Addressing Raw Milk Supply Challenges Through Local Sourcing Vertical Integration

In an interaction with Industry Outlook, Rahul Kumar, COO of Parag Milk Foods, discusses the evolving challenges and advancements in India's dairy sector, highlighting how dairy cooperatives and private companies are working to improve milk quality and supply chain efficiency. He addresses the impact of limited cold chain infrastructure, the slow adoption of blockchain technology, and the vital role of smallholder farmers in milk production. With over 20 years of expertise in dairy operations, strategic leadership, and supply chain management, Rahul Kumar has led teams of up to 6,000 members, excelling in driving efficiency and executing large-scale projects globally.

Dairy cooperatives in India handle a large share of raw milk but face challenges with quality assurance and distribution. How are they adapting to improve milk supply chain efficiency?

Dairy Cooperatives have been enjoying the lion’s share in milk procurement, though now private dairy companies also collect a good share. In many states, private companies collect more milk than cooperatives. The challenges faced by both are common, and tremendous improvements have been made in the milk supply chain by installing Bulk Milk Coolers (BMC) in the villages, ensuring timely chilling of milk and hence preserving quality. Rural infrastructure, like better road conditions, has reduced logistics delays.

With limited cold chain infrastructure and the slow adoption of blockchain technology, what measures can ensure quality and traceability in dairy?

Limited cold chain infrastructure in India significantly impacts the quality and shelf life of raw milk. To address this, many dairy players are investing in Bulk Milk Coolers (BMCs) and chilling centers to ensure timely chilling of milk. Additionally, better testing machines at collection points are being deployed to ensure milk is adulterant-free and of high quality.

Blockchain technology is being explored for raw milk traceability, though regulatory hurdles slow its adoption. Digitalization is key to overcoming these barriers, starting with initiatives like equipping cattle with chips linked to farmers' digital IDs. This approach ensures that milk is sourced only from farmers with disease-free cattle, enabling complete traceability back to the source.

Smallholder farmers often face challenges due to lack of support and infrastructure. What targeted initiatives are being taken to address these barriers and increase their participation in local sourcing networks?

The situation has changed tremendously, as more than 90% of India's milk is produced by smallholder farmers. Infrastructure like electricity to run BMC, better roads, digital quality tests, direct transfer of milk payment to farmers' accounts, etc., has removed many barriers to infrastructural issues in the past.

Vertical integration, where processors own collection centers, is being tested in some regions. What are the primary benefits and main obstacles associated with scaling this model across different areas?

Now, most processors own collection centers to have good control over milk quality, relations with farmers and support of farmers with cattle feed and veterinary services. This helps the processors get consistent milk supplies and have direct control over quality. The main obstacles could be the capex needed, along with qualified manpower deployment, making the cost of milk a bit higher.

Private-public partnerships are becoming key to developing a sustainable raw milk supply chain in India. How should these collaborations evolve to effectively tackle future challenges such as sustainability and market volatility?

Yes, the formation of self-help groups and producers’ companies ensures a better organization setup, benefitting both private and farmer stakeholders. Collaborations on biogas and organic manure, as well as the introduction of technology and better practices, would significantly mitigate sustainability challenges. Private-public partnerships also ensure a consistent market for farmers to protect them from several market volatility.