; — Small and medium scale producers of Pakpattan and Vehari district sold their milk produce majorly to collection centers, taking up a large portion of 40 to 50 percent of the market share of this particular supply chain; — For medium scale producers, only the producers of Okara, Vehari and Pakpattan, opted for sale to collection centers; — It is worth mentioning, 100 percent of the market is captured by large scale producers, preferred sale to collection centers in the Kasur district; and — District Vehari and Okara were the only districts where producers of all production levels preferred sale to collection centers.

Price analysis

Flush season The following bar graph shows the price fluctuations witnessed during the flush season for sales to collection centers. Following are the results of analysis:

— Producers of all production levels in districts of Sahiwal, Lahore, Faisalabad, Bahawalnagar, and Khanewal did not make any sale to collection centers. Therefore, producers were not highlighted in the sample who sold to collection centers in these districts;

— The highest price at PKR 55 per liter was witnessed in Jhang district, for small scale producers, however, medium scale producers were not involved in this mode of supply chain in Jhang;

— Only in case of Vehari district, producers of all production levels were involved in this mode of sale with a price range of PKR 43 to PKR 47 per liter; and

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— Furthermore, the lowest price was observed in Okara, where the small scale producers were given PKR 40 per liter for their produce.

Price analysis - Milk distribution to collection centres - Flush season 60

50

40

30 PKR 20

10

-

Small Medium Large

Lean season During the lean season, sale trends are nearly the same as in the flush season for producers selling to collection centers. The following variations were identified which are also illustrated in the graph below:

— Small scale producers in Sahiwal, prefer sales to collection centers during the lean season at PKR 60 per liter, however, no sales to collection centers are conducted during the flush season;

— Similar to the flush season, producers’ surveyed in Lahore, Faisalabad, Bahawalnagar, and Khanewal did not prefer sale to collection centers, specifically due to the stringent quality control measures of the collection centers which are the sole basis of payment;

— Pakpattan and Okara district varied the most due to seasonal impact, and prices rose from PKR 40 per liter in the flush season, to PKR 51 per liter, signifying the highest seasonal change occurred in all the districts visited; and

— Prices in Jhang and Kasur district had no seasonal impact and remained consistent all- round the year.

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Price analysis - Milk distribution to collection centres - Lean season

70

60

50

40 PKR 30

20

10

-

Small Medium Large

8.3 DISTRIBUTORS (DODHIS) Dodhis’ are the intermediaries between the producer and the end user of milk. They act as the middle man which share the profit during the collection and supply of milk. Dodhis’ collect milk form different sources such as producers, dodhis’ and collection centers and distributed to end users and other suppliers such as other dodhis’ and collection centers etc. The margin earned by the dodhis in certain area depend factors such as the areas from where they collect milk, supply of milk in that area, purchasing power of end users in that area etc. In some areas the dependence on dodhis is less as compare to other areas due to the factors such as availability of transportation facilities, selling arrangements, number of collection centers etc.

Milk supply chain of Pakistan do not have any scheduled holidays as per the interviewed dhodhys during the survey time.

The supply chain of dodhis can be categorized into two parts as follows:

— Milk collection; and

— Milk distribution.

As mentioned above, milk distribution is a vital component, acting as the bridge between the producers and the consumers having a specific supply chain. Milk distributors or dodhis’ are intermediaries collecting milk from various sources defined later in this section, and subsequent selling respectively.

These distributors have been categorized as follows:

— Small scale distributor;

— Medium scale distributor; and

— Large scale distributor.

The benchmark for categorizing distributors is as follows: 70

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

— Small scale distributor are those distributors whose daily milk supply does not exceed 100 liters;

— Medium scale distributor are those distributors whose daily milk supply ranges between 101 and 1000 liters; and

— Large scale distributors are those distributors whose daily milk supply exceeds 1000 liters.

There are two major components relevant to the dodhis, (a) collection, and (b) sale. The following section explains each in detail.

8.3.1 Collection of milk The sources identified during the distributors’ surveys are enlisted as follows;

— Collection from producers;

— Collection from collection centers; and

— Collection from other dodhis’.

A. Collection from producers

The following graph shows the number of distributors surveyed who collected milk directly from the producers. The trend analysis shows that small and medium scale distributors prefer to collect milk from producers. A total of 52 small scale distributors were met who collected milk from producers all over the districts visited. The largest number of distributors collecting milk from producers were found in Jhang district, while only one distributor in Pakpattan was identified who preferred this mode of sale.

In regards to medium scale distributors, a total of 55 distributors were surveyed, the highest of which were identified in Bahawalnagar who collected milk from producers. However, Khanewal recorded the least number of medium scale distributors who opted for this method of sale.

Lastly, only 6 large scale distributors were identified in Lahore and Okara district who collected milk from producers.

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Distributor's collection from producers

18 16 14 12 10 8 6 Number of distributors 4 2 -

Small Medium Large

Average quantity collected from Average quantity collected from producers - flush season producers - lean season District Small Medium Large District Small Medium Large Bahaw alnagar 70 224 - Bahaw alnagar 62 205 - Faisalabad 71 176 - Faisalabad 70 143 - Jhang 78 228 - Jhang 65 212 - Kasur 98 290 - Kasur 62 208 - Khanew al 73 138 - Khanew al 73 138 - Lahore 65 230 1,625 Lahore 60 225 1,400 Okara 77 371 13,600 Okara 61 285 13,400 Pakpattan 70 216 - Pakpattan 55 151 - Sahiw al 72 255 - Sahiw al 47 123 - Vehari 100 178 - Vehari 100 178 -

The tables above show the average quantity collected from the producers, during the flush and lean season. The distributors have been classified based on their level of collection from the respective producers. As shown, small scale distributors of our sample, of Vehari district collected the highest aggregate of 100 liters of milk per day from producers in both seasons. On average 215 liters (flush) and 176 liters (lean) are collected by medium scale distributors from producers in the given districts. The highest collection being in Okara district at 371 liters during the flush season, and 285 liters are collecting during the lean season. In regards to, the large scale distributors identified, distributors’ surveyed in Okara distributed a huge quantity of 13,600 liters (flush) and 13,400 (lean), while in the Lahore district, 1,625 liters per day during flush season, and 1400 liters per day during the lean season.

Price analysis Flush season

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Price per liter of milk collected from producers - flush season

100 90 80 70 60 PKR 50 40 30 20 10 -

Small Medium Large

The previous tables show the number of distributors identified and the average quantity collected from the respective producers, the graph above shows the price analysis of the milk collected from producers at each tier of collection.

As shown, the highest price for all tiers of collection were reported in Lahore district, exceeding PKR 80 per liter, the highest at PKR 86 per liter for small scale distributors. The lowest prices were identified in Okara, Pakpattan and Sahiwal, as the prices were low around PKR 44 to PKR 49 per liter. Furthermore, no large scale distributors other than in Lahore were identified during the season.

Lean season

The graph below shows the price per liter collected from producers during the lean season. It was observed that the urban district of Lahore provided the highest price to the dodhis in order to collect milk. It ranges between PKR 80 to PKR 86 per liter, while the remaining districts show an average of PKR 56 per liter. The lowest prices were identified in Sahiwal, with the lowest cost per liter at PKR 50.

In regards to the three tiers of classification of distributors, the small scale dodhis were given an average price of PKR 60 per liter, with majority districts ranging lower than the mean calculated, except for Faisalabad, Kasur, Lahore and Vehari. An average price per liter considered for medium scale distributors is calculated at PKR 57, however, the mean calculated is not representative of the sample districts, as prices are either lower than the average( PKR 48 to PKR 54), or relatively higher (PKR 63 to PKR 80) than the average price. Lastly, the price given to large scale distributors was only available in Lahore and Okara districts which stood at PKR 70 per liter.

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Price per liter of milk collected from producers - lean season

100 90 80 70 60 50 PKR 40 30 20 10 -

Small Medium Large

B. Collection from collection centers

Collection of milk gathered by collection centers is purchased by dodhis, and bought for subsequent sales. This practice, though present, is rather scarcely practiced. The table below illustrates that only two districts were identified during the survey, where distributors’ collection originated from collection centers, namely Faisalabad and Kasur. The following table also shows the bifurcation of the distributors identified as per the three tiers of collection identified earlier, (a) small scale, (b) medium scale, and (c) large scale distributor.

Distributors' collection from collection centers

Districts Small Medium Large Bahaw alnagar - - - Faisalabad 3 1 - Jhang - - - Kasur - 2 - Khanew al - - - Lahore - - - Okara - - - Pakpattan - - - Sahiw al - 1 - Vehari - - -

It is worth noting that seasonal changes from flush to lean, or vice versa; do not have any significant effect on the numerical data represented as above.

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Average quantity collected from collection centers - flush season

Districts Small Medium Large Bahaw alnagar - - - Faisalabad 50 150 - Jhang - - - Kasur - 150 - Khanew al - - - Lahore - - - Okara - - - Pakpattan - - - Sahiw al - - - Vehari - - - Average quantity collected from collection centers - lean season

Districts Small Medium Large Bahaw alnagar - - - Faisalabad 53 150 - Jhang - - - Kasur - - - Khanew al - - - Lahore - - - Okara - - - Pakpattan - - - Sahiw al - 70 -

Vehari - - -

The tables above show the average quantity collected from collection centers per day by the respective dodhis in the given districts, during flush and lean seasons.

As shown, three districts show results obtained and the data suggests that only certain distributors in Faisalabad, Kasur, and Sahiwal preferred collection of milk from collection centers. Small and medium scale dodhis collect milk from collection centers round the year. However, medium scale distributors collect milk through such a supply chain only during the flush season, while medium scale distributors in Sahiwal collect milk only during the lean season. Furthermore, no large scale distributors collect milk from collection centers.

Price analysis Flush season The table given below highlights the price analysis during the flush season, of collection from collection centers. During the flush season, only two districts show results for distributors’ collection from collection centers which include, Faisalabad and Kasur.

Therefore, all distributors located in other districts do not prefer collecting milk from collection centers during the flush season. In regards to Faisalabad, large scale distributors do not operate under this particular supply chain, while the small scale distributors purchase milk at an average of PKR 62 per liter and the medium scale distributors purchase milk at PKR 60 per liter. In Kasur, medium scale distributors purchased milk from collection centers at an average purchase price of PKR 55 per liter.

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Price per liter of milk collected from collection centers - flush season Districts Small Medium Large Bahaw alnagar - - - Faisalabad 62 60 - Jhang - - - Kasur - 55 - Khanew al - - - Lahore - - - Okara - - - Pakpattan - - - Sahiw al - - - Vehari - - - Lean season A similar price analysis conducted during the lean season, for purchase of milk by distributors from collection centers.

The table below showcases yet again two districts with results, while all distributors visited in other districts preferred other means of milk purchase. Small scale distributors in Faisalabad get the highest price at PKR 70 per liter, while the medium scale distributors purchase at an average of PKR 65 per liter.

Medium scale distributors in Sahiwal, prefer purchase of milk from collection centers; largely due to the scarce availability of milk directly from producers.

Price per liter of milk collected from collection centers - lean season Districts Small Medium Large Bahaw alnagar - - - Faisalabad 70 65 - Jhang - - - Kasur - - - Khanew al - - - Lahore - - - Okara - - - Pakpattan - - - Sahiw al - 54 -

Vehari - - -

C. Collection from other dodhis

Another source of collection of milk for the intermediaries, is through other intermediaries. It was found to be a common practice that a dodhy may even purchase milk from another dodhy, and add to his collection. In the districts visited, it was witnessed that in order to have a substantial amount of milk to be sold, various sources were utilized, and other dodhis act as a useful resource in need.

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Distributors' collection from other Distributors' collection from other dodhis - flush season dodhis - lean season Districts Small Medium Large Districts Small Medium Large Bahaw alnagar - - - Bahaw alnagar - - - Faisalabad - - - Faisalabad - - - Jhang - - - Jhang - - - Kasur - - - Kasur - - - Khanew al 1 - - Khanew al 1 - - Lahore - - - Lahore 1 - - Pakpattan - 1 - Pakpattan - 3 - Sahiw al 1 - - Sahiw al 1 - - Vehari 1 - - Vehari 1 - -

The two tables given above showcase the seasonal fluctuations, if any, of the distributors’ collection from other intermediaries. A total of five districts including Khanewal, Lahore, Pakpattan, Sahiwal, and Vehari show results for such a supply chain. The highest of such were identified in Pakpattan, a total of 3 medium scale distributors during the lean season only.

Average quantity collected from other Average quantity collected from other dodhis - flush season dodhis - lean season District Small Medium Large District Small Medium Large Bahaw alnagar - - - Bhaw alnagar - - - Faisalabad - - - Faisalabad - - - Jhang - - - Jhang - - - Kasur - - - Kasur - - - Khanew al 20 - - Khanew al 20 - - Lahore - - - Lahore 10 - - Okara - - - Okara - - - Pakpattan - 20 - Pakpattan - 48 - Sahiw al 20 - - Sahiw al 20 - - Vehari 20 - - Vehari 20 - -

The tables above show the impact of the seasonal variations in the lean and flush seasons on the daily average quantity collected by dodhis from other dodhis.

As shown, five districts show the results obtained and the data suggests only certain small and medium scale distributors in Khanewal, Lahore, Pakpattan, Sahiwal, and Vehari. While there is a similar quantity of milk collected during the flush season, there is higher quantity collected from other dodhis during the lean season as most distributors are willing to pay higher to purchase milk which can be sold at a premium. The highest increase has been observed with the medium scale distributor Pakpattan with the average collection more than doubling in the lean season. Moreover, Lahore district’s small scale distributors only collect milk from other dodhis’ during the lean season.

Price analysis Flush season

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Price per liter of milk collected from other dodhis - flush season District Small Medium Large Bahaw alnagar - - - Faisalabad - - - Jhang - - - Kasur - - - Khanew al 53 - - Lahore - - - Okara - - - Pakpattan - 55 - Sahiw al 51 - - Vehari 55 - -

The table below highlights the price analysis during the flush season of daily milk collection from other dodhis’ by collection centers. During the flush season only four districts show results from distributors’ collection from collection centers which include Khanewal, Pakpattan, Sahiwal, and Vehari.

There is little preference with regards to collecting milk from dodhis with no milk collected by large scale distributors in any district. In Pakpattan, there are the only purchases of milk from dodhis by medium sized distributors who pay the highest price per liter at PKR 55 per liter. For the small scale distributors, the price of milk from the dodhis ranges between PKR 51 per liters and PKR 55 per liters with the lowest price per liter in Sahiwal and highest in Vehari.

Lean season

A similar price analysis conducted during the lean season for the purchase of milk by distributors from other dodhis is illustrated in the table below.

There are additional small scale distributors in the district of Lahore who purchase at the highest price of PKR 64 per liter. Moreover, the highest increase in price between flush and lean seasons is that of Pakpattan with an increase of PKR 7 per liter while the quantity of milk purchased has increase by just less than 2.5 times. Vehari was the only district in which the price per liter decreased during the lean season as opposed to increasing as in every other case.

