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Transcript of Dairy Processing Plant
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DISCLAIMER
The purpose and scope of this Pre Feasibility Study is to introduce the Project and
provide a general idea and information on the said Project including its marketing,
technical, locational and financial aspects. All the information included in this Pre-
Feasibility is based on data/information gathered from various secondary and primary
sources and is based on certain assumptions. Although, due care and diligence have been
taken in compiling this document, the contained information may vary due to any change
in the environment.
The Planning & Development Division, Government of Pakistan, Mascon Associates
(Pvt.) Ltd who have prepared this Pre-feasibility study, or National Management
Consultants (Pvt.) Limited who have quality assured this document do not assume any
liability for any financial or other loss resulting from this Study.
The prospective user of this document is encouraged to carry out his/ her own due
diligence and gather any information he/she considers necessary for making an informed
decision
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TABLE OF CONTENTS ACRONYMS .................................................................................................................. iii EXECUTIVE SUMMARY ...........................................................................................iv CHAPTER 1 INTRODUCTION...................................................................................1
1.1 OBJECTIVE AND SCOPE OF THE STUDY.......................................................................... 3 1.2 METHODOLOGY ...................................................................................................................... 3 1.3 STUDY TEAM ........................................................................................................................... 4
CHAPTER 2 MARKET/ NEEDS ASSESSSMENT ...................................................5
2.1 PROFILE OF PAKISTANS DAIRY SECTOR....................................................................... 5 2.2 MODERN MILK PROCESSING IN PAKISTAN....................................................................... 7 2.3 PRODUCT PROFILE & MARKET SHARES OF THE PROCESSING SECTOR .................... 8 2.4 SEASONAL FLUCTUATIONS IN MILK PRODUCTION AND CONSUMPTION............ 9 2.5 SUPPLY - DEMAND GAP AND PROJECTIONS FOR UHT PROCESSED MILK ............... 10 2.6 MARKETING OF MILK AND DAIRY PRODUCTS .......................................................... 13 2.7 MARKETING OF PROCESSED LIQUID MILK.................................................................. 17 2.8 MARKETING OF DAIRY PRODUCTS ................................................................................ 18
CHAPTER 3 TECHNICAL EVALUTION................................................................21
3.1 LOCATION PREFERENCE .................................................................................................... 21 3.2 SPECIALIZED MANPOWER ................................................................................................. 23 3.3 REGULATORY FRAMEWORK............................................................................................. 24 3.4 IN-HOUSE QUALITY ASSURANCE .................................................................................... 25 3.5 RATIONALE FOR SETTING UP A UHT MILK PROCESSING PLANT ....................... 25 3.6 PROPOSED UHT PROCESSING UNIT ................................................................................ 26 3.7 THE UHT PROCESS FLOW .................................................................................................. 31 3.8 TECHNICAL REQUIREMENTS & THEIR AVAILABILITY............................................. 33
CHAPTER 4 GOVERNANCE AND MANAGEMENT STRUCTURE .................35
4.1 GOVERNANCE STRUCTURE............................................................................................... 35 4.2 MANAGEMENT STRUCTURE .............................................................................................. 37 4.3 RAW MILK PROCURMENT & TRANSPORTATION ...................................................... 39 4.4 PLANT OPERATIONS AND QUALITY ASSURANCE....................................................... 39 4.5 MARKETING AND SALES.................................................................................................... 39 4.6 FINANCE DEPARTMENT ..................................................................................................... 40 4.7 HUMAN RESOURCE DEPARTMENT................................................................................. 41
CHAPTER 5 FINANCIAL EVALUATION .............................................................42
5.1 CAPITAL COST OF THE PROJECT................................................................................... 42 5.2 PROJECTED PROFIT & LOSS ACCOUNTS ..................................................................... 44 5.3 PROJECTED CASH FLOW ................................................................................................... 45 5.4 PROJECTED BALANCE SHEETS......................................................................................... 46 5.5 INTERNAL FINANCIAL RATE OF RETURN ................................................................. 47 5.6 RATES OF RETURN.............................................................................................................. 47 5.7 PAYBACK PERIOD................................................................................................................ 48 5.8 FUNDING OF THE PROJECT................................................................................................ 48
CHAPTER 6 CONCLUSION ....................................................................................49
