Speaker
Description
Keywords : competition, dairy, supply chain, farm outcomes
Introduction
The dairy sector in Punjab, India has been growing and transforming rapidly in response to rising demand for milk and the increased attention to quality and safety. Some (mostly small) dairy farmers have left the business, others have scaled up and modernized, and new (mostly large) farms have entered. At the same time, also the market structure among processors and other milk buyers has evolved. In this paper, we rely on three rounds of panel data, covering the transformation of the Punjabi dairy sector over 15 years. Using data on farm-buyer relations and processor and buyer presence across different villages in Punjab, we propose a measure of buyer competition to evaluate its impact on farm outcomes.
The marketing channels in Punjab (buyer operation structures) can be categorized into formal and informal channels (referring to the 2023 scenario). The formal channels include private processing companies, cooperative organizations and farmer producer organizations. These companies or organizations mainly collect milk through village-level milk collection centers. The informal channels include local milk traders, sweet shops, households, hotels, restaurants, small-scale private milk collection centers and village-level grocery stores dealing with milk and dairy products.
Objective
The paper focuses on how changes in competition among milk buyers over space and time may benefit/harm dairy farmers. This goal will be achieved by studying three attributes: investigating intensity of competition over time, understanding the exit and entry decisions in depth considering the relations between milk buyers and milk producers and establishing a linkage between these elements of the dairy supply chain and farm growth (evolving herd size, adoption of modern technologies, income sustainability and changes in production capacities).
Method
The study examines 3-round panel (2008, 2015 and 2023) of farmer survey data which captures rapid modernization and restructuring of the dairy sector in Punjab. Over the period of 15 years, 1000 farming households have been tracked and interviewed (attrition in 2015 and 2023). The final panel consists of 739 households. Initial sampling of the villages was done in 2008. In 2008, Punjab was divided into five regions: the north-west (Amritsar and Gurdaspur), the north-east (Hoshiarpur, Jalandhar, Kapurthala and Nawanshahar), the south-west (Bathinda, Faridkot, Ferozepur, Moga and Muktsar), the south-east (Mansa, Patiala and Sangrur), and the central region (Fatehgarh Sahib, Ludhiana and Ropar). One district was selected at random from each region. Considering the concern of oversampling in smaller districts, the probability of selection was made proportional to the population share of the districts within the region. Active marketing channels were used for stratifying villages in these districts. Nestlé’s list of procurement villages, respective milk unions and cooperative sector cooling plants’ locations were considered while determining the marketing channels. These approaches concluded the selection of 15 “Nestlé villages”, 15 “cooperative villages”, five villages with operations of both Nestlé and cooperative companies, and 15 villages where none of them were operating (Janssen and Swinnen, 2019). These 50 villages were spread over Amritsar, Hoshiarpur, Ludhiana, Ferozepur and Mansa. With the recent district-level borders, few sampled villages are now in the districts of Fazilka and Tarn Taran too. In each village, 20 households were randomly selected and these households were categorized based on the herd size and the marketing channel. Over the years, these initial herd sizes and marketing channels have evolved and changed.
Information on members of the household, crop production, agricultural land ownership, other farm income sources, general farm expenses, dairy production, livestock inputs, milk and dairy products’ marketing, available channels for milk sales, relations with milk buyers and services received, evolution of milk production, investments in livestock and off-farm income have been collected over the 3 rounds.
We attempt to capture competition at each link of the supply chain. We calculate the average number of buyers a farmer faces at the village level. At the buyer level, we determine the average number of other buyers a particular buyer faces at the village level (downstream) and the average number of farmers a buyer faces to procure milk at the village level (upstream). For each village, we also take into account the active buyers in the surrounding areas. Here, we make an assumption if certain buyers in the surrounding villages are not known to the milk producers of the sampled village, these buyers cannot be potential channels for milk sales. Thus, the known buyers are considered potential competitors for the milk buyers operating in the sampled villages. Furthermore, we evaluate how the changes in the intensity of competition over time (determined by the number of active buyers in the sampled village and the number of potential buyers in surrounding villages) impact different farm outcomes using two-way fixed effects regression.
Findings
We find that greater competition intensity among the milk buyers to procure milk results in positive farm outcomes on an average. However, the herd size (number of dairy animals owned) of the milk producers (beneficiaries) determine the extent/scale of the benefits. Smallholder farmers are benefited minimally from intense competition and are significantly below the average benefit levels. Larger dairy farmers are benefited significantly from intense competition.
Conclusion
Punjab is already experiencing a decline in smallholder dairy farming. In the recent years, there are new larger entrants (milk processing companies) in the dairy sector of Punjab. Competition among the major state cooperatives, in particular, is intensifying while Nestlé stands as the largest private multinational dominating the dairy markets of Punjab. Without a minimum support price for milk, the question here remains for how long can smallholder dairy farmers sustain in this competitive dairy sector's environment with minimal/zero benefits. Transformation and modernization of the dairy sector in the light of increased competition for milk procurement promises a bright future for the large commercial dairy farmers and the medium-scaled dairy farmers (with further support for development and growth) but somewhat, a bleak future for the smallholder dairy producers of Punjab.
Reference
Janssen, E. and Swinnen, J., 2019. Technology adoption and value chains in developing countries: Evidence from dairy in India. Food Policy, 83, pp.327-336.