Price per liter of milk collected from other dodhis - lean season District Small Medium Large Bahaw alnagar - - - Faisalabad - - - Jhang - - - Kasur - - - Khanew al 55 - - Lahore 64 - - Okara - - - Pakpattan - 62 - Sahiw al 56 - -

Vehari 50 - -

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8.3.2 Milk distribution Milk distribution undergone by dodhis has been classified into the following subsections;

— Milk distribution to end users;

— Milk distribution to collection centers; and

— Milk distribution to retailers.

A. Milk distribution to end users

Distribution to households involves the sale of milk directly to the end user. The supply chain for this process is relatively short and simple and does not involve intermediaries. The following diagram illustrates the supply chain to this case:

The main reason for distributing milk to households are:

— Sale to households are mainly made on cash basis which reduces recovery risk.

— The market of household buyers is in abundance in both rural and urban areas

— Households tend to pay higher rates as compare to collection centers

— Prices are negotiable so there is potential to earn higher revenues

— The milk testing criterion is less strict as compared to the criteria of selling to collection centers

The graph mentioned below illustrates the district wise sale to households. According to sample covered total 83 distributors sale milk to households out which 49 are small scale distributor, 33 are medium scale distributors and 1 is large scale distributor:

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Sale to households

16 14 12 10

Sales 8 6 4 2 -

Small scale Medium scale Large scale

The above bar chart shows district wise milk distribution to households. According the sample selected the highest quantity of small scale distributors selling to households are 14 who are based in Jhang and the least number of sales to households is the single small scale distributor from Sahiwal. The lack of sales to households in Sahiwal could be due to the fact that the prices of sale to households are the lowest across all districts. In the sample of medium scale distributor, the highest number distributors are from Bahawalnagar while the least amount of medium scale distributors of 2 are from Khanewal. In selected sample sale to household by large distributor was only by a single distributor in Lahore.

In the survey conducted it was observed that the major amount of small farmers sold milk to household in the district of Jhang followed by Faisalabad with Pakpattan being the only district with no sales to household by small scale distributors. This is mainly due to the fact that distributor get lower rate by the collection centers as compare to households and not all retailers offer rates higher than households.

On the other hand in districts like Khanewal, Lahore, and Sahiwal only few farmers’ sell milk to households. This is mainly due to the high transportation and delivery costs incurred on delivery of milk to households.

Price Analysis The following tables show the district wise average prices charged by small, medium and large distributors. Seasonal variations in prices has been observed in different districts as mentioned below:

Flush season The table below shows the price analysis for distributor distributing milk to households during the Flush season:

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Average price to households-Flush season(PKR) Districts Small scale Medium scale Large scale Bahaw alnagar 63 55 - Faislabad 72 63 - Jhang 59 54 - Kasur 68 66 - Khanew al 60 63 - Lahore 90 92 90 Okara 60 - - Pakpattan - 60 - Sahiw al 55 63 - Vehari 62 56 -

In case of small scale distributor the highest prices are charged by distributors in Lahore i.e. about PKR 90 whereas the lowest prices are observed in Sahiwal district is PKR 55.

In case of medium scale distributors sample it was observed that the lowest price distributors charged were in Bahawalnagar PKR.55 whereas the highest price charged was that of distributors in Lahore of about PKR92 for sale of milk to households.

Large distributors sale to households are found only in Lahore who charge PKR 90 in flush season.

It is observed that in urban areas like Lahore and Faisalabad distributors normally charge higher prices for the sale to household as compare to the rural areas like bahawalnagar, Jhang and Vehari. The reason for this variation is mainly due to high delivery cost and purchase prices in urban areas as compare to rural areas.

Lean season The table below shows the price analysis for distributor distributing milk to households during the Lean season:

Average price to households-Lean season(PKR) Districts Small scale Medium scale Large scale Bahaw alnagar 64 58 - Faislabad 75 68 - Jhang 59 57 - Kasur 71 71 - Khanew al 61 63 - Lahore 90 92 90 Okara 66 - - Pakpattan - 59 - Sahiw al 57 63 - Vehari 63 59 -

In the case of small scale distributors the highest prices are charged by distributors in Lahore i.e. about PKR 90 whereas the lowest price distributors charge are in Jhang of about PKR 55 for sale to households.

In case of medium scale distributors sample it was observed that the distributors in Jhang charged the lowest price of PKR 57 per liter whereas distributors in Lahore again charged the highest price of PKR 92 per liter for sale of milk to households.

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Large distributors sale to households are found only in Lahore who charge PKR 90 per liter in the lean season.

As per statistics given in above two tables it is observed that prices in flush season are lower across the districts however certain districts reported similar prices with the medium sized producers in Pakpattan reporting a higher price in the flush season. The consistent price in the lean and flush season is due to the agreements between the distributor and household and the lower price is due to the distributor quoting the current flush season price which while quoting the lean season price from the previous lean season.

B. Milk distribution to collection centers’ Certain distributors selling milk to collection centers. Collection centers including large processors owned collection centers and large retailer owned collection centers. This section includes the sale of milk to both types of collection centers. The following diagram illustrates the supply chain for this mode of distribution:

The following are the main reasons for selling milk to collection centers:

— Collection centers usually purchase milk in large quantities due to higher storage capacity.

— Many distributors who are unable to sell to households or retailers tend to sell to collection centers to avoid wastages.

— Unlike individual households and retailers, the distributors can supply all milk to one location rather than driving to different locations which lowers transportation costs

— The rates available at most collection centers are uniform throughout the year and any changes are agreed beforehand between the distributor and the collection center

— Collection centers tend to repay on time and have a lower risk of default as compared to households

— Large milk distributors prefer collection centers as they can negotiate rates and terms of payments to agree on favorable terms.

Following graph shows number of distributors’ sale to collection center in selected sample:

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Sales to collection centers

7 6 5 4 Sales 3 2 1 -

Small scale Medium scale Large scale

Above graph illustrates that the very few small scale farmers used collection centers as sale point for milk, in districts like Bahawalnagar, Jhang, Khanewal, and Lahore sale to collection center is none. However in case of medium scale distributors, 18 distributors covered in sample of which 6 have been identified in Okara and only a single one is identified in the districts of Jhang, Kasur and Sahiwal. In case of large scale distributors none of distributor sale milk to household except Okara.

It is generally observed that small scale distributors do not prefer sale to collection center because collection center pay low rates as compare to household and retailers. Many of the small scale distributors prefer to sell to collection centers only when they have excess milk and are unable to find any alternative buyer. Medium and large scale distributors prefer collection center because they tend to enter into a contract which smaller producers cannot in which the prices are higher and are fixed throughout the year. Also, medium and large scale distributors can take advantage of the high purchasing capacity and easy mode of payments by collection centers.

Price analysis Flush season The table below shows the price analysis for distributor distributing milk to collection centers during the flush season:

Average price to collection centres - Flush season (PKR)

Districts Small scale Medium scale Large scale Bahaw alnagar - 55 - Faislabad 70 - - Jhang - 55 - Kasur 48 60 - Khanew al - - - Lahore - - - Okara 59 48 52 Pakpattan 48 51 - Sahiw al 48 47 - Vehari 75 54 - 83

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

The above table shows the prices charged by distributors to collection centers in flush season.

In case of small scale distributor the highest prices are charged by distributors in Faisalabad i.e. about PKR 70 whereas the lowest prices are observed in Pakpattan, Sahiwal and Kasur district is PKR 48.

In case of medium scale distributors it was observed that the distributors in Sahiwal get the lowest average rate of PKR47 whereas distributors in Kasur get average rate of PKR 60 for sale of milk to collection centers.

Large distributors’ sale to collection centers are found only in Okara at an average rate of PKR 52 in flush season.

The variation in prices in flush and lean season is mainly due to the variation in supply and demand of milk in both season. In flush season supply of milk is large as compare to lean season whereas in flush demand is low as compare to the lean season. Therefore, milk prices are relatively low in flush season as compare to lean season.

Lean season Average price to collection centres-Lean season(PKR) Districts Small scale Medium scale Large scale Bahaw alnagar - 55 - Faislabad 70 - - Jhang - 60 - Kasur - 65 - Khanew al - - - Lahore - - - Okara 65 54 54 Pakpattan 50 53 - Sahiw al 52 60 - Vehari 80 57 -

The above table shows the prices charged by distributors in the lean season. In case of small scale distributor the highest prices are charged by distributors in Vehari i.e. about PKR.80 per liter whereas the lowest price charged is by the distributor in Pakpattan of PKR.50 per litre on sale to collection centers. The average increase in prices across all districts for small sized distributors from the flush season to the lean season is PKR. 5 from PKR. 58 to PKR. 63.

In case of medium scale distributors sample it was observed that the highest price was charged by distributors in PKR.65 whereas the lowest price was charged by distributors in Pakpattan of almost PKR.53 for sale of milk to collection centers. The average increase in price across all districts for medium sized distributors is PKR. 5 from PKR. 53 to PKR. 58.

Large distributors’ sale to collection centers are found only in Okara who charge PKR. 54 in the flush season.

As per statistics given in above two tables it is observed that prices in flush season are low as compare to lean season. The variation is mainly due to the variation in demand and supply of milk in both season.

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C. Milk distribution to retailers

Retail market mainly includes sale to (a) Other Dodhis (b) Hotels (c) milk shops. Following flowchart shows the supply chain of distribution to retail market.

The main reasons of supplying milk to retailers are:

— Retailers tend to pay higher rates compared to collection centers.

— In most cases retailers pay cash on a daily basis which reduces the risk of default or extended credit.

— Retailers such as restaurants and hotels are easily accessible in urban and semi urban areas.

— Retailers do not a strict milk quality testing criteria so they are relatively accessible compared to collection centers.

The graph mentioned below illustrates the district wise sale to retailers:

Sale to retailers 6 5 4 3 Sales. 2 1 -

Small scale Medium scale Large scale

From above graph it is noted that in the most sales to retailers were in Kasur with 5 small scale distributors out of the total sample of 13. Also, there were no small scale distributors in Khanewal, Lahore, and Pakpattan to distribute milk to retail market as in many cases retailers preferred processed milk. In case of medium scale distributors sample of 18 distributors covered in survey conducted 6 out of the 8 districts which supplied milk to retailers had only 1 to 2 distributors. The other 2 districts supplied higher quantities. In case of large scale producers Lahore and Okara are the only districts covered in sample where the distributors sell milk to retailers.

Price analysis 85

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Flush season The table below illustrates the average prices for sale of milk from distributers to retailers.

Average price to retailers-Flush season(PKR) Districts Small scale Medium scale Large scale Bahaw alnagar 65 53 - Faislabad 80 60 - Jhang 55 55 - Kasur 66 63 - Khanew al - 55 - Lahore - 90 90 Okara 55 - 70 Pakpattan - - - Sahiw al 55 50 - Vehari 60 54 -

As per the table above the lowest average price for the small scale distributers was 3 districts of Jhang, Okara, and Sahiwal for PKR 55 per liter and the highest average price of small scale distributers was at the district of Faisalabad at PKR 80 per liter. There were 3 districts with no reported sales to retailers in Khanewal, Lahore, and Pakpattan.

The medium scale distributor who offered the lowest average price to retailers were of Sahiwal charging PKR 50 per liter. The medium scale distributor who offered the highest average price per liter to retailers was Lahore at PKR 90 per liter as the milk prices are generally higher in those district. The 2 districts where no milk was being sold to retailers by medium scale distributors were Okara and Pakpattan.

Large scale distributors supplying to retailers were only in the district of Lahore and Okara with the prices in Lahore being in line with the average price of PKR 90 and the price in Okara being PKR 70 per liter.

Lean season

The table below illustrates the average prices per liter for the daily sale of milk from distributers to retailers.

Average price to retailers-Lean season(PKR) Districts Small scale Medium scale Large scale Bahaw alnagar 65 58 - Faislabad 80 85 - Jhang 55 57 - Kasur 66 68 - Khanew al - 60 - Lahore - 90 90 Okara 60 - 62 Pakpattan 55 - - Sahiw al 55 50 - Vehari 63 57 -

As per the table above the lowest price for the small scale distributor is in the 3 districts of Jhang, Pakpattan, and Sahiwal at PKR 55 per liter. The highest price is in the district of

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Faislabad for PKR 80 per liter. On average the price has remained constant from the lean to the flush season across all districts at PKR 62 per liter

Moreover the lowest price per liter for medium scale producers is PKR 50 per liter in the district of Sahiwal and the highest price per liter is in the district of Lahore at PKR 90 per liter. On average there is a PKR 6 increase from the flush season to the lean season from PKR 60 per liter during the lean season to PKR 66 per liter

The large scale distributors were available only in Lahore and Okara. The price in Lahore was the same as the flush season of PKR 90 and the price in Okara was lower during the lean season as compared to the flush season.

8.4 COLLECTION CENTERS Milk collection centers are company owned or private owned collection points which collect milk from different resources: (a) Milk producers (b) Milk distributors (dodhis’) and (c) Local/ Retail market. Daily collection is than distributed to different customers such as: (a) Distributors; (b) Retailers and processors.

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Following diagram shows the milk collection and distribution supply chain in case of collection centers:

Farmers to Distributor to Local/Retailer to Collection Collection Collection Centers Centers Centers

Collection Center

Collection Collection Collection Center to Centers to Centers to Distributor Retailers Processors

According to the supply chain illustrated above two major components relevant to the collection centers are: (a) collection, and (b) sale.

8.4.1 Milk Chilling Capacities in Surveyed Areas of Punjab During the survey, a total number of 18 collection centers were surveyed in 7 districts of Punjab in accordance with the survey methodology included in the inception report. Collection centers in districts of Lahore, Faisalabad and Khanewal were not found in the selected areas for conducting survey. The table below provides summary of collection centers visited:

No. of collection No. of chillers Installed capacity of District centers visited installed chillers in liters Bahawalna 11 2,000 Jhang 2 2 4,600 Kasur 1 0 - Okara 7 69 75,000 Pakpattan 2 2 1,200 Sahiwal 1 1 400 Vehari 4 4 3,600 Total 18 79 86,800

Collection centers visited during the survey had a total number of 79 chillers installed with total installed chilling capacity of 86,800 liters. Out of total chilling capacity of milk Okara district represent 87 percent, Vehari represents 5 percent and Pakpattan contributed 4 percent to total chilling capacity.

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Details with respect to location, chilling capacity and transportation capacity of the visited collection centers are provided in the below table.

