130 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD MDA STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS Shifting consumption trend in the Indian dairy industry The Indian dairy landscape remains largely influenced by liquid milk consumption. Yet, recent trends reveal a notable shift towards value-added dairy products, including curd, ghee, cheese, and paneer, which are rapidly gaining popularity. An increasing number of consumers are opting to purchase these products rather than preparing them at home. In response to this shift, dairy companies are intensifying their efforts to innovate, offering an array of products characterized by superior packaging, extended shelf-life, and enhanced quality. This evolution in consumer preferences is anticipated to persist, positioning value-added dairy products to level with the share of liquid milk in the foreseeable future. Key focus segments within the Indian dairy industry Liquid milk Liquid milk holds the leading position in the Indian dairy market as the foremost product category, a status it has earned due to its indispensable role in daily diet, its nutritional value as a fundamental food item, its widespread cultural endorsement, and its affordability to match household budgets. As of 2019, liquid milk accounted for approximately 23% of the market and is projected to command a 50% market share by 2025. Additionally, the production capacity for liquid milk is anticipated to surge to 300 million metric tons by 2030. To enhance efficiency in milk collection and processing, investment in technologies such as bulk milk coolers is recommended, along with high-pressure processing methods. Moreover, there are prospects for establishing structured and certified livestock farms dedicated to the nurturing and breeding of high-quality milch breeds. This sector presents attractive investment possibilities in advanced technologies like blockchain, as well as in radio-frequency identification (RFID) and sensor-equipped vehicles and packaging systems. A2 milk A2 milk is rapidly becoming a prominent category in India’s dairy industry, propelled by the rising consumer perception of its superior digestibility and potential health advantages over conventional milk. The surge in demand for A2 milk is largely fuelled by heightened consumer knowledge of its health benefits. The D2C delivery of premium fresh or organic milk, either from controlled farms or sourced from a verified network of farmers, has contributed to the expansion of this market segment. Considering the mere 0.9% global market share and 0.2% share within the Indian dairy market, A2 milk exhibits significant growth potential. Skimmed milk powder (SMP) As per the latest data available, during the fiscal year 2021-22, India’s milk powder exports reached 48,778.02 metric tons, with a value of USD 141.74 million, accounting for 44% of the nation’s total dairy exports. The production of milk powder witnessed a CAGR of 9.58% from 2015 to 2020 and is anticipated to continue this trend in the future too. The sports nutrition and infant food sectors are expected to be significant revenue streams for SMP market participants. Other value-added products Within the realm of the Indian dairy industry, cheese and curd stand as the two most rapidly burgeoning value-added products. Presently appraised at approximately USD 1.5 billion, the Indian cheese market is poised for a robust growth trajectory, anticipated to surge at a CAGR of 18% until 2026. Meanwhile, the yogurt market, currently valued at approximately USD 6.02 billion, is forecasted to maintain a steady ascent, with an expected CAGR of 15.3% until 2026. In tandem, the ice cream market in India attained a worth of USD 2.37 billion in 2022, and projections indicate a robust CAGR of 17.5% from 2023 to 2028. Similarly, the flavoured milk market concluded 2022 with a size of USD 0.40 billion and is poised for impressive growth, projected at a CAGR of 22.01% from 2022 to 2027. Key challenges faced by the Indian dairy industry Despite its remarkable growth, the Indian dairy industry faces its fair share of challenges. • Fragmented industry structure: A key issue for the Indian dairy industry is its fragmentated structure, leading to supply chain inefficiencies and challenges in scaling up production to meet increasing demand. • Low milk yields per animal: A major challenge in India’s dairy sector is the relatively low milk yield per animal, particularly in native breeds. Factors include scarce quality feed, traditional practices, insufficient veterinary care, limited high-quality livestock and inefficient breeding programs. • Inefficient feed and fodder management: Inadequate availability of nutritious feed and fodder, especially during lean season, affects the nutritional status of dairy animals and leads to suboptimal milk production. • Lack of QA/QC and testing facilities: Quality assurance and testing are vital for dairy safety and quality. Challenges include limited access to testing facilities, weak quality control and inconsistent quality standards, affecting product consistency. • Resource efficiency: Dairy farming demands significant resources, such as land, water, feed, and energy. Inefficiency and unsustainable methods lead to environmental issues like land degradation, water scarcity, and deforestation. • Transportation and logistics: Transportation and logistical issues hinder dairy distribution, with a shortage of specialized vehicles for perishables leading to quality loss and spoilage.
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