There is a need for establishing modern milk processing and packaging facilities to convert abundantly available raw milk into high value-added dairy products.

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Mar 12 - 18, 2007

The Ministry of Food, Agriculture and Livestock, in pursuance of its new agriculture policy with a major focus on livestock sector, has taken many initiatives to develop this long neglected sector as a part of its broader poverty alleviation strategy.

Talking to a delegation of farmers, Prime Minister Shaukat Aziz said that the government has taken the initiative for developing the livestock and dairy sector. The Livestock and Dairy Development Board has been set up with adequate financial support and authority to provide financial and technical support to all those already in business and those who wanted to enter the field. New training courses relating to livestock, dairy, fisheries and wildlife have been introduced at the universities of Veterinary Sciences and other related institutions to produce skilled manpower in this field.

The Prime Minister's livestock initiative has been simultaneously launched in all the four provinces. Facilitation boards have been set up to arrange private investment from foreign and local investors in this sector which offers lucrative opportunities. The government is expecting over Rs.100 billion investment in this sector during the next five years.

Livestock constitutes the backbone of our economy, particularly the rural economy. It contributes almost 50 percent to the value added agriculture sector, and almost 11 percent to the country's GDP, which is higher than the contribution made by the crop sector. Livestock sector's role in rural economy is extremely important as 30 to 35 million people in rural areas are engaged in it for earning their livelihood. Milk is the largest and the single most important commodity in this sector. And despite decades of neglect, Pakistan remains the world's fifth largest producer of milk. (The importance of milk lies in the fact that its value is higher than the value of the country's two major crops, i.e. wheat and cotton). Fisheries is another sub-sector of agriculture, which plays as equally significant role in national economy and towards food security in the country, as it reduces the pressure on mutton, beef and poultry supplies. Fishing is the principal source of livelihood for communities inhabiting coastal regions of Sindh and Balochistan as well as areas along major rivers, lakes and dams. It has been estimated that 400,000 people and their families depend on fishing for their livelihood.

Livestock products are generally divided into several broad categories i.e. milk, meat, hides, skins, eggs, wool and other products. According to available data, the net foreign exchange earnings from livestock products and byproducts like meat, hides, skins etc. were more than Rs. 53 billion in 2003-04, i.e. about 11 percent of the country's overall export earnings. Incidentally, milk is the largest commodity from livestock sector that accounts for 51 percent of the value-added sector. And the farm gate value of milk is estimated at over Rs. 390 billion. These figures provide a measure of the huge development potential of livestock sector that needs to be tapped under a well-planned strategy. Pakistan's huge livestock wealth can be gauged from the fact that it has 24.2 million cattle, 26.3 million buffaloes, 24.9 million sheep, 56.7 million goats, etc. In addition, there is a vibrant poultry sector with more than 530 million birds produced annually. Meanwhile, the data on the growth of agriculture and the composition of value-added agriculture in Pakistan reveals some interesting patterns. The annual growth rate from 1950 to 2005 works out at about 3.3 percent. It was as low as 1.7 percent in the 1950s and as high as 5.1 percent in the 1960s. It fell to 2.4 percent in the 1970s, before rising again to 4.1 percent in the 1980s, and stayed at around 4 percent in the 1990s. Interestingly, the composition of value-added agriculture has changed in favour of crops other than major crops and especially livestock since the early 1980s.

There is a large untapped potential in the dairy industry. With a population of 160 million, a significant demand for dairy products exists in Pakistan. There is a need for establishing modern milk processing and packaging facilities based on advanced technology to convert abundantly available raw milk into high value-added dairy products. In addition, with improved conditions for milk pasteurization, availability of chilled distribution facilities and consumer preference for the low cost pasteurized milk, the sector provides unique opportunity for investment in establishing pasteurized milk production plants.

There is also great scope for establishing related industries in the form of an efficient milk collection system and refrigeration and transportation facilities. The sector offers opportunity to foreign investors for establishing a joint venture for the production of dairy products, particularly dried milk and infant formula milk for which great demand exists in the neighboring countries like Iran, UAE and Saudi Arabia.

The dairy industry's main ingredient is milk, which is processed at the dairy plants to produce a variety of dairy products. The average daily production of milk in Pakistan is estimated at approximately 95 million litres. Punjab is the leading province in milk production with a share of around 80%. Out of the total production of 95 million litres of milk per day, about 55% is consumed at source in the countryside while the remaining 45% is traded in urban centers. Most of the traded milk is marketed un-processed and currently only about 2.5 to 3 percent of the traded milk is processed by the dairy industry in Pakistan.

Processed liquid milk in the form of pasteurized or ultra heat treated (UHT) is the main dairy product in Pakistan, while other products include dry powdered milk, cream, butter, butter oil, yaugurt, cheese and ice cream. Presently, about 13 units in the organized sector are engaged in the production of various dairy products. Majority of the dairy plants are located in the vicinity of Lahore, which serves as the hub of this industry. However, out of the total milk produced in Pakistan, only 2.5 to 3 per cent reaches the dairy plants for processing into variety of dairy products.

Of the 38 major dairy plants established in the country with a capital investment of Rs.2.392 billion and having a daily rated capacity of 2,180, 00 litres, only 13 plants are currently in operation. The rated milk processing capacity of the 13 plants in operation is estimated at a little over one million litres per day. In addition, two dairy farms of the Pakistan military are operating on non-commercial basis, raising the country's daily production of processed milk, yogurt and butter.

The reasons for the failure of large number of dairy plants are several and may differ from plant to plant. The most common reasons include an over estimation of demand for processed milk, too rapid investment in UHT technology, lack of consumer education, high price of UHT processed milk, non development of sustainable milk collection system, lack of trained manpower and insufficient operational funds. For the same reasons, the capacity utilization of dairy plants in operation is around 40 percent. The low capacity utilization prevents most UHT milk processing plants from recovering much more than their variable costs. Next to the raw material i.e. raw milk available to the plants for Rs.16 per litre on average, packaging is the most important cost element. At the tail end consumer pays Rs.30 to 35 per litre of packed milk of different brads. It can be brought down by increasing production and curtailing profits. It will, in future, add to the demand for packed milk as it would fall within the reach of low income group.