Location, chilling capacity and transportation capacity of the visited collection centers Company owned collection centers Chiller utilization % Transport utilization % Capacity in Transportaion Company District Tehsil liters Flush Lean capacity Flush Lean Nestle collection center Okara 2,000 100% 80% Engro center Ahmedpur Sial 3,600 100% 80% Adams Food Ahmedpur Sial 1,000 65% 65% Total 6,600 - Privatly owned collection centers Amjad Ali Sahiwal Sahiwal 400 100% 78% - - - Fayyaz Ahm ed Kas ur Pattoki ------Muhammad Yaseen Vehari Mailsi 500 70% 70% - - - Muhammad Farooq Vehari Mailsi 1,000 100% 100% - - - Muhammad Imran Vehari Mailsi 1,000 80% 60% - - - Sajid Bhatti Vehari Mailsi 1,100 91% 100% - - - Umer Zaman Bahawalnagar Bahawalnagar 2,000 100% 100% 5,000 70% 50% Hafiz Falooda Shop Okara Depalpur ------Tariq and Tariq Okara Renala Khurd 60,000 100% 30% 77,000 48% 24% Buraj Collection Okara Okara 3,000 67% 37% - - - Imran Dairy Okara Renala Khurd 5,000 100% 100% 113,000 5% 5% Sanaullah Okara Renala Khurd ------Shehzad Ali Okara Okara 2,000 30% 30% - - - Saeed Ahmed Okara Okara 3,000 100% 67% - - - Mazhar Ameen Pakpattan Pakpattan 1,200 83% 83% 2,500 100% 100% Total 80,200 Grand Total 86,800

It was analyzed that most of the collection center lacks adequate transportation facilities and acquires rented vehicles for milk transportation. Whereas in few cases the collection centers have excessive transportation facilities which rent out the excessive capacity to other collection centers for milk transportation.

Location

Location w ise detail of collection centers visited

No. of Collection Capacity in Dis tr ict Te hs il centers visited liters Bahaw alnagar Bahaw alnager 1 2,000 Jhang Ahmedpur Sial 2 4,600 Kasur Pattoki 1 - Okara 4 10,000 Okara Depalpur 1 - Renala Khurd 3 65,000 Pakpattan Pakpattan 1 1,200 Sahiw al Sahiw al 1 400 Vehari Mailsi 3 3,600 Total 86,800

The table above illustrates the location of collection centers visited in the mandated districts. Tehsil Renala Khurd has the highest storage capacity representing 75% followed by tehsil 89

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Okara representing 11.5% of the total sample. Collection centers visited in tehsils Pattoki and Depalpur do not have any chillers.

Ownership

Type and district w ise details of collection centers visited Type of No. of centers Total capacity in District No. of chillers collection center visited liters Nestle 1 1 2,000 Okara Private 6 68 73,000 Engro foods 1 1 3,600 Jhang Adams food 1 1 1,000 Sahiw al Private 1 1 400 Vehari Private 4 4 3,600 Bhaw alnagar Private 1 1 2,000 Pakpattan Private 2 2 1,200 Total 86,800

The table above illustrates collection centers divided into company owned and private owned in each district. The largest capacity of 75,000 litres exists in Okara district representing 86.4 percent of total capacity.

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Utilization

Location w ise detail of collection centers visited

Capacity utilization %

No. of Collection Capacity in District Tehsil centers visited liters Flush Lean Bahaw alnagar Bahaw alnager 1 2,000 100% 100% Jhang Ahmedpur Sial 2 4,600 92% 87% Kasur Pattoki 1 - - - Okara 4 10,000 70% 51% Okara Depalpur 1 - - - Renala Khurd 3 65,000 100% 37% Pakpattan Pakpattan 1 1,200 83% 83% Sahiw al Sahiw al 1 400 100% 63% Vehari Mailsi 3 3,600 100% 100% Total 86,800

The table above illustrates district and tehsil wise representation of capacity utilization in flush and lean season. Capacity is underutilized in lean season due to inadequate production of milk. Capacity is utilized at 100 percent in all districts except Jhang, Okara and Pakpattan. This is attributable to inadequate sources of milk because private contractors lack marketing skills to attract milk supply in flush season.

8.4.2 Milk Transportation and Procurement Mechanism in Punjab

A. Procurement mechanism in Punjab

There are three major sources for milk collection including:

a) Milk collection from direct sources;

b) Milk collection from in-direct sources; and

c) Milk collection from contractor/ private owned collection centers.

Key steps involved in these type of milk collection is provided in the below picture:

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Milk procurement methods Milk collection from Farmer Farmer Milk collection from VMC Milk collection from direct VMC source

Milk collection from Small dodhi Small Dodhi Milk collection from Medium dodhi Medium Milk collection Collection center from in-direct Dodhi source Milk collection from Large dodhi Large Dodhi

Milk collection from Small Collection center Milk collection from Small Small collection collection center center

Following diagram illustrates the results of surveys conducted. The percentage of milk quantity collected from different sources is given below;

Collection of milk different sources Milk collection from Contractors 13%

Milk collection from in-direct source 7%

Milk collection from direct source 80%

As per pie chart mentioned above, 80 percent of milk quantity is collected through direct sources, 13 percent of collection is made through contractors, whereas only 7 percent of milk quantity is collected from in-direct sources.

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1. Milk collection from direct sources

a. Collection from Direct Farmer (DF):

The term direct farmer (DF) is usually referred to smallholder village based farmer having 4 – 6 animals and supplied an average of 2 – 10 liters of milk daily at the company’s collection center in the village, i.e. chiller / sub-center. The collection center issues a specialized farmer pass book to each DF for recording daily milk volume along with its Fat and LR10. The DF receives payment from company’s collection center through milk purchase register. The payment is usually made on weekly basis.

b. Collection from Village Milk Collection Agents (VMC):

In areas, where company has not installed chilling facility, the system to procure milk is usually based on VMC agent. The agent is selected by the company with consent of the community members and provides him with basic collection material like cans, Gerber machine, glass-ware etc. to measure and collect the milk. The VMC agent then supplies this milk to the nearest sub-center (chiller) of the company. An agreement is signed between company and the agent describing the per liter base commission to the agent. VMC agent maintains his payment register and also has bank account through which payment is transferred to him and he then pays to his individual suppliers. Usually an average VMC agent supplies milk to the company from 50 to 300 liters per day. When a certain VMC exceeds the volume of 300 liters per day, company is more likely to upgrade the VMC into sub-center by installing the chiller at this spot.

c. Collection from Progressive Farmer (PF):

The progressive farmers are those farmers who have potential to increase their business and are more likely to become good source of milk supply to the company. A PF has more than 10 milking animals and supplies more than 20 liters milk per day to the company, usually at sub- center in village. Company’s technical team continues to guide PFs on modern practices through which he can enhance milk production of his animals. This type of farmer is directly registered with the company having a specific code of registration under PF category. He has his own bank account and milk payment is directly transferred to his account by the company, usually on weekly basis.

d. Collection from Commercial Dairy Farmer (CDF):

Commercial dairy farmers are relatively large farmers having more than 20 milking animals and supplying more than 50 liters of milk per day either to company’s collection center or 1.7 ton tanker. The large commercial dairy farms with milk 300+ LPD can have a chiller installed at his farm for storing milk while company’s vehicle will collect the milk once in day directly from the farms. This type of farmer also has specific code and bank account for direct transfer of payments.

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Analysis of milk collection from direct sources

The main reason for collection from sources:

Producers are in very large number and help collection centers in achieving daily targets.

— Milk from unregistered producers are available at very low prices as compare to distributors and retailers;

— Large scale producers prefer to supply milk to collection centers because they are normally registered and get high prices from collection centers;

— Collection center have excessive capacity of storage hence the chances of rejection due to lack of extra capacity are less than distributors;

— Quality of milk purchased from producer is better than collected from distributor; and

— For producers with the only viable option of selling their milk produce to collection centers, due to the fact that other more lucrative markets are not available due to lack of adequate transport and networking.

Quantity analysis The quantity of milk collected during the flush season vary largely as compare to quantity collected lean season. The results of these variations and their reasons explain below:

Quantity of collection from producers

4,000

3,500

3,000

2,500

Liters 2,000

1,500

1,000

500

-

Flush Lean

The above graph shows the variations in milk collection during flush and lean season. As per survey conducted no collection centers were found in Bahawalnagar, Faisalabad, Kasur, Khanewal, Lahore and Pakpattan who collect milk from producers. Lowest collection by 94

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN collection centers from producers is in district Jhang i.e. only 40 liters because it is observed that producers in Jhang prefer to sale milk to households or distributors rather than to collection centers. The highest collection from producers was in Vehari, which varies between flush and lean i.e. 2400 and 3600 liters respectively.

It can be observed from the graph mentioned above that the quantity of milk collected from producers in flush season is more as compare to quantity collected in lean season. This is due to the fact that the daily yield of animal is more in flush season as compare to the lean season.

Price analysis

Prices of milk collected from producers vary in flush and lean season as mentioned in table below:

Average collection prices from producers (PKR) Districts Flush Lean Bahaw alnagar - - Faisalabad - - Jhang 47 49 Kasur - - Khanew al - - Lahore - - Okara 49 60 Pakpattan - - Sahiw al 55 60 Vehari 46 49

The above table illustrates the district wise average prices at which collection centers purchase milk from producers and further bifurcates them into flush and lean. Lowest prices were observed in flush season in Vehari i.e. PKR 46 while highest price in flush is PKR 55 observed in Sahiwal and highest during lean season in Okara and Sahiwal at PKR 60.

The difference in prices is mainly due to the variations in supply and demand during the flush and lean season. The supply of milk in flush season is in excess as compare to the demand whereas the supply of milk reduce in lean season as compare to demand. Due to these variations the prices in lean season is comparatively high as compare to flush season.

2. Milk collection from in-direct sources

a. Collection from Medium Dodhi:

Mini contractor or mini suppliers have multiple collection points to collect the milk under an agreement with the company for providing the equipment under company’s ownership while it is operated by the mini contractor. He has specific bank account for payments. The Mini Contractor delivers the milk at company’s chiller or tanker after necessary testing and

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN checking. Usually a mini supplier supplies more than 500 liters per day milk. The mini-supplier invests in terms of advance payments to his supplier including dhodis and farmers.

b. Collection from Dodhi/ Gawalas:

Gawalas collect milk from small farmers on cycle / motorcycle from their door step usually on gross volume basis (without any tests) and has also paid advance to the farmers. He has no formal agreement with any processor but delivers the milk at any sub-center / main center / mobile collecting unit / city supplier according to best feasible profit opportunity. Dairy processors accept milk from dhodis either on regular or need basis. The quality of milk obtained through dhodis is generally considered low.

c. Collection from Large Dodhi:

Large dhodies are a little advance shape of mini contractors. They have their own transport for milk collection and collect the milk from different sources like Dhodis, Medium dhodis and collection points. He delivers the collected milk either to city buyers or to dairy processors depending upon business opportunities. For processors, he usually delivers the fresh milk at main center level.

Analysis of milk collection from in-direct sources

The major reasons for collecting milk from in-direct sources are as follows:

— Distributors have large quantity of milk as compare to producers which help collection center in meetings daily targets.

— Distributors get high prices from collection centers as compere to producers.

— Distributors have transportation facilities to deliver milk to collection center as compare producers.

— Distributor can sell whole collection at single point without any bargain.

— Distributors can sell excess milk in flush season when the demand in market is less as compare to supply of milk.

Quantity analysis The quantity of milk collected during the flush season vary largely as compare to quantity collected lean season. The results of these variations and their reasons are provided below:

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Quantity of collection from distributors

70,000 65,000 60,000 55,000 50,000 45,000 40,000

Liters 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -

Flush Lean

The above graph shows the difference in quantity collected from the distributors in flush and lean season. The survey conducted did not cover collection centers in Faisalabad, Khanewal and Lahore collecting milk from distributors as most of the milk in these districts are supplied to households. The lowest collection observed in Kasur. Highest collection among all the sources of collection is observed in Okara i.e. about 68100 liters in flush and 21700 liters in lean.

It can be observed from the graph mentioned above that the quantity of milk collected from distributors in flush season is more as compare to quantity collected in lean season. This is due to the fact that the supply of milk to distributors is in excess as compare to demand in flush season where as this supply reduces in lean season.

Price analysis Prices of milk collected from distributors vary in flush as compare to lean season as mentioned in table below;

Average collection prices from distributors (PKR) Districts Flush Lean Bahaw alnagar 50 55 Faisalabad - - Jhang 49 50 Kasur 65 - Khanew al - - Lahore - - Okara 48 54 Pakpattan 49 51 Sahiw al 55 60 Vehari 47 50

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The above table illustrates the district wise average prices at which collection centers purchase milk from distributors and further bifurcates them into flush and lean. The survey conducted did not cover collection centers in Faisalabad, Khanewal and Lahore. The highest price during flush season is in Kasur at PKR 65 and the lowest price is in Vehari during lean season at PKR 47.

The difference in prices is mainly due to the variations in supply and demand during the flush and lean season. The supply of milk in flush season is in excess as compare to the demand whereas the supply of milk reduce in lean season as compare to demand. Due to these variations the prices in lean season is comparatively high as compare to flush season.

3. Milk collected from contractor/ private collection centers

Milk Contactor are advance form of Large dhodis where they have their own milk collection setup and infrastructure including PHEs, chillers, dump tanks, transport tankers etc. They deliver bulk quantity milk directly at factory level.

Analysis of milk collection from milk contractors/ private collection centers

The main reasons for collecting milk from this source is as follows:

— Availability of milk in bulk quantities which helps in achieving targets.

— In some areas due to lack of other customers retailers have to sell excessive milk to collection centers.

Quantity analysis The quantity of milk collected during the flush season vary largely as compare to quantity collected lean season. The results of these variations and their reasons explain below:

Quantity of collection from local/retailers

8,000

7,000

6,000 Liters

5,000

4,000

3,000

2,000

1,000

-

Flush Lean

The above graph shows the difference in milk collected during flush and lean by local/retailers. The survey conducted did not cover collection centers in Bahawalnagar, Faisalabad, Jhang, Kasur, Khanewal, Lahore, Sahiwal and Vehari collecting milk from 98

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN local/retailers. Collection from local/retailers is only observed in Okara and Pakpattan. In district Okara collection quantity in flush season is 7500 liters whereas collection reduces to 6000 liters in lean season.

It can be observed from the graph mentioned above that the quantity of milk collected from local market in flush season is more as compare to quantity collected in lean season. This difference is mainly due to increase in supply of milk in flush season as compare to lean season.

Price analysis Prices of milk collected from retailers/local market vary in flush as compare to lean season as mentioned in table below:

Average collection prices from local/retailers (PKR) Districts Flush Lean Bahaw alnagar - - Faisalabad - - Jhang - - Kasur - - Khanew al - - Lahore - - Okara 50 50 Pakpattan - 52 Sahiw al - - Vehari - -

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B. Transportation

Details with respect to district and collection center wise transportation capacity of visited facilities are provided in the below table.

