CARE INTERNATIONAL

View with images and charts A Report On Care International: Humanitarian Organisation 1.1 CARE International Cooperative of Assistance and Relief Everywhere (CARE) is one of the largest private humanitarian organizations of the world. It began as a relief effort after the Second World War in 1945. From then onwards, CARE has helped with relief efforts during intracountry turmoils and post-war poverty, food and health problems after wars like the Korean War in 1951, Vietnam War in 1964, Liberation War of Bangladesh in 1972, the Cold War in 1988 and Civil War in Rwanda in 1994. Besides helping war victims, CARE has been intensively involved with major drought, famine and cyclone relief operations in Africa and Asia. These efforts have been running parallely to CARE’s continued work in health care, family planning, social justice, gender issues, livelihood promotion, employment generation, education and more. In addition, CARE has helped with national efforts in the USA with help in training of the Peace Corps to Latin America.

Over the years, CARE has transformed from working on behalf of a region to working as a neutral, humanitarian organization spreading all over the world irrespective of international boundaries. That is how CARE became CARE International comprising of member countries CARE Australia, CARE Canada, CARE Denmark (Denmark), CARE Nederland (Netherlands), CARE Deutschland (Germany), CARE France, CARE Japan, CARE Norge (Norway), CARE Österreich (Austria), CARE Raks Thai (Thailand), CARE UK, and CARE USA. The elaboration of the letters of CARE changed from being “Cooperative for American Remittances to Europe” to the present neutral “Cooperative of Assistance and Relief Everywhere”. This also reflects CARE’s changing scope of work and expansion over the years of operation, now in over sixty countries. Currently, CARE International has in total twelve thousand employees. Under the main member nations of CARE International, there are country offices in Afghanistan, Angola, Benin Bolivia, Brazil, Burundi, Caucasus, Democratic Republic of Congo, Côte d'Ivoire, Ecuador, El Salvador, Eritrea, Ethiopia, Ghana, Guatemala, Haiti, Honduras, India, Kosovo & Macedonia, Lesotho, Madagascar, Malawi, Mali, Nepal, Nicaragua, Niger, Pakistan, Peru, Philippines, Rwanda, Sierra Leone, Somalia, Sudan, South Africa, Sri Lanka, Tajikistan, Tanzania, Togo and Uganda.

1.2 Mission of CARE CARE’s mission is to serve individuals and families in the poorest communities in the world.

Through the organization’s global diversity, resources and experience, innovative solutions to development problems and global responsibility are promoted. CARE attempts to bring about lasting change by(quoting from mission): • • • • •

Strengthening capacity for self-help Providing economic opportunity Delivering relief in emergencies Influencing policy decisions at all levels Addressing discrimination in all its forms

1.3 Organizational Structure

CARE International’s members are responsible for electing the board of directors at an annual meeting. The board of directors is the governing body of the organization and all board members serve without compensation. The board of directors appoints CARE's president, treasurer and secretary. The president appoints the rest of CARE's executive team, including the chief operating officer, general counsel and senior vice presidents of finance, IT and administration, human resources, program, and external relations.

1.4 Scope of work CARE works on project basis. All projects have a set of aims and a stipulated duration.

CARE designs all its projects keeping in mind its sole purpose: elimination of the root causes of poverty and helping people to be self sufficient. CARE recognizes that women and children suffer disproportionately from poverty and hence at the core of CARE’s endeavours lies women involvement. This stems out of the fact that women are at the heart of social activities and CARE attempts to promote education, health and sanitation, conservation of resources and utilization of economic opportunities. CARE also provides emergency relief to survivors of war and natural disasters. These activities are carried out through a variety of projects in diverse fields.

1.4.1 Agriculture and Natural Resources In this field, CARE works to promote livelihood of poor people through conservation of natural resources and higher food production. In 2001, CARE operated agriculture and natural resources projects in forty two countries. CARE worked with more than 2.6 million farmers to increase their crop and livestock yields through activities like planting new seed varieties, animal husbandry, home gardening and irrigation.

1.4.2 Cross-cutting Initiatives CARE’s cross-cutting initiatives spread out across its activities trying to detect the underlying causes of poverty. Special emphasis is placed on working with women and girls and social injustice.

1.4.3 Economic Development This section of CARE is directly linked to working through and with people to create economic development in individuals’ lives through rise in incomes, better livelihoods etc.

1.4.4 Education CARE operates education projects in 36 countries. Education is one of CARE’s priority areas as it has a major influence on strengthening personalities and empowering people.

1.4.5 Emergency Relief Natural disaster is to a great extent responsible for poverty. Emergency relief is a vital part of CARE’s work to create lasting solutions to poverty. Many poor communities in the developing world lack the basic resources to cope with the struggles of everyday life. When

disaster strikes, that struggle becomes all but impossible without assistance.fight against poverty is 1.4.6 Health Through its work on health, CARE seeks to ensure access to good health services of all individuals. CARE promotes this as a basic right of any person. Besides, health is a critical part of CARE's work to help people overcome poverty. As communities solve their most threatening problems, they are able to embrace new economic and educational opportunities.

Our health projects include reproductive health, children's health, infectious disease, polio eradication, and water, sanitation and environmental health. CARE's Health Unit staff is responsible for: 1.4.7 HIV/AIDS The global AIDS crisis is a major challenge to mankind till date. CARE endeavours to spread awareness and help AIDS affected people all over the world.

1.4.8 Nutrition The underdeveloped and developing worlds have majority of their populations living below the poverty line. These peoples’ nutrition is of critically low level as they hardly get to eat and when they do, the content is of almost zero nutritious content.

1.4.9 Water For over five decades, CARE has recognized the link between poverty and the lack of access to water. The strategic goal of our program is to enhance the livelihood security of poor communities through equitable access, efficient use and sustainable management of limited and dwindling water resources.

1.5 CARE Bangladesh CARE Bangladesh is a part of CARE International. CARE began work in Bangladesh in 1949 with CARE packages that the Americans sent to survivors of World War II in Europe and Asia. Currently, CARE focuses on networking with communities, community based organizations, the government and national NGOs to identify and confront root causes of the poverty. CARE Bangladesh shares CARE International’s areas of work including agriculture, education, health, water and sanitation, nutrition, infrastructure and small enterprise development. Through these programs CARE makes a difference in the lives of 12 million people in 64 districts of Bangladesh.

The cumulative value of all the projects of CARE Bangladesh stood at over 28 million USD in the fiscal year July 2004 to June 2005. More than 95 percent of the expended resources are stemmed towards program activities. Only 5 percent are spent on administration.

1.5.1 The core values of CARE Quoting actual core values

“Respect: We affirm the dignity, potential and contribution of participants, partners, donors & staff.

Integrity: We act consistently with CARE's mission, being honest and transparent in what we do and say, and accept responsibility for our collective and individual actions.

Commitment to Service: We work together effectively to serve the larger community.

Excellence: We constantly challenge ourselves to the highest levels of learning and performance to achieve greater impact.

Diversity: We value, respect, and fully benefit from each individual's unique qualities and abilities, in order to fulfill and strengthen our vision and mission.”

1.5.2 Strategic Planning of Organization CARE Bangladesh at present has 916 staff working in its regional, field, team and hub offices in eighteen districts of Bangladesh.

The organization runs on a projects basis in line with its mission and objectives and regularly updates its strategies to attain the stated objectives. The most recent strategic planning framework is of January 2008 to be carried out till 2011. This is commonly referred to as “Long Range Strategic Planning” (LRSP). Through this process of strategic planning, since the development of the LRSP, CARE Bangladesh has furthered its understanding of, and approach to achieving its Mission. This progress is largely a result of the work in fiscal year 2007 to establish the foundation for making the critical organizational changes required for generating and using our knowledge to have greater, more sustainable impact on the lives of poor and marginalized people. Building on learning from our work over the past few years CARE Bangladesh is now able to articulate what needs to be done and/or not done, what obstacles need to be overcome, and what needs to change in order to achieve our mission and have the impact we seek. To that end, the types of systemic changes1 referred to under the original five-year program goal remain highly relevant.

Stemming down from CARE’s vision and mission are impact statements that in turn are led by strategic directions and programming principles.

1.5.3 Vision: CARE seeks a world of hope tolerance and social justice where poverty has been overcome and people live in dignity and security.

1.5.4 Mission: CARE strengthens the voices of the poor in ways that influence public opinion, development, and policy environment. CARE works as a link between the poor at the grass roots and the influential groups of the society like the civil society, government, and the private sector.

Based on these, four long term impact statements have been created keeping in mind four groups of people.

1.5.5 Impact Statements 1. Socially and economically marginalized women- CARE seeks to empower the most socially and economically marginalized women (while not excluding women more generally).

2. Marginalized groups in urban areas, who have limited livelihoods choices,

poor living conditions, and are subject to exploitation, social exclusion and discrimination.

For them CARE seeks safer and more viable livelihoods and being increasingly treated as equal citizens by state and society. 3. Extremely poor people in rural areas whose well-being in political, economic and social realms obtains the “lowest” ranking3 and who are trapped in a set of unequal power relations. CARE’s vision is that these extremely poor people sustainably overcome the barriers that prevent fulfillment of their rights.

4. The most vulnerable people and communities prone to disasters and environmental change.

CARE’s vision is that these people will build resilient livelihoods in the face of disaster and environmental change.

1.5.6 Strategic Direction The impact statements are under the strategic directions of • Organizational Relevance • Economic Empowerment • Learning Culture 1.5.7 Programming Approaches Having taken the above into consideration, design of CARE’s projects are based on “Programming Approaches”. All projects are based on a set of guiding principles. They are as follows: Household Livelihood Security This enables the programs within each region to identify the inter-relationships between one another, and break down the artificial, sectoral boundaries between the different interventions.

Rights Based Approaches All of CARE’s projects are based on the principle that people must be able to maintain dignity and have access to facilities and places in line with their basic rights.

Advocacy CARE-Bangladesh is working to develop competency and build the capacity of others in the deliberate process of influencing those who make policy decisions.

Partnership All CARE partnerships are based on a shared vision regarding the objectives and purpose of the work undertaken together and shared contributions made and risks undertaken to benefit the society and working in line with stipulated objectives.

Capacity Building CARE’s projects are aimed at creating sustainable development through capacity building i.e. enhancement of an organization's or a society's ability to achieve its purposes.

Direct/Indirect Service Delivery CARE Bangladesh implements direct delivery of services on a limited scale.

Gender Equity Empowerment of women and removal of gender discrimination is at the core of CARE’s work. Hence, all its projects take into account gender equity when designing programs.

1.5.8 The projects of CARE Bangladesh Bangladesh Urban Development Initiative The project works on developing appropriate capacity for CARE Bangladesh to support coordinate programs to ensure both immediate needs and underlying causes of the urban poor are addressed in a sustainable way.

Sanitation, Hygiene and Water Supply Program This project aims to reduce mortality, morbidity and malnutrition due to water and excreta related diseases, especially among 600,000 un/under served poor women and children in urban slums in 19 Municipalities in Bangladesh.

Promoting Rights of the Disadvantaged by Preventing Violence Against Women (PROTIRODH) The overall objective is to reduce violence against women and reinforce the fulfillment of women's rights in four unions (lowest administrative structure) in rural Dinajpur, and among sex workers in Dhaka , Khulna , and Tangail cities in Bangladesh .

Establishing Community Support System (ECSS) The overall goal of the project is to reduce maternal mortality and morbidity through identifying and removing barriers, which lie between women and the EmOC (Emergency Obstetric Care) facilities.

Save Motherhood Promotion Project The purpose of the project is to make significant improvements in the maternal and neonatal health in the project areas.

Flood Reduction Activities in Sunamganj (FRRAS) The goal of the project is to reduce flood risk and thereby protect and improve livelihood opportunities of the vulnerable and poor communities in six-selected sub-districts of Sunamgonj district.

Competitive Literacy Initiative-Education

The objective of this pilot is to provide functional literacy to the garment workers of a selected GAP factory in Bangladesh in order to raise their productivity and self-esteem and their capacity to read and write.

Adolescent's Women's Reproductive and Sexual Health Initiative (ARSHI) Supported by the European Commission (EC), aims to decrease maternal mortality and morbidity of adolescent girls and women in Sunamganj district (Northwest of Bangladesh) in Sylhet division.

CEPZ Corporate Pilot Project (CCPP) The CCPP Pilot Project works with the private sector to improve the lives of factory workers in the Chittagong Export Processing Zone (CEPZ).

Local Governance Program Local Governance Program, a joint initiative of CARE Bangladesh and Intercooperation (IC), works with local governance institutions, especially, Union Parishads, the lowest tier of local government, and the communities to promote inclusiveness, transparency and accountability in local governance.

HIV and AIDS Prevention Project (HAPP)– Drug Users Intervention The goal of this program is to reduce the risk, spread and impact of HIV and AIDS among injecting drug users in Bangladesh.

HIV Program Reflection and Learning Intervention The program reflection and learning team links with staff to support effort to process data and information and convert it into knowledge learning that is share and used to influence CARE's program and over time influences polices, resource allocation and programming for HIV n Bangladesh, thus moving closer towards being a resource organization.

Strengthening Household Abilities for Responding to Development Opportunities (SHOUHARDO) The goal of the SHOUHARDO project is to sustainably reduce chronic and transitory food insecurity of 400,000 vulnerable households in 18 districts of Bangladesh by 2009.

Food Security for Sustainable Household Livelihoods (FoSHoL) FoSHoL seeks to build the capacities of food insecure households in selected communities in the Barind Tract of northwest Bangladesh.

Strengthening the Dairy Value Chain in Bangladesh The vision of success is that targeted landless and smallholding households in North and Northwestern Bangladesh have increased incomes and more sustainable livelihoods through incorporation into a strengthened milk value chain.

Learning from CARE Bangladesh's Social Development Unit (Nijera) This initiative is to support CARE Bangladesh's efforts and experimentation on ‘learning' and how structural as well as process factors in Bangladesh office can contribute to larger change in development practices and impact.

In a world stricken by increased social injustice, natural disasters, inequality of income and other prevalent economic, natural and social problems, existence and contribution of humanitarian organizations like CARE Bangladesh is very essential.

1.6Project : Strengthening Dairy Value Chain in Bangladesh (SDVC) The Economic Development Unit at CARE Bangladesh, with the support of Bill & Melinda Gates Foundation, USA, have initiated titled Strengthening the Dairy Value Chain in Bangladesh that aims to provide access to income and means of sustaining livelihood for 35,000 rural smallholding and landless households (175,000 individuals) in North and Northwestern Bangladesh by incorporating them into the various stages of a strengthened milk value chain- expecting to increase household incomes from a current $18-30 per month to $40-50 per month by project end. Donation from the Bill and Melinda Gates Foundation for this project is 5.25 Million USD. The project began in October, 2007.

1.6.1 Objectives The main objectives of this project are: 1. Improve milk collection systems in rural and remote areas; 2. Improve access to inputs, markets, and services by mobilizing groups of poor farmers, producers, and char dwellers 3. Improve the milk transport network; 4. Ensure access to quality service at the producer level; and 5. Improve the policy environment.

1.6.2 Target Areas of SDVC The project is operating in the districts of North and North Western Bangladesh: Sirajganj, Bogra, Naogaon, Joypurhat, Gaibandha, Nilphamari

Rangpur, Dinajpur, Kurigram and

1.6.3 Target Beneficiaries This is a pilot project and for the four years the project intends to work. Within and beyond this period, SDVC’s target beneficiaries will include milk-producing landless farmers who own an average of 2 cows and produce about 10% of the milk in the region, and small-scale farmers who own an average of 2.9 cows and produce about 80% of the milk. Other direct beneficiaries will include 165 paravets and 350 milk collectors, of which at least half will be female, as well as fodder growing households. Target beneficiaries will also include extremely poor households that cannot afford to raise cattle, for whom employment opportunities will be created through milk collection and chilling plants. The time saved as a result of door-to-door collection will increase household productivity; women and girls, who

care for cattle, will benefit from higher household income as well as reduced workload due to improvements in cattle management suggested by paravets. The skills that farmers’ groups will learn through mobilization, training, and participation in the project have the potential to provide widespread benefits to rural communities, who will learn the power of group initiative and collective bargaining. Indirect beneficiaries are expected to include medicine suppliers, feed suppliers, milk transportation network personnel, private sector investors, processors, and consumers, who will benefit from increased milk availability and a projected price reduction of 2-3 taka/liter.

1.6.4 Expected Outcomes SDVC has certain expectations out of the project after the four years are over. The expectations are as follows: -

Self Sustaining Rural Milk Collection system with 350 collectors and 21 collection/chilling facilities Spoilage reduced from 27% to less than 15% 35,000 Households enjoy better access to Inputs & ancillary Services Collection system is connected with formal/informal Milk markets Increased Participation of Women in majority aspects of Value Chain ensured Training and skills development on Best Practices promise higher returns for farmers Efficient and Self-supporting Milk Transportation Network formed Paravets provide fee-based quality service to farmers Favorable policies advocated with Govt. Agencies Lessons learnt from project shared with all Stakeholders

Should this project be successful, by project end it should be possible for innovations and improved systems introduced through the project to benefit an additional 200,000 local farmers in the north and northwest. Project innovations and involvement of the private sector should easy to replicate in the region, as entrepreneurs and other farmers’ groups learn about and gain confidence from the project’s successes and income potential. If the project were scaled across Bangladesh, it would be possible to benefit 2,000,000 households. The project will work closely with the Department of Livestock, the private sector, and small NGOs to create a few best practice models that address the major bottlenecks in the dairy sector and demonstrate environmentally friendly practices. CARE also plans to strengthen the capacity of important actors in the value chain so that they can take the lead long-term scale up of the project. This will substantially reduce the costs of scale up, which we would estimate at $5060 million. The cattle registration system, collection and transport system innovations (especially barge-mounted chilling), and paravet training are all relevant innovations with potential for scaling across South Asia.