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LIST OF TABLES TABLE 1 MILK PRODUCTION IN SELECTED COUNTRIES................................................................ 5 TABLE 2 MILK PRODUCTION (REGION WISE) ................................................................................... 6 TABLE 3 PROCESSOR CAPACITY.......................................................................................................... 8 TABLE 4 MARKET SHARE AND SELLING PRICE OF MILK PROCESSED IN THE FORMAL SECTOR ........................................................................................................... 9 TABLE 5 PROJECTION OF FRESH MILK PRODUCTION AND CONSUMPTION TO 2010....................................................................................................... 10 TABLE 6 MILK PRODUCTION (REGION WISE).................................................................................. 22 TABLE 7 MILK PRODUCTION IN PUNJAB ......................................................................................... 22 TABLE 8 INTERNATIONAL MILK PRODUCTION COST BENCHMARKS ...................................... 23 TABLE 9 UHT MILK PROCESSING PLANT PROJECTED CAPITAL COST...................................... 42 TABLE 10PROJECTED PROFIT & LOSS ACCOUNTS.......................................................................... 45 TABLE 11PROJECTED CASH FLOW ..................................................................................................... 45 TABLE 12PROJECTED BALANCE SHEET............................................................................................ 46 TABLE 13PROJECTED IFRR ................................................................................................................... 47 TABLE 14RATES OF RETURN................................................................................................................ 47 TABLE 15PAYBACK PERIOD................................................................................................................. 48 ANNEXURE- 1 PAKISTAN A PROFILE
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ACRONYMS
ADB Asian Development Bank ASEAN Association of South East Asian Nations BOO Build Operate Own BOT Build Operate Transfer CAA Civil Aviation Authority CAR Central Asian Republics CMER Center for Management and Economic Research (of LUMS) CNG Compressed Natural Gas ECO Economic Cooperation Organisation EIZ Eastern Industrial Zone FAOSTAT Food & Agricultural Organization of UN Statistics FDI Foreign Direct Investment FM Filling Machine GCC Gulf Cooperation Council GDP Gross Domestic Product GNP Gross National Product GoP Government of Pakistan HDIP Hydrocarbon Development Institute of Pakistan IFC International Finance Corporation IFCN International Farm Comparison Network km Kilometre KPT Karachi Port Trust LUMS Lahore University of Management Sciences MINFAL Ministry of Food, Agriculture and Livestock NHA National Highway Authority OEM Original Equipment Manufacturer PIA Pakistan International Airlines PISDAC Pakistan Initiative for Strategic Development And Competitiveness PNSC Pakistan National Shipping Corporation PTA Pakistan Telecommunication Authority PTCL Pakistan Telecommunication Limited Rs Pak. Rupees SAARC South Asian Association for Regional Cooperation SBP State Bank of Pakistan SMEDA Small and Medium Enterprise Development Authority SPS Sanitary and Phyto Sanitary SWOG Strategic Working Group UAE United Arab Emirate UHT Ultra High Temperature UNICEF United Nations International Childrens Emergency Fund WTO World Trade Organization
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EXECUTIVE SUMMARY
Pakistan is regarded as the fifth largest producer of milk in the world. In 2004 it produced
more than 28 million tonnes of milk, based on current projections it is expected to
produce more than 33 million tonnes in 2006.
In addition, Pakistan is a milk surplus country in a milk deficient region, despite this,
it had to import US$ 12 million worth of milk powder to even out seasonal supply
imbalance. This Pre-feasibility Study explores the possibility of setting up a 100,000
litres per day UHT milk processing unit near Lahore in the Punjab province of Pakistan.
The rationale for setting up the plant is:
The market for processed milk is estimated at 200 million litres per annum while supply is 139 million litres per annum; in addition the market is growing at around
20% per annum.
The consumers have developed a taste for UHT milk and also for its variants like flavoured milk, etc.
The location of the plant is proposed near Lahore, as the surrounding areas of Lahore produce 70% of the total milk produced in Pakistan
The Government of Pakistan has launched a program to increase milk yield per animal from the current 6 litres per day to 13 by 2012, in addition the GoP is
launching a mass consumer awareness program aimed at highlighting the dangers of
consuming raw unprocessed milk.
The technology and the skills required for setting up a modern UHT plant and its milk collection infrastructure exists in the region. The first UHT plant which was set up in
1977 is still operating and has seen continuous capacity increase over the years.
The aseptic packaging which increases the shelf life of the UHT processed milk is ideally suited for the local climate in Pakistan which is characterized by high summer
temperatures.
The total cost of the project is estimated at Rs.670 million with a pay back period of
approximately 4 years.
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CHAPTER 1
INTRODUCTION
Agriculture is the largest sector of Pakistans economy, contributing nearly 22%
of the total output (GDP) and employing around 45% of the total labor force.
Livestock contributes nearly 50 percent to the value addition in the agricultural
sector, and almost 11 percent to Pakistans GDP. Livestock is the main supplier
of basic raw material to the Pakistani food processing industry, with milk being
the most important sub-sector; the value of milk produced is higher than the value
of two major crops, i.e. wheat and cotton.
Pakistan is regarded as the fifth largest producer of milk in the world with a total
production of about 28 million metric tons in 2004, despite such a huge volume
the country is a net importer of milk and milk products. The major reason for this
is that 12 15% of the milk produced is lost during transportation and storage
due to lack of proper processing facilities.
The Government of Pakistan (GoP) in cooperation with various multilateral donor
agencies, apart from utilizing its own in-house capabilities, has prepared a
comprehensive strategy for bringing about a White Revolution in Pakistan. The
main objective of the GoP is poverty alleviation in the rural areas by helping the
subsistence farmer, who provides the bulk of the milk, to increase the yield of
milk. Currently, animal productivity is well behind other major dairy producers.
Pakistan has three times the animals that Germany has, but milkyield per animal
is one fifth of Germany and one third of New Zealand representing a significant
loss in economic potential.
The strategy developed by the GoP will focus on raising productivity and to do
so, the dairy industry will:
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Establish model commercial dairy farms across full range of farm sizes to increase overall farm productivity by demonstrating new technologies and
better practices;
Upgrade rural and urban supply chains by facilitating investment in chilling tanks for purchase and collection of milk which will give farmers a guaranteed
sale for quality milk;
Investigate modern technologies, systems, and underlying seasonal economics of dairy production to improve quality of investment decisions and to correct
market distortions;
Expand supply pockets to increase the milk supply and create new income earning opportunities; and
Improve the quality of animal feed to ensure better quality of milk.