District and collection center w ise transportaion capacity in visited collection centers

Utilization %

Collection Type of No. of Capacity District Flus h Le an center vehicle truck Liters Truck 6 37,000 100% 50% Tariq and Tariq Truck 2 40,000 Rented Rented Okara Truck 2 24,000 100% 100% Imran Dairy Truck 5 89,000 Rented Rented Bhaw alnagar Umer Zaman Truck 1 5,000 70% 50% Pakpattan Mazhar Ameen Pick up 1 2,500 100% 100% Total 197,500

Details with respect to vehicle model, their capacity and capacity utilization in flush and lean seasons are provided in the below table.

District w ise details of available transporation its capacity and utilization in collection centers visited

Utilization %

Collection Type of Capacity District Model Flus h Le an center vehicle Liters Truck 1995 5,000 100% 0% Truck 2000 10,000 100% 0% Truck 2011 12,000 100% 100% Tariq and Tariq Truck 2013 10,000 100% 100% Truck 20,000 Rented Rented Truck 20,000 Okara Truck 12,000 100% Truck 12,000 100% Truck 20,000 Imran Dairy Truck 20,000 Truck 20,000 Rented Rented Truck 20,000 Truck 9,000 Bhaw alnagar Umer Zaman Truck 2008 5,000 70% 50% Pakpattan Mazhar Ameen Pick up 2002 2,500 100% 100% Total 197,500

1. Transportation available with collection centers

The table above illustrates the methods through which milk is transported by collection centers in Okara. It may be noted that only large collection centers have access to expensive transportation trucks. These trucks are specially designed with temperature control systems to avoid deterioration of milk quality in long journeys. In case the temperature exceeds the assigned limit, the driver is notified and milk is transported to nearest chilling facility. The model year for all the trucks identified at collection centers were not provided. Collection centers use these trucks to collect milk from small collection centers and large dairy farms. Once the milk is obtained from the collection points, it is transported to processors in these 100

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN trucks. In the case of cities with abundant demand, these trucks are also sent to supply milk to large retails shops.

2. Transportation available with producers and distributors

Distributors' transport medium specifications

Num be r of Vehicle Model distributors Motorbike 1985 to 2000 37 Motorbike 2000 to 2010 38 Motorbike 2010 to 2013 31 Motorbike 2013 to 2016 15 Pickup w ith tank 2010 to 2016 4 Shehzore w ith tank 2010 to 2016 3 Tankers 2010 to 2016 2

Majority of the distributors have access to motorbikes for transporting milk to collection centers. Small and medium scale distributors cannot afford expensive trucks. Additionally they collect milk in small quantities and shorter distances which do not require specials trucks. Large scale distributors can afford small tankers and pickup vans because of their scale of business. In limited cases producers supply directly to the collection centers. Producers capable of affording transportation facilities carry out such supplies.

8.4.3 Sales of milk

Quantity analysis Quantity of milk sold to different customers such as: (a) Distributors; (b) Retailers; (c) Processors and (d) others in flush and season is explained below:

Flush Season

The table below shows the sales by collection centers to distributors, retailers, processors, and others in all districts during the flush season. There are no intermediaries involved.

Total sale quantity Districts Distributors Retailers Processors Others Bahaw alnagar - 1,000 1,000 Faislabad - - - - Jhang - - 900 - Kasur - 60 - - Khanew al - - - - Lahore - - - - Okara 5,000 15,000 55,960 - Pakpattan - 2,500 1,500 - Sahiw al - - - 550 Vehari - 3,000 3,050 -

The only collection center selling milk to distributors are the collection centers in Okara who are selling 5000 liters per day, while districts like Faisalabad and Lahore where it is not feasible to have collection centers show no results obtained.

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The sale to retailers is the second highest total at 21,560 liters per day. The largest quantity being sold in the district of Okara. This is followed by Vehari with 3000 liters per day the same as the lean season. Pakpattan has lower sales in the flush season with 2500 liters being sold. Bahawalnagar has the same quantity of sales during the lean and the flush season. There is an additional district with a measly 60 liters.

The sale to the processors is the highest at 62,410 liters per day. The largest quantity again is in the district of Okara with 55,960 liters of sales per day. This is followed by sales of 3,050 liters per day in the district of Vehari, slightly higher than the lean season. Bahawalnagar has the same sales as during the lean season at 1,000 liters per day. An additional district sales are made in the district of Pakpattan of 1,500 liters per day with none during the lean season. The district of Faisalabad also has the same sales as during the lean season at 900 liters per day.

Finally the ‘others’ sales are more than twice as much during the flush season at 550 liters.

Lean season

The table below illustrates the quantity of milk supplied daily by collection centers to different outlets which include distributors, retailers, processors, and others across all districts. No intermediaries are involved.

Total sale quantity Districts Distributors Retailers Processors Others Bahaw alnagar - 1,000 1,000 Faislabad - - - - Jhang - - 900 - Kasur - - - - Khanew al - - - - Lahore - - - - Okara 3,100 14,000 10,650 - Pakpattan - 4,000 - - Sahiw al - - - 250 Vehari - 3,000 2,850 -

The only district where milk is being sold to distributors through collection centers is Okara with 3,100 liters per day.

The highest quantity is being sold to retailers with 22,000 liters of milk sales. The highest sales are in the district of Okara at 14,000 liters of milk per day. This is followed by the 4,000 liters of milk sales in the district of Pakpattan. Vehari has a slightly lower sales per day at 3,000 liters. The lowest quantity of sale are in the district of Bahawalnagar at 1,000 liters.

The second largest quantity is being sold to processors with 15400 liters of milk sales. The highest sales are again in the district of Okara with 10650 liters per day. This is followed by Vehari with sales of 2,850 liters per day. The lowest sales are in the district of Bahawalnagar and Faisalabad with 1000 and 900 liters per day.

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The lowest quantity of milk being sold is for the ‘others; category which includes households and other collection centers. There are only 250 liters of milk being sold in the lean season.

Price analysis Price of milk sold by the collection center vary in flush and lean season. These variations explained as follows:

Flush season

The table below illustrates the price per liter charged by collection centers throughout the districts.

Average sale prices Districts Distributors Retailers Processors Others Bahaw alnagar - 70 70 - Faislabad - - - - Jhang - - 51 - Kasur - 70 - - Khanew al - - - - Lahore - - - - Okara 50 52 52 - Pakpattan - 56 60 - Sahiw al - - - 60 Vehari - 49 51 -

There are limited number of collection centers selling to distributors during the flush season with the only sales in the district of Okara at a rate of PKR 50 per liter.

The average price per liter for the retailers is PKR 59 per liter. Collection centers in the district of Kasur sell milk at PKK 70 per liter. The lowest price per liter is in the district of Vehari at PKR 49 per liter, a drop of 2 PKR from the lean season. The collection centers in the district of Pakpattan are selling milk at the same price to retailers as the lean season at PKR. 56 per liter and the collection centers in the district of Okara are selling milk at a slightly lower price of PKR. 52 per liter.

The average price per liter for distributors is PKR. 57 per liter. There is also an additional collection center in the district of Pakpattan selling milk at PKR 60 per liter. The highest price per liter is in the district of Bahawalnagar at PKR 70. The lowest price is in the district of Jhang and Vehari at PKR 51 per liter each. The price in the district of Okara is below the average price at PKR 52 per liter.

The others categories also have sales at a single district in Sahiwal which is the same price as during the lean season due to annual contract between the collection center and buyer.

Lean season

The table below illustrates the average sales prices the collection centers charge to distributors, retailers, processors, and others. 103

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

Average sale prices Districts Distributors Retailers Processors Others Bahaw alnagar - 75 70 - Faislabad - - - - Jhang - - 52 - Kasur - - - - Khanew al - - - - Lahore - - - - Okara 60 56 58 - Pakpattan - 56 - - Sahiw al - - - 65 Vehari - 51 53 -

It is not very common for collection centers to sell to distributors. The only district where a sale was made to a distributor was in Okara for whom the average selling price was PKR 60 per liter.

There were relatively more districts with sale to retailers from collection centers. The average selling price per liter is PKR 60 per liter. This mainly due to the higher than average price of milk in Bahawalnagar at PKR 75 per liter. The district which saw the greatest increase in price is Bahawalnagar of PKR 5 per liters to PKR 75 per liter. The other districts of Okara, Pakpattan, and Vehari have slightly lower than average sales prices at PKR 56, and PKR 51 respectively.

There are as many districts selling to processors as there are to retailers. The average selling price per liter is PKR 58 per liter with the highest price per liter in the district of Bahawalnagar. The lowest price per liter has been found in the district of Jhang and the next slightly higher price has been found in the district of Vehari. Okara has the exact average price per liter as the average.

The ‘others’ category includes households and other collection centers. While it is not very common to sell milk in this market, there is a higher than average return at PKR. 65 per liter in the district of Sahiwal.

8.5 PROCESSORS 8.5.1 Milk Pasteurization and UHT As per FAO food outlook for 2016, Pakistan produced 41 billion liters of milk, however, out of total milk production in Pakistan only 6% of total milk is being processed and marketed through formal channels.

In Pakistan milk is processed into following key liquid products:

a. UHT milk

b. UHT tea whiteners

c. Pasteurized milk

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Processed milk - 2012 Pasteurized milk 4%

Tea whiteners 48% UHT milk 48%

Based on 2012 trade data, more than 95% of milk was processed through UHT procedure whereas only 4% was processed through pasteurization procedure. (Please note that reliable data on processed milk trade after 2012 was not available from publicly available sources. Accordingly, the analysis in this section is limited to data till 2012 and may not reflect current trends and market dynamics).

It was analyzed on the basis of review of historic trade trend of processed dairy products in Pakistan that the processed milk industry of Pakistan is gaining business at steady growth rate. A trend analysis of different products of processed milk is provided below:

Pasteurized milk trade trend from 2004 to 2012

45

40

35

30

25

20

litres in litres million 15

10

5

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Pasteurized milk

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

UHT Milk

1000 900 800 700 600 500

litres in litres million 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012

It was further analyzed that the trend of using tea whiteners produced from processing of milk through UHT procedure is increasing whereas trade of UHT milk is at downward trend. The trend analysis is provided below:

UHT milk and whitener trade trend from 2004 to 2012 100% 13 86 90% 191 80% 302 368 465 70% 60%

50% 328 402 440 446 550 40% 448 30% 490 492 462 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012

UHT milk Tea whitener

Milk processing sector of Punjab is mainly controlled by following players: a. Nestle Pakistan; b. Engro Foods Limited; c. Haleeb Foods Limited; d. Premier dairy Pvt. Ltd.; e. Shakarganj food products ltd.; f. Fauji Foods Limited;

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DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN g. Millac Foods Pvt. Ltd.; h. Military Dairy; i. Gourmet; j. Adam’s Dairy; k. Alpha Dairy; l. Prema Dairies; m. JK Dairies; and n. Sharif Dairies.

Detailed breakup of player wise trade of pasteurized milk in 2012 is provided in the below table:

Pasteurized milk trade data - 2012 Major Players Litres (million) Gourmet 16.26 NurPur 5.56 Adams 4.28 Anhaar 3.85 Pr ema 3.42 Day f resh 3.00 Doce 2.14 Milac 2.14 Others 2.14 Total 42.8

Detailed brand wise breakup of trade of UHT milk in 2012 is provided in the below table:

UHT milk trade data - 2012 Major brands Litres (million) Milkpak 244 Haleeb 34 Olpers 146 NurPur 15 Other milk 23 Total 462

Detailed brand wise breakup of trade of UHT tea whiteners in 2012 is provided in the below table:

UHT milk tea w hiteners trade data - 2012 Major brands Litres (million) Tarang 262 Teamax 118 Chaika 32 Other liquid dairy 54 Total 465

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Details with respect to milk processing plants, its location, type of product being produced by these players and the operational status of their plant is provided in the below table.

Sr Operational status of plant Type of Name Location products UHT Tea UHT Pasteurized Milk # milk Whiteners Cream milk powder

UHT plane milk 1 Nestle Pakistan Limited Sheikhupura, Punjab UHT Cream   Milk pow ders Kabirw ala, Khanew al, 2 Nestle Pakistan Limited Milk pow ders  Punjab UHT milk 3 Engro Foods Limited Sahiw al, Punjab  Tea Whiteners UHTmilk 4 Haleeb Foods Limited Bhai Pheru, Punjab  Milk pow ders UHT milk 5 Haleeb Foods Limited R.Y. khan, Punjab  Milk pow ders UHT milk 6 Premier dairy Pvt. Ltd. Lahore, Punjab  Milk pow ders Shakarganj Food Products Jaranw ala, Faisalabad, UHT milk 7  Ltd Punjab Milk pow ders UHT milk 8 Noon Pakistan Bhalw al, Sargodha, Punjab  Milk pow ders 9 Millac Foods Pvt. Ltd. Manga, Lahore, Punjab Milk pow ders  10 Military Dairy Okara, Punjab Milk pow der  Pasteurized milk 11 Gourmet Lahore, Punjab  Milk Pow der 12 Adam’s Dairy Sahiw al, Punjab UHT milk  UHTmilk 13 Alpha Dairy Jhang, Punjab  Milk pow ders 14 Prema Dairies Lahore, Punjab Pasteurized milk  15 JK Dairies Rahim Yar Khan, Punjab Pasteurized milk  16 Sharif Dairies Chaniot, Punjab Pasteurized milk 

 Non‐operational/ closed

 Operational

The operational status of the aforesaid mentioned powder plants have been mentioned as per the available public information, however, it has not been physically confirmed at the powder plants. Accordingly it may not be reliable.

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8.5.2 Milk Powder KPMG Taseer Hadi & Co requested the Government of the Punjab’s Livestock and Dairy Development Department for issuance of letters to milk processors for facilitation by processing units. Letters were sent to eight processing units, illustrated in Annexure H. Upon visit of KPMG team out of eight processing units, only one processing unit facilitated the team. The remainder of the processors were reluctant in facilitation of the team. Thereby, the analysis of processors performed in our report is based on partial data provided by a single processing unit.

We understand from our meeting with management of the processing unit that their average milk collection from middlemen in flush season is 65,000 liters/day at an average price of PKR 50/liter, which falls to 35,000 liters/day in lean season due to low milk supply at an appreciated average price of PKR 65/liter. Milk collected from middlemen is processed and reconstituted into butter, ghee and milk powder, which is sold in local markets.

Imported milk powder from USA is used by the processor as raw material in bulk at a cost of PKR 9,000 per 25kg bag which is reconstituted with raw milk after collecting fats and vegetable oil. The purpose of importing dry milk is to reconstitute it into larger quantities through mixing with palm oil, imported from Malaysia, and raw milk after collecting major portion of fats for production of butter and ghee.

Majority proportion of the resultant output is sold in local Industry (Sweets, Confectionary Items, local traders etc.). Milk powder processed is also exported to Bangladesh in bulk. The processing plant has total output capacity of producing 1,000 bags (25 kg/ bag) of milk powder per day, which is currently utilized at a capacity of 750 – 850 bags per day.