1.6.5 Project’s Scope Should this project be successful, by project end it should be possible for innovations and improved systems introduced through the project to benefit an additional 200,000 local farmers in the north and northwest. Project innovations and involvement of the private sector should be easy to replicate in the region, as entrepreneurs and other farmers’ groups learn about and gain confidence from the project’s successes and income potential. If the project were scaled across Bangladesh, it is expected to benefit 2,000,000 households. The project’s

visible benefits should encourage adoption of similar practices elsewhere and thus facilitate sustainable development in the rural agricultural sector.

Constraints • Access to market for rural producers.

• Spoilage of milk due to poor collection system.

• Low price for the producers in remote areas.

• Inadequate supply of milk to processors.

• • • •

• • • • •

Lack of organized producers group.

Lack of access to remote areas where bulk of milk is produced.

Lack of better feeding and group management practices among the producers.

Lack of access to veterinary services.

Poor transport network.

Access to remote areas lacking.

Poor cooling facilities.

Lack of private sector investment.

Lack of innovative transportation system for remote/riverine areas, for example boat-mounted chilling plants.

Objective Some Key Outcomes 1) Improve • Self-sustaining rural collection system milk involving at least 350 collectors and collection 21collection/chilling facilities in areas systems in previously lacking access. rural and • Business relationships established remote between farmers, chilling plants, and areas. processors.

• Producer’s income increased by 3 taka/liter or $40-50 per month.

• Collector’s income increased by 1 taka/liter or average of $33.60 per month.

• Spoilage is reduced from 27% to less than 15%.

2) Improve • 35,000 smallholding and landless access to farmers have increased, sustainable inputs, access to input suppliers and collection markets, system linked with formal and/or and services informal milk markets. by • Increased participation of women in the mobilizing community groups and milk value groups of chain; at least 50% of community poor collectors are female. farmers, • Collective bargaining, marketing, and producer leadership by farmers’ groups achieve and char better services and improved rates of dwellers. return.

3) Improve • Private sector investment in transport to milk collect and chill milk in remote areas transport increased by 40%. network.

• 50% increase in supply of quality milk to the processors.

• New technologies utilized for chilling and cold transport.

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• •

Lack of skilled paravets who can educate producers on proper feeding, health care and breeding.

Lack of linkage between producers and private sector artificial insemination firms.

Lack of production of quality feed in the community level.

4)Ensure • access to quality • services at the producer • level.

•

• • • •

Policy environment does not 5) Improve • adequately support and the policy promote smallholding dairy environment farmers’ incorporation into • the value chain •

Production of milk increased from 1.5 to 3.4 liters per cow.

Dairy cattle mortality in target households reduced by 40%.

Increased average fat content in the milk from 1.4% to at least 3.75%.

At least 165 paravets (50% or more female) delivering fee-based services and achieving average $120 per month incomes.

80% of the farmers showing repeat purchase of paravet services at a commercial rate 30% of farmers using AI introduced by paravets.

90% of farmers are covered by tele paravet solution program.

Policy positions defined and briefing papers with recommendations shared with relevant government agencies.

Paravet training system promoted to DLS and Ministry of Youth Development.

Lessons learned shared with government, NGOs, private sector, other key stakeholders.

1.6.6 Management of project The project will be staffed by five key personnel based at CARE offices in Rangpur and Bogra. The total number of staff in SDVC is 60. This includes a Project Coordinator, a Technical Coordinator for M&E, A Finance Manager, two regional coordinators and officers for Administration, Finance, Documentation and Communication, Technical support field facilitators. A Technical Advisory Team will support and advise the project team. Foreign and local consultants have worked on carrying out research on the dairy value chain in Bangladesh.. Monitoring and Evaluation of the project has been subcontracted.

Overall, at CARE and especially in SDVC, formal leadership is practiced. However, the style of leadership is in the range of democratic to laissez-faire. Complete laissez-faire style is not pursued. However, SDVC staff work in groups and solve issues through delegated tasks within the authority designated by their individual posts. A Steering Committee has been formed with members of SDVC and important members of CARE in general i.e. The Deputy Country Director and the Economic Empowerment Coordinator. The steering committee holds a meeting every month by rotation in all three offices of SDVC i.e. CARE Bangladesh Head Quarters in Dhaka, Bogra Field Office and Rangpur Regional Office. These meetings review work done in SDVC each month, suggest solutions to critical issues, problems or challenges and design operational and sometimes intermediate plans.

1.6.7 Tasks completed so far

The CARE project has established relationships and will initially work with PRAN, AKIJ, Milk Vita, and DANONE, as well as the various cooperatives, businesses, and NGO efforts, and complement their work by: ensuring that farmers and paravets are connected to MFIs to ensure access to finance for the farmers as required; connecting the collection points and chilling facilities that will be established during the project period with the formal sector’s milk processing facilities – for example, DANONE has already expressed willingness to purchase an initial 3000 liters per day from CARE’s collection points, and their level of demand is expected to grow over the life of the project; creating access to the paravets trained by CARE for other small farmers covered by NGOs working in the sector; and sharing knowledge and best practices with other key placers to ensure scale-up and replication.

CARE Bangladesh has facilitated two pilot projects in the milk sub-sector. The first engaged 700 households in the northwest and linked small producers with milk processing plants; associations collected milk from villages daily and sent it to chilling centers. The pilot was not scaled up due to losses resulting from delays in milk delivery and corruption among association managers. The lessons learned from this project have shaped the design of the second pilot, which included more effective collection, chilling, and transport arrangements than in the failed pilot.

In the second pilot, CARE is promoting three mini milk-chilling plants, each owned by local private investors. The capacity of these plants is between 1,000 and 2,000 liters/day; each plant engages 800 to 1,600 poor milk producers. Milk is collected from producers and transported to the chilling plant in 40 liter bottles, cooled to 5°C, and then carried by dairy companies to their processing plants or delivered to informal-sector purchasers.

CARE also facilitated the development of veterinary services for cattle in these areas by training 165 villagers as paravets. These paravets, many of whom are women, were trained and coached by a veterinarian to provide animal health services on a fee-for-service basis to 320-400 households, facilitating improved and sustained milk production. This strategic support to farmers has significantly improved milk quality and production levels and reduced spoilage. The services offered by the paravets are not subsidized, and early income data indicates a high return from service delivery, averaging $15 per month for vaccination and $7.50 per month for treatment. Their high quality is also indicated by repeat use - 80% of farmers have purchased these paravet services three times or more.

So far identification of all beneficiaries of the project has been accomplished through extensive fieldwork involving general meetings in individual villages of the focus area with participation of villagers. These meetings involved introduction to the villagers. This was followed by well being surveys which also included meetings but for a different purpose.

Through the villagers’ participation in these meetings, detailed physical map of each village was constructed with the villagers help. Subsequently, profile of each villager was drawn up and information was collected on the economic and livelihood status of each household and cattle ownership data, through the villagers’ opinion. Door-to-door well being surveys followed next. These are still in the process and involve cross checking of the data collected through, meetings by actually visiting each household to check their economic wellbeing and cow ownership information. This survey is also helping CARE identify the interested participants of SDVC.

Project 1. Origin The world economy is highly dynamic. Moreover, an interdependence of nations resulting from specialization and required regional cooperation has made it essential for every country to be at par with the rest of the world. The key to dynamism and persistent development and growth is raising investment. Bangladesh being one of the youngest nations of the world is still ranked as a developing country with 80% of the population living in the rural areas with 44% living below the poverty line even till as late as 2000 (source: Finance ministry, Bangladesh).The GDP per capita was only US$ 452 (Source: UNdata) as of 2005.

Nevertheless, the country has gradually been coming up with rising investment level that grew at the highest rate of 23% in 2003 (Source: BBS). However there still are problems with identification of thrust sectors and scope of investment exists in unexplored and neglected areas that may yield potentially high returns. One such area is the Dairy Industry. The growth of the economy could be helped with higher investment especially in thrust sectors resulting in more development of the economy and the quality and standard of living.

At birth, Bangladesh had the tendency to encourage a dominant public sector. Nevertheless, since the late 1970s, private sector investment began to rise. This contributed considerably to sectoral and hence GDP growth. The overall economic activities of Bangladesh have been classified into fifteen distinct sectors namely, Agriculture; Fishery; Mining and Quarrying; Manufacturing Industry; Electricity, Gas and Water Supply; Construction; Wholesale & Retail Trade; Hotel & Restaurant; Transport; Storage & Communication; Financial Intermediaries; Real Estate, Renting & Business Activity; Public Administration & Defense; Education, Health & Social Services and Community & Personal Services. Some of these sectors have been identified as thrust sectors by the government and accordingly, investor incentives and provided intensively in these sectors. Foreign Direct Investment holds a major share of total investment in the country. To encourage overall investment, the government has set up Export Processing Zones with uninterrupted supply of utility services at subsidized prices. Fiscal incentives like tax holidays are also provided to many thrust sectors.

Nevertheless, although GDP growth rate has not been below 5% in recent years, the required level of investment has still not been reached. Due to various political and social problems, and labour unrests especially in the Ready Made Garments Industry, foreign as well as local investors tend to be discouraged. Foreign direct investment has not risen considerably in the country. Investment tends to be focused on the thrust sectors and a few new business ideas that seem quite lucrative from other investors’ endeavours. Most investors in the country lack the proper insight and education to come up with own business ideas and tend to follow those few who have been successful with their own ideas resulting in narrowed focus on one shared business idea. This eventually saturates the type of business being focused upon resulting in lower returns that in due course leaves the un innovative investor hopeless and that marks the end of his investment. These are increasingly impacting sectoral growth in Bangladesh. Had investment been more planned and sustainable, GDP growth would have been much higher and the export basket richer.

Besides raising GDP and export earnings, there are many other advantages of higher and planned investment. In a country of a large number of unemployed youth, a high level of planned investment could result in creation of more job opportunities. This could considerably reduce the level of crime thus raising overall security of the country, ultimately

enhancing the quality of life and reducing public expenditure on law and order and security forces. The quality of life would be farther enhanced by shifting of the government’s high allocation of budget for defense to education, health, community and public services. With lower taxes, and better government provided health, education and social services, people would have more discretionary income which would raise their purchasing power simultaneously resulting in more revenue for business and hence more retained profits for reinvestment as well as higher economic growth. This will in turn raise tax revenues for the government. At the same time, with higher discretionary income, peoples’ propensity to save will also rise resulting in creation of capital for investors. Following higher purchasing power, higher discretionary income and demand for better quality products arising out of a higher standard of living, a stable market would be created. This may as well encourage foreign direct investment. The chain of activities will continue likewise resulting in a cycle which would promote investment and economic growth.

One major thrust industry that lacks sufficient investment is the Dairy Industry of the Agriculture sector of Bangladesh. Given sufficient investment, this sector could help alleviate poverty from the lives of millions of farmers, besides reducing imports and contributing to the export basket, as well as promoting the overall health of the people of Bangladesh with fresh dairy milk.

The north of Bangladesh is one of the most poverty-stricken areas of the country. This is the Rajshahi Division, the area lying west of the Jamuna River and north of the Padma River, and includes the Barind Tract. The underdeveloped Northern Bangladesh is the result of mainly the lack of exploitable natural resources in the area and also lack of employment opportunities resulting from an unindustrialized and underdeveloped locality. Yearly famines like “Monga” hit North Bengal to make the situation worse. Monga is a state of extreme poverty when people have no income or food.

In such a state, as an attempt to raise the standard of living of the landless, resource less poor people of North Bengal, CARE Bangladesh began its project to concentrate on the existing dairy resources of the people of North Bengal. This project, funded by the Bill and Melinda Gates Foundation is worth US$5.25 million and was begun in 1st October, 2007, for duration of four years. The project aims to strengthen the dairy value chain so that the ultimate high income from sale of fresh milk in the cities actually reaches the primary producers of dairy milk, the dairy farmers of North Bengal. In so doing, CARE’s project “Strengthening Dairy Value Chain” (SDVC) aims to raise the dairy farmers’ household incomes besides making dairy farming livelihoods sustainable.

From the rather low incomes of dairy farmers, it is evident that there is a lack of investment in the informal fresh milk sector besides problems with the dairy value chain. The milk market is dominated by processed and powdered milk from multinational companies.

Household demand for milk is concentrated in the powdered milk sector whereas urban infants invariably are fed on infants’ processed milk from multinational brands like Nestle’s Nido, Danish Full Cream’s Dano etc. This shift in demand from fresh milk to powdered milk has resulted from lower yields in fresh milk by local cows leading to deterioration in quality worsened by adulteration of milk to increase volume to meet demand. All these, reinforced by an increase in the variety and quality of nutritious and widely promoted powdered milk by large companies, mainly multinationals, have led to a lack of interest in fresh milk.

Consequently, this decrease in demand worsened by other factors like increased competition, problems with market intermediaries and insufficient dairy-related services including veterinary care and farmer training, has led to an overall decrease in the attractiveness of the

fresh milk sector to investors. This has been highlighted as a major reason for the gradual shrink of the local fresh dairy milk market resulting in very low incomes for the dairy farmers. With a ripple effect this is adding to the development problems of the north.

Investment in the fresh dairy milk sector must be raised if a sustainable livelihood is to be created for the dairy farmers of North Bengal. This will in turn help develop North Bengal with higher standards of living. On the other hand, with better quality milk, if urban demand for fresh milk can be raised, overall family health may benefit. At the same time, with the development of the dairy sector, imports of fresh milk that accounts for 30% of the total domestic demand for milk, can be reduced and milk production can as well exceed local needs to be exported, thus helping the balance of payments of the country.

Currently, fresh milk in Bangladesh is marketed only by Milk Vita, Rangpur Dairy, Akij Group, Pran and BRAC. However, this sector has a vast potential and can be helped by a considerable rise in investment.

The study therefore shall be carried out to realize the impacts of investment on sectoral growth and deterrents to investment in the dairy industry of Bangladesh and also outline the factors that would encourage potential investors.

2. Objectives The general objectives of the research on “Prospects and Problems of the Dairy Industry of Bangladesh� are as follows: 1. Identify Dairy industry as a major thrust sub-sector unrecognized by the government of Bangladesh.

2. Study the background of the Dairy industry of Bangladesh, point out the major features and analyze the current scenario.

3. Determine possible problems hindering local and foreign direct investment growth in each economic sector with particular focus on the Dairy Industry.

4. Unearth and suggest ways of encouraging potential investors especially in the Dairy Industry.

The specific objectives of the project are to explore: 1. Current and past investment sources 2. Study background of investors i.e. processors 3. Aspects of dairy neglected by investors 4. Average returns from dairy received by current and past investors 5. Benefits in terms of employment- Population involved in dairy, creation of employment opportunity and potential rise in income of farmers from increased investment, sustainability of business, society/health- Health of the people of Bangladesh who can shift consumption to fresh milk from powdered, processed milk, balance of payment- Decrease in import of fresh milk if domestic consumption can be met by the local dairy industry, economic output- Increased milk yield etc.

3. Scope This study will cover information on different aspects of the dairy industry of Bangladesh, giving main focus on liquid milk production and processing and point out the problems and prospects. Dairy farmers in the project target area of Strengthening Dairy Value Chain in Bangladesh (SDVC) of CARE Bangladesh i.e. Northern Bangladesh especially Sirajganj,

prominent milk processors and their chilling plants, other NGOs working on dairy and a powder milk importer in Dhaka have been within the scope of this report in terms of information gathering.

4. Methodology This is an exploratory research that attempts to find out problems and prospects of the dairy industry of Bangladesh.

This exploratory research would consist of three main parts: 1. Diagnosing the situation: This part would include all the details about the background the study i.e. the existing situation of the macroeconomic variables and the Dairy industry with respect to investment.

2. Analysis of the situation to detect problems: This part would include weighing out the pros and cons of the existing situation and finding the problems and their causes.

3. Discovering new ideas and suggestions: This part would include the conclusion about the existing situation, work out possible solutions to the problems found in the previous section and attempt to make suggestions.

4.1 Sources of Information The following sources of information have been used in the project: Secondary source of information • •

Internet Existing, accessible reports and data on the dairy sector of Bangladesh, of the Strengthening Dairy Value Chain (SDVC) Project of CARE Bangladesh

Primary source of information • •

Key informant interviews- academicians working on livestock research, existing investors, potential investors, multinationals marketing powdered milk, and CARE staff working on the SDVC project Survey of selected dairy farmers

4.2 Information gathering Techniques Information will be gathered from the above sources of information using the following techniques: Qualitative There are certain classifications under this technique: 1. Experience surveys- This will include informal discussions with faculty members, economists and CARE Bangladesh staff. This part will help develop an understanding of the issues to be covered in the research and provide a background guiding the next course of action.

2. Secondary Data Analysis- This would include collection of all existing relevant data from the secondary sources of information

3. Key Informant Interviews- These would help find out critical issues and would also help reveal different perspectives unnoticed earlier. The interviews can be of government officials working on economic aspects, members of development oriented organizations, economists etc.

4. Focused Group Discussions- These would be carried out with members of CARE staff working on SDVC, potential and existing investors, government officials and members from NGOs. Quantitative Sample Surveys- These would be formal questionnaire oriented surveys and respondents were dairy farmers. The method of sampling to be pursued was random sampling. The sample size was thirty dairy households.