As per the GoP strategy in order to improve the business and regulatory
environment, workforce, and industry organization the milk processing industry
will be duly supported to:
Rseolve the health and safety problems associated with poor quality milk; Improve and enforce existing food safety standards in line with international
standards;
Promote policies which will support the development of an expanding export industry;
Provide practical training to farmers on modern farming practices; Raise capacity of training institutions to provide required training and
qualifications;
Establish a permanent industry organization, Dairy Pakistan, representing farmers, processors, and government stakeholders with responsibility to carry
out the Dairy Industry Strategic Plan.
This Strategy for increasing productivity and quality of milk, is expected to
deliver value to both the producers and consumers. Conservative estimates show
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an additional Rs.11million per day of income generated for farmers, with more
optimistic scenarios showing over Rs.30million. The average farm income per
year stands to increase by a factor of four by 2015, significantly reducing rural
poverty. In addition, the Strategy aims at increasing average yield per animal from
the current 6 liters per day to 13 liters by 2015. As a first step, the Government of
Pakistan has established Dairy Pakistan to ensure that the targets set forth by
the Strategy are achieved.
The expected increased availability of milk will help Pakistan enter the export
market, as it is located in a dairy deficient area where most of its neighbors to
the west are net importers.
1.1 OBJECTIVE AND SCOPE OF THE STUDY The purpose of this Pre-Feasibility Study is to establish the need for setting up of
a milk processing plant to avail more than 20 percent growth per annum in the
Sector. Pakistan has got large quantities of raw milk which in 2004 was estimated
at close to 28 million tonnes per annum with only 2 3% actually being
processed by the dairy industry.
The scope of the study is to undertake, inter alia, need assessment, technical
evaluation, assessment of governance and management structure and financial
evaluation of the project, on the basis of which recommendations are to be
developed for setting up the said project.
1.2 METHODOLOGY The methodology employed for this study consists of review of published data as
well as exhaustive interviews of the stakeholders including farmers, dairy experts,
dairy marketing companies, multilateral agencies and Government of Pakistan
officials as well as those belonging to MINFAL and the Government of Punjab.
Lastly, we would like to bring on record the cooperation extended by those
individuals and companies who though no longer associated with the Industry,
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were willing to share their opinions and experiences to facilitate new entrants
coming into the industry.
The data collected has been analyzed using quantitative and qualitative
techniques, where required necessary assumptions have been made which have
been mentioned in the report.
1.3 STUDY TEAM The study team comprised of experts in the fields of dairy and animal husbandry,
economics, engineering, food processing, marketing and finance.
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CHAPTER 2
MARKET/ NEED ASSESSSMENT
2.1 PROFILE OF PAKISTANS DAIRY SECTOR As stated earlier, agriculture is the largest sector of Pakistans economy,
contributing nearly 22% of the total output (GDP) and employing around 45% of
the total labor force. Livestock contributes nearly 50 percent to the value addition
in the agricultural sector, and almost 11 percent to Pakistans GDP. Livestock is
the main supplier of basic raw material to the Pakistani food processing industry,
with milk being the most important sub-sector; the value of milk produced is
higher than the value of two major crops, i.e., wheat and cotton. Pakistan is
regarded as the fifth largest producer of milk in the world with a total production
of about 28 million metric tons in 2004.
TABLE - 1
MILK PRODUCTION IN SELECTED COUNTRIES (1,000 Metric Tonnes)
Total Production Sr. No. Country 1999 2000 2001 2002 2003 2004 1. India 78,100 81,000 84,800 89,500 91,200 90,4202. U.S.A 73,804 76,023 75,068 77,139 77,252 77,5653. Russia 32,300 32,276 32,905 33,503 33,300 31,1404. Germany 28,356 28,353 28,213 27,899 28,380 28,0285. Pakistan 24,281 24,949 25,646 26,372 27,140 27,9346. France 25,388 25,484 25,415 25,733 25,160 24,7507. Brazil 19,802 20,527 21,284 22,453 23,453 23,4588. UK 15,014 14,488 14,707 14,869 15,056 14,6009. Ukraine 13,344 12,640 13,411 14,108 13,633 13,993
10. Poland 12,284 11,889 11,884 11,873 11,892 12,40011. World 561,175 571,077 580,608 593,723 605,516 605,263
Source: FAOSTAT
The average per capita production of milk in Pakistan at about 230 liters/year is
the highest of all South Asian countries. Punjab has by far the lion's share in both
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milk production and number of dairy animals. It produces over twenty million
metric tons of milk or about 70% of the countrys total.
The production of milk in different provinces of Pakistan is given below:
TABLE -2
MILK PRODUCTION (REGION WISE)
(mllion Tonnes)Milk Production Milk Production by Regions Year
Buffalo Others Punjab Sindh Others 1996 18.0 9.0 19.0 7.0 3.0 1997 20.0 9.0 21.0 5.5 4.0 1998 20.0 9.0 21.0 5.5 4.0 1999 21.0 9.5 21.5 6.0 5.0 2000 21.7 10.0 22.0 5.0 5.0 2001 21.8 9.5 22.5 4.5 5.0 2002 23.0 10.0 23.0 6.0 5.6
Source: International Farm Comparison Network (IFCN), 2003
Dairy product mostly distributed and sold in Pakistan is still fresh milk.
However, as per study conducted by Unilever Pakistan Ltd., processed milk
consumption is growing at above 20% per year. Of the different types of
processed liquid milk, pasteurized milk and UHT milk in Tetrapacks are by far
the most popular products. Yogurt, butter, cheese and ice cream represent a small
proportion of the processed dairy products. The informal sector produces Lassi (a
drink from boiled and/or raw milk), which is very popular in the summer months.