Detailed feasibility study is performed on the milk powder plant. The report on feasibility study is annexed to this report. Please refer annexure M for feasibility report.

8.6 KHOYA PRODUCERS These are individuals involved in the production of khoya from milk. During the survey a total of 8 khoya producers were interviewed in Okara district. Khoya is mainly produced in flush season, due to abundant supply of milk and existence of demand for khoya. Two types of khoya producers were identified. Individuals involved in production and sale of khoya. These producers operate mainly in flush season. Other producers produce khoya mainly for use as an input in bakery products such as sweets and other confectionaries. These producers operate throughout the year. In lean season khoya is also used as input in making kulfis and rabri. Khoya producers have been classified into three main categories, which are as follows:

— Small scale;

— Medium scale; or

— Large scale.

The categorization for khoya producers is as follows:

— Small scale khoya producers are those producers whose daily khoya production does not exceed 50 kgs; 109

DRAFT STUDY ON MILK SUPPLY CHAIN IN PUNJAB PROVINCE OF PAKISTAN

— Medium scale khoya producers are those producers whose daily khoya production ranges between 51 to 200 kgs; and

— Large scale khoya producers are those producers whose daily khoya production exceeds 200 kgs.

Small scale Below 50 kgs

Between 51 and Khoya Producers Medium scale 200 kgs

Large scale Above 200 kgs

There are two major components relevant to khoya producers, (a) collection; and (b) sale, explained below:

8.6.1 Collection of milk Milk is collected from producers and/or delivered by distributors. Retailers involved in the production of khoya use these channels for collection. During our survey we were informed that 5 liters of milk is required to produce 1 kg of khoya, therefore large quantities of milk is required for khoya production. The following quality tests are conducted upon collection and/or delivery of milk:

— Lactometer Reading (LR); and

— Solid Not Fat (SNF)

In addition to these tests, traditional method of testing milk is also exercised through making Paneer from a small portion of milk.

The purpose of these tests is to confirm the suitability of milk for production of khoya. Since khoya is obtained from the fat content in milk, khoya producer has to make sure that appropriate quality of milk is obtained.

8.6.2 Sale of khoya Bakeries and sweets shops are the major consumer of khoya produced while households constitute a minimal portion of the consumer market. In flush season, khoya is used by bakeries and sweet shops as input in bakery products. In addition it is also sold as an end product by bakeries.

The situation in lean season is different as khoya produced by bakeries is only used as input to other products due to lack of demand for khoya as an end product during this season.

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9. STATISTICAL ANALYSIS 9.1 Milk Producers

Highlights

Number of producers visited The following table highlights the number of producers visited during the Phase II deployment, and the number has been branched based on the level of production;

Number of farms visited Sm all Medium Large District scale scale scale Bahaw alnagar 22 6 - Faisalabad 3 15 21 Jhang 17 26 7 Kasur 11 15 5 Khanew al 10 10 2 Lahore 1 4 10 Okara 26 22 8 Pakpattan 10 7 - Sahiw al 8 9 3 Vehari 12 5 3 Total 120 119 59 Farm ownership The following pie chart signifies the bifurcation of farms as per their ownership status;

Farm ownership

Rented 15%

Owned 85%

85 percent of the farms visited during the survey were owned by the producers themselves, while 15 percent of the farms visited were located on rented property.

The following table shows a further breakup of the above classification based on the three tiers of production;

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Farm Ownership

Sm all Scale Medium Scale Large Scale Dis tr icts Owned Rented Owned Rented Owned Rented Bahaw alnagar 16 5 6 1 - - Faisalabad 1 2 10 5 14 7 Jhang 16 1 25 1 7 - Kasur 10 1 15 - 5 - Khanew al 10 - 7 3 2 - Lahore - 1 4 - 9 1 Okara 20 6 17 5 8 - Pakpattan 10 - 7 - - - Sahiw al 8 - 7 2 3 - Vehari 10 2 4 1 3 -

The table given above shows a total of 298 farms visited were owned out of which, 249 farms were noted as owned farms. Out of 254 owned farms, 101 farms visited were found to be small scale producers, 102 farms as medium scale, and 51 farms visited were large scale farms based on the level of production. Furthermore, a total of 44 rented farms were visited which are further broken up as follows;

— 18 small scale rented farms;

— 18 medium scale rented farms; and

— 8 large scale rented farms.

Average herd size and in milk animals

Breed wise percentage of total animals

Breed wise percentage of total animals

80% 70% 60% 50% 40% 30% 20% Percentage 10% 0% Nili Ravi Nili Ravi Nili Ravi Sahiwali Sahiwali Sahiwali Imported Imported Imported Cross Breed Cross Breed Cross Breed Small scale producer Medium scale producer Large scale producer

The pictorial representation above showcases the breed wise distribution of the four type of breeds utilized for this study. As shown, the districts covered unanimously show preference of buffaloes in their respective herds, due to their abundant availability and the suitable adherence to the climate. However, for the small and medium scale producers, the price

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effect is also important, as imported and cross breed animals are relatively expensive than the local breed.

More than 70 percent of small scale producers, around 58 percent of medium scale producers, and around 38 percent of large scale producers prefer buffaloes over local and imported cows. Further, it is the overall view that buffalo milk is more enriched than cow milk, therefore, a demand from users generates the need for milking buffaloes at the dairy farm.

Sahiwali and cross breed animals are the other favorable dairy sources for producer in the districts visited. 25 percent of the medium scale and 22 percent small scale producers preferred Sahiwali cows, while 18 percent of large scale producers preferred cross breed cows.

In regards to imported cows, 3 percent of medium scale and 8 percent of large scale producers prefer it over other breeds, while only 1 percent small scale producers consisted imported cows in their herds.

Average herd size

Average herd size

Faisalabad Lahore Okara Vehari Sahiwal Pakpattan Khanewal Kasur Jhang Balawalnagar

- 50 100 150 200

Small scale Medium scale Large scale

On average, a small scale producer in the districts visited has a total of six animals in the herd of which 43 percent animals on average are in-milk. The average herd size for a medium scale farm consists of 17 animals with 42 percent of animals bearing the potential to produce milk. Lastly, the average herd size for large scale producers visited is 57 animals with an average of 38 percent in-milk animals.

The graph below shows the district wise trend of in-milk animal ratio to the average herd size bifurcated based on the three tiers of production levels. The bar graphs illustrates the average herd size, while the line graph shows the in-milk animal ratio.

The highest average herd size for a small scale producer was observed in Pakpattan at 8 animals per herd, however, 37 percent of those animals are in-milk. The highest in-milk ratio is recorded in Lahore, however, the average herd size is only 16. It has been analyzed that animal purchase price affects the animal herd size; as prices are significantly high in Lahore as given in the section, “Animal purchase price”.

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The highest average herd size for medium scale producers was observed in Pakpattan and Sahiwal with 22 animals, however, it must be signified that regardless of the high number, the in-milk ratio is the least among all medium scale producers in other districts.

Likewise, a similar analysis of the large scale producers, and it suggests that Kasur district has the highest average herd size at 115 animals, but the in-milk ratio is highest for Lahore at 62 percent. It is worth mentioning that Sahiwal has one of the lowest average herd size for large scale producers.

Average herd size vs in milk animals

180 120% 160 100% 140 Percentage 120 80% 100 60% 80

Number of animalsNumber 60 40% 40 20% 20 - 0%

Small scale Medium scale Large scale

Average herd size Average herd size Average herd size In milk percentage In milk percentage In milk percentage

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In-milk animals in total herd

The graph above displays the percentage of in-milk animals in total herd which varies from 20 percent to 100 percent. The leading percentage is in small scale Lahore i.e.100percent, which surpasses all the other percentages due to presence of more in milk animals in Lahore. Furthermore, the medium and large scale in Lahore is also the second highest percentage.

In-milk animals in female herd

Percentage of in-milk animals in female herd

120%

100%

80%

60%

Percentage 40%

20%

0%

Small Medium Large

The graph mentioned above shows the percentage of in-milk animals in female herd i.e. excluding the male animals present in the total herd, which varies among districts and scales from 30 percent to 100 percent. The leading percentage is in small scale Lahore i.e.100 percent, which surpasses all the other percentages due to presence of more in-milk animals in female herd in Lahore .Furthermore, in-milk herd size in medium scale producers are highest in Sahiwal and Lahore.

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In-milk animals in adult female herd

Percentage of in-milk animal in adult female herd

120% 100% 80% 60% 40%

Percentage 20% 0%

Small Medium Large

The image above displays the percentage of in-milk animals in adult female herd i.e. excluding the male animals as well as the female calf present in the total herd, which varies among districts and scales from 40percent to 100percent .The leading percentage is in small scale Lahore i.e.100percent, which surpasses all the other percentages due to presence of more in-milk animals in adult female herd in Lahore

Further, the medium scale of Sahiwal is also the second highest percentage in the graph above, followed by large scale producer in Lahore and along with medium scale producer in Khanewal

The lowest in-milk animals in adult female herd among all the scales and districts is in Bahawalnagar at 42percent in medium scale

The lowest in-milk animals in adult female herd of small scale producers is in Okara.

Breed wise percentage of milk yield in total herd yield Flush season Following tables illustrate the breed wise milk yield in flush season in given sample:

Breed wise percentage of milk production - Flush Small scale Medium scale Large scale Districts Nili Ravi Sahiwali Imported Cross breed Nili Ravi Sahiwali Imported Cross breed Nili Ravi Sahiwali Imported Cross breed Balawalnagar 68% 10% 2% 20% 51% 30% 6% 13% 0% 0% 0% 0% Faisalabad 84% 16% 0% 0% 68% 26% 5% 0% 66% 29% 0% 4% Jhang 68% 21% 8% 3% 59% 26% 0% 15% 22% 9% 0% 69% Kasur 51% 36% 0% 13% 49% 51% 0% 0% 14% 4% 72% 10% Khanewal 90% 10% 0% 0% 64% 21% 0% 15% 63% 37% 0% 0% Okara 67% 21% 0% 13% 74% 19% 0% 8% 22% 10% 33% 35% Pakpattan 90% 10% 0% 0% 79% 12% 0% 9% 0% 0% 0% 0% Sahiwal 45% 20% 18% 16% 68% 12% 12% 8% 84% 14% 0% 2% Vehari 58% 35% 0% 7% 8% 13% 0% 80% 28% 10% 10% 51% Lahore 100% 0% 0% 0% 75% 12% 13% 0% 55% 36% 2% 8%

Following major details of milk production in flush season are highlighted below as per statistics of the survey conducted:

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— Majority of the daily milk yield in each districts at every scale is by Nili Ravi buffaloes. This may be due to the fact that Nili Ravi is most common breed in most of the districts. — In Bahawalnagar majority yield of milk is from Nili Ravi i.e. 68 percent in small scale producers and 51 percent in large scale producers. — As per data under consideration small scale producers in Lahore get 100 percent of herd daily yield from Nili Ravi. — In case of large scale farmers Nili Ravi contributes about 66percent and 94 percent of total herd yield in Faisalabad and Sahiwal respectively. — As per selected sample 72 percent of producers in Kasur and about 33 percent producers in Okara depends on imported cow for daily herd milk production. Lean season Following tables illustrate the breed wise milk yield in lean season in given sample:

Breed wise percentage of milk production - Lean Small scale Medium scale Large scale Districts Nili Ravi Sahiwali Imported Cross breed Nili Ravi Sahiwali Imported Cross breed Nili Ravi Sahiwali Imported Cross breed Balawalnagar 70% 10% 2% 18% 49% 31% 6% 14% 0% 0% 0% 0% Faisalabad 83% 17% 0% 0% 69% 26% 5% 0% 67% 30% 0% 3% Jhang 69% 20% 7% 3% 59% 26% 0% 15% 24% 11% 0% 65% Kasur 52% 40% 0% 8% 46% 54% 0% 0% 17% 5% 66% 12% Khanewal 88% 12% 0% 0% 64% 23% 0% 13% 63% 37% 0% 0% Okara 64% 24% 0% 12% 75% 18% 0% 7% 19% 9% 38% 34% Pakpattan 88% 12% 0% 0% 75% 15% 0% 10% 0% 0% 0% 0% Sahiwal 47% 22% 17% 14% 68% 13% 12% 7% 84% 12% 0% 4% Vehari 55% 37% 0% 8% 8% 10% 0% 82% 28% 10% 10% 53% Lahore 100% 0% 0% 0% 73% 12% 15% 0% 55% 37% 1% 7%

Following major details of milk production in lean season are highlighted below as per statistics of the survey conducted:

— Majority production in all districts at every scale is by Nili Ravi buffalo. — In Bahawalnagar major yield of milk is from Nili Ravi in both small and medium scale producers. In Bahawalnagar milk yield from Nili Ravi in small scale producer is about 70percent whereas it reduces to 49percent in medium scale producers. — At small scale level Lahore has highest yield of Nili Ravi i.e. almost 100percent. — Total milk yield of Sahiwali cow in medium scale producer is seen highest in Kasur i.e. 54percent. — Large scale producers of Jhang get highest yield of 65percent from Cross breed whereas large scale producers in Kasur get highest milking yield of 66percent from imported breed among all the districts. — No Imported breed at any scale was seen in Khanewal and Pakpattan.

Feed consumption and prices Statistical analysis mentioned below explains feed consumption, prices and its impact on milk prices in different seasons. According to the survey conducted it is observed that feed availability and prices vary from district to district. As per our observation these variations are mainly due to the seasonal variations, environmental conditions and availability of resources.

The following table shows district wise consumption of different type of feeds:

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Illustration 1: District wise feed consumption Bar s e e m / Districts Silage Wunda Tukra Khal Chokar Toori Jaw ar Bahaw alnagar 0% 100% 10% 10% 76% 17% 76% Faisalabad 0% 100% 66% 8% 26% 37% 63% Jhang 4% 96% 28% 6% 62% 50% 46% Kasur 3% 97% 39% 26% 32% 23% 65% Khanew al 5% 95% 14% 27% 59% 50% 23% Lahore 7% 100% 33% 73% 53% 33% 73% Okara 18% 63% 54% 20% 0% 0% 0% Pakpattan 0% 100% 41% 12% 35% 53% 59% Sahiw al 0% 100% 65% 53% 47% 65% 82%

Vehari 5% 95% 65% 5% 30% 10% 45%

Following table shows the district wise average feed prices:

Illustration 2: Average feed prices (PKR) Bar s e e m / Districts Sailage Wunda Tukra Khal Chokar Toori Jaw ar

Bahaw alnagar - 4 34 37 47 28 7 Faisalabad - 5 35 31 49 23 11 Jhang 9 4 39 27 47 34 9 Kasur 6 4 38 33 46 28 10 Khanew al 2 6 32 33 39 21 9 Lahore 7 5 32 26 46 23 11 Okara 7 5 34 30 - - - Pakpatan - 1 52 28 47 28 7 Sahiw al - 3 41 30 48 27 9 Vehari 4 6 36 33 49 21 9

Illustration 1 shows the percentage of district wise consumption of different types of feed given to dairy animals covered in our sample whereas Illustration 2 shows district wise average feed prices.