Possible sampling and research errors The following errors may have occurred beyond the control of the surveyor while working on the project: • Random sampling errorThere may be a difference between the response of the sample and the actual data that would be revealed if a census was to be carried out.

• Response bias/Deliberate falsification/Social desirability biasThe farmers were of two extreme natures. One group tended to overstate their expenses and understate incomes out of the subconscious feeling that in doing so they may be helped by the NGO. On the other hand, the other extremists tended to overstate their incomes. This stemmed out of an attempt to maintain ego and dignity. These may have hampered finding to a certain extent.

5. Limitations A number of limitations were faced while carrying out this project. Those limitations are as follows: • Lack of access to relevant information from processors, retailers and multinational companies during key informant interviews • Validity limitation of conclusions drawn from this project for farther analysis as the economy is highly dynamic and so is the dairy industry with increasing involvement of stakeholders and NGOs 6. A Perspective into the Economic Sectors of Bangladesh The economy of Bangladesh is largely agrarian. The country started off at its independence with a dominant role of the public sector. However, since the mid-seventies, the country transcended from being dependent on the public sector towards establishing a market economy with emphasis on private sector-led economic growth.

The agricultural sector still plays a dominant role in the GDP growth rate. In Bangladesh, the GDP growth rate fluctuates due to the variability in production in the agricultural sector. But the contribution of the service sector dominates the GDP.

Table 1: Inter-country Comparison of GDP Composition Country Agriculture Industry

Services

1980 1990 2001 1980 1990 2001 1980 China 30.1 27.0 15.2 48.5 41.6 51.1 21.4 India 38.1 31.0 24.7 25.9 29.3 26.4 36.0 Thailand 23.2 12.5 8.6 28.7 37.2 42.1 48.1 Bangladesh 31.7 30.4 22.7 20.9 21.7 26.4 47.4 Source: Key Indicators 2002, Asian Development Bank and BBS

1990 31.3 39.7 50.3 47.9

2001 33.3 48.8 49.3 50.9

The above shows the decreasing dependence of Bangladesh on agriculture and rising GDP from industry and mostly service. The above table also shows the dominance of the service sector of Bangladesh, compared to those of China that has the highest GDP from industry and the lowest from agriculture. Bangladesh is more in line with the trend of India in terms decreasing agriculture, stagnant industry and even decreasing industry and soaring service sector. Thailand on the other hand has a strong industrial sector besides having a big service sector and very little agricultural activity.

6.1 Inflation Inflation in Bangladesh in the year 2007 was 6.9 percent. Though this is quite high compared to inflation rates in previous years, compared to those of India, Pakistan and Sri Lanka where inflation rates in the same period were 6.9 percent, 8.1 percent and 19.3 percent respectively, Bangladesh is not in too adverse a situation. Two distinctive features have been observed of the recent inflationary trend: food inflation is higher than nonfood inflation and rural food inflation is higher than urban food inflation. In the graphical representation below, it can be observed that the red line representing inflation in food items is higher than that of general items.

Source: CPD- IRBD Figure 1: Trend in National Inflation of Bangladesh The diagram below shows the higher and erratic rural food inflation compared the lower and steadier urban food inflation. Rural food inflation reached a peak of nearly 16 percent in October 2007 whereas the urban food inflation at the same point of time was a little over 8 percent only. On the other hand, inflation in non food items though lower than that in food items, still follows the same trend with higher inflation in rural areas than in urban areas.

Source: CPD-IRBD Figure 2: Trend in Food and Non-food Inflation in Bangladesh, FY 2007 Whereas the reason for higher inflation in food can be attributed to the global food crisis followed by adverse weather conditions both in the international and national levels, the higher inflation in rural areas may be the result of lower supply to those areas following a the high demand pressure from urban areas for food which is already low in supply. Urban areas would get first priority and market forces also drive resources to areas where there is higher demand and hence higher price being offered. Consequently, rural areas have higher food inflation followed by lower supply raising prices.

Several reasons for the current general inflation have been pointed out by CPD. The reasons are largely cost-push and hence a supply side pressure on market prices. The reasons have been divided into two broad categories: domestic and international. Domestic reasons include • • • • • • • • •

Increased production cost of domestic commodities Market concentration Information gap between different stakeholders due to too many market intermediaries Dislocation in market structure due to anti-corruption drive Increased transportation cost Relatively high cost of doing business High interest rate and bank charges Lack of institutional monitoring mechanism Inflationary expectation originating from the current inflation trend

International reasons include • •

global supply shocks due to adverse climatic conditions in major exporting areas global price hike of petroleum products

The above reasons are more long term in nature and hence cannot be expected to cease to exist within the short term. Therefore, it is expected that during the first half of FY 20072008, national inflation may as well go upto 9 percent according to CPD, at least till the harvest of 2008.

6.2 Unemployment

Bangladesh had a civilian labour force 50 million as of 1999. According to LFS 1999-2000, 33.5 million of the population aged 15+ are not in the labour force. Of this group of 33.5 million people 26.2 million are female. A striking feature is that females are highly engaged in household work, with 25.4 million people or 34.2% of the active population involved in household work and of these 23.9 million or 66.6% is female.

Table 2: Occupational Distribution of the Labour force of Bangladesh Occupation (1995-1996, in thousands) (1999-2000, in Annual growth rate thousands) (percentage) Male Female Both Male Female Both Mal Female Bot e h Total 30419 18652 49071 32429 19335 51664 1.7 0.9 1.4 Technical 1107 573 1680 1202 398 1600 2.1 -7.6 -1.2 Administration 171 9 181 174 15 189 0.4 16.7 1.1 /Managerial Clerical 1059 124 1183 1092 130 1222 0.8 1.2 0.8 Sales 5377 438 5815 5436 437 5873 0.3 -0.1 0.2 Service 658 769 1427 1024 1246 2270 13.9 15.5 14.8 Agriculture, 16132 14835 30967 17231 15150 32381 1.7 0.5 1.1 forest, fisheries Production, 5915 1904 7819 6271 1959 8230 1.5 0.7 1.3 transport, others Source: BBS From the above table it is evident that the highest growth in employment of people has been in the service sector with almost 15 percent rise in the number of people employed from mid 1990s to 2000. Whereas technical work has experienced a reduction in its workforce, the number of people employed in agriculture has increased by about 1 percent since the mid 1990s.

Source: CPD’s calculation based on PRSP Figure 3: Total Employment in Bangladesh, 2006-2008 The graph above shows that as of 2008, employment opportunity existed for almost 1 million people in the population. The level of job opportunities created were always less than the

target and even the projections of Poverty Reduction Strategy Papers. According to CPDIRBD, 1.2 million new job seekers annually enter the labour market in Bangladesh. In 2008, as opposed to the target of 3.4 million jobs in the market, only about 1 million were available creating a shortfall of 2.4 million jobs causing unemployment.

6.3 Balance of Payments The traditional export items of Bangladesh are: raw jute, jute manufactures (Hessian sacking, carpet backing, carpets), jute products, tea, leather and leather products. Nontraditional export items include garments, frozen shrimps, other fish products, newsprint, paper, naphtha, furnace oil, urea and ceramic products. The economy of Bangladesh depends on imports both for consumer items and industrial raw materials. The major import items of Bangladesh are: Wheat, oil, seeds, crude petroleum, raw cotton, edible oil, petroleum products, fertilizer, staple fibers, yarn, iron and steel, capital goods. Major trading partners of Bangladesh for both exports and imports include USA, EU countries, India, China, Japan, South Korea, Australia, Malaysia, Hong Kong, Taiwan, Indonesia, Thailand, Saudi Arabia and UAE. A breakdown of import data for the first five months of FY2005 on settlement of letters of credit (L/C) basis indicates large increases for capital machinery (60.7%), intermediate goods (70.5%), petroleum products (15.3%) and consumer goods (19.0%). These accelerated production in the domestic and hence export sector. Nevertheless, the larger growth in imports in absolute terms offset the increase in exports, and resulted in the widening of the trade deficit to $812 million in the first four months of FY2005 compared with a deficit of $526 million during the corresponding period of the preceding year. Current account still had a surplus of US$75 million in the first four months of FY2005 due to the rising trend in workers remittances. Despite a lower surplus in current account from the previous year, a huge financial account surplus led to the higher overall balance of $490 million compared with the balance of $150 million in the same period of the previous year. The higher surplus in overall balance led to the build up of stronger reserves, which stood at $3,223 million (or 3.5 months of imports) at the end of December 2004.

6.4 Economic Growth Bangladesh has maintained a steady economic growth rate of around 5 percent during the past ten years in spite of frequent natural calamities. Internally, the growth engine continues to be the private sector. Increasing consumer demand fosters more investment and hence higher economic growth through greater purchasing power again followed by more investment. However, there is a drawback in this section for the time being due to internal political uncertainty. The external demand is buoyant, as the outlook of industrial countries seems to be relatively healthy. There are, however, several downside risks including high oil and food prices. Nevertheless, The economic growth rate needs to increase to at least 7 percent to achieving the Millennium Development Goals (MDGs) of a 50 percent reduction in the poverty incidence by 2015.

Economic growth takes into account qualitative aspects as well as quantitative. As the most densely populated country in the world, Bangladesh is facing the problems of illiteracy, malnutrition, unavailability of medical facilities etc. According to a World Bank estimate, Bangladesh has the 36th largest economy in the world in terms of GNP based on the

purchasing power parity method of valuation, and the 55th largest in terms of nominal GNP in U.S. Dollars (BILS-Bangladesh Institute of Labour Studies, 2003).

6.5 Investment Both domestic and national savings are increasing, but the rate of investment is low compared to the rate of saving. Under the impact of private sector-oriented reforms in the national economy, local and foreign direct investments have been rising and this resulted in gradual increase in private sector investment compared to public sector investment.

Table 3: Public Vs. Private Investment as Percentage of GDP in Bangladesh FY Total ( % of GDP) Public Investment Private Investment 1990-91 16.90 6.63 10.27 2002-03 23.22 6.72 16.49 Source: Bangladesh Bureau of Statistics (BBS).

There are two main components of the slow increase of investment in Bangladesh: Higher Incremental Capital Output Ratio (ICOR) and widening gap between volume of savings and the volume of investment.

6.5.1 Incremental Capital Output Ratio (ICOR) ICOR in Bangladesh rose in 2007 followed by a fall in 2006. This recent trend however portrays an adverse capital productivity and hence a slow down in investment.

Table 4: Indicators of Investment in Bangladesh Indicators of 2005 investment Investment as 24.53 percentage of GDP ICOR 4.09 Source: CPD-IRBD

2006

2007

24.65

25.30

3.72

3.89

According to CPD-IRDB, if Bangladesh is to meet the challenge of attaining an economic growth rate of 7 percent in FY 2008, investment must be equivalent to 26.20 percent of GDP and an ICOR, 3.70. This implies an additional investment of Tk. 20,930 crore (worth almost an extra 1 per cent of GDP) over FY 2007.

6.5.2 Widening gap between savings and investment The gap between the level of savings and the volume of investment has been widening especially in recent years. The following shows the graphical representation of this in terms of percentage of GDP.

Source: Adopted from CPD-IRBD Database Figure 4: Savings Investment Gap in Bangladesh Increase in savings is a very favourable sign showing that revenues and hence national income is rising and people are capable of saving more and having more discretionary income despite high inflation. Nevertheless, this capital accumulation, if followed by higher investment could result in greater economic growth. The slow down in investment especially in recent years may be attributed to the increased political ambiguity in the country followed by the declaration of “emergency” and uncertainty regarding upcoming elections and other turmoils.

The economy of Bangladesh is subdivided into various economic sectors including Agriculture & Forestry, Fishery, Mining & Quarrying, Industry (Manufacturing), Electricity, Gas & Water Supply, Construction, Wholesale & Retail Trade, Hotel & Restaurant, Transport, Storage & Communication, Financial Intermediations, Real Estate, Renting & Business Activity, Public Administration and Defense, Education, Health and Social Services, Community and Social and Personal Services. In the proposed national budget of FY 2007-2008, budget expenditure had the following pattern: • 34.4 percent for physical infrastructure development • 34.3 percent for social infrastructure • 19.3 percent for public administration and the rest for interest payments of public debt and net lending A farther breakdown of the budget shows the following: Table 5: Sector-wise Distribution of National Budget 2007-2008 of Bangladesh

Source: CPD-IRBD Database Public Service, followed by the Energy sector had the biggest percentage change in national budget allocation compared to the allocation to these sectors in the previous year. The largest amount however has been allocated to Education and Technology. While agriculture’s contribution to GDP continues to decrease, the amount of budget allocated to it has increased compared to the previous year but is quite low compared to those of the other sectors.

The major invested sectors and sub-sectors among the ones aforementioned are: Service, Chemicals, Textiles, Food & food related industries, Glass & ceramics and energy based projects. The major potential sectors including “Thrust Sectors” identified by the Bangladesh Government, offer probable choices for investment. Those sectors are identified below: • Textiles, RMG and Knitwear • Energy (Power Generation and Transmission), Natural Gas-based Industries • Telecommunication • Fisheries, Agro-based Industries • Electronics, Computer Software Development and Data Entry • Leather and Leather Goods • Tourism • Light Industries However, several sectors and sub-sectors that have high potential can be highlighted: • Light engineering • Ceramic • Dairy farming & dairy products • Poultry farming & poultry products • Jute goods • Paper and pulp • Cement • Sheet and plate glass Such areas having high potential could be explored in an attempt to raise investment, employment, exports and hence economic growth. Amongst such sub-sectors is Dairy and dairy products that employs a considerable proportion of the population of Bangladesh and holds high potential. With more investment and support, this industry has the potential to develop to meet local demands followed by contribution to the export basket, thus 7. Global Dairy Dairy is a profitable business with world average profit of 8 percent. According to Bloomberg, Food and Agricultural Organization of the United Nations, world demand for milk is growing annually by 3 percent. This creates a vast scope for dairy business worldwide. USA is the largest exporter of milk while the European Union is the largest exporter of cheese. New Zealand, the EU, and Australia remain the world’s largest butter exporters, supplying 90% of total butter trade. The least expensive countries for milk and cheese are all in Eastern Europe, the report suggests. The cheapest pint of milk can be found in Poland, which is 33 per cent cheaper than the average, whereas dairy products in Latvia, Lithuania and Slovakia are all 25 per cent cheaper. The EU having fully revoked subsidies on all exported dairy products for the first time in 40 years due to these rising prices is also

facing high prices. In a study of 27 international dairy companies from Europe, the US and Australia, UK processors were found to be leading the way in efficient production, according to national industry association Dairy UK. The following shows the per capita milk consumption of the highest milk consuming countries of the world.

1000 900 800 Milk (Gram)

700 600 500 400 300 200 100

s B rit ai n

er la nd

U SA

N et h

Ire la nd A lb an ia Fr an ce Sw ed Sw en itz er la nd Ic el an d

Fi nl an K az d ak hs ta n G er m an y A us tr ia B el gi um R om an ia

0

Countries

D ata Source: Bloomberg; Food and Agriculture Organization of the United Nations Figure 5: Top Fifteen per Capita Milk Consuming Countries The graph shows that Ireland is the world’s highest milk consumer with each person consuming 919.91 grams of milk per day. It is interesting to note that out of the fifteen top consuming countries, more than 70 percent are European. This proves that Europe has the largest milk producers of the world. Another perspective is that Europe has the healthiest population of the world in terms of intake of calcium, vitamins A and B and proteins.

Amongst other countries, India is coming up as a major milk producer of the world.

CASE 1 The dairy industry in the India has shown remarkable development in the past decade and India has now become one of the largest producers of milk and value-added milk products in the world. The dairy industry has developed through co-all over the country e.g. In Maharashtra, during 1997-98, had 60 milk processing plants with an aggregate processing capacity of 5.8 million litres per day. In addition to these processing plants, 123 Government and 33 co-operatives milk chilling centres operate in the State.

India contributes to world milk production rise from 12-15 % & it will increase upto 3035% (year 2020. A comparative study is as follows: Cow 85 42

World India

Buffalo 11 55

Others 4 3

Milk Volume(million tonnes)

Milk Production Growth in India 300 200

India's milk production

100 0 1950

1996

1997

2020

Year

Dairy boards are widely promoted as a suitable institutional framework within which small scale dairy development can take place. Perhaps the best known case is that of India which, through a commodity monetization programme under Operation Flood, has grown to become the second largest milk producer in the world. This was due not only to the massive investments in commodities but also to the management and organization skills of the National Dairy Development Board of India. It is however important that national institutions are representative of smallholders who form the majority of dairy producers in most developing countries. This can only be achieved when there is, in parallel, development of local producer, collector and marketing institutions.

Dairy imports to developing countries have increased in value by 43 percent between 1998 and 2001. Demand for milk in developing countries is expected to increase by 25 percent by 2025 (Delgado et al, 1999), partly due to population growth but also because disposable income is being spent on a greater diversity of food products to meet nutritional needs.

Demand for dairy products in developing countries is expected to continue rising (Delgado et al., 1999). Consequently, through mobilizing the small-scale dairy sector to increase production, benefits such as increased incomes and food security can be received by small scale producers. However, the possibility that dairy imports may reach 38 900 tonnes of milk equivalent by 2030 severely challenges the potential success of the local dairy sector in developing countries (FAO/IDF, 2004).