Other common indigenous milk products are boiled milk and sweet-meats
produced by condensing liquid milk, which is called Khoyia (condensed milk
with or without sugar).
Only 3-4% of total milk production is processed and marketed through formal
channels. For the other 97%, an extensive, multilayered distribution system of
middlemen has evolved to supply milk produced for immediate consumption.
Katcha Dodhies collect their milk from villages and either sell to the local
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market or to Pacca Dodhies. Pacca Dodhies then supply milk to distributors
and retailers in urban areas, Gawallas and dairy processors. The Gawalla
supplies milk directly to urban and rural households. The current value chain is
illustrated below:
A long tradition of dairy consumption, a sizeable domestic market, high per capita
rates, and yet underdeveloped processing and value-added products present
significant potential to increase both the economic and social value of the
industry.
2.2 MODERN MILK PROCESSING IN PAKISTAN Modern milk processing in Pakistan started in the early 1960s when the first
modern milk sterilization plant was set up. By the mid-1970s 23 milk
pasteurization and sterilization plants had been set up. However, due to the
logistic difficulties in setting up an efficient milk collection system, short shelf-
life of the product and lack of skilled labor, all but one of these plants shut down.
The first UHT plant was set up in 1977 and proved quite successful. With the
exception of army and Idara-e-Kisan dairy plants, the production of liquid
pasteurized milk has ceased since the first units producing UHT long-life milk
went into operation. Table 3 presents basic information on the UHT milk-
CHART -1
DAIRY VALUE CHAIN IN PAKISTAN
Farmer (Rs. 10)
Middleman (Rs. 11)
Contractor (Rs. 13)
Processors (Rs. 15)
Milk-man (Rs. 15)
Processed, Unpackaged Milk (Rs. 23)
Loose Milk (Rs. 20-28)
Packaged Milk (Rs. 29)
Source: SWOG Estimates
Bacterial count>5 mio./ ml
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processing plants that are operating currently. The data in the table referring to
installed daily capacity are based on shifts including preparation and cleaning.
TABLE 3
PROCESSING CAPACITY
Capacity i i i
Sr. No. Processors
Daily Capacity (million liters) Flush Lean
Average Daily (million liters)
1. Nestle 1.30 1.30 0.780 1.0400 2. HFL 0.90 0.90 0.540 0.7200 3. Millac 0.30 0.30 0.180 0.2400 4. Vita 0.05 0.03 0.018 0.0240 5. Halla 0.15 0.15 0.090 0.1200 6. Prime 0.10 0.10 0.060 0.0800 7. Nurpur 0.15 0.15 0.090 0.1200 8. Nirala 1.00 0.10 0.060 0.0800 9. DairyCrest 0.15 0.15 0.090 0.1200 10. Engro Foods 0.20 0.60 - 0.6000 11. K&K 0.40 - - - 12. Butt Dairies 0.06 0.06 0.036 0.0480 13. Munno Dairies 0.02 0.02 0.012 0.0160 14. Karachi Dairies 0.10 - - - 15. Military Dairy Farms 0.18 0.18 0.108 0.1440
Total 5.30 3.44 2.064 2.7520 Source: SWOG Estimates
2.3 PRODUCT PROFILE & MARKET SHARES OF THE
PROCESSING SECTOR The main products of Pakistans dairy industry are Ultra Heat Treated (UHT) and
pasteurized milk, dry milk powder and condensed milk. Other products of less
importance include butter, yogurt, ice cream, cheese, cream, and butter oil (ghee).
Roughly 50% of the milk that is made available to the processing industry (not
counting gawallas) is processed into UHT, 40% into powdered milk, and the
remaining 10% into other by-products. The majority of the dairy processing
facilities are located near Lahore, which serves as the hub for the industry. The
total volume of industrially processed milk sold is about 139,000 metric tons a
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year, roughly equal to about 0.5% of total (raw) milk produced. However, the
domestic market for packaged milk is estimated at about 200,000 metric tons a
year, or a bit more than US$100 million at prevailing price levels of Rs32/liter
(refer to Table 4 for details on market share of different types of milk in the formal
sector).1
TABLE 4
MARKET SHARE AND SELLING PRICE OF
MILK PROCESSED IN THE FORMAL SECTOR
Types of Milk Market Share in Volume Sale Price Rs/Liter Open Gawalla (Milkmen) Milk 90.00% 12-14
UHT Tetra Pack 4.98% 32 Open Pasteurized Milk 3.76% 14-15 Open Milk Sold at Milk Shops 0.98% 18
Pasteurized Pouch 0.24% 20 UHT Poly Pack 0.02% 22 Direct to Home 0.02% 15-18 Source: SMEDA. (Small & Medium Enterprise Development Authority)
2.4 SEASONAL FLUCTUATIONS IN MILK PRODUCTION AND
CONSUMPTION The production (supply) and consumption (demand) for milk and milk products in
Pakistan is characterized by conflicting seasonal fluctuations. Milk production is
at its maximum during the period between January and April and at its minimum
during May August when fodder is limited. Milk consumption is at its peak in
summer. At this time, because of the warmer ambient temperatures, people
increase their milk intake and consume a greater range of dairy products including
ice cream and yogurt.
1 The market share of industrially processed (sold) milk estimated by SMEDA at around 5% of milk processed in the formal sector should not be confused with that share of 0.5% of milk produced in the country.