As mentioned in illustration 1 Barseem/Jawar is fed by most commonly by most producers as it is easily accessible in all areas and is the cheapest source of feed.

Wunda comprises of different ingredients depending on the area and the milking and age of the animal. According to the illustration 1 about 65 percent to 66 percent of the producers in Faisalabad, Sahiwal and Vehari used Wunda however only 10percent to 14 percent of the producers in Bahawalnagar and Khanewal used Wunda. According to the discussions conducted during the survey the variations in usage of Wunda is mainly due to the availability, affordability and variation in the rates as shown in illustration 2. The highest prices of Wunda are observed in district Pakpattan, Sahiwal and Jhang as PKR 52, PKR 41, and PKR 36 respectively.

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As per the sample, Tukra is mostly used in the districts of Lahore and Sahiwal, i.e. about 73 percent and 53 percent, due to its availability at the lowest rate of PKR 26 and PKR 28 as shown in illustration 2. However, the usage in Bahawalnagar and Vehari is low at 10percent and 5 percent respectively due to its availability at expensive rates of PKR 37 and PKR 33 in these districts.

As per illustration 1 about 76 percent of producers used Khal in Bahawalnagar due to its availability and due to the farmers preferring it as a substitute for wunda which is why they are ready to pay a high price of PKR 47 per kg. Only 26 percent of producers in Faisalabad used Khal due to its availability at highest rate of PKR 49 as illustrated in table 2.

According to data available in illustration 1 only 10 percent and 17 percent of the producers in Vehari and Bahawalnagar respectively used Chokar as feed content. This is mainly due to usage of Wunda in Vehari which is assumed as substitute of Chokar and Tukra. Higher usage of Chokar by the farmer’s districts like Jhang is mainly due to comparatively lower usage of Wunda.

Usage of different type of feed

Usage of Barseem/Jawar: Graph: 1

Producers using only Barseem/Jawar as food source 35%

30%

25%

20%

15% Percentage 10%

5%

0%

As illustrated in bar graph above in some districts such as Vehari, Pakpatan and Sahiwal about 20 percent to 30 percent of Producers used Barseem/Jawar as only source of food. Therefore it is observed that average milk yield in these districts are less as compared to other districts as the feed composition needs to be wholesome talking into account the nutritional requirements as per the age, size, and cycle of the milking animal.

Furthermore, Barseem grown in flush season is more nutritious and available in excess as compared to Jawar, which is grown during the lean season. This is due to Barseem allowing a higher number of cuttings whereas Jawar and Makai which can be harvested only one in a year thus it is not enough to fulfill the feed demand in lean season hence the production in flush season is relatively higher.

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Usage of silage: The following bar graph shows the district wise producers using silage as a source of feed:

Graph: 2

Producers using silage

20% 18% 16% 14% 12% 10% 8%

Percentage 6% 4% 2% 0%

It is observed that silage is most nutritious feed used to enhance milking of an animal. However lot of resources are needed for the preparation of silage.

As illustrated in graph above, producers in Vehari, Lahore, Kasur, Khanewal, and Jhang used silage as animal feed. About 18percent of producers used silage in Okara whereas this percentage reduces to 10percent and 7percent in Lahore and Vehari For this reason average milking per animal is more in these districts as compared to other districts of Bahawalnagar, Sahiwal and Pakpattan.

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Usage of Wunda/Chokar/Khal Graph: 3 Producers not using Wunda/Khal/Chokar

50% 45% 40% 35% 30% 25% 20%

Percentages 15% 10% 5% 0%

The illustration above shows the percentage of producers not using Wunda/Khal/Tukra in feed combinations due to the unavailability of resources for purchase and preparation of Wunda. Wunda is key in increasing milk production of milking animals. As per graph mentioned above about 18 percent to 29 percent of producers are not using Wunda in Khanewal, Vehari, Kasur and Pakpattan districts. Due to unavailability of Wunda/Khal/Chokar average milk yield per animal reduced.

Variation in milk production is mainly due to the variation in feed combination discussed in Graph 1, Graph2 and Graph 3.

Another reason for variation in milk production is due to the variation in average age of animal and lactation period.

Breed wise average purchase price of female animals at an average age of 3 years The illustration given below showcases the breed wise average price of animals which are at an average age of three years. The four breeds under focus are Nili Ravi, Sahiwali, imported breeds e.g. Holstein Friesian and Jersey, and cross breeds like Sahiwali-Friesian and/or Sahiwali-Jersey.

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Breed wise average purchase price of female animal at an average age of 3 years

300,000

250,000

200,000

PKR 150,000

100,000

50,000

-

Nili Ravi Sahiwali Imported Cross Breed

It was observed that the highest prices were observed in Lahore district, for the imported breed averaging at PKR 275,000. The imported breed averagely ranges between PKR 110,000 to PKR 275,000 among the districts visited, generally higher in price in the urban districts of Lahore, Kasur and Faisalabad. In all districts where the imported breed are found, it carries a higher price in comparison to the other breeds, however, an exception was identified in Bahawalnagar district, where the buffaloes priced PKR 15,000 higher than the imported and cross breeds. It can be due to the relatively difficult conditions in Bahawalnagar due to the harsh climatic conditions and limited water availability, therefore, the producers prefer buffaloes for that matter which are more adaptable to the climate.

The Nili Ravi buffaloes were found to be the most common breed found in all districts, as shown in the diagram above. An average price range of PKR 75,500 to PKR 153,000; the lowest price per animal being in Pakpattan, and the highest price in Lahore.

The Sahiwali breed was also found commonly in all districts except for Khanewal. The average price ranges between PKR 54,000 and PKR 170,000, this large variation, apart from the rural urban disproportion, can be due to the reason that, the higher priced animal might be a milking animal at an average age of three years.

Lastly, the cross breed, a common animal in the herd as it has the perquisites of local and imported, both breeds. The milking capabilities of the imported cow, and the climatic adaptability of the local cow breed. The average price range for a cross breed animal approximately three years of age is between PKR 80,000 and PKR 260,000. The higher rates can be observed in the urban areas, as well as in Jhang and Khanewal. This is due to the higher demand of cross breeds in these districts due to their suitability and subsequent profitability for the producers.

Seasonal impact on production and sale: Following graph shows percentage increase in production in flush season as compare to lean season:

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Percentage increase in sales in flush season

20% 18% 16% 14% 12% 10% 8% Percentage 6% 4% 2% 0% Small Medium Large Increase in production

Above graph shows the percentage increase in production in flush season in comparison with lean season. As per survey conducted production of small scale producers increases by 16percent in flush season as compare to lean season. However this increase is 15percent and 19percent in medium and large scale producers respectively. This increase in sales in flush season is mainly due to increase in production of milk.

Seasonal impact on sale of milk Following bar chart illustrates seasonal impact on sales as percentage of production:

Sales as percentage of production

96% 94% 92% 90% 88% 86%

Percentage 84% 82% 80% 78% 76% 74% Small Medium Large

Flush Lean

Graph mentioned above show seasonal percentage of sales in comparison with production in following pattern:

— In case of small scale producer sales percentage is 94percent of production in flush season which reduces to 91percent in lean season.

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— In case of medium scale producer sales percentage is 83percent of production in flush season which reduces to 82percent in lean season. — In case of large scale producer sales percentage is 94percent of production in flush season which reduces to 91percent in lean season. — Decrease in sales percentage in lean season is due to reduction in production in lean season as compare to flush season.

Cash vs credit The Venn diagram below showcases the mode of sale opted by producers for their respective sales;

Mode of sale (cash vs credit)

Cash Credit 71 35 188

As shown, 71 producers opted specifically for cash sales, while a larger share of producers i.e. 188 producers had to settle with credit sales. The following credit period instances were identified;

— One day credit, payment made to the producer on the next day of sale;

— Weekly settlement;

— Fortnightly settlement;

— Monthly settlement; and

— Settlement from within the advance paid by the dodhis.

Furthermore, 35 producers were identified who opted for credit as well as cash sales. This can be due to the fact that the producer has long term customers, as well as, daily cash sales i.e. households where monthly settlements are made, and of the counter sales to locals accounting for cash sales.

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Breed wise segregation with yield per day Flush season The following table highlights the number of milking animals recorded as per their milking yields in all the districts visited. The animals are collectively represented, regardless of their district of origin, based on their milking yields per day.

Breed wise per day yield analysis - Flush Per day yield Nili Ravi Sahiwali Imported Cross breed FM 4.0 24 20 - 1 5.0 24 3 - 5 6.0 187 43 2 7 7.0 130 42 - - 8.0 471 123 5 13 9.0 35 59 2 14 10.0 831 377 14 91 11.0 10 10 - - 12.0 91 63 40 24 14.0 33 9 - 17 15.0 4 - 6 14 16.0 - 6 1 32 20.0 3 - 220 123 24.0 - - - 15 26.0 - - - 12

The Nili Ravi’s lowest yield is 4 liters per day, and 24 animals showed such daily yield, while the highest productivity amounts 20 liters per day, recorded by 3 animals in the phase II districts. The highest recurrence of daily yield is 10 liters of milk, by 831 animals, which also represents the median of this statistical information.

The Sahiwal breed’s lowest daily yield also amounts to 4 liters per day, by 20 animals, however its highest daily yield is lower, at 16 liters, by recorded by 6 animals all over. Also, Sahiwal breed’s highest recurrence of daily yield is 10 liters, by 377 animals, which is also the median.

The lowest yield is 6 liters for only 2 animals and the highest yield is 20 liters by 220 animals for the imported breed. This highest recurring daily yield is also 20 liters which is also represents the median.

The cross breed’s lowest yield is 4 liters per day by only a single animal and the highest yield per day being 26 liters, by 12 animals. The most recurring daily yield is 20 liters by 123 animals with the median being 15 liters of milk per day.

The highest daily yield is that of cross breed of 26 liters per day. The next highest yield of 20 liters a day is that of the Imported and Nili Ravi. While, only 3 Nili Ravi can provide 20 liters of milk a day, 220 of the imported breed can. The imported cow also has the highest minimum yield with only 2 animals providing 6 liters.

Lean season The table below illustrates the daily yield of all breeds across all districts during the lean season. These animals are milked twice a day

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Breed wise per day yield analysis - Lean Per day yield Nili Ravi Sahiwali Imported Cross breed FM 2.0 23 8.0 - - 4.0 111 21.0 - 9.0 5.0 118 12.0 - 1.0 6.0 350 166.0 2.0 9.0 7.0 73 42.0 1.0 2.0 8.0 465 169.0 37.0 98.0 9.0 195 70.0 - 4.0 10.0 396 203.0 14.0 23.0 11.0 34 13.0 - - 12.0 18 35.0 161.0 32.0 14.0 27 7.0 - 50.0 15.0 - - 5.0 24.0 16.0 12 3.0 - 85.0 18.0 - - - 12.0 20.0 - 2.0 70.0 15.0 24.0 - - - 1.0 26.0 - - - -

The Nili Ravi’s lowest yield is 2 liter a day recorded by 23 milking animals and the highest yield is 16 liters per day recorded by 12 animals. The highest frequency recurring of daily yields is 8 liters by 465 animals, while the median for this statistical information is 8 liters per day.

On the other hand, the highest daily yield by the Sahiwal breed is much higher at 20 liters recorded by 2 animals, and the lowest daily yield is 2 liters by 8 animals recorded in the districts visited. The most recurring yield is 10 liters per day for 203 animal and the median is the 8 liters, the same as the Nili Ravi buffaloes.

The imported breed has a significantly higher minimum daily yield at 6 liters per day by 2 animals and the highest daily yield is 20 liters for 70 animals. The most recurring daily yield is 12 liters by 161 animals with the median yield being 14 liters.

The cross breeds’ lowest yield is 4 liters by 9 animals and the highest yield is 24 liters by a single animal. The most recurring yield is 8 liters, by 98 animals, followed by 16 liters by 85 animals. The median is 14 liters.

The highest yield during the lean season across all breeds is the cross breed which has been able to yield 24 liters albeit by a single animal. The second highest yield is that of 20 liters per day, which has been achieved by the Sahiwal breed, imported cows, and cross breed cows, whereas, the imported cows have the highest frequency of animals yielding the said quantity of milk i.e. 70 animals. The highest minimum yield is also by the imported breed of 6 liters with only 2 animals yielding as much.

Furthermore, this analysis does not show a collective data of individual animal yields and is based majorly on average yields as recorded by the producers’ surveyed.

Classification of animals based on their yield The following section elaborates the data collected on the number of milking animals recorded during the producer surveys’. The table below shows the number of milking animals of each

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breed bifurcated into the three tiers of milk production, and the same has been illustrated in the graph.

Production scale wise break up of milking animals

Nili Ravi Sahiw ali Imported Cross breed

Large 1,115 494 263 276 Medium 527 201 22 70 Small 201 60 5 22 Total 1,843 755 290 368

Production scale wise breakup of milking animals

1,200

1,000

800

600

400 Number of animals

200

- Large Medium Small

Nili Ravi Sahiwali Imported Cross breed

The following tables give in detail the number of milking animals consisted in the herds present at the farms visited disjointed based on the daily milk yield, season wise;

Classification of animal count based on yield - flush season

Daily milk Sm all Medium Large yield Cross Cross Cross (liters) Nili Ravi Sahiw al Imported Nili Ravi Sahiw al Imported Nili Ravi Sahiw al Imported Br e e d Br e e d Br e e d 2------416 15 - 1 8 5 ------524 3 - 2 - - - 3 - - - - 656 18 1 3 88 16 1 4 43 9 - - 78 - - - 6 8 - - 116 34 - - 856 14 - 8 180 68 5 5 235 41 - - 9- - 2 - 16 13 - 4 19 46 - 10 10 36 8 - 6 168 46 9 15 627 323 5 70 11 - - - - 10 10 ------12 5 - 1 - 31 28 7 9 55 35 32 15 14 - 1 - - 13 4 - 17 20 4 - - 15 - - - 2 4 - - - - - 6 12 16 - 1 1 - - 3 - 10 - 2 - 22 20 - - - - 3 - - - - - 220 123 24 ------3 - - - 12 26 ------12 Total 201 60 5 22 527 201 22 70 1,115 494 263 276

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Classification of animal count based on yield - lean season

Daily milk Sm all Medium Large yield Cross Cross Cross (liters) Nili Ravi Sahiw al Imported Nili Ravi Sahiw al Imported Nili Ravi Sahiw al Imported Br e e d Br e e d Br e e d 215 3 - - 8 5 - 3 15 - - - 436 11 - 5 60 10 - 4 81 - - - 510 3 - 1 27 9 - - 150 85 - - 679 24 1 7 121 57 1 2 67 34 1 - 71 2 - 2 5 6 - - 302 114 28 84 840 11 - 3 123 44 9 11 182 66 - - 9- - - - 34 4 - 4 270 167 6 10 10 12 5 3 4 114 31 5 9 21 4 - - 11 2 - - - 11 9 - - - 22 153 - 12 6 1 1 - 12 16 7 32 27 2 - 48 14 - - - - - 5 - 2 - - - - 15 ------85 16 - - - - 12 3 - - - - - 12 20 - - - - - 2 - 3 - - 70 12 24 ------1 26 ------Total 201 60 5 22 527 201 22 70 1,115 494 258 252

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9.2 Milk distributors (Dodhis’)

Highlights

Storages, refrigeration and POL

Number of storages Districts Small Medium Large Bahaw alnagar 1 1 - Faislabad 3 - - Jhang - - - Kasur 5 3 - Khanew al 1 - - Lahore 1 2 4 Okara 1 1 - Pakpattan - - - Sahiw al - - - Vehari 1 1 -

The most common trend amongst dodhis is they tend to sell off all the milk they purchase in the morning as fresh milk has a very limited shelf life at room temperature so it needs to be cooled to avoid spoilage. The largest risk a distributor has is that of the milk spoiling and one of the main ways this could happen is when the distributors do not have access to chilling equipment.