According to Food and Agricultural Policy Research Institute, world milk production will grow by 1.7% annually over the next decade, with the most rapid growth occurring in China, India, Argentina, Brazil, Uruguay, Australia, and New Zealand. Trends in developed nations show intensification of milk production in order to reap the benefits of economies of scale.

The same is true of some emerging economies, such as Brazil, where the number of small scale producers has decreased as national production has increased, whereas in many developing countries with a potential for dairy development, milk production remains smallscale, scattered and poorly integrated into the market chain. Despite a rising availability of milk in many importing countries, dairy product trade will continue to expand substantially for the next decade, especially of cheese, which increases 30%. As implementation of CAP reforms leads to stagnation in EU butter and NFD exports, Australia, New Zealand, Argentina, U.S.A and India will expand to compensate for the reduction in international supplies from the EU. Strong demand driven by income growth, population growth, and urbanization, along with gradual growth in global supplies, is already putting upward pressure on prices of milk. Increased awareness among an educated world population is also creating added pressure on demand for milk. Especially in the developed countries, various programs are held to foster the consumption of milk. Such an effort by Dairy Australia, backed up by FAO follows.

CASE 2 World School Milk Day

Schools all over the world celebrate World School Milk Day on 26th September by every year by drinking lots milk. The first World School Milk Day was celebrated in September 2000 and has since become an annual event celebrated in many countries throughout the world. This is widely promoted by the Food and Agriculture Organization (FAO) of the United Nations.

An added challenge for dairy farmers worldwide is the global climate change. Like most businesses today agriculture needs to consider its contribution to the climate change. At the same time the increasing global temperature presents a fundamental threat to millions of farmers all over the world. In a joint effort to tackle climate change and further increase sustainable practices, International Dairy Federation UK and De Laval have come together to organise the “First Dairy Summit” under the theme “the Heat is on.”

7.1 Current World Milk Crisis However, the recent world food crisis has not spared the world dairy industry. Due to shortage of supply, milk prices have skyrocketed. Because of high feed costs, strong global demand, and limited growth in supplies from major exporters, world butter, cheese, non fat dry milk and whole milk powder prices increased by 65.8%, 50.0%, 95.3%, and 90.6%, respectively, in 2007, to set record-breaking levels. Increasing populations in emerging markets and oil-rich nations is putting pressure on farmers to increase their output. On the other hand, natural calamities like droughts have triggered off the current shortage of supply of milk. Reduction of EU subsidies that eliminated milk surpluses in Europe also contributed to this shortage. Though it has been reported that milk production in USA is on the rise despite a decrease in the number of cattle, in other parts of the world, farmers fail to meet demand while milk supplies dwindle. In the USA, during the summer months of 2007, some states even experienced milk yield rises of 5-6 percent (USDA Report, 2007). Fearing milk shortages in the EU, USDA hoped to keep up the high milk production rates. Australia and New Zealand have also experienced problems over recent years as ongoing effects of drought continue hurt the industry. No surplus remains with any of the largest dairy exporters of the world.

This shortage in world milk supply besides its specific aforementioned reasons has a positive connotation that indicates that rising incomes, from China and India to Latin America and the Middle East, are lifting millions of people out of poverty and into the middle class. Strong economic growth and population growth favor higher dairy demand, which puts upward pressure on dairy prices in the long term. The International Herald Tribune described the situation as “....milk is the new oil”. According to the article that stated this, the factors that had forced up the prices of copper, iron ore, oil etc. are now driving up the price of milk. Such positive indications are being considered by world economists as a good opportunity of strengthening the dairy industry. Strong prices should encourage production growth in many countries.

7.2 Outcomes of the Milk Crisis Supply has been hampered to the extent that the price of skimmed milk powder has risen by 60 percent within six months. Since 80 percent of the world’s exported milk powder is sold to developing countries, the increased prices are especially causing problems. Humanitarian work such as children’s nutrition programs in the Far East would have to be shrunk following the price hike and milk shortage. The rise in milk prices has created a ripple effect and is

causing problem in all linked dairy industries in the world. The affected industries include milk processors, ice cream and chocolate producers such as Hershey’s and also fast food retailers such as Domino’s Pizza for cheese used in pizza, Starbucks and many other food giants all over the world.

Following the milk crisis, there have been changes in several countries involved in milk production and consumption. As New Zealand and Australian butter exports continue to rise, EU net exports stagnate due to increased domestic demand. A more abundant milk supply enables Brazil to generate substantial exportable surpluses of dairy products. Driven by rapidly growing domestic demand and strong world prices, Indian butter production increased 2.4 mmt, accounting for about 88.9% of growth in total world butter production. Indian butter exports reached a record and then decreased as more production got absorbed by domestic markets. Significant increases in demand are reported for local or regionally specific products which may be considered as niche products. The National Dairy Development Board (NDDB) of India recently reported an increase of their production in response to market demand for indigenous fermented milk products from 26 623 MT in 1999/2000 to 65 118 MT in 2003/4 and of paneer from 2 008 MT in 1999/2000 to 4 496 MT in 2003/4. (NDDB, 2004/5) This shows not only the capacity of the Indian dairy industry to expand to meet consumer demand but also the growing appreciation of processed products by mid to high income groups who have the purchasing power to afford these products.

Russia, a leading importer in the world butter market, gradually increases its butter production and consumption. As the growth in consumption continues to outpace the growth in production, Russian butter imports increase. Driven by economic growth and Westernized diets, steady growth has occured in Asia, especially in China. Total butter imports into China, Japan, South Korea, and Southeast Asia increase 62% over the baseline. Egypt increased its imports by 3.1%, while Mexico’s butter imports remain stable. Total cheese production grew by 22.3%, with the U.S. and the EU accounting for over 64%. Due to an increase in milk quotas, EU increased its milk production to reflect the new quota level. As quota restraints are wound down through reform of the EU's Common Agricultural Policy (CAP), processors in both the EU and UK will have greater technological means than rival markets to cater for consumers needs.

Higher returns from cheese production, and restricted milk supply have caused more milk to be diverted from butter and non fat dry milk into cheese production. Cheese production rose 16.6% over while butter and non fat dry milk production levels decreased. Both butter and NFD prices remained above the intervention prices but with a decreasing trend. Australian and New Zealand cheese production levels increased 3% and 2.5% annually, respectively.

Strong demand drove a 25.4% increase in world cheese trade over the decade. In the meantime, Australia and New Zealand’s combined cheese market share increased by 2% and reaches 42.9% respectively. Argentina and Ukraine have become increasingly important players in international cheese markets, together accounting for 13.1% of total exports by 2017. Russia and Japan are the leading cheese importers, accounting for roughly 41.3% of total world imports. Sustained by economic and population growth, cheese imports of other Asian countries (China, Indonesia, Malaysia, Philippines, South Korea, Thailand, and Vietnam) increase by 5.6% annually.

In response to these changes and opportunities there is a need for a more market-oriented risk based approach to dairy development which firmly positions the smallholder farmer/group as the client beneficiary with decision making powers.

8. Background of Dairy in Bangladesh Dairy in Bangladesh is a field of vast possibilities but marked with an array of different problems. Considering the ever-increasing demand for high value food products, dairy can be considered a potentially important industry of the world economy, and also the economy of Bangladesh. Nevertheless, at present, dairy’s contribution in terms of GDP is not significant enough to be separately measured and forms part of the contribution under the livestock head.

Nevertheless, according to World Bank estimates in “An Assessment of Agro-business Opportunities and Constraints” the dairy industry of Bangladesh has vast potential as growth in agricultural GDP has slowed down due to stagnation of crops and horticulture since 2001.

On the contrary the livestock share of agricultural GDP has had a stronger growth. In the year 2005 Bangladesh had a cattle population of 24.5 million and an annual milk production of 2.26 million tones, out of which 90 percent came from cattle (Ministry of Fisheries and Livestock, GoB 2005b), according to World Bank.

In Bangladesh, 80 percent of the population of 147 Million lives in rural areas. There are more than 15 million rural households with over two thirds estimated to keep livestock. The bottom 40 percent possess just 3 percent of the land; 48 percent live below the poverty line; and 30 percent consume less than 1,900 calories per day against the minimum desired level of 2,300 calories. This creates a vast scope for agriculture.

The agriculture sector generated 17.35 percent of GDP for the economy of Bangladesh in FY2006 according to the Directorate of Livestock Services, Bangladesh, 2006- 2007. The same report revealed that agriculture generates two thirds of total employment, contributes a quarter of total export earnings and provides food security to the increasing population.

Amidst this the livestock sub-sector generated 2.95 percent of GDP or 17 percent of the GDP contribution of agriculture. 20 percent of full-time employment in Bangladesh (DLS, 2000) is accounted for by the livestock sub-sector. This contribution to GDP includes the direct economic outputs of meat, milk, and hides. If the economic value of byproducts like draught power and manure for fuel and fertilizer could be added, livestock’s contribution to GDP would double to almost 6 percent. Livestock are very important to the economy and perform multiple functions including provision of food, nutrition, income, savings, draft power, manure and transport. Livestock allow the poor and landless to exploit common property resources, such as roadsides, open grazing areas and water bodies. Cattle are by far the most important farm animals, the majority being kept by smallholders and directly linked to family income, nutrition and welfare. Milk Production has increased at a growth rate of 1.9% per annum from 1987-88 to 2004 (1.51 M Tons-2.1 M Tons). According to FAO PPLPI Working Paper 7, with a production of 2.11 million tones of milk in 2002, Bangladesh produced 0.35 percent of total world milk production. The same study also shows that as of 2003, low milk production in relation to high population results in a per capita milk production of 13 litres/ year, which is 16 percent of the per capita milk production in India.

Bangladesh spends a large amount of foreign exchange each year to import milk powder and milk-based products and by-products including much needed baby foods. Imports currently range between 10 and 20 percent of annual consumption of milk. According to FAO PPLPI Working Paper 7, in 2002, 250, 000 million tones of milk had to be imported annually to satisfy national milk demand. There exists ample scope in Bangladesh to produce enough milk for processing and to use as a basic ingredient for production of locally made baby foods by local companies or in collaboration with multinational companies. Milk products, byproducts and baby foods could even be exported.

Dairy forms a major part of the livestock sub-sector of the agriculture sector with Bangladesh having the third largest cattle population in Asia and twelfth largest cattle population in the world. In the milk pocket areas i.e. the north and northwest of Bangladesh, half of the landless farmers own dairy animals. They spend more than 50 percent of income generating time on dairy. Nearly half the milk in Bangladesh is produced in the northern districts of Bangladesh. Besides ownership of a larger number of dairy animals, good availability of fodder and multiple dairy development programs mainly have fostered highest milk production in the region.

The dairy industry in Bangladesh and some South Asian countries like India, Nepal, Pakistan and Sri Lanka is characterized by: • small-scale, widely dispersed and unorganized animals • low productivity of cattle • lack of assured year-round remunerative producer price for milk • inadequate basic infrastructure for provision of production inputs and services, and for procurement, transportation, processing and marketing of milk • lack of professional farm management • predominance of mixed crop–livestock farms • animals fed on crop by-products and residues, which have a very low opportunity cost • dairy development policies and programmes followed in these countries, including those relating to foreign trade, are not congenial to promoting sustainable and equitable dairy development Animals are of great importance for landless and small farmers. In Bangladesh, livestock are viewed as means of alleviating poverty and improving the livelihoods of landless farmers and smallholders. Nevertheless, livestock keeping in Bangladesh is almost always a part of mixed farming and partly due to this, the system of production is not well integrated. Hence the maximum possible output is almost never met. The majority of dairy farms in Bangladesh are privately owned. Entrepreneurs are also getting involved in small-scale and commercial dairy farming in urban and peri-urban areas through micro-credit programmes, provided by Grameen Bank and NGOs, which are aimed at poverty alleviation. On the basis of primary use of cows, farm size and use of dairy products, dairying may be classified into the following four categories (i) dairying for home consumption, (ii) production from dualpurpose cows (draft and milk), (iii) small-scale dairy farming and (iv) commercial dairy farming (Table4). Until quite recently milk was a by-product of cattle, used largely for making traditional sweets and in tea. Dairy has a direct impact on income generation, poverty alleviation and availability of animal protein. Quite an old analysis, Miyan 1996, revealed that dairying is the predominant source of income generation compared to poultry.

The dairy products of Bangladesh range from pasteurized liquid milk, butter, ghee, ice cream, and ice lollies, full cream milk powder, skimmed milk powder, flavoured milk, sweet curd, cream and sweetmeats. Nevertheless, liquid milk dominates dairy in Bangladesh and this paper mainly focuses on production, processing and marketing of liquid milk.

8.1 Formal and informal sectors Milk production in Bangladesh can be classified into formal and informal sectors.

Although direct sale to the consumer is the most common route, recent studies have shown that up to five transactions may take place in the formal dairy chain between the producer and the consumer (FAO, 2004).

8.1.1 Formal sector The formal sector includes all milk processors, ice cream manufacturers and retail outlets of sweet makers and other dairy products like yoghurt, butter and ghee. The formal sector milk production accounts for only 10 percent (CARE Bangladesh) of the total milk production.

The formal sector is marked by problems with milk fat content, corruption and problems with transportation and processing. However, there has been private sector involvement in recent years and that may reduce corruption in the formal milk market.

8.1.2 Informal sector Milk in the informal channels is hardly brought into notice. The informal channels include door-to-door supply of milk by milkmen (gowalas) for domestic consumption accounting for 50 percent of the 90 percent of the informal channel production. On the other hand, the remaining 40 percent makes up the supply to tea-stalls and informal dairy product manufacturers of sweets, ghee, butter etc.

One of the unique aspects of the dairy sector in many developing countries in the informal nature of the milk market. It is estimated that over 80 percent of milk consumed in developing countries, an estimated 200 billion litres annually is handled by informal market traders, with inadequate regulation (FAO, 2004). Substantial work has been done on characterising dairy supply chains but local markets have largely been ignored. Increasing urbanisation means expanding markets for producers particularly in developing countries and countries in transition where the highest rates of urbanisation are predicted. Additional analysis of informal milk value chains is required to assess what is driving the changes that are occurring, whether they are expanding or shrinking, and how to improve market access for small scale producers to the emerging peri-urban markets

9. Structure of dairy value chain in Bangladesh Formal Channel

Informal Channel

Dairy Farmers

Collectors

Processors Local Chilling Plant Transportation to processing plant

Processing Plant Distribution Sales centre Centre

Indirect Influence Government Research Organizations

Veterinary Institutes

Policy Environment

NGOs

Artificial Insemination Firms

Financial Organizations

Retailer Packaging Firms

10. Dairy Farmers

Collectors/ Milkmen/

Feeds and Fodders sellers

Consumers

Sweet shops/tea stalls/ cafes/restaurants

Small scale dairying can also be successfully carried out with a limited land base provided access to water, fodder and basic animal health services are available. The growth of milk production in Bangladesh is a good example where even with minimal land resources available, landless smallholders can sustainably produce milk (FAO 2001).

Dairy farming in Bangladesh involves small, medium and large scale dairy farmers. Most of these farmers pursue livestock farming in addition to a parallel activity such as crop or fish farming. Milk from all kinds of farmers contributes to the formal and informal milk markets.

The table below summarizes the composition f all dairy farmers in Bangladesh.

Table 6: Land and Cattle Ownership of the Dairy Farmers of Bangladesh Source: The Bangladesh Country Paper and DLS, 2000 According to World Bank, Bangladesh had 24.5 million cattle in 2005. 62.3% of female cattle were being raised by small- and medium-sized farms. The landless and small farmers, who account for 89.9% of all farmers, respectively and own 48.05% of the cattle of Bangladesh, produce most of the country’s milk. Landless and small farmers depend largely Farmer Description

Land Ownership

Percentage of total Cattle Ownership farmers (percentage of cattle population) Landless None 9% 18.45% Small 0.05–2.49 acres 73% 29.6% Large Greater than 7.5 8.4% 32.4% acres on livestock for their subsistence.

Small-scale farmers comprise of the majority of dairy farmers and have the highest contribution in terms of supply of milk. Consequently, most importance is assigned to them

by NGOs and processors. Nevertheless, most small scale dairy farmers in Bangladesh remain in poverty despite the ever-increasing demand for high value agricultural goods including dairy products.

10.1 Milk yield In 2005, the total milk production (cow and buffalo) of Bangladesh was 2.26 million tones (World Bank). On average, a Bangladeshi cow produces 200 litres of milk every year. This is below 30 percent of the milk yield of the average Indian cow. This is the result of poor feed and low milk productivity of local breeds. According to International Farm Comparison Network of FAO, milk yield of local cows increased by 5 percent while milk yield of cross bred cows and buffaloes rose by 4 - 8 percent in the period 1996-2000.

10.2 Milk production costs Milk production cost includes the following components: feed costs, grazing costs, labour costs, opportunity cost if family labour is put in, interest payment on loan.

10.2.1Labour costs This is the main component of the milk production cost structure. Monetary costs of labour however are not applicable to dairy farms of all sizes. The large farms only have monetary labour costs as they do require and can afford to employ external labour. The Medium and small farms on the other hand do not find it feasible to employ labour for a small number of dairy animals and also perceive it beyond their affordability. Consequently, the time that family labour spends on household dairy has an opportunity cost that is defined as the time they could have spent on raising poultry, goats or working on cultivating the land.

10.2.2 Feed costs Dairy farming in Bangladesh makes use of very primitive techniques. Milking is done using hands and feed are mainly based on home grown fodder and straw with a small component of energy rich agricultural by-products such as cereal bran, broken rice, molasses and oilseed cakes. Nevertheless, many farmers who are not self-sufficient as dairy producers and do not produce adequate quantities of cattle feed by themselves, have to procure feeds from households that do produce such feeds. In Sirajganj, an important milk pocket of North Bengal, depending on type of breed, dairy households spend as much as 200 BDT per day on cattle feed.