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Milk supply from rural animal holders decreases by half in mid-summer. In
contrast, the peri-urban producers (13% of all producers) have better control over
their contribution to supply, which fluctuates less through the months. It is
assumed that the overall supply reaches a low point in mid-June; at this point,
supply is only 55% of what is supplied during the peak period in mid-February.
Based on preliminary results from several small surveys, the overall demand
varies from its highest point in June to an estimated low of 60% in December.
2.5 SUPPLY - DEMAND GAP AND PROJECTIONS FOR UHT
PROCESSED MILK Although Pakistan is the 5th largest producer of milk in the world, it faces a
shortage of milk primarily because not all of its production actually makes it to
the market. It is estimated that only 45% of the milk produced is actually
available for sale. Of the milk that is sold by farmers, an additional 15-19% is
wasted enroute-to-market due to spoilage from lack of proper cooling, storage,
and transport systems. In total, 55-60% of current milk production is lost from
potential income generation and value addition. A study done by the Lahore
University of Management Sciences shows Demand and Supply for milk as
follows:
TABLE 5
PROJECTION OF FRESH MILK PRODUCTION AND CONSUMPTION TO 2010)
(million Liters)
Years Average Production Average
Consumption Annual Deficit
Average 1971-2004 15,498.15 15,601.53 (103.38) 2004-2005 29,882.92 31,194.59 (1,311.67) 2005-2006 31,211.81 32,532.09 (1,320.28) 2006-2007 32,504.91 33,785.13 (1,280.22) 2007-2008 33,805.10 34,929.54 (1,124.43) 2008-2009 35,495.25 36,361.25 (866.00) 2009-2010 37,669.75 38,188.92 (519.17)
Average 2005-2010 33,428.29 34,498.70 (1,170.41) Source: Lahore University of Management Sciences, 2005
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-5,000
0
5,000
10,000
15,000
20,00025,000
30,000
35,000
40,000
45,000
Avg.1971-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
Avg.2005-2010
AverageProductionAverageConsumptionAnnual Deficit
Currently this gap is being filled by the import of powdered milk. About 6,000 to
8,000 tons or between US$10 million and US$12 million worth of powdered milk
is imported on an annual basis to fill the mismatch between an ever increasing
demand and local supply. Powdered milk is imported in the form of Dry Whole
Milk, Dry Skim Milk and to a lesser degree, Dry Whey. Imports of Dry Skim
Milk vary between 15% and 25% of the total powdered milk imports. However,
the trend reversed in 2003 with Dry Skim Milk imports comprising about 70% of
total powder milk imports.
Another factor that is contributing to this gap is the concentration of milk
production in the Punjab where nearly 70% of the milk is produced and because
of its very perishable nature it cannot be transported over long distances unless it
is processed using UHT. This has seen UHT milk being marketed in the remotest
areas of Pakistan including Gilgit, Gawadar, Punjgur etc.
With increased urbanization in the country and the movement of Dairy animals
out of the city limits, farms which are in the peri-urban areas of large cities like
Karachi and Lahore are unable to cater to the demands of the rapidly increasing
population. This leads to frequent price increases and chronic shortages. It is
PROJECTION OF FRESH MILK PRODUCTION AND
CONSUMPTION, TO 2010 (MILLION LITERS)
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therefore no wonder that the main centers for UHT milk consumption are the
urban areas like Karachi, Lahore, Islamabad etc.
As stated earlier, there is greater awareness of the current milk handling processes
in the traditional system by the urban consumer and he is extremely reluctant to
consume fresh milk that has been handled in the traditional manner. Traditional
milk is collected in an unhygienic manner and there is no enforcement of
standards, resulting in poor quality product. In order to keep milk temporarily
fresh, middlemen commonly add ice to the milk, which results in dilution of milk
solids by up to 30% and often micro contamination takes place due to poor quality
water in the ice.
Although consumers have a greater preference for fresh milk, it needs to be boiled
before consumption. Working women in the cities have realized the convenience
of using UHT milk as it can be consumed directly from the packaging as it has a
greater storage life.
Fresh milk has high fat content, with greater health consciousness among the
population, consumers are shifting to the use of UHT milk that has got lower fat
content.
According to a report prepared by Unilever Pakistan Limited, titled: Modern
Dairy Technology and Prospects for Growth, The packaged milk market is
estimated at 200 million liters per annum, valued at over Rs.6 billion, with a
yearly growth rate of close to 20 percent over the last few years.
With the large investments that the Government of Pakistan is making in the milk
production side of the supply chain, both the quantity as well as the quality of the
milk available for processing is going to improve. In addition, a comprehensive
strategy is being prepared to increase consumer awareness about the current state
of the quality of milk that is being sold as well as strengthening implementation of
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food laws to international levels. These steps are expected to see a surge in the
demand for UHT processed milk in Pakistan; also exportable surpluses are
expected to be generated because of the increased supply of milk.
2.6 MARKETING OF MILK AND DAIRY PRODUCTS
2.6.1 MARKETING OF RAW LIQUID MILK
Because of the various systems of milk production in Pakistan and the task of
supplying fresh milk regularly to consumers and manufacturers in both rural and
urban areas, different marketing systems have been developed that often involve
several intermediaries who form the marketing chain. Intermediaries are rural
milk traders (katcha dodhis), highway collectors (pacca dodhis), rural vendors /
processors, commission agents, urban wholesalers, shopkeepers/processors and
street and door-to-door vendors. The flow chart is shown below in chart 2.