Many of the small scale distributors who refrigerate milk use a basic refrigerator. The highest number of small scale distributors who refrigerate milk is in the Kasur District with 5 distributors. Next highest number of chilling equipment is in Faisalabad with 3 distributors which is followed by 5 reported instances of single refrigeration equipment in 5 districts.

The medium scale distributors in most instances use a chiller to cool the milk as a regular refrigerator cannot accommodate the higher quantities of milk. Half of the medium sized distributors do have access to chilling equipment and in the districts where access is present, it is present in very limited equipment with 3 out of the 5, medium scale distributors having only 1 per district with the remaining districts of Kasur and Lahore having 3 and 2 chillers respectively.

The only large scale distributor with chilling equipment is in Lahore with 4 units of storage in the whole district.

Storage and refrigeration charges (PKR) Districts Small Medium Large Bahaw alnagar 4,500 1,700 - Faislabad 3,667 - - Jhang - - - Kasur 1,100 3,167 - Khanew al 1,000 - - Lahore 7,000 7,500 6,250 Okara 2,000 8,000 - Pakpattan - - - Sahiw al - - - Vehari 7,000 3,000 - 129

The storage costs include all expenses for chilling milk in order to prolong its life from the use of refrigeration to the use of chillers. The sample includes all running costs incurred by distributors for the refrigeration including electricity costs and the maintenance costs of the chilling equipment.

The chilling costs are high on average for small distributors at PKR 3,752 per month. This is due to the use of older, inefficient refrigeration equipment. The highest cost for storage and refrigeration are in the district of Vehari and Lahore with an annual charge of PKR 7,000 per month each. The next largest cost incurred is in the Bahawalnagar district with a PKR 4,500 monthly expense. The lowest charge incurred is in the district of Khanewal of PKR 1,000.

The chilling costs are on average for medium sized distributors at PKR 4,673 due to more sophisticated equipment being used which can accommodate higher quantities of milk. The most costly storage is in the district of Okara with monthly charges of PKR 8,000. In all instances the chilling equipment is on throughout the day so charges tend to be higher. This next largest cost is in the district of Lahore at PKR 7,500. The lowest cost is in the district of Bahawalnagar at PKR 1,700. Half the districts in the medium sized distributors segment do not have any chilling equipment for medium scale distributors.

There is only a single large scale distributor in the district of Lahore which operates at a monthly cost of PKR 6,250.

POL cost (PKR) Districts Small Medium Large Bahaw alnagar 9,000 6,875 - Faislabad 4,900 10,833 - Jhang 6,160 8,600 - Kasur 4,625 7,000 - Khanew al 4,500 4,950 - Lahore 5,500 16,950 34,250 Okara 3,600 5,833 12,000 Pakpattan 4,000 1,557 - Sahiw al 2,500 4,700 - Vehari 6,750 3,900 -

The POL costs include all the running expenses of petrol, oil, and lubricant. These vary based on the type and age of transportation equipment being used. This was the most recurring cost of all milk distributors. Smaller transportation equipment such as motor bikes have lower costs based on the age of the equipment while larger refrigerated milk trucks have higher costs.

The highest average monthly costs by small scale distributors were reported in Bahawalnagar at PKR 9,000. The lowest reported costs were in the district of Sahiwal. The average costs were relatively lower at PKR 5,154 due to most of the distributors using bikes which are not very costly to operate.

The highest average monthly cost by medium scale distributors were reported in Lahore and Faisalabad at PKR 16,950 and PKR 10,833 respectively. This is due to Lahore and Faisalabad being an urban area where general costs of maintenance is higher. Also, the producers are not situated within the city of Lahore and Faisalabad so the milk has to be transported to the base of operations from beyond the city at a cost to the distributor. The lowest monthly cost is PKR 1,557 in the district of Pakpattan where more bikes are used for 130

transportation of milk and few trucks. The average monthly cost is PKR 7,120 per month which is also attributable to the use of certain refrigerated trucks towards the higher end of the medium threshold criteria.

There are only 2 districts within our sample of reported costs of large scale distributors of Lahore and Okara with reported monthly average costs of PKR 34,250 and 12,000 respectively. The average POL cost is PKR 23,125 which is mainly due to the higher costs of operating fleets of trucks for transporting milk.

Total cost of distributors (PKR) Districts Small Medium Large Bahaw alnagar 7,667 10,078 - Faislabad 9,050 11,667 - Jhang 6,293 10,700 - Kasur 9,475 32,560 - Khanew al 6,417 5,700 - Lahore 17,000 28,725 82,250 Okara 5,000 10,500 19,000 Pakpattan 10,000 7,200 - Sahiw al 2,750 6,200 - Vehari 6,833 6,800 -

The total costs include costs for storage/refrigeration, labor, transportation, POL, and other costs which include cell phone, water, gas, and electricity costs which pertain to the business. The highest costs incurred across all small scale districts was in Lahore at PKR 17,000. This is primarily due to the high costs of living in the urban area. The lowest reported costs of small scale distributors was in the Sahiwal district at PKR 2,750. The total average cost was PKR 8,049.

The highest costs incurred by the medium scale distributers was in the district of Kasur at PKR 32,056. The lowest cost was incurred in the Khanewal district at PKR 5,700. The average cost is PKR 13,013. The higher cost can be attributed to the higher cost of the larger scale of operations

There were only two reported districts with large scale distributers of Lahore and Okara with PKR 82,250 and PKR 19,000 respectively. The higher costs are again due to the larger scale of operations.

Mode of Payment Mode of payment Sm all Medium Large Dis tr icts Daily Weekly Fortnightly Monthly Daily Weekly Fortnightly Monthly Daily Weekly Fortnightly Monthly Bahaw alnagar 1 1 - 1 4 2 - 3 - - - - Faislabad 5 - - 5 3 - - 3 - - - - Jhang 8 2 - 6 3 - - 2 - - - - Kasur - 2 1 6 1 - - 5 - - - - Khanew al 2 - 2 2 2 - - 1 - - - - Lahore 2 - - - 2 - - 2 3 - - 1 Okara 2 1 - 2 - 2 - 3 1 - - - Pakpattan - - - 1 2 3 - 2 - - - - Sahiw al 2 - - 1 - 1 - 4 - - - - Vehari 2 - - 2 1 2 - 2 - - - -

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Mode of payment refers to the duration between the time when the distributor collects the milk and the payment is made. As per our report we have categorized the recipients as producers and ‘others’ with the others including collection centers and other dodhis. In this relationship there is always an agreement which can be either verbal or written where it is decided when payment is to be made. The typical timeline is either daily, weekly, fortnightly, or monthly.

With regards to the small scale distributors most of the payments are made monthly, with 26 distributors paying monthly across all districts, followed by daily, with 24 distributors, then weekly, with 6 distributors, and finally fortnightly, with 3 distributors. Most of the small scale distributors prefer monthly payments as they tend to receive money on a monthly basis as well which is matched against the payments. The daily payments are made in instances where the recipient insists on immediate payments as it reduces their risk.

The medium scale distributors also prefer monthly payments above all other with 27 distributors choosing to do so, followed by daily payments, with 18 distributors choosing to do so, and followed by 10 distributors choosing to pay weekly and no respondents choosing fortnightly payments. The monthly mode of payment is also convenient for medium scale distributors as they too sell milk on credit and receive milk on a monthly basis.

There are very few large scale distributors all of whom are in the Lahore and Okara district. Most of them pay on a daily basis as they purchase milk in very large quantities and it is difficult from a cash flow perspective for them to make each payment which is accumulated over large intervals.

Mode of receipt

Mode of receipt (small scale distributor) Daily Weekly Fortnightly Monthly Dis tr icts Collection Collection Collection Collection Household Retailers Household Retailers Household Retailers Household Re taile r s centre centre centre centre Bahaw alnagar 1 - 1 - - 1 - - - 1 - - Faislabad 3 ------6 1 1 Jhang 11 - 1 ------8 - 1 Kasur - - - 1 1 1 1 - - 6 2 4 Khanew al 2 - - - - - 2 - - 2 - - Lahore ------2 - Okara 2 - - 2 2 1 - - - 1 - - Pakpattan - - - - 1 1 ------Sahiw al - - 1 - 2 - - - - 1 - - Vehari 2 - 1 ------1 1 2

Mode of receipt refers to the time between when the milk is sold and the payment is received. As per our report we have categorized the recipients as the distributor who will be receiving payments from the households, collection centers, and households. In this relationship there is always an agreement which can be either verbal or written where it is decided when payment is to be received. The typical timeline is either daily, weekly, fortnightly, or monthly. Households prefer to make monthly payments with 28 households claiming to do so, followed by daily payments with 21 households choosing to do so, and finally 3 households each choosing to pay weekly and fortnightly. The most households choose to pay monthly as they usually time the payments according to the time when they breadwinner of the house receives their monthly salary. The daily payments were most common in the district of Jhang with 11 households choosing to do so. Most daily payments were made where the distributor insisted on regular payments and where quantities of milk was low.

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The collection centers preferred weekly payments as they tend to have a gap a between the purchase of milk and the eventual sale which is why there are no daily receipts. 6 collection centers preferred weekly payments while 4 preferred monthly payments.

The retailers prefer monthly payments as they tend to have a running milk supply with distributors supplying milk on a regular basis which is further sold to customers. In certain cases milk is essential to the operations of the retailer, where there is a tea shop or any such operations so milk is needed regularly throughout the month. 8 of the 16 retailers preferred monthly payments with 4 retailers preferring daily and weekly payments each.

Mode of receipt (medium scale distributor) Daily Weekly Fortnightly Monthly Dis tr icts Collection Collection Collection Collection Household Retailers Household Retailers Household Retailers Household Re taile r s centre centre centre centre Bahaw alnagar 2 1 1 2 1 1 - - - 3 - - Faislabad - - 1 ------5 - - Jhang 1 - 1 ------1 1 2 Kasur - 1 ------4 1 2 Khanew al 1 1 ------1 - - Lahore 1 - 1 ------2 - 1 Okara - - - - 4 - - - - - 2 - Pakpattan - - - 1 3 - - - - 3 1 - Sahiw al - - - 1 1 1 - - - 2 - 1 Vehari 1 1 2 1 2 2 2 1 3

With regards to the medium scale distributors, most households again preferred to make monthly payments with 23 out of the 34 households opting to make monthly payments. This was followed by daily payments for 6 households and only 5 for weekly payments.

The collection centers again prefer to make weekly payments with 11 collection centers out of 20 making weekly payments with the remaining 6 preferring monthly payments and 3 preferring daily payments

The retailers again prefer to make monthly payments with 9 out of 20 retailers opting for this mode of payment. The remaining 7 prefer daily payments and final 4 choose weekly payments.

Mode of receipt (large scale distributor) Daily Weekly Fortnightly Monthly Dis tr icts Collection Collection Collection Collection Household Retailers Household Retailers Household Retailers Household Re taile r s centre centre centre centre Bahaw alnagar ------Faislabad ------Jhang ------Kasur ------Khanew al ------Lahore 1 - 4 ------1 - 1 Okara - - 1 - 1 ------Pakpattan ------Sahiw al ------Vehari ------

The large scale distributors were present only in the district of Lahore and Okara. In the district of Lahore most receipts of large scale distributors were to retailers with 4 making daily compensations and the remaining 1 making a monthly compensation. Moreover, the households also had a single household who made daily payments and a single household making monthly payments. In the district of Okara there was a single retailer making a daily payment and a collection center making weekly payments.