10.2.3 Grazing On the other hand, cattle graze for free on others’ land. This is particularly true for small landless farmers. Consequently, the feed costs of landless small farmers are less than that of larger farmers who actually have to purchase enough feed to compensate for the lack of grazing. An example of this can be revealed from the comparison between Marium’s and Amena’s cattle rearing. There is a problem in this regard with the availability of open grasslands for free grazing of cattle. Bangladesh is an agrarian economy with most of the land being occupied for cultivation throughout the tear. Ratandiyar is a good example of the absence of grazing land for cattle.

CASE 4 Koyra Ratandiyar is a relatively well off village in Ullahpara, Sirajganj. In this region, over 60 percent of the households have multiple farming activities. The most common farming functions are animal and crop production. Out of 179 households in Ratandiya, 66 households are dairy households each with at least 1 cow. Marium Begum, a dairy farmer of Ratandiya owns one cow that yields 2.5 litres of milk every day. This being a local cow, consumes less and Marium spends 200 BDT on cattle feed per week. On the other hand, Amena, of the same village owns two crossbred cows yielding 7 litres of milk everyday. For these two cows, Amena spends 130 BDT on feeds everyday. Both women sold milk to collectors of Milk Vita at 22 BDT on the day of interview i.e. 20 May, 2008. This left a diurnal net profit of 27 BDT for Marium and 24 BDT for Amena. However, there is no way to measure fat content at the point of sale of milk by farmers and hence irrespective of the fat content of the milk, a blanket rate is offered for all milk purchased by collectors from farmers. Amena’s cows being of Frizian origin and consuming more food are likely to have more fat content in their milk than the milk from Marium’s local cows. Nevertheless, both farmers end up getting the same price.

Per litre Profit in BDT

Profit of dairy farmers in BDT per Litre of Milk 12 10 8 6 4 2 0

Amena's profit Marium's profit

The graph shows that the profit per litre of milk of each woman’s dairy is vastly different due to the lack of measurement of fat content at the point of sale by farmers to collectors.

10.3 Breeds From the case on Ratandiyar in Sirajganj, another important issue arises about different breeds of dairy animals in Bangladesh. In the present context, the lack of original local breeds is a prime constraint. Bangladesh has never created a new breed of dairy animal. Locally, cows yielding milk of as much as 5-6 litres a day were available in Chittagong, Pabna and North Bengal. However, due to lack of breeding efforts, these are eventually losing their milk producing capacity. The breeds that are imported, are mostly from Pakistan, New Zealand and Australia. The last were imported from New Zealand in 2005. This breed that Bangladesh imported had been created by New Zealand with imported cattle from Pakistan. However, they have made this breed sustainable by crossbreeding with richer breeds and have reached the point where they can even export. On the contrary, the same cattle had been imported by Bangladesh from Pakistan earlier on, but due to no investment in sustaining a new breed, the yields have dwindled. The quality of breeds has also declined over the years.

Consequently, in order to create sustainability in animal and milk yield, new breed creation using rich existing breeds is essential. This process is extremely expensive and lacks the infrastructural and policy support of the government. In this respect, the current course of the government of Bangladesh is import of germplasm at regular intervals of 5-7 years.

Germplasm is a collection of genetic resources for an organism. Nevertheless, this also is being made increasingly difficult due to the rising price of original breeds charged by exporter countries to discourage sale of breeds created by them. To curb this problem, frozen semen of foreign breeds of dairy animals is being imported. Nevertheless, even with artificial insemination, continued research is required for which substantial capital and infrastructure is essential. Neither infrastructure nor capital for dairy is actually supplied by the government of Bangladesh. Nevertheless, though creation of new breeds may add to milk yield, it may as well reduce marginal profit for dairy farmers as milk would be bought by collectors at more or less the same blanket price by collectors, despite higher consumption of food by new breeds. Referring to the case of Ratandiyar, this problem is evident from the lower per litre profit of the farmer with a foreign breed of cows as opposed to the farmer rearing the local breed.

10.4 Milk price Milk price in Bangladesh is about 40- 50 percent higher than in India and New Zealand.

However, USA and Germany exceed milk prices in Bangladesh by 30 and 17 percent respectively. While nominal milk prices in Bangladesh grew by 50 percent from 1996 to 2002, the exchange rate to US Dollars rose only by 40 percent and the national inflation was 35 percent according to FAO PPLPI Working Paper 7. The paper farther claimed that in real terms, the milk prices received by farmers have gone up by 16 percent from 1997 – 2003.

However, the income of farmers still remains low. According to the same paper, the profits of a small farm range from 20-46 percent of the total farm returns. Nevertheless, there exists a huge difference between the ultimate price of milk charged to consumers and the price that farmers actually receive. This gap exists mainly in the formal sector that accounts for 3% of the milk produced by Bangladesh. This gap is partly due to the • Large profit margin of processors • Corruption while measuring milk fat content to determine price at the chilling plants of processors especially in the public sector.

The resulting gap could in time turn out to be a major deterrent to farmers not formalizing their dairy business. The price escalation structure as has been illustrated by the structure of the milk value chain starts with the dairy farmers getting paid BDT 22-23 as on 20 May, 2008 in Sirajganj. The collectors were selling this milk to the processors according to a predetermined price chart based on the fat content of milk.

Table 7: Chilling Plant Level Price Chart of Milk of BRAC Dairy and Food Project Fat Content percentage 3.0 3.1 3.2 3.3 3.4 3.5 3.6

in Price per Litre in Fat Content BDT percentage 19.50 4.6 20.20 4.7 20.90 4.8 21.60 4.9 22.30 5.0 23.30 5.1 23.80 5.2

in Price per Litre in BDT 29.66 30.30 30.94 31.04 32.23 32.57 33.51

3.7 3.8 3.9 4.0 4.1 4.2 4.3 4.4

24.30 24.80 25.30 25.80 26.54 27.29 28.09 28.65

5.3 5.4 5.5 5.6 5.7 5.8 5.9 6.0

34.15 34.80 35.44 36.08 36.72 37.37 38.01 38.70

Source: collected from BRAC Dairy and Food Project Chilling Plant in Mohonpur, Ullahpara, Sirajganj

45 40 35 30 25 20 15 10 5 0 7 5.

6

4 5.

1 5.

4.

8

5 4.

4.

2

6 3.

3.

9

3

Price of milk paid by processors to collectors

3.

3

Price per Litre of milk in BDT

The above was the partial price chart for BRAC Dairy and Food Project. A graphical representation of the price chart is given below.

Fat content in percentage

Figure 5: Milk Price paid by Processors to Collectors based on Fat Content of Milk The graph shows that the price of milk per litre goes up steadily with increases in the fat content. The increase factor that is shown by the gradient of the graph is: 38.7 - 19.5 6–3 = 6.4

The gradient of the graph is 6.4 which can be interpreted as a 6.4 BDT increase in price per percent increase in fat content of milk.

Finally after the processors process milk for retailing, following skimming and pasturizing, leaving the minimum of 3.5% fat content, the price increases to BDT 45 per litre to the ultimate consumer. Hence, a farmer receives 22/45 i.e. 49% of the ultimate market value of the processed milk produced, irrespective of the fat content that has been removed to benefit the processor in terms of profitable by products of dairy i.e. butter, ghee, yoghurt etc. The collector’s return depends on the fat content. Therefore, the higher the fat content, the greater the collector’s margin though the farmer receives none of the rise in price due to high fat

content as fat content is not at all measured at the farmer level. Hence, the collector’s share of the ultimate market value of the processed milk will be within the range 19.5/45 and 38.7/45 i.e. <43% , > 86% The share of farmers and collectors as percentage of the ultimate market price of processed milk are summarized below.

Table 7: Share of Ultimate Market Value of Milk Participant of dairy value chain Farmer Collector Processor

Share of ultimate market value of milk 49% 43% =< x=< 86% 100%

The above shows the revenue of each major participant in the dairy value chain as a percentage of the ultimate market value of processed liquid milk. In order to work out the profit margin per participant, we must subtract the input cost of each participant. The work out is as follows: 10.4.1 Farmer Price of 1 Litre of milk- 23 BDT Input cost As has been shown by the case, the feeds cost varies vastly depending on the number and the breed of cows. However, a survey on 30 farmers was carried out in Ratandiyar and Polla villages of Ullahpara and Nimgachhi upazillas respectively in Sirajganj. Out of these farmers, 10 had cross bred cows and 20 had local cows. Based on the findings, the average cost of feed per day per cow was found to be 48 BDT. On average, each cow produced 2.2 Litres of milk each day. Based on the price of 20 May, 2008, A. Cost per cow per day 48 BDT

B. Revenue per cow per day 2.2 Litres X 23 BDT = 50.6

C= B - A Farmer’s Profit per cow per day (50.6 – 48) BDT = 2.6 BDT

D = C/ Average daily production of milk per cow Farmers Profit per litre

(2.6/2.2) BDT = 1.2 BDT

10.4.2 Collector For the collector, there is no input cost except the price for which he buys the milk from farmers. There may be a negligible input cost of soda or preservatives added to extend the longevity of milk. However, this remains undisclosed as milk containing such additives is considered adulterated.

On average, the price paid by BRAC Dairy and Food Project to procure milk from collectors was 27 BDT on 20 May 2008. Since there are chilling plants of Milk Vita and Pran located near to the chilling plant of BRAC in Lahirimohonpur, Sirajganj, the average price of milk tends not to vary too much.

Profit of milk collectors per litre of milk (27 - 23) BDT = 4 BDT

10.4.3 Processor For BRAC Dairy the profit margin is 9 %. All over the world, as quoted by processors interviwed, average profit margin from dairy is 8 %.

Table 7: Profit Margin of each Participant in the Dairy Value Chain Participant of Dairy Value Chain Farmer Collector Processor

Profit Margin of Participants 1.2/23 = 5% 4/27= 14.8% 9%

The entire system itself has lapses and thus such inequalities of profit prevail. The most important yet the most deprived actors in the value chain, the farmers, have the lowest profit margin. When expressed as a percentage of the ultimate market value of processed milk, these profit shares appear extremely low i.e. farmer: 1.2/45 = 2.67% collector: 4/45 = 8.9%.

This shows that the farmers who are actually the real producers of milk end up getting as reward only 2.67% of the ultimate market value of their products. Added to this is the problem of measuring fat content by the chilling plants of processors. Adequate measure using machines to give accurate readings are not used by chilling plants. Sometimes, hands are dipped into milk to estimate the density. This results in hygiene problems and poor estimate of fat content and hence unfair price being paid to collectors. In the public sector of milk processing, corruption also is involved in price determination through measurement of fat content. Wrong estimates are deliberately made to pay less to the collectors and in order to facilitate this corruption, advanced techniques of measurement using computers are not used.

Such backward measurement techniques and corruption may in time result in demotivation of collectors who in turn will start paying even less to the farmers. This, despite the vast prospects of dairy in terms of increasing demand are likely to dampen peoplesâ&#x20AC;&#x2122; interest to remain in or start dairy business at the farmer level. If supply of milk from the farmer level decreases, the entire dairy industry may as well collapse resulting in loss of jobs in the primary, secondary and tertiary parts of the dairy industry.

In the informal sector, such inequality still exists when collectors or milkmen collect milk from dairy farmers and sell them to households and other informal dairy producers and sweet makers, ice cream makers, tea stalls, hotels and restaurants at a price ranging from 35 - 42 BDT per litre. In this case, the collectorsâ&#x20AC;&#x2122; profit margins rise but the farmers remain at the same level as in the formal sector. However, in the informal sector, some dairy households themselves deliver milk directly to consumers. In this case, the dairy farmers are the only actors in the value chain and reap maximum profits when compared to all other scenarios.

Dairy Farmers BDT 22-23

BDT 44

BDT 22-23

Collectors

Collectors/ Milkmen/

BDT 27

BDT 44

Processors

Sweet shops/tea stalls/ cafes/restaurants/ Ice cream makers

Local Chilling Plant Transportation to processing plant

Processing Plant

Distribution Sales centre Centre

Retailer

BDT 45

Consumers Figure 6: Price Escalation Chart of the Dairy Value Chain in Bangladesh

10.5 Farm Assets Land is the most important asset a dairy farmer has in Bangladesh. According to FAO review, land value constitutes 60-70 percent of the total value of any dairy farm in Bangladesh. Cattle constitute the next most valuable asset and forms upto 19-31 percent of the total value of a farm. The remaining value of the farm is constituted of other animals, poultry, crops, cash and building and machinery if there are any.

10.6 Problems at the dairy farmer level.

10.6.1 Lack of regular income This is largely due to seasonality dictating milk production. Dairying, even on a very small scale, can provide modest but regular returns. This not only directly benefits the family but fosters an appreciation and gradual adoption of saving and loans approaches. Nevertheless, due to lack of proper farm management in Bangladesh, the winter season yields more milk.

At the same time, the end of the lactating period of one cow is not offset by the beginning of the lactating period of another. Moreover, many small farmers cannot even afford to own more than one cow and that worsen the problem of lack of regular income from dairy.

10.6.2 Lack of access to veterinary services However, despite an immense gap in supply of veterinary service, the government of Bangladesh has failed to utilize the pool of available veterinary graduates in the country from institutes in Chittagong, Dinajpur and Sylhet due to a limited number of approved existing posts at the upazilla level veterinary hospitals i.e. two veterinarians, one compounder and two field assistants.

10.6.3 Lack of skills in farm management Lack of proper farm management skills at the farmer level results in mishandling of farm assets, poor management of farming costs and income. Due to lack of awareness and education, farmers often remain oblivious of cattle diseases except the ones that are physically obvious. Lack of information about markets also makes it easy for collectors and processors to exploit the dairy farmers.

10.6.4 Lack of support from the government There is no subsidy or any kind of infrastructural help from the government regarding dairy.

The governmentâ&#x20AC;&#x2122;s role is restricted to a very indirect influence through its research institutes and the only Government owned cooperative i.e. Milk Vita.

10.6.5 Poor availability and hence expensive feeds/fodders Feeds and fodders are hardly nutritious and are limited to straw, cereal bran, broken rice etc.

Bangladesh being an agrobase economy, there is hardly any space for fodder cultivation.

These make feeds and fodders poor in nutrition and expensive to purchase, resulting in poor milk yield by cows.

10.6.6 Lack of grazing grounds

The agrobase nature of the economy of Bangladesh hardly spares any land for free grazing.

Very little land is free of cultivation and hence available for grazing.

10.6.7 Lack of preserving facilities leading to wastage Except the chilling plants of processors, there are no preserving facilities for the milk produced by farmers. The processorsâ&#x20AC;&#x2122; chilling plants account for only 3% of the milk produced. The remaining 97% remain at the peril of getting rancid. Farmers cannot afford refrigeration or transportation at own cost. Besides, adding preservatives to milk may as well make the milk adulterated and be rejected by consumers, collectors and processors. In fear of wasting milk, dairy households often consume self produced milk. One positive side of this however from health perspective is increased nutrition of the population. Lack of timely cooling means that 27 per cent of production is lost through spoilage, 10.6.8 Poor availability of Water and power Water is needed not only for the dairy animals to drink but also for the hygienic value added through processing which often makes small scale dairying attractive.

11. Dairy Processors Milk is a highly nutritious food, but it is also an excellent medium for growth of bacteria.

Raw milk has the potential to transfer zoonotic diseases and milk-handling procedures must minimise associated health risks. Safety and quality assurance programmes for milk and dairy products must cover the whole dairy chain from farm to table. Processing and proper handling are the most critical steps to ensure safety of products. Milk processing can play a major role in improving milk and dairy product safety, mainly through a variety of heat treatment processes. An emerging trend in formal markets is the adoption of approaches to improve the safety of milk and dairy products as consumers become more aware of health risks. There is also a growing awareness and acceptance in formal markets of farm to table approaches such as the Codex Alimentarius approved Hazard Analysis Critical Control Point (HACCP) system.

Besides health issues, processing also helps meet a growing demand for skimmed milk, and other high value dairy products like yoghurt, curd, ghee, butter etc. When considering the broader benefits of dairying, it is clear that successful small scale dairy production, processing and marketing can be a powerful tool for sustainable rural economic development.

This is particularly so when generation and sustaining off farm dairy related employment is considered.

Table 8: Off farm jobs created for every 100 litres of milk collected processed and marketed in Bangladesh Direct jobs

Indirect jobs

Total jobs

7.1

7.3

14.4

Source: FAO/ILRI (2004)

Off farm employment represents a significant benefit of small scale dairying, particularly where small scale processing also practiced. From four to seventeen jobs can be created and sustained in small scale dairying for every 100 litres of milk collected, processed and marketed. In Bangladesh most of the indirect jobs are in high value products such as milk sweets.

Dairy markets offer good opportunities for non-farm rural and urban employment. The perishable nature of milk, as well as the wide range of products that it can be transformed into, presents opportunities for value addition through the use of labour. Its relatively high unit value makes the use of labour for handling and processing economically viable. This may particularly be true in informal milk markets, which rely less on modern milk processing equipment, and more on traditional labour-intensive technologies.

Milk processing offers further benefits in terms of return and markets for small scale dairying. Returns from processed products are significantly higher than for raw milk and result in significant off farm rural employment in milk collection, transportation, processing and marketing. Additional benefits include improved safety, lowered risk of zoo noses transmission and longer product shelf life.