CHART - 2
SIMPLIFIED DIAGRAM OF FLOW CHANNELS FOR
MILK IN PAKISTAN
Source: Strategy Development in Milk Production and Distribution (SMEDA Report, 2000)
Dairy Farmer
Milk Collection Agency
Milk Processing Plant
Distributor/ Retailer
Consumer
Gawalla (milk man)
Formal Sector 2-3%
Share
Milk Collector
Informal Sector 98%
Share
Retailer
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2.6.2 MARKETING THROUGH RURAL MILK TRADERS
Traditionally, the most important middlemen are the numerous rural milk traders,
commonly called katcha dodhis. Equipped with a bicycle or horse cart, or in some
cases now with a motorcycle and two to four milk cans, they make daily visits to
1520 small milk producers, collecting some 7590 litres of raw milk. This may
take three hours and the distance cycled can easily be 20 km. Most of the katcha
dodhis are independent. Larger highway collectors, however employ a few of
these katcha dodhis. Under the traditional system, women sell the milk to the
middlemen.
Where competition is strong, usually in production areas with good access, the
katcha dodhis often have contracts with the producers to secure milk supply for a
certain period. Then the purchasing price may be fixed, interest free advances
may be given or both mechanisms may be used. The value of advances usually
corresponds to the value of milk supplied within two to four weeks. As most
katcha dodhis do not have sufficient resources to finance their suppliers, they in
turn get advances from the larger collectors and sometimes from rural
shopkeepers. If no advances are granted, payment is normally effected within one
week after milk collection.
With a few exceptions, milk is collected only in the morning, the evening milk
being used mainly for home consumption. Milk is always collected by volume,
never by weight, using measures of varying types and sizes. Milk producers
normally supply pure, unadulterated milk; however, to prevent deterioration of the
milk during their collecting tour, especially in the hot season, the katcha dodhis
add certain quantities of ice to prevent the milk from turning sour.
2.6.3 MARKETING THROUGH RURAL & HIGHWAY MILK COLLECTORS
The highway milk collectors, or pacca dodhis, obtain their supply of milk almost
exclusively from the katcha dodhis. The daily volume collected by a pacca dodhi
often exceeds 2000 litres, especially in the Punjab. The number of katcha dodhis
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supplying a single pacca dodhi ranges from 8 to 500, with a maximum of about
70 per collection point.
At their collection points along or near the main roads, most pacca dodhis check
the milk visually, test fat and solids-not-fat (SNF) contents and measure the
volume by pouring the milk into their own cans. If the quality meets
requirements, the agreed price will be paid. Collectors supplying to dairy plants
all use fat testing equipment.
The pacca dodhis do not own chilling facilities, but most of them have one or
more motor vehicles. Only the smaller collectors send milk to town by public
transport or join other collectors who own or hire a small pick-up truck. One
pacca dodhi may supply between 1 and 40 clients, depending on the milk volume
marketed and the demand of the individual contractor, milk shop or manufacturer.
Advances from shopkeepers seem to be rare. The rural collector has cash
expenses of about Rs. 1/litre for ice and octroi (communal merchandise tax), the
highway collector pays a similar amount and eventually Rs. 1/litre for hired
transport. The vendor increases his margin through the sale of sweetened milk and
the manufacture of dahi or sweetmeats.
2.6.4 MILK COLLECTORS SUPPLYING DAIRY PROCESSORS
Since the establishment of milk processing plants, highway milk collectors have
been their most important and effective suppliers. Despite rigid quality testing and
payment according to butterfat content, plants procure the major part of their raw
milk through private milk collectors. This leads to difficulties during the lean
production season when the supply gap results in price increase, which the
manufacturers are not generally willing or able to pay.
2.6.5 MILK SALE TO COLLECTION CENTRES OF DAIRY PROCESSORS
Neither factory linked livestock farms nor dairy co-operatives have managed to
become major suppliers to dairy processing plants. Size and production of the
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16
commercial farms have limited their contribution. Of the milk marketed by the
functioning co-operatives and Village Livestock Associations, created in some
districts of Punjab to supply the Lahore Milk Plant (their designated long-term
marketing partner), only a small proportion is channeled to the dairy plants.
To improve the handling of raw milk and achieve a better quality for processing at
the plant site, some dairy plants have started to equip milk collection centres with
chilling units and to use insulated road tankers for bulk transport from the centres
to the plant. This enables them to buy milk directly from the katcha dodhis. Some
plants already collect 80% of their procurement themselves. Large-scale
collectors supply the balance milk.
Milk collection is undertaken by dodhis or co-operative organizations, but the
milk producers may also deliver to the centres themselves and receive a higher
price. The farm-gate price in winter is Rs. 810 and in summer Rs. 1012 per litre
(6% fat basis). Some processing plants pay a bonus of Rs. 1.00/litre, if the milk is
put into chilling tanks provided by the plants but operated by the producers.
2.6.6 DIRECT MARKETING & CONTRACT SALE
Some producers manage to market their milk without the help of dodhis.
They produce quantities large enough to contract regular supplies with urban
wholesalers/retailers or they sell straight to consumers (at the farm, in their own
urban retail outlets or at the consumers door).
The peri-urban milk producers, especially in Sindh, sell most of their milk on a
contract basis (one year, fixed price) to urban distributors, milk shops and
institutional consumers (hotels and restaurants). Milk in excess of the contracted
quantities is sold through commission agents in the free wholesale market
(auction sale). If a milk producer cannot supply the agreed quantity in full, he is
obliged to make up the deficit from outside purchases (e.g. in the wholesale
market). Some of the milk producers at Landhi Cattle Colony near Karachi have
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17
established an association. Most peri-urban and rural commercial milk producers
who market milk themselves do not maintain additional or better facilities than
the pacca dodhis. Milk, with ice added, is transported in their own cans and
usually their own vehicles to the customers or the wholesale markets. In general,
milk is distributed in cans with volumes of 4050 litres.