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10. Annexures

Annexure A Division and district wise livestock population in 2010 Millions Cattle Buffaloes Punjab 13,135 16,010 Bahawalpur Division 1,540 1,722 Bahaw alpur 516 392 Bahaw alnagar 466 639 R. Y. Khan 443 683 Cholistan Area 115 8 D. G. Khan Division 2,805 1,457 D. G. Khan 666 245 Layyah 678 319 Muzaffargarh 1,100 689 Rajanpur 361 204 Faisalabad Disision 1,382 2,343 Faisalabad 281 835 Chiniot 338 587 Jhang 529 556 Toba Tek Singh 234 365 Gujaranw ala Division 828 2,583 Gujranw ala 168 647 Gujrat 139 319 Hafizabad 135 290 Mandi Baha-ud-Din 119 591 Narow al 127 262 Sialkot 140 474 Lahore 894 2,115 Lahore 209 546 Kasur 302 779 Nankana Sahib 173 493 Sheikhpura 210 297 Multan Division 1,607 1,571 Multan 342 262 Khanew al 378 463 Lodhran 489 264 Vehari 398 582 Raw alpindi Division 1,027 458 Raw alpindi 254 140 Attock 390 124 Chakw al 279 101 Jhelum 104 93 Sahiwal Division 731 2,060 Sahiw al 244 619 Okara 304 942 Pakpattan 183 499 Sargodha Division 2,277 1,651 Sargodha 661 984 Bhakkar 658 234 Khushab 502 281 Mianw ali 456 152 Islamabad 44 50

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Annexure B

Price comparison Districts As per 80024 Averae prices Rage Milk shop rates Comments Bahawalnagar 60 44-58 60 - 70 60 (FLUSH), 70(LEAN) Faisalabad 65 80 - 82 80 - 85 80 (FLUSH), 85(LEAN) Jhang 55 57 - 69N/A Kasur 60 67 - 70 60-65 60 (FLUSH), 65(LEAN) Khanewal 60 63 - 67 60 Lahore 60 90 70 Okara 60 47 - 76 N/A Pakpattan 55 55-60 60-65 60 (FLUSH), 65(LEAN) Sahiwal 55 60 N/A Vehari 58 49-65 60

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Annexure C Death toll - All districts Breed Gender Num be r Name of producer District Cross Re as on Nili Ravi Sahiwali Imported Male Female of deaths breed Zafar Mehmood Bahaw alnagar 12 - - - - 12 12 HS, FMD Muhammad Fiaz Bahaw alnagar 5 - - - - 5 5 HS, Fever Jaw ad Hussain Bahaw alnagar 5 - - - - 5 5 HS Allah Rakha Bahaw alnagar 1 7 - - - 8 8 - Tanveer Faisalabad 12 4 - - - 16 16 Influenza Sher Zaman Faisalabad 3 7 3 - - 13 13 Foot and mouth disease Ali Raza Faisalabad 6 6 - - 6 6 12 Influenza Muhammad Asif Faisalabad 150 75 - - 120 105 225 Foot and mouth disease Side effect of medicines and Hamid Gujjar Faisalabad 6 2 - - 6 2 8 natural accident Ahsan Faisalabad 6 - 2 - - 8 8 Foot and mouth disease Shaukat Faisalabad 5 - - 8 13 13 Muhammad Baber Faisalabad 10 15 - - - 25 25 Side effect of medicine Muhammad Omer Jhang - 5 - - - 5 5 - A hmed Raz a Cheema Jhang - - - 10 10 - 10 Foot and mouth disease Abu Bakr Khan Jhang - - - 10 - 10 10 Pest Attack Shakeel Ahmad Kasur 2 3 - - - 5 5 - Mohammad Afzal Kasur - 19 - - 7 12 19 - Mohammad Aslam Kasur 10 4 - - - 14 14 - Mohammad Z af ar IqbaKasur 3 4 - - - 7 7 - Mohsin Ishtiaq Kasur 6 - - 10 - 16 16 Overdose of Medication Rehmat Ali Kasur - 5 - - 1 4 5 - Shoukat Shafi MohammKasur 5 4 - - - 9 9 - Farukh Ali Khanew al 9 - - - 3 6 9 - Jodh Pur Farm Lahore 10 - - 25 35 35 High Temperature Muhammad Abid Lahore 10 8 - 6 12 18 Substandard Vaccination Javid Iqbal Lahore 5 - - - - 5 5 Foot and mouth disease Muhammad A li Lahor e 5 13 - - 13 5 18 - Ameer Ali Pakpattan 7 - - - 3 4 7 - Abdul Hafeez Sahiw al 15 - - - 10 5 15 - Muhammad A ltaf V ehar i - - - 5 - 5 5 -

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Annexure D Non availability of sheds for animals

Not Available available Bahaw alnagar 0 28 Jhang 13 37 Kasur 8 23 Khanew al 4 18 Lahore & Faisalabad 34 20 Okara 21 35 Pakpattan 2 15 Sahiw al 5 15 Vehari 5 15

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Annexure E Average feed prices - various sources Owned Leased Market purchase Dis tr icts Barseem Jaw ar Makai Barseem Jaw ar Makai Barseem Jaw ar Makai Bahaw alnagar 1.1 1.7 2.1 1.6 3.4 3.6 3.0 4.0 4.0 Faisalabad 2.0 2.0 3.0 - - - 4.0 4.0 5.0 Jhang 1.1 1.7 2.1 1.6 3.4 3.6 3.0 4.0 4.0 Kasur - - - 1.6 3.4 3.6 3.0 4.0 4.0 Khanew al 1.1 1.7 2.1 1.6 3.4 3.6 3.0 4.0 4.0 Lahore ------3.5 4.5 3.0 Okara 1.1 1.7 2.1 1.6 3.4 3.6 3.0 4.0 4.0 Pakpatan - - - 1.6 3.4 3.6 3.0 4.0 4.0 Sahiw al - - - 1.6 3.4 3.6 3.0 4.0 4.0 Vehari 1.1 1.7 2.1 1.6 3.4 3.6 3.0 4.0 4.0

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Annexure F Average feed prices (PKR) Districts Silage Barseem Jaw ar Makai Wunda Tukra Khal Chokar Toori Bahaw alnagar - 3 5 3 34 37 47 28 7 Faisalabad - 4 5 3 35 31 49 23 11 Jhang 6 4 4 4 39 27 47 34 9 Kasur 6 4 4 2 38 33 46 28 10 Khanew al 2 3 6 3 32 33 39 21 9 Lahore 7 4 5 3 32 26 46 23 11 Okara 7 4 5 4 34 30 - - - Pakpatan - 2 3 2 40 28 47 28 7 Sahiw al - 3 4 2 35 30 48 27 9 Vehari 4 4 4 4 36 33 49 21 9

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Annexure G Season compositions Flus h Le an No.of months 232221 Months covered Oct-Nov Dec-Feb March- April May-June July- August September No.of days 61 91 61 61 61 30

Lifecycle Assumptions: Nili Ravi Pregnancy days 313 Lactation days 225 Lifecycle start period Lean Insemination level as a % of lactation 85 Calf milk consumption (Ltr) 2 Calf milk consumption days 180 Milk retention household use (Ltrs) 2 Calving - female birth ratio 50%

Lifecycle Assumptions: Sahiw ali

Pregnancy days 313 Lactation days 255 Lifecycle start period Lean Insemination level as a % of lactation 50 Calf milk consumption (Ltr) 2 Calf milk consumption days 180 Milk retention household use (Ltrs) 2 Calving - female birth ratio 50%

Lifecycle Assumptions: Imported

Pregnancy days 280 Lactation days 300 Lifecycle start period Lean Insemination level as a % of lactation 40 Calf milk consumption (Ltr) 2 Calf milk consumption days 180 Milk retention household use (Ltrs) 2 Calving - female birth ratio 80%

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Lifecycle Assumptions: Cross breed

Pregnancy days 290 Lactation days 270 Milking Yields Lifecycle start period Lean Insemination level as a % of lactation 45 Breeds Flush Lean Calf milk consumption (Ltr) 2 Nili Ravi 6.88 6.13 Calf milk consumption days 180 Sahiw ali 7.00 6.75 Milk retention household use (Ltrs) 2 Imported 9.66 9.66 Calving - female birth ratio 50% Cross breed 8.33 8.33

Selling Prices - Cash Sales Flus h Le an March- July- Category Sales (%) Oct-Nov Dec-Feb May-June September April August Dodhi 69 49.20 49.20 49.20 49.70 49.70 49.70 Milk Collector 9 45.53 45.53 45.53 50.80 50.80 50.80 Retailer 5 49.60 49.60 49.60 49.60 49.60 49.60 Households 17 61.70 61.70 61.70 62.60 62.60 62.60

Selling Prices - Prepaid Advances Flus h Le an March- July- Category Sales (%) Oct-Nov Dec-Feb May-June September April August Advance factor -6.3% -6.3% -6.3% -5.5% -5.5% -5.5% Dodhi 69 46.13 46.13 46.13 46.97 46.97 46.97 Milk Collector 9 42.68 42.68 42.68 48.01 48.01 48.01 Retailer 5 46.50 46.50 46.50 46.87 46.87 46.87 Households 17 57.84 57.84 57.84 59.16 59.16 59.16

Local breed consumption/day Quantity (kg) Rate/kg Cost/animal Cost/calf

Flus h Barseem 60 1.12 67 30 Wheat Straw (Thori) - - - - 67 30 Additional feed for milking animals Wunda 5 39.00 195 Total 65 262 30 Lean Jaw ar / Makai 60 1.65 99 45 Makai - 2.13 - - 99 45 Additional feed for milking animals Wunda 5 39.00 195 Total 65 294 45

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Imported breed consumption/day Quantity (kg) Rate/kg Cost/animal Cost/calf

Flus h Sailage 40.00 5 200 90 Wunda 7.00 39 273 123 Supplements 473 213 DCP (200gm) 0.20 100 20 - Bypass Fat (30gm) 0.03 1,000 30 - Mineral (5gm) 0.01 1,000 5 - Live Yeast (10gm) 0.01 - - - Additional cost - Flush 328 Total 47.25 528 213 Lean Sailage 40.00 4 160 72 Wunda 5.00 39 195 88 Additional cost - lean 250 Total 45.00 355 160

FEED PRICES PER KG Ow ned Leased Market land Land Purchase Barseem 1.12 1.62 4 Jawar 1.65 3.44 4 Makai 2.13 3.61 4 Turi N/A N/A 9 Wunda N/A N/A 39 Sailage N/A N/A 9

Farming Costs Leased Land Barseem Jawar Makai Total Seed Cost 5,600 4,000 6,000 Total Fertilizer Cost 5,100 3,800 5,100 Total Irrigation Cost 8,000 4,800 6,500 Total Cutting cost 18,750 5,250 4,000 Total Carriage Cost 18,750 5,250 4,000 Lease Cost 25,000 25,000 25,000 Total Cost 81,200 48,100 50,600 Total Production per season 50,000 14,000 14,000 Cost per kg 1.62 3.44 3.61 Owned Land Barseem Jawar Makai Total Seed Cost 5,600 4,000 6,000 Total Fertilizer Cost 5,100 3,800 5,100 Total Irrigation Cost 8,000 4,800 6,500 Total Cutting cost 18,750 5,250 4,000 Total Carriage Cost 18,750 5,250 4,000 Total Cost 56,200 23,100 25,600 Total Production per season 50,000 14,000 12,000 Cost per kg 1.12 1.65 2.13

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Utility Cost Assumptions Per Month Small Farm Medium Farm Large Farm

Electricity Cost Flush Lean Flush Lean Flush Lean Water pump 400 1,000 600 1,500 800 2,000 Electric Blade 800 600 1,200 900 1,600 1,200 Medicine 150 150 1,700 1,700 300 300

Large farm additional costs PKR Project financing HR Costs per month Helper (x2) 10,000 Equity % 30% Veterinary 20,000 Debt % 70% Operating Expenditures Grace period (years) 1 Farm maintenance 20,000 Repayment (excluding grace period) 10 Capital Expenditures Base interest rate (KIBOR) 6% Shed Costs 600,000 Spread (%) 4% Milking Parlour 400,000 Cost of equity 15% Electric Blade 55,000 WACC 12%

AV ERAGE PER DAY YIELDS FOR SM ALL RURAL FARM ERS Flus h Le an Nili Ravi 6.875 6.125 Sahiwal 7 6.75 Imported ‐ ‐ Cros s breed ‐ ‐

AV ERAGE PER DAY YIELDS FOR M EDIUM RURAL FARM ERS Flus h Le an Nili Ravi 8.75 7.50 Sahiwal 8.75 8.00 Imported ‐ ‐ Cros s breed 11.28 11.28

AV ERAGE PER DAY YIELDS FOR LARGE RURAL FARM ERS Flus h Le an Nili Ravi 10.33 9 Sahiwal 10 8.66 Imported 19.33 15.66 Cros s breed 17.8 18

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Annexure H List of processors Letter Sr No. Nam e despatched 1 Anhar dairy  2 Haleeb foods  3 Millac foods  4 Engro foods - Sahiw al  5 Gourmet  6 Nestle Milkpak  7 Goodmilk  8 Adams milk foods (Pvt) limited 

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Annexure I

Scope of work Ref. Milk chilling capacities in Punjab Section 3 1 Written report on the details of installed milk chillers along with locations, Section 8.4.1 capacities, utilization, and ownership in Punjab. Milk transportation and procurement mechanism in Punjab Annexure L Section 3 2 Written report on number, locations, utilization and capacity of the milk Section 8.4.1 transportation tanks and the milk procurement centers in Punjab. Section 8.4.2 Proficiency of the informal milk marketing at gross root level Section 8.2 3 Written report on number of dodhi's (milk men), along with their mode of transportation of milk at union council level and their connectivity with Annexure L selected procurement centers and companies in Punjab. Milk payment phenomenon in vogue 4 Written report on mode of payment to the farmer by dodhi's (milk men), Section 8.2 and to dodhi (milk men) by companies /procurement centers. Milk procurement blank days and rationale 5 Written report on the number of holidays observed, both Section 8.2 scheduled/unscheduled for milk procurement with the justification put forth by dodhi (milkmen)/companies. Milk production and sale in flush and lean season in Punjab Section 8 6 Written report on the seasonal impact on the milk procurement, rate fetch by farmers, and the price variation scenario during the Flush Section 9 season. Milk value addition through primitive procedures 7 Written report on the traditional milk processing points in each union Section 8.2.2A(c) council (milk processing into traditional products with longer shelf·life such as Khoya). Milk processing facilities in Punjab Section 3 8 Written report on the location, capacity, current utilization, nature, and Section 8.5.1 operational status of milk pasteurizing, UHT and powder plants in Punjab. Feasibility study on rehabilitation/operationalization of milk powder plants Section 5.3, 6.14 9 Written comprehensive feasibility study of converting fresh milk into Annexure M powder with provision of support, both financial and technical to the processors, farmers, and traders.

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Annexure J

Vaccines not w ith Government Vets Foot and mouth Haemorhagic Blackquarter or Mastitis disease septiceima Ratmutra Blackleg Bronchitis Bahaw alnagar No Yes Yes No No No Jhang No Yes Yes No Yes No Kas ur No No Y es No No No Khanew al No Yes Yes No No No Lahore & Faisalabad No Yes Yes No No No Okara No Yes Yes No No No Pakpattan No Yes Yes No No No Sahiw al No Yes Yes No No No V ehari No No No No Y es No

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Annexure K

1. LDDD Producer 2. LDDD Distributor 3. LDDD Collector Input Form.xlsx Input Form.xlsx Input Form.xlsx

4. LDDD Processor Input Form.xlsx

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Annexure L

Distributors' transport medium specifications

Num be r of Vehicle Model distributors Motorbike 1985 to 2000 37 Motorbike 2000 to 2010 38 Motorbike 2010 to 2013 31 Motorbike 2013 to 2016 15 Pickup w ith tank 2010 to 2016 4 Shehzore w ith tank 2010 to 2016 3 Tankers 2010 to 2016 2

The table above shows the transport medium available to the distributors, namely, (a) motorbikes; (b) pickup with storage tank; (c) Shehzore with storage tank; and (d) tankers. The survey conducted shows a major section of distributors as dhodhys. All 121 dhodhys who distributed milk had motorbikes as their mode of transport. The largest number of motorbikes were of the models between 2000 and 2010. Another important aspect observed was that 37 dhodhys visited who had motorbikes were purchased around 15 years ago or more. The two large scale distributors transporting milk through tankers were based in Okara.

In regards to the milk capacity which can be transported through these mediums, a motorbike can carry around 200 to 300 liters of milk. A pick up vehicle with a storage tank can carry about 400 to 500 liters, while a Shehzore truck equipped with a storage tank, can transport approximately 600 to 1200 liters. The large scale distributors utilized tankers for distribution with a capacity of 2000 liters.

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Annexure M

Feasibility study on milk powder plant.

Feasibility study on powder milk plant.d

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