Milk is processed on a commercial scale for production of pasteurized milk that is sold in sealed packets. Milk processing can play a major role in improving milk and dairy product safety, mainly through a variety of heat treatment processes. An emerging trend in formal markets is the adoption of approaches to improve the safety of milk and dairy products as consumers become more aware of health risks. There are only a few milk-processing plants in Bangladesh. This is obvious by the 3% milk being brought to market by the formal sector.

The milk processing plants collect milk from distant areas where their chilling plants are located by refrigerated vans and process milk in processing centers. There is ample scope to increase milk production in the country and simultaneously establish more processing plants.

Milk processing for preparation of ghee and yogurt are traditional activities in rural Bangladesh. However, new milk processing plants are coming up with ventures to link producers and processors with markets. Milk produced in the remote areas sometimes face gluts leading to lower prices - while city dwellers find fresh milk dear.

In 1990 processors collected just one percent of total milk production of 1.5 million mt (30,000 litres per day); by 2006 this had increased to seven percent of 2.27 million mt 84,000

Figure 5: The chain of milk marketing from producer to consumer as developed by cooperative societies and large-scale milk processing enterprises Table 9: prominent dairy processors of Bangladesh and their processing details Year of Processor name establishment

Average daily Smallholder milk collection Milk Suppliers (Litres)

1

1973

Milk Vita

200,000

150,000

2

1996

Anomilk

10,000

5,000

3

1998

Tulip Dairy

3,000

2,000

4

1998

BRAC Dairy Project

5

1998

Bikrampur Dairy

10,000

6,000

6

1998

Ultra-Shelaidah Dairy

10,000

4,000

7

1998

Aftab

8,000

4,000

8

2001

Pran

40,000

30,000

9

1999

Grameen/ CLDDP

7,000

6,000

10

2007

Rangpur Dairy

8,000

7,000

11

2007

Akij Group

4,000

500

and

Food 80,000

70,000

12

2007

Grameen Danone

1,000

CLDDP

13

1974

Savar Dairy

3,000

Own Farm

Army

Self Consumption

Own Farm

Total

384,000

284,500

14

Source: Draft Terminal Report. Grameen Bank/UNDP/FAO Community Livestock and Dairy Development Project (BGD/98/009), 2007.

The formal sector has 89 collection points with cooling facilities scattered around the country. Tankers with a capacity of 7,000-10,000 liters are used to transport milk from the chilling plants to the processing plants. Each tanker can service 2-3 chilling facilities. Due to the use of outmoded tankers and poor strategies for collecting and transporting milk, the process is expensive and results in huge waste. 384,000 Litres, the total milk collected by processors per day, forms 10% (source: CARE Bangladesh) of the total milk produced in Bangladesh. Therefore, there still exists a vast scope for more processors to enter the market.

384,000 Litres X 97 3 = 1, 24, 16,000 Litres

Dairy processing market still has a vast capacity of 1, 24, 16,000 Litres that can be exploited by existing and many newcomer processors into the market. The returns from processing and retailing 1 kg of 4.5 percent fat milk in the formal sector are about 13 percent higher than in the informal sector. However, based on the trend of dairy processors in the market since the birth of Bangladesh, the scope of dairy and the immense profitability that gives a global average of 8 percent remains unrevealed to or ignored by potential investors.

14000000

Milk in Litres

12000000 10000000 8000000 6000000 4000000

Total Milk Production by farmers Dairy Processing Capacity

2000000 0

Figure 6: Market Capacity for Milk Processing Provided that dairy farmers find it lucrative to formalize their business activity, processors have a vast scope. Currently, according to diagram that shows the structure of the dairy value chain based on secondary and primary research, farmers have a better chance of having improved incomes under the informal sector. It is up to the processors to come into mutual grounds with farmers and raise the price the farmers get under the formal channel to persuade them to become a part of the formal milk value chain. In this way, there will be wealthier and motivated dairy farmers, additional high value dairy products, increased employment, improved profits for many entrepreneurs and overall boost to the economy.

11.1 Cases of different prominent dairy processors of Bangladesh The first dairy plant was set up in 1946 by the National Nutrients Company of the-then Indian subcontinent at Lahirmonhanpur, now in Sirajganj District. Following the partition of India in 1947 the Eastern Milk Products Company took over through exchange of properties. Milk and dairy products marketing eventually started in 1952 under the brand name Milk Vita in the then East Pakistan. The cooperative accumulated huge losses as did the only other dairy venture, Asto dairy in Dhaka, started in the 1960s. By 1970 both dairies had virtually ceased trading.

11.1.1 Milk Vita Affordable and readily available cattle treatment and other development support provided by Milk Vita and Grameen-CLDDP have encouraged milk producers. Initially Milk Vitaâ&#x20AC;&#x2122;s prices were set by its then parent Government ministry (LGRDC). Since the 1990s Milk Vita has set its own producer and consumer prices, which have to be competitive with other more recently started dairies as well as imports. The Bangladesh Milk Producersâ&#x20AC;&#x2122; Co-operative Union Ltd is the oldest and only dairy venture in the country providing feeds, vaccines and AI facilities for a large number of participants in selected milk pocket areas. However, this co-operative is incapable of providing feed, marketing and veterinary health care services to dispersed dairy farmers all over the country; therefore, milk collection, distribution, processing and marketing services in non-supported areas of Bangladesh are less organized.

From the mid 1970's to the late 1980's FAO, UNDP and DANIDA provided technical and financial assistance through the Government of Bangladesh to establish a sustainable cooperative dairy development programme. From a modest start, providing 4,300 very poor, often landless, households in remote rural areas with a complete package of milk production enhancing technologies, village level organisational skills and a milk collection-processingmarketing system, the two-tier Milk Vita Co-operative has grown into a successful commercial dairy enterprise. Today, milk is collected from 40,000 farmer-members organised into 390 primary village co-operatives, then processed and distributed to all the major cities in the country. In 1998, producers delivered 30 million litres of milk surplus to their household requirements and received a total of Taka 467.4 million (US$ 9.3 million).

Since start-up, average milk deliveries per member have quadrupled to 2.1 litres a day, while regular earnings from milk have increased ten-fold in real terms to Taka 32.5 a day (65 US cents). This has helped to lift average earnings above the poverty line and to sustainably improve rural livelihoods. The resultant increase in milking cow numbers and savings generated also serves as a cushion against the devastating effects of severe flooding that regularly afflict the country.

Democratically elected milk producer and distributor co-operative members are now in the majority on the Milk Vita Board of Directors. This encouraged the Government to withdraw from day-to-day management enabling the Board to hire professional managers. This, in turn, improved performance and created a platform for further expansion to bring more poor people in to the remunerative milk collection network. In the 1998/99 financial year Milk Vita made a profit of Taka 40.2 million (US$ 0.8 million) on a turnover of Taka 782.0 million (US$ 15.6 million). Much of the profit was distributed as a dividend to milk producers and reinvested in an expansion programme.

Milk Vita continues to be a flourishing concern, which can be seen not only from its encouraging financial performance and plans for growth, but also from its recent imitators who have set up similar dairy enterprises to process and market 50 million litres of milk annually. The Grameen Bank is currently adapting the model to reach out to some 8,000 of its poorest female clients involved in inland fish farming, again with UNDP and FAO technical assistance.

Figure 7: Market Capacity for Milk Processing Private dairies, some owned by NGOs such as BRAC (Bangladesh Rural Advancement Committee), usually operate through milk supplier-middlemen (Ghoshes or Dudhwalas) in place of rural groups or cooperatives. They collect milk for the assigned dairy and

smallholders involved in the system do not receive any value-addition benefit, just the basic price for their milk.

Figure 8: Private Entrepreneur Model of Dairy 11.1.2 BRAC Dairy and Food Project Born in 1998, BRAC Dairy and Food Project holds 33% share of the processed dairy market of Bangladesh. BRAC Dairy focuses on the milk belts of Northwest Bangladesh, and also Khulna and Jessore in the south west. BRAC Dairy owns seventy five chilling centres at present and its target is to reach one hundred by the end of 2008. BRAC Dairy has one processing plant located in Gazipur, Dhaka, with a capacity of 240, 000 litres, being run at 35% of installed capacity due to shortage of milk. Nevertheless, BRAC Dairy plans to raise its current processing amount of nearly 100,000 litres to 150,000 litres. Currently, the monetary value of total investment of BRAC in the dairy industry of Bangladesh stands at BDT 250 million.

BRAC Dairy and food project has thirty one products at present out of which milk products are dominant. Milk is brought in by BRAC Dairyâ&#x20AC;&#x2122;s own transport i.e. 1000 litre tankers from all over the country to the processing plant in Gazipur. This plant is subdivided into three processes leading to three main kinds of dairy output: Pasteurization, Ultra Pasteurization and Powder. BRAC Dairy considers butter and yoghurt to be the by products of its dairy operations.

At the farmer level, BRAC Dairy focuses on building farmer groups and strengthening its relationship with the farmers who supply them the milk. BRAC Dairy has societies where farmers are members of BRAC, not BRAC Dairy directly. Nevertheless, BRAC Dairy has begun work with them in terms of extending Artificial Insemination and veterinary services and also providing advice on reducing number of cattle so that sufficient feed can be afforded for a small number of cattle. BRAC Dairy also plans to award farmers with monetary rewards in the form of annual bonuses on the basis of their supply of milk to BRAC Dairy throughout the year. Nevertheless, membership with BRAC does not stop farmers to supply to other processors.

There are several problems that BRAC Dairy faces in producing its products. The first one is the shortage of milk causing the processing plant to operate at less than half the installed capacity. The focus of this processor is on small farmers. Thus, inevitably intermediaries get involved. Whereas intermediaries facilitate milk collection for BRAC Dairy, they also create problems of milk adulteration with preservatives like soda which is added to avoid perishability of milk while being transported from the farthest milk pockets in the north to the processing plant in Dhaka. This problem is worsened by centralized processing of BRAC

Dairy. This will however soon be improved through decentralized processing with a processing plant in North Bengal.

11.1.3 Grameen/CLDDP Model This is a profitable, integrated, community-owned crops-livestock-fish farming system, which operates in one of thee poorest areas of the country and includes a dairy chain module.

Established in 2000, the model was pioneered under component A of the above-mentioned recently completed Grameen Bank/UNDP/FAO CLDDP project. Very poor landless families are organized in five person groups. The Village Group Members (VGMs) can access commercial loans for livestock and other income generating activities. Eighty percent opt for dairy cows. The loans include compulsory animal feed and insurance components. VGMs have access, at full cost, to all the inputs needed to produce and market milk. They supply milk surplus to household requirements to community-owned milk collection centres for primary processing at communityowned dairy enterprises. Pre-processed milk is marketed to established dairies like Milk Vita, Bikrampur Dairy and Grameen-Danone Foods (see below) for further processing and marketing. Some processed milk is also marked locally. The VGM-smallholder milk producers own 70 percent of the community feed mill and dairy enterprises (Grameen owns the other 30 percent) and thus share the profits of the enterprise. While in some ways it is a social dairying model, it is commercial in operation. The feed mill enterprises provide quality dairy rations, compounded from locally available agro byproducts, for the VGM-owners who either have insufficient land or no land at all to grow their own feed and fodder. Once smallholders have four or five cattle, they have enough dung to take out a loan for a bio-digester to produce gas for cooking and lighting. The spent slurry from the biodigester is then use to fertilise and increase the productivity of fish ponds. Every two or three years the ponds are emptied, the slurry dried and used as crop fertiliser. In this way smallholder dairying has become an important component of an integrated and environmentally sustainable poor peoplesâ&#x20AC;&#x2122; farming system.

Figure 9: Grameen/CLDDP Model 11.1.4 Grameen-Danone model

Grameen-Danone Foods Limited was set up in 2006 and is in an innovative joint social venture between the Grameen Bank and Danone, a large French multi-national dairy corporation renowned for its functional bio-yoghurts. Danone recently established a new division named Danone. Communities and gained approval from its shareholders to set up a Euro 50 million (USD 70 million) mutual fund to channel investment into not-for-profit social ventures in developing countries. Ninety percent of the fund is to be invested in low risk securities, the remaining ten percent in higher risk social ventures. The first social venture is Grameen-Danone Foods, which produces low-cost, fortified yoghurt for sale in rural communities. A pilot dairy enterprise has been set up in Bogra. The longer-term plan is to set up a further ten rural enterprises in other disadvantaged areas of Bangladesh. The Bogra enterprise started up in February this year and currently purchases about 300 to 400 litres of milk daily from the Grameen/CLDDP Joysagar Dairy enterprise at Nimgatchi, about 50 km away.

Figure 10: Grameen-Danone Model 11.2 Small Processors Milk processors in Bangladesh are involved in hot milk selling, milk sweet, curd and ghee (clarified butter) making. The milk sweet makers process and sell various types and flavour of milk sweets, which have a strong tradition in the local communities, especially for festivals. They purchase milk from farmers and Gowalas. Rural milk sweet makers mainly utilize family labour while the urban sweet makers frequently employ both family and wage labour. The hot milk sellers prepare and retail the hot milk by the roadsides and frequently use family labour to do this. Some hot milk sellers do their business in rented or owned small shops. They procure milk from the Gowalas directly or through Aratdars.

Curd making is mainly a rural based family business activity that is usually inherited. Men are involved in milk collection and sale of the curd while women do the actual processing.

This sweetened form of curd is sold to traders who bulk and re-sell in urban areas, or directly to consumers, and cream is also sold to ghee makers. In circumstances of high demand such as festival seasons, hired labour is engaged. The demand for curd decreases markedly during summer and monsoon seasons mainly because it can be substituted with fruits that are abundant in those seasons. Its demand is highest during winter. Box 5 describes the typical business activities of a curd maker.

Ghee processors obtain milk cream from curd makers with whom they usually have a contractual arrangement. Some 10-12 curd makers would supply cream everyday to a ghee maker who processes about 55 kg from 110 kg of cream. The ghee processor engages wage employment for cream making, butter processing, heating, canning and packaging. Both casual and long-term employees are hired.

12. Institutional Involvement

Strong institutional support is critical to the success of national dairy development initiatives.

There is a need to promote milk and dairy product consumption and to facilitate the full participation of smallholders in dairy development. The government has retreated to a strictly regulatory role in the dairy industry. Hence, this creates a major institutional gap in supporting small scale dairying from the provision of support services, input suppliers, payment systems design through to quality standards and practices.

Poor governance and weak institutions have been the stumbling block for many dairy enterprises. Milk collection, processing and marketing organizations are competition oriented market dictated entities whose primary purpose is always profit. Consequently, they cannot be accountable for development of dairy and dairy farmers in general. Though such a step as strengthening the dairy value chain through backward linkage will only ensure sustainability of business and profits of the current private sector dairy enterprises, few seem to realize and practice this approach of general development. They remain content as long as their chilling and processing plants operate at full capacity.

In this gap created by the government’s lack of involvement and the processors’ self centred approach towards development, non- government organizations (NGOs), donours and humanitarian organizations have begun playing a crucial role in the dairy industry of Bangladesh.

The dairy farmers of Bangladesh are largely uneducated people with lack of access to information and markets. Consequently, there needs to be a constant monitoring of their activities and decisions so that their ways of business can be molded to their own benefits.

Working directly with farmers is the most direct means of influencing their decisions and raising their awareness of market opportunities. It is however prohibitively resource intensive and therefore not practicable for public or private partners. This is where NGOs, donours and humanitarian organizations emerge to play their role. These organizations work • •

•

As interphase between the different actors in the dairy value chain and attempts to clarify all bottlenecks in the formal channels.

As spokespeople between the different value chain actors to help them understand mutual benefits and work together by resolving conflicts. In the dairy industry of Bangladesh, examples of such conflicts and bottlenecks are exploitation of farmers by collectors who pay a very low price for the milk purchased from farmers, unfair treat,emt of processors who measure fat content in primitive techniques and end up paying less to collectors. This is worsened in the public sectors with corruption.

Provide support in terms of training regarding cattle rearing, feeds/fodders cultivation and efficient farm management, veterinary training and also financing in some cases.

An assessment of successful small scale interventions across the five continents by FAO over the last 40 years indicates that the best choice is farmer groups or organizations as an entry point. Working with groups substantially reduces costs and empowers communities to sustainably manage their own affairs. Small scale dairying is often most successful when it initially addresses local demands, either through accessing existing markets with competitive products or opening up new product streams for consumers.

Farmer groups may be the best mechanism to improve bargaining power and inform farmers of market needs and demands. The increasing use of modern Information Communication

Technology (ICT) is playing a major role in improving instant and periodic market information provision e.g., using SMS messaging, mobile phones and local and national radio stations.

Working with farmer groups in strengthening the dairy value chain in Bangladesh are several organizations.

12.1 Asian Development Bank (ADB) ADBâ&#x20AC;&#x2122;s agribusiness development project complements the existing initiatives of the government and other development partners. The objectives of the Project are to increase rural incomes, increase rural employment and reduce poverty by providing enhanced access to markets for small farmers, producers and processors through an expansion of agribusiness activities. The Project promotes the commercialization of products and commodities such as high value crops, livestock, poultry and fisheries and Intends to develop the forward and backward linkages to direct production through improved services, packaging, processing, storage, transport, export, removal of marketing constraints, and opening up new markets. To achieve the objectives, the Project works on improving the enabling environment for agribusiness, providing agribusiness support, services and promoting stakeholder networking and expanding agribusiness activities. The ultimate beneficiaries of these actions will be the rural poor who will benefit from expanded income generating and employment opportunities. Agribusiness investments undertaken borrowers are expected to generate an increased demand for agricultural products that will translate into demand for a broader range of produce, higher prices, additional employment and increased rural incomes.