Milk producers who own transport facilities usually deliver milk to their urban
contractors receiving about Rs. 14/litre of undiluted milk. Contractors are often
milk shops converting part of the milk into customary products. In summer, the
margins of intermediaries are much higher as more ice is added to cool the milk.
2.6.7 MILK RETAILERS
The final middlemen in raw milk marketing are the milk shops, which in urban
centres often exercise distribution functions (supply to the small retailers) and/or
transform milk into local yogurt (dahi), yogurt drinks and a simmered, sweetened
concentrate (khoa) for sweet meats or ice cream. They often separate cream from
part of the milk purchased.
The major part of the raw milk reaching the milk shops is sold untreated within
one to two hours after arrival. Some shops, particularly those operated by
commercial milk producers keep the milk in cooling tanks (5001000 litres
contents) or fill a certain proportion into plastic sachets, which after sealing are
kept in a refrigerator. Milk, which is not sold immediately, is boiled for sale later
or converted into dahi, khoa etc. Nevertheless, the consumers boil all liquid milk
bought before consumption.
2.7 MARKETING OF PROCESSED MILK The only type of processed liquid milk that is found in markets all over the
country is sterilised long-life (ultra heat treated; UHT) milk. Standardised UHT
milk is marketed in 250, 500, 1,000 and 1,500 ml packages, mostly as tetra briks.
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18
The 500-ml packages account for about 60% of the total quantity sold, 250ml
packages for 2025% and the 1,000 ml tetra briks for 1520%.
The marketing chain is short; from the factories, the milk is transported by truck
to regional distributors/wholesalers who in turn supply it to general stores and
supermarkets in the big cities. Regional distribution of sales demonstrates that the
majority of milk is consumed within a limited area around the Regional
Distributors.
Ex-factory prices vary according to the destination of sales and freight costs
involved. The distributorwholesaler receives commission of between Rs. 1.00
and 2.00/litre, depending on brand and package size. Most manufacturers refund
or replace damaged and expired packages.
Compared with the margins in the retail marketing of raw liquid milk (especially
the extra margins resulting from dilution), the margins on processed milk are
much smaller and cannot be increased by adulteration. However, retailers do not
deal exclusively in UHT milk, it is just one of many items sold; this applies to
most wholesalers as well.
2.8 MARKETING OF DAIRY PRODUCTS Traditional dairy products like dahi and khoa are manufactured and sold by most
milk shops across Pakistan. On average, these shops convert about 20% of the raw
milk purchased into dahi and/or khoa. During Ramadan and in summer, dahi
consumption increases considerably.
Milk Farmers mainly produce butter or desi ghee in areas that are not penetrated
by milk collectors. The major part of ghee is home consumed but an estimated
annual volume of 34% is marketed through wholesalers, vendors and
shopkeepers, both in rural and urban areas. Because of its relatively high price
(consumers have to pay between Rs. 160 and 180/kg), it cannot compete with
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19
vegetable ghee or oil, which costs only a third of the price and is used
increasingly as a substitute.
In contrast, desi butter seems to have a stable market, especially during the winter
months. The quantity marketed may reach 60 thousand tonnes/year. The larger
dairy shops in the cities and special creameries are the principal manufacturers of
local butter. They usually buy cream from wholesalers or pacca dodhis and
produce only what can be sold the same day.
Some milk processing plants have introduced a number of new dairy products into
the market like:
Yogurt (natural and flavoured) Drinking yogurt (lassi) Sweetened, flavoured milk UHT and pasteurised cream Butter Ghee Cheese and Ice cream mix. The quantities sold, however, are very modest for most items; only yogurt and
butter sales have reached significant volumes. Three major yogurt manufacturers
sell about 4000 tonnes annually. Consumer prices of Rs. 1721 per 450 ml cup
(3.5% fat) assure a good margin despite high packaging costs. The modern butter
manufacturers produce about 800 tonnes per year. It is mainly packed and sold in
portions of 200 g with ex-factory prices from Rs. 3035/pack and consumer prices
from Rs. 3540/pack.
The ice cream industry, producing 910 thousand tonnes of ice cream/annum,
uses mainly dairy ingredients, especially fresh cream. Fresh milk is mostly
substituted by imported milk powder.
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20
As discussed above, in view of the growing acceptance by the consumers of UHT
milk and the expected white revolution which should see milk production more
than double in the medium term, it is proposed to set up a UHT milk processing
plant of 100,000 liters per day capacity. This is an economically viable sized
plant, although the market demand justifies a larger capacity, it is suggested that
the sponsors work with a smaller capacity till such time that they are able to
organize the milk collection system to provide larger raw milk inputs. Raw milk
input for a 100,000 liters per day plant located in central Punjab should not be a
problem with the existing milk supply chain.
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21
Milk Production by Region
0
5
10
15
20
25
30
35
40
1996 1997 1998 1999 2000 2001 2002
Liters (bn)
Others
Sindh
Punjab
CHAPTER 3
TECHNICAL EVALUATION
In view of the growing acceptance by the consumers of UHT milk and the
expected white revolution which should see milk production and consumption
of processed milk more than double in the medium term, it is proposed to set up a
UHT milk processing plant of 100,000 liters per day capacity. This is an
economically viable sized plant, although the market demand justifies a larger
capacity, it is suggested that the sponsors work with a smaller capacity till such
time that they are able to organize the milk collection system to provide larger
raw milk inputs. Raw milk input for 100,000 liters per day plant located in
central Punjab should not be a problem with the existing milk supply chain.
The technical assessment of the viability for setting up a 100,000 litres per day
UHT milk processing plant depends on several major factors. These are discussed
below:
3.1 LOCATION PREFERENCE The vicinity of the city of Lahore has been chosen for setting up the plant, the
major reason being the availability of fresh milk in the region. Punjab, of which
Lahore is the capital, produces 70% of Pakistans milk;
PAKISTAN MILK PRODUCTION STATISTICS
Source: International Farm Comparison Network (IFCN) 2003.
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TABLE -6
MILK PRODUCTION (REGION WISE)
(million Tonnes)Milk Production Milk Production by Regions Year
Buffalo Others Punjab Sindh Others 1996 18.0 9.0 19.0 7.0 3.0 1997 20.0 9.0 21.0 5.5 4.0 1998 20.0 9.0 21.0 5.5 4.0 1999 21.0 9.5 21.5 6.0 5.0 2000 21.7 10.0 22.0 5.0 5.0 2001 21.8 9.5 22.5 4.5 5.0 2002 23.0 10.0 23.0 6.0 5.6
Source: IFCN, 2003
TABLE 7
MILK PRODUCTION IN PUNJAB
(million Tonnes)
Milk Production by Regions in Punjab (MillionTons)
Composition of the Dairy Herd
Punjab Milk Production Years
Center Souther Potohar Buffal Others Buffalo Others 1996 16.0 2.0 1.0 7.5 3.5 13.5 6.0 1997 16.5 3.0 1.5 7.8 4.1 14.0 7.0 1998 16.4 3.3 2.0 8.0 3.5 14.0 6.7 1999 17.0 3.0 1.5 8.2 4.0 14.2 7.0 2000 17.2 3.6 2.0 8.3 4 15.0 8.0 2001 17.5 3.9 1.0 8.5 4.6 15.0 7.5 2002 18.0 4.0 2.0 8.7 5.5 15.1 8.5
Source: IFCN, 2003
As can be seen from the above Table, out of the approximately 24 million tonnes
of milk produced annually in the Punjab, 18 million tones or about 75% is
produced in the Central Region of Punjab. This region will be the milk catchment
area for the proposed Plant. In addition a supply chain has already been developed
in the area which ensures that milk from the smaller farmers who have among the
lowest production costs in the world is made available to the milk processing
plants:
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23
TABLE 8
INTERNATIONAL MILK PRODUCTION COST BENCHMARKS
Country US$/100kg milk Argentina 7-11 Pakistan 9-12 Australia 10-14 India 10-11 Austria 57 Switzerland 79 Source: IFCN, 2003
The setting up of the first UHT plant in 1977 in the area has ensured that the skill
levels of the workers have developed to the required level, in addition local
engineering expertise, transportation network, marketing channels and support
services for the plant as well as marketing have developed.
Karachi, the main city of Pakistan and the largest market for UHT, is not
considered as a location for the plant because of the higher cost of raw milk. Raw
milk prices in Karachi, because of the shortage of green fodder and greater
emphasis on higher priced concentrates as diet for the milch animals means that
prices of raw milk are approximately 30% higher in Karachi as compared to
Lahore.
3.2 SPECIALIZED MANPOWER The plant will require technically qualified and experienced professionals in the
areas of production management, operations and marketing. These will include
dairy processing experts; food chemists; cold storage technologists; laboratory
technicians; milk collection experts; marketing, human resource, accounting and
finance experts; etc. The presence of a large number of milk and food processors
including Nestle, Unilever, Cadbury, Shezan, Mitchells, and Haleeb etc. ensures
the availability of a constant supply of trained and experienced professionals.
As stated earlier, the Government of Pakistan has also accorded a high priority
to the Dairy Industry and has set up a company known as Dairy Pakistan on the
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lines of Dairy Australia; among the areas in which Dairy Pakistan is
concentrating includes human skill development of the professionals
required for the Dairy industry.
3.3 REGULATORY FRAMEWORK The legislative framework that guides food markets in Pakistan is governed by the
Pure Food Rules (PFR) of 1965(and Cantonment Pure Food Rules of 1967 for
military areas), and the Pure Food Ordinance of 1960. The most important
aspects of regulation that guides milk industry are to be found in PFR, and include
the following:
Section 18: Containers for milk sales, distribution or storage must be labeled. Metallic containers (typically used by gawallas in the delivery of milk) must
have a clear and distinct label attached.
Section 19: Imperfect enameling and tinning of containers is illegal. Section 20: Milk from diseased animals is illegal. Section 21: Persons with contagious diseases are disallowed from milking
animals, working at dairy farms, handling milk or any container meant to be
used for storage or transportation of milk.
Section 22: Pasteurization and sterilization parameters are laid down. Section 23: Equipment and processes needed for gaining approval by the
government to operate milk processing plant have been specified
Sections 272 and 273 of the Pakistan Penal Code deal with the issues of penalties
for adulteration of food and drinks. The prescribed penalty for food adulteration
is six months in prison, and/or one thousand rupees fine. PFR gives authority to
provincial governments to appoint public analysts for investigation of quality and
safety of food. There is no federal structure of a food safety program in