12.2 Grameen Bank The Grameen Bank is providing loan funds to the landless and to smallholders under a microcredit programme amongst others, on livestock and fisheries, services and shopkeeping.

Grameen Bank reported that prior to May 1998, the value of loans disbursed by Grameen Bank, through 65,960 Grameen centres, exceeded US$ 2.4 billion. The total value of loans that this bank disburses each year exceeds the combined total value of rural loans disbursed by all the other banks in Bangladesh.

12.3 Proshika Manobik Unnayan Kendra Proshika has developed a demonstration farm in the Human Resource Development Centre (HRDC). The demonstration projects include: mini scale dairy, poultry hatchery with a commercial parent stock farm (broiler & layer), fodder production, biogas, etc. Proshika has also developed a livestock and poultry compensation fund to compensate losses due to death of animals and poultry. The Fund has minimized the risk of financial losses due to projects undertaken by the people. Proshika has recently completed a collaborative, three year project entitled ''Smallholder Livestock Development Projectâ&#x20AC;? (SLDP) with the Directorate of Livestock services (DLS), Govt. of Bangladesh and financed by DANIDA & the International Fund for Agricultural Development (IFAD). The target beneficiaries of the projects are poor and mostly women. The strategy is to provide micro-finance and technical services through NGOs for livestock enterprises suitable for the poor and to develop the capabilities of DLS, NGOs and rural communities to plan and manage livestock development activities and in the process alleviate poverty and improve economic and nutritional status of

the rural poor through self-employment. Saleque has detailed the organisational set-up in these proceedings. SLDP has been completed. The project is base model developed by DLS and BRAC. An impact study conducted by Bangladesh Livestock Research Institute (BLRI) (Alam, 1997) in 5districts of Bangladesh evaluated the impact of interventions made by the (SLDP) on the socio-economic conditions of the poor people. The study found that the average size of the loan received per beneficiaries was Taka 2588 with a range from Taka 1,000 to Taka 10,000, depending on the type enterprise. The loans were repaid by weekly or monthly installments.

The repayment rate was 99 per cent. The total net income per household was Taka 455.3 and the average net income per household from SLDP activities was Taka 102.1 per week. The average weekly income of beneficiary households has increased by 31 per cent after membership. At the same time, the consumption of all food items and investment in assets has significantly increased. The project has ensured empowerment of women in the study areas and increased their participation in household decision-making. The generation of income and employment from the SLDP activities has enhanced the status of women in the family.

12.4 Practical Action Practical Action is a Non Government Organization working in the dairy industry through two projects “Cold Milk for Hot Profit” and “Making Markets work for Small-holder Farmers and Rural Producers”. Through these projects, Practical Action works in Dinajpur, Gaibandha, Faridpur and Magura. Both projects had been begun with the NGO’s own funds however, later were joined by the European Commission.

The dairy industry was chosen for a project due to the large population involved in dairy besides the large cattle population of Bangladesh. Despite the large workforce and cattle population, milk yield is poor due mainly to poor quality of dairy cows and poor farm management. Practical Action hence focused its work on these two areas.

Through its projects whose beneficiaries include not more than a thousand farming households, Practical Action is working mainly on relationship building and networking of farmers to different service providers and markets. For this, Practical Action works in three phases: business service development, value chain development and business environment development. So far some of the endeavours of Practical Action include: • • •

Formation of farmer groups Spread of artificial insemination services Comparative studies to reveal the difference in farmers’ profits when cross bred cows are used as opposed to local cows

Through such pilot projects, the NGO aims to create model groups of farmers and eventually pass on the concept to larger NGOs that will work on a very large scale without much higher funds. Currently also, Practical Action has partner NGOs like SKS in Gaibandha and Jagoron in Jessore.

Practical Action has been working on its projects for the last two years. While doing so, the NGO has come across certain major problems of the Dairy industry of Bangladesh. Through the formal milk market, the price provided to farmers is quite low. This is primarily caused

by the processors’ lack of capital. This widens the gap between processors and farmers. On the other hand, centralized processing of milk causes wastage as the transport network is underdeveloped and cooling facilities inadequate.

12.5 Polli Karma Sohayok Foundation (PKSF) Participatory Livestock Development Project (PLDP) was implemented from July 1998 to June 2003 at the cost of $42 million as per appraisal with the Assistance of Danida and ADB. The numbers of Beneficiaries were 3,60,000 of 89 upazillas in 17 Districts of Northwest region of Bangladesh. After Project implementation, Nutritional status, Literacy rate and Employment of women were increased. Following the success of Participatory Livestock Development Project (PLDP) would have been taken into consideration to take up Second Participatory Livestock Development Project (PLDP-II). Asian Development Bank (ADB) has agreed to make a loan to Government of Bangladesh (GoB) for the project ‘Second Participatory Livestock Development Project (PLDP-II)’ on 19 December 2003 with an amount of SDR 13,969,000 (US$ 20 million equivalent).

12.6 Winrock Researchers in Winrock have been working on feeds development in Bangladesh. Land is scarce in this densely populated and disaster prone country and therefore, grazing land for livestock is shrinking day by day. Also, due to poor genetic potential of milking cows coupled with non-availability of balanced supplemental feed, the national average milk production in Bangladesh has remained very low (in the range of 1.5-3.0 liters per cow per day). In this context, Dr. Roy Chapin at Winrock helped to develop the first dairy feed program in Bangladesh, which included developing a computer assisted program for formulating rations for lactating cows, a calf starter ration and a ration for growing heifers.

This was done with the view that better cow feeds were the solution to many of the current dairy problems of low unhealthy cows, milk yield, poor fat content, low milk price etc. In practice, feed produced following Chapin’s formulation is showing highly encouraging results with an average increase in milk production by around 40%, which means, the cow that earlier gave an average of 5 litres milk per day, now with Chapin formulated feed is giving 7 liters. The market demand for this new feed is slowly increasing to cover the milk pockets in northern, eastern and north eastern Bangladesh.

12.7 BRAC BRAC has a program called ‘MELA’ that provides livestock finance to small dairy farmers at 12.5 % interest with zero default records.

12.8 CARE Bangladesh CARE Bangladesh is currently working on a project called Strengthening Dairy Value Chain in Bangladesh. This project is worth 5.25 million USD and is being funded by the Bill and Melinda Gates Foundation. The focus area of the project is the milk pocket of Northern Bangladesh, specifically nine districts. The project aims to: 6. Improve milk collection systems in rural and remote areas; 7. Improve access to inputs, markets, and services by mobilizing groups of poor farmers, producers, and char dwellers

8. Improve the milk transport network 9. Ensure access to quality service at the producer level 10. Improve the policy environment The proposal began in October 2007 and has longevity of 4 years from commencement. By the end of the project, it aims to benefit 35, 000 farmer and intends to have a spillover effect on an additional 200, 000 people.

13. Other Service Providers 13.1 Breeding 90 percent of the cattle in Bangladesh are of Indigenous breeds, called “Deshi”. Red Chittagong, Pabna, Madaripur, Munshigong, North Bengal Grey are very promising local breeds but are declining rapidly. Milk yield also is being hampered. Consequently, artificial insemination (AI) of livestock is being carried out in Bangladesh. Crossbred cattle are found mainly in government, private & institutional farms. The government began it’s A/I service project, “Government Artificial Insemination (AI) and Embryo Transfer (ET) Project” in 2002 for a period of five years. Government provided A/I services still exist. The breeds used are Hariana, Tharparker, Red Sindhi, Sahiwal, Holstein Friesian and Jersey. This project intends to familiarize and encourage AI activities at grass root level.

All over Bangladesh, up to lowest administrative unit, farmers bring their cows to the AI Point for insemination. About 1,100-1,200 DLS technicians throughout the country and 1000 artificial inseminators (volunteers) under training are involved in this government endeavour. DLS plans to cover the entire country with AI services. Cattle Development Programme of Dairy Cooperative Bangladesh Milk Producers’ Cooperative Union Ltd. (Milk Vita) also extends door to door AI services to member farmers, free of charge.

Cattle Breeding Activity by Non-government Organizations includes efforts of The Bangladesh Rural Advancement Committee (BRAC). BRAC has been providing cattle AI service since 1985. BRAC has its own established bull station with a production capacity of 5, 00,000 doses of straw per annum and 1279 AI trained technicians. BRAC AI facilities are provided nationwide on a door to door basis through 89 AI points beyond government coverage.

Nevertheless, despite such efforts, the existing AI infra-structure can cover only 25% cattle of the country.

Table 10: Comparative Price of Breeding Service AI Institution Price of bull semen dose (BDT) Government 30 BRAC 70 Private natural service 200 13.2 Packaging

The food packaging industry in Bangladesh has been growing following a wide range of processed food products being produced and marketed. Dairy forms a significant proportion of these processed foods products.

The importance of packaging can be summarized as follows: • •

Adequate packaging aids distribution Rapid and reliable distribution helps reduce malnutrition, removes local food surpluses and allows the consumer more choice in the foods available.

•

Packaging and distribution reduce losses through wastage. This together with a larger market allows producers to increase their income.

Therefore, inadequate packaging in developing countries has profound effects on the whole pattern and total amount of food consumed.

13.2.1 Functions of packaging Packaging is a means of providing the correct environmental conditions for food during the length of time it is stored and/or distributed to the consumer. A good package must: • •

Keep the product clean and provide a barrier against dirt and other contaminants.

Provide protection and convenience in handling, during transport, distribution and marketing. In particular, the size, shape and weight of the packages must be considered.

•

Provide protection to the food against physical and chemical damage

•

Provide identification and instruction so that the food is used correctly and have sales appeal.

Besides plastic packaging of liquid milk and other dairy products like yoghurt, curd, ghee, butter, pasteurized milk is now also being marketed using UHT (Ultra high temperature) treated packaging. This packaging technique was brought into Bangladesh by Land O’ Lakes, USA’s oldest farmers’ cooperative.

14. Government CASE 4 Land O’ Lakes is an American farmers’ cooperative. Since its beginning of operation in Bangladesh, Land O Lakes has attempted to promote milk production in the country.

One prime way of this has been through the introduction of UHT milk. UHT or ultra high temperature treated milk was introduced by Land O Lakes in 2002 in Bangladesh.

Since then, this technology is being practiced by Pran, BRAC, Akij and Abul Khayer Dairies. This technology enables liquid pasteurized milk to be stored without refrigeration for upto six months. The need for this kind of technology was recognized

by Land O Lakes following milk wastage due to delay in marketing milk and lapses in transportation. The entire problem was severely worsened by the the availability of electricity in only 33% households in Bangladesh.

While milk production by smallholders is now generally recognised in Government development strategy, the absence of a comprehensive national dairy policy is thought to have limited growth of the dairy industry. What has been achieved so far mainly relates to the impact of milk collection systems introduced by dairies with a fair producer price system.

The role of the government of Bangladesh can be observed in the following areas: • • • • • •

•

•

Imports of foreign breeds of dairy animals at intervals of five years Eight government owned dairy farms in Bangladesh. These are mostly used as breeding farms and for the supply of heifers to small-scale farmers.

One government owned dairy cooperative operating since ….. i.e. Milk Vita One livestock health institute in each upazilla. These are equipped with two veterinarians, one compounder and two field assistants Provision of Artificial Insemination services through one organization Investment on livestock research and development through NARS. The NARS (National Agricultural Research System) has the Bangladesh Agricultural Research Institute (BARC) as its apex body, and its affiliated research institutions are under the control of the concerned ministries, i.e. the Ministry of Agriculture and the Ministry of Fisheries and Livestock. The Ministry of Fisheries and Livestock controls the DLS with its affiliated research institutions which are Livestock Research Institute, Animal Husbandry Research Institute, Bangladesh Livestock Research Institute, veterinary colleges and the Central Cattle Breeding Centre. The major activities of the DLS include conservation of livestock (by providing veterinary health care/ensuring veterinary coverage), development of livestock (development of breeds, productivity and appropriate technology), provision of extension services (training, entrepreneur development, assistance to establish farms, feeds and fodder production, and technology transfer), and employment generation (assistance for credit, input supply and technical support to NGOs working with livestock development).

Government-sponsored investment incentives for a few medium and larger-scale farmers to purchase improved dairy animals. This initiative largely failed as the farmers were not well integrated into the dairy input supply and value chains and were unable to repay their loans.

Policy framework with the following salient features: o non-involvement of the government in production, processing and marketing activities o support of the private sector and NGOs in dairy development activities through research, extension, training, credit and the development of appropriate infrastructure o reduction of import tariffs on equipment, animals, raw materials and other inputs o reduction and eventual elimination of subsidies on inputs, including veterinary drugs, vaccines and AI services o subsidies to mini-dairy farms since 1993- The government has been providing subsidies for mini dairy farms since 1993. This policy resulted in an increase

in milk production from 1.49 million tonnes in 1993–94 to 1.62 million tonnes in 1997–98 indicating a growth rate of 9%. In contrast, the annual growth rate was only 1.26% during the period prior to this policy (from 1987 to 1994). Due to increasing domestic milk production importation of milk decreased from taka 450 million in 1989–90 to taka 146 million in 1995 (Ahmed 2000). There were only 2490 dairy farms in 1990–91 but this number increased to 29.6 thousand by 1997–98 (DLS 2000).

Led by the Directorate of Livestock Services (DLS) and Ministry of Fisheries and Livestock (MOFL), and following an intensive stakeholder consultation process, the National Livestock Policy was drafted in 2005 and finalised in 2006 under component B of the recently completed Grameen Bank/UNDP/FAO Community Livestock and Dairy Development Project (CLDDP). The policy was adopted by DLS and MOFL but has not yet been submitted to Cabinet for approval, due largely to the succession of interim Governments and prevailing civil unrest since it was prepared.

While there is no separate dairy component in the policy, the Milk Vita and Grameen/CLDDP dairying models are promoted as “models for early adoption”. The National Strategy of Accelerated Poverty Reduction (NSAPR) was published by the Government in October 2005 and sets out, inter alia, ways and means for achieving the MDG goals of halving poverty and under-nutrition by 2015. The strategy document states that the livestock sector as a whole grew 2.6 percent during the 1990s. With rapid urbanization and income increase the demand for livestock products, e.g. meat, milk, eggs, will continue to rise. However a major limitation is stated to be low productivity as production is mainly subsistence and highly dispersed. Milk is targeted to replace imports, which currently ranging between 10 and 20 percent of annual consumption. The strategy is to promote communitybased organizations of production, processing and marketing to overcome these constraints.

Smallholder milk producers are expected to play a key role in helping to achieve this target and, in so-doing, helping Bangladesh to achieve it Millennium Development Goals of halving under-nutrition and poverty by the year 2015. Here, community participation is to be a key driver.

Following the establishment of Milk Vita, two major dairy development studies were undertaken in the 1980s aimed at scaling-up co-operative dairying to other parts of the country. Both were sponsored by Government and UNDP/FAO. The first in 1984 prepared a National Co-operative Dairy Development Plan. The second in 1987, led by the Chairman of the Indian National Dairy Development Board, expanded the plan into A Strategy for Dairy Development in Bangladesh.’ The strategy proposed a regional approach, based on setting up four regional dairy co-operatives, to collect milk from smallholder village cooperatives and process and market it safely and affordably to lower income urban groups. The regional dairy co-operatives would be federated in to a national level dairy federation or dairy development board. Detailed implementation programmes were prepared but have been shelved for more than two decades. Current Government policy for agriculture aims to provide an enabling environment and supportive role in moving from predominantly subsistence to a more diversified commercial agriculture which is environmentally sustainable. The strategic framework targets non-crop agriculture, i.e. fishery, poultry, livestock for accelerated investment

The apathy of the government of Bangladesh towards the dairy industry can be observed in its lack of budget allocation to dairy, lack of investment and unwillingness to create sufficient openings for other service providers and veterinarians at the upazilla level and overall lack of interest in the industry despite the large population involved in dairy. One of the principal reasons of this indifference may be attributed to political reasons. Investment in rice forms the main point of attraction for most governments as that part of agriculture is directly linked to peoples’ everyday lives and it is easy to gain popularity through enhancement of the paddy industry. On the other hand, dairy is not a direct way to peoples’ hearts and obvious impacts of investment cannot be tapped in the short run at least. To add to that, any investment in the weak parts of dairy will be extremely expensive. Everything piles up to create a severe lack of interest on the part of the government of Bangladesh towards the dairy industry.

15. Milk Market “Cold Milk for Hot Profits” is the name of a dairy project of an NGO called Practical Action.

This name perfectly describes the dairy market scenario of the world. The prospect of the dairy market of Bangladesh stems from two main areas: • •

Increased demand fostered by rising income, education, awareness and preference for high value nutritious food Large informal sector concentrating mainly on sweetmeat production

The World Bank Development Series Publications on Bangladesh based on data from Household Income Expenditure Survey (HIES) concludes that there has been a shift of consumption patterns of food from food grains towards high value agricultural products including fruits, vegetables, meat and dairy products. Rising income levels has caused a higher discretionary income that people can afford to spend on food.

Table 11: Per Capita Consumption of Food in Bangladesh 1974 Food Category Food grains Pulses Vegetables Meat Fish Milk

2005

Rural

Urban

Rural

Urban

Percentage change (1974-2005) Rural Urban

160.1

161.1

183.4

163.9

0.4

0.1

7.3 32.5 1.8 9.3 10

6.9 37.7 3.2 9.7 10.8

4.7 50.6 5.1 14.7 10.8

6.9 45.6 8.8 18.3 12.3

-1.4 1.4 3.5 1.5 0.3

0 0.6 3.3 2.1 0.4

Source: World Bank calculations based on Shahabuddin 1989 and the 1995/96 and 2004/05 HIES The data series shows that the urban consumption of milk has risen by 0.4% since 1974 to 2005, the consumption of foodgrains like rice and wheat has increased by only 0.1% and there has been no change in the urban consumption of pulses. On the other hand, the rural consumption of milk has increased by almost the same amount as the rise in the consumption of foodgrains.

Further findings based on HIES show that 37 percent of its food budget on rice and about 43 percent on various high-value agricultural products including fish, meat, eggs, dairy products, vegetables, fruit and spices. Demand for these high-value commodities tends to be highly income elastic. Therefore, the increase in demand for dairy products is sustainable as incomes tend to increase in the long run. The nature of demand according to Economics, for dairy products is shown by the following graph Price

P P0 X Q0 Q1

D Q

Quantity Demanded Figure 11: Price Elasticity of Milk The graph above shows the market demand behaviour of milk and milk commodities. As stated by World Bank, the nature of demand for dairy produce is elastic. This elasticity can be accounted for in two ways: price elastic and income elastic. If the price of dairy products is too high, demand will decrease by a greater quantity than for a product that has lower price elasticity. This can be seen from the graph above. Line X shows the demand for a product that is price inelastic i.e. the quantity change in demand will be less in proportion to the change in price. An example of a product that is price inelastic may be rice in general as it is a basic necessity and people will continue to buy a minimum amount even if price rises. On the other hand, the Demand curve for dairy products is denoted by D, which is still considered to be a product people could do without. When price increases from P 0 to P, the demand for rice decreases only by a small amount i.e. Q 1 - Q0. However, when the price of milk increases from P0 to P the demand for milk decreases from Q to Q0 i.e. Q â&#x20AC;&#x201C; Q0. The decrease in quantity demanded of milk is far greater than the decrease in the quantity demanded of rice caused by the same price change i.e. (Q â&#x20AC;&#x201C; Q 0)> (Q1 â&#x20AC;&#x201C; Q0). This is mainly because, rice is a basic necessity and once requirement is complete, people will not demand more of it even if price decreases. However, for milk, this is not the case.

Nevertheless, despite an increase in the price of milk, quantity demanded has not decreased by a great amount Price in Bangladesh and all over the world. This is explained by income elasticity of demand for milk. When a product is income elastic, the increase in demand of the product will be proportionately higher than the increase in the income that caused this rise in demand. This too can be explained by the graph.

S P P0

D D0 Q

Q0

Q1

Q2

Quantity Demanded

Figure 12: Income Elasticity of Milk The above graph shows the increase in income and the subsequent change in demand for dairy products. As income rises, the demand curve shifts from D 0 to D. Now at price P, a greater quantity of dairy products will be demanded than was being demanded with the previous income. At the same time, it may be noted that the rise in the demand, from Q to Q 0, is far larger than the rise in income (S â&#x20AC;&#x201C; P) that caused this increase in demand. This shows that if there is a rise in income, demand for dairy produce will be higher than the rise in income that caused it.

This nature of demand for dairy products brings good news as the price elasticity of the product will be offset by the income elasticity. The continual rise in income is certain over time under normal economic conditions, assuming moderate inflation and no major upheavals in the external environment causing economic downturns. Hence, it is certain that demand for dairy products will continue to rise.

Rising incomes benefit dairy market in two main ways: direct and indirect. The direct way comes through direct expenditure on dairy products for household consumption. The second kind of influence i.e. indirect, is when households dine out and demand high value processed dairy products or nutritious dishes made from dairy products.

The composition of the total food budget of the average household in Bangladesh is as follows.

20%

Rice 37% High Value Agricultural Products Others

43%

Figure 13: Composition of Household Food Budget in Bangladesh

Having said hat rice is a food product that is both price and income inelastic, it is quite obvious that with rising incomes, while the volume of rice consumed remains at the same level, the volume of high value agricultural products will increase along with its share in the budget as a percentage of the total budget. To elaborate farther, rice is a basic necessity that has a specific amount of consumption. Hence a change in price or income will not cause the quantity demanded to be starkly more or less. However, with rising income, it is of vast probability that the budget for high value agricultural goods consumption will increase.

The indirect part of the demand for dairy products is when people dine out. There has been an increasing trend of eating out mainly in the urban areas of Bangladesh. When people eat out, they demand various nutritious dishes that require milk or cheese as a basic ingredient. This is all catered by the informal sector that takes up 81 percent of the total milk produced in Bangladesh. Out of this 81 percent, only 20 percent is purchased by households for domestic consumption. This leaves 61 percent of total milk produced in Bangladesh for the food preparation purposes of restaurants, sweetshops, cafes, teastalls etc. Nevertheless, though informal, this is the major destination for milk produced in Bangladesh and hence crucial to the dairy industry. On the other hand, the tertiary industry of restaurants and cafes will continue to see increasing demand for their products following rising incomes and westernized lifestyles. This will sustainably put a pressure on farmers to produce more dairy milk most of it again will be pulled into the informal sector. Direct and indirect demand patterns can be reflected by the usage pattern of milk. The following shows the composition of use of the total milk produced in Bangladesh.

Formal Market

4% 16%

15% 65%

Informal Market direct sale of liquid milk to households Consumption by Producer Households Informal Market supply to sweetshops

Figure 14: Composition of locally produced Milk usage in Bangladesh The diagram shows the composition of milk used for different purposes. The consumption by producer households is largely due to the fear of losing the milk through rancidity.

The indirect and direct demands for dairy produce add up to give the total annual per capita consumption of dairy in Bangladesh i.e. 11.2 Litres in 2005 having risen from 10.45 Litres in 1996. This still however is far lower than the annual per capita milk consumption in India i.e.

85 Litres. Whereas demand for milk in Bangladesh has grown by 3 percent since 1996 to 2005, supply has increased only by 1.2 percent. This deficit in supply has caused the country to rely heavily on the import of milk powder. Bangladesh imported 51,545 tonnes of skim milk powder worth 87.81 million USD in 2004. This was about 28 percent of milk production in the country. Nestleâ&#x20AC;&#x2122;s NIDO is one such example of imported powder milk.

Powder milk when imported remains well below the producer prices of dairy in Bangladesh.

However, due to the government addition of high tariff of as high as 86.7 percent, the price of imported milk rises from 14 USD to 26 USD at the retail level. Nevertheless, in cities, regardless of price, people prefer powder milk for safety and hygiene reasons. Nevertheless, according to a recent report of CAB, BSCIR tested a sample of 15 imported powder milk brands and three milk processor brands. Out of them, 89 percent of the powder milk and 100 percent of the processed milk brands were found to be substandard i.e. not matching the description given in the individual packages. This however had been checked by BSTI while issuing certificates to these companies.

Based on the above circumstances, the market and competitors’ analysis for the dairy industry of Bangladesh can be presented through Porter’s Four Factor Model of Determinants of competitive advantage.

CASE 5 Nestle is a prominent multinational manufacturer of fast moving consumer goods in Bangladesh. Nestle’s prime dairy product, that can be considered a competitor of local dairy products, is NIDO, powder milk for infants.

NIDO holds 10-11% share of the powder milk market of 26000 tonnes.

While NIDO competes with DANO and ANCHOR directly, it faces indirect competition from local fresh milk. This indirect competition was revealed

by Household Penetration Data that showed that children aged 2- 13 years were consuming local liquid milk to a large extent though it was not possible to find concrete data due to a large informal market in local liquid milk. Nestle terms this as “indirect” competition as there are two grounds on which Nestle cannot compete directly with local liquied milk: • Infants’ milk- Milk from different sources is appropriate for different living beings. Nestle claims that NIDO is best for human infants as it strikes the correct balance between different nutrients required for the balanced growth of a normal human child. A stated example is that while dairy milk has high levels of calcium that is required for a calf, the presence of too much calcium in milk may be harmful for human babies. Human babies on the contrary need high level of zinc that is missing in dairy milk. This requirement however, is being met by NIDO as Nestle processes dairy milk to reduce calcium and increase zinc. On this ground, Nestle feels that their product is superior to raw dairy milk at least for infants, and hence even if availability of local milk rises, processed and powder milk would be best for infants after mothers’ milk.

• Price- Nestle cannot compete with local liquid milk even in the infants’ segment due to the high price of the premium product NIDO. NIDO is affordable to only the upper segment of SEC A and hence its sales are limited to the rich urban infants only. This competition however can only be made direct if: o Peoples’ purchasing power rises to a great extent o Price of NIDO can be reduced to a great extent Price of NIDO is high at 740 BDT per kilogram. This arises out of the fact that NIDO is processed abroad and imported by Nestle

One of the largest cattle populations of the world Large labour force involved i.e. 20 % of the total labour force Scarcity of land Scarcity of capital

Imported powder milk dominating 22 % of the market Imported milk targeting only the urban SEC A population Importers of powder milk suffering from high price rises and hence high import cost Environment of the competing firms

Factor conditions

Demand Conditions

Related and supporting industries Poorly nutritious, scarcely available, overtly expensive cattle feed Breeding facilities have enough infrastructure to support only 25 % of the cattle of the country Poor access to veterinary service- understaffed livestock hospitals High distribution costs High profit margins of processors Poor technology used by processors

Income and price elastic nature of demand Demand has grown by 3% in the last decade with supply keeping up with only 1.2% leaving a vast scope to grow Demand forecasted to grow 25 % in the next two decades

Figure 15: Porter’s Determinants of Competitive Advantage of the Dairy Industry of

16. Analysis of problems and prospects of the Dairy Industry of Bangladesh 16.1 SWOT of the Dairy Industry of Bangladesh Strengths • • • • •

One of the largest cattle populations of the world Large labour force involved in dairy i.e. 20 of the labour force in livestock Favourable temperate climate for dairy Institutional support from NGOs and humanitarian organizations Large number of veterinarians

Weaknesses • • • • • • • • • • •

Poor nutrition level, unavailability and expense of cattle feed High cost of milk production, lower than those of may European countries but quite high when compared with India and Pakistan Untrained, uneducated farmers poorly equipped to manage farms and animals Lack of farmers’ access to market information Large profit margin of processors Exploitation of farmers by collectors and middlemen Backward technology used to measure milk fat content to determine price Corruption in public sector while measuring milk constituents to determine price Improper milk handling causing adulteration, lack of hygiene and rancidity of milk Lack of sufficient cooling and preserving facilities leading to 15 percent of milk produced being lost to consumption by producer households fearing rancidity Large informal sector taking up 81 percent of the milk production

• • • • • • • • •

Very small formal sector accounting for only about 4 percent of the milk produced Lack of employment opportunities for veterinarians graduating from government veterinary colleges Understaffed veterinary hospitals that number 89 Poor access of farmers to veterinary care Poor access of farmers to AI services AI infrastructure sufficient only to support 25 percent of the cattle in the country Lack of a comprehensive dairy policy Lack of a strong, reputed regulatory body to upgrade the quality of milk Lack of government support

Opportunities • • • • • •

Income elastic nature of demand for milk Demand for milk forecasted to rise 25 percent by 2025 Rising incomes in Bangladesh causing rising demand for high value agricultural products Long way to saturation of milk market i.e. production growth rate of only 1.2 percent in comparison to a demand growth rate of 3 percent Variety of use of milk in various high value, high in demand processed dairy products Large informal sector yet to be formalized

Threats • • • • •

Loss of valuable breeds due to lack of breeding facilities Grazing land being taken up for cultivation Urban population turning increasingly to imported powder milk due to unavailability of locally produced liquid milk or fear of adulteration or unhygienic production of local milk Demotivation of dairy farmers following corruption, low milk prices whereas the ultimate processed milk is sold at a high price, lack of finance etc.

Demotivation of farmers possibly may lead to decrease in supply of milk causing the dairy industry to collapse

16.2 PEST Political The governments are more interested in working for industries that have a direct link with peoples’ livelihoods and where little work yields short term obvious results e.g. rice. Dairy would take sufficient time and effort and considerable time would pass before the actual gains can be realized. Hence the government remains apathetic towards dairy industry and probably is one reason why there is yet to be a comprehensive dairy policy.

Economic Dairy, looking at the tremendous potential for growth in demand evident by internal figures as well as global trends as well as the current vast deficit the dairy industry of Bangladesh in is in, if bolstered, the dairy industry can benefit the economy. Already, the cultivation part of

agriculture is slowing down in terms of contribution to GDP growth whereas the livestock part by iself generates 2.95 percent of the total GDP. Livestock and fisheries are slowly taking over with high GDP growth rates.

On the other hand, the livestock sector employs 20 percent of the labour force. These peoplesâ&#x20AC;&#x2122; lives will be vastly improved with improvement of the dairy sector, ultimately leading to economic growth through ripple effect of higher purchasing power. Imported volume of milk may as well decline from 28 percent of domestic production, thus reducing the balance of payments deficit for the country.

Social With higher milk production, Bangladesh will get a healthier and wealthier population.

Health will be reinforced through higher intake of milk than a mere 11 Litres per capita per year. On the other hand, with higher incomes of the farmers and more employment generation, peoplesâ&#x20AC;&#x2122; standard of living will rise, reducing poverty and hence antisocial activities like crime.

Technological The dairy industry is extremely backward technologically. No dairy farming equipments are used. Milking is invariably carried out by hand. On the other hand, equipment for milk quality testing in terms of fat content and subsequent standard evaluation are very primitive and sometimes unused. Especially in the public sector, computerized techniques of fat content measurement are avoided deliberately to keep prices low deliberately and sometimes for ease of corruption.

17. Conclusion The dairy industry of Bangladesh has its own unique problems but has a tremendous potential to grow following increasing demand and a gap in supply provided that the current bottlenecks are cleared. In order to strengthen the value chain, work must be started from the grass root level i.e. the dairy farmers, subsequently moving up to ultimately reach the consumers.

The access to high quality agricultural products like processed dairy would add to the standard of living of the population. Conservation of and generation of breeds besides yielding milk production would also be an environment friendly practice helping to take a step towards ecological balance. A stronger, wealthier dairy industry would mean lower imports, better population health, improvement in livelihoods of farmers, employment generation, higher GDP and higher economic growth.

18. Recommendations The dairy industry of Bangladesh has many problems. However, despite its problems, it has a vast potential ahead keeping in mind the rising demand and the promising demand forecasts as well as high profits from such business besides providing nutrition to society. To equip the dairy industry of Bangladesh to face the challenges ahead and take advantage of opportunities, certain steps may be taken to solve existing problems, clarify bottlenecks and bolster the dairy industry.

1. A successful intervention in the smallholder sector has to be focused on milk or producer groups as an entry point. Farmer groups are the best mechanism to improve bargaining power and inform farmers of market needs and demands. Group members then will be empowered to make well informed decisions.

2. The increasing use of modern Information Communication Technology (ICT) is playing a major role in improving instant and periodic market information provision e.g., using SMS messaging, mobile phones and local and national radio stations to provide access of farmers to information. This should not be a problem in Bangladesh with widespread use of cell phones.

3. A Market Oriented Dairy Enterprise (MODE) approach can be adopted so that small scale dairy producers are aware of what is expected of them ad their dairy products.

4. The cost of a dairy animal, feed and equipment is beyond the affordability of smallholder dairy farmers. This outlay can however be reduced by starting dairying with goats or sheep instead of dairy cows or buffaloes or by using indigenous animals initially. Although their output will be smaller, it represents a lower risk.

5. Fresh milk is highly perishable with a shelf life of around three hours at tropical temperatures after which it acidifies or sours. Poor seasonal access to rural farms results in huge milk losses for small scale producers who do not have the means to invest in cooling equipment. FAO currently promotes the Lactoperoxidase System (LPS) of raw milk preservation, a safe and natural method that can be used in situations where no cooling facility is available or affordable. It is intended for use by trained people at the level of collection points, not by individual farmers (FAO, 1999) but does not replace pasteurisation (FAO/WHO, 1991).

6. There must be a central quality checking point in every milk processorâ&#x20AC;&#x2122;s processing plant to make sure that representatives at the chilling plants are fairly remunerating the collectors and farmers. In the public sector, there should be a regulatory body to monitor different chilling plantsâ&#x20AC;&#x2122; activities to eradicate corruption at the chilling centres.

7. The government should play a more supportive role. a. A comprehensive dairy policy must be implemented focusing especially on smallholder dairy farmers. A facilitative and conducive policy environment is required for sustainable dairy development. Dairy policy must be linked to the national livestock development policy and implemented through detailed strategies. The strategies must be participatory, combine public and private sector interests and delivered through relevant stakeholder institutions. b. The Government Department of Livestock Services should produce all types of vaccines required for commercial breeds and increase the local vaccine production. The Government should subsidize the cost of importing yellow maize, soybean meal, and concentrate from abroad. c. Breeding efforts must also be strengthened with more AI points and trained technicians giving door to door service at a subsidized rate.

d. Veterinary services must be improved by recruiting more vets at the upazilla level livestock hospitals.

8. A well-organized marketing system should be established to give the farmers a better price for their livestock products.

9. A proper and effective regulatory body must be set up to regulate the quality standards of milk.

10. Research on agriculture should be carried out to find out ways of multiplying crop production so that fields can be left free for grazing for some time of the year without hurting crop or horticulture production.

11. Buffalo farming should be encouraged besides cattle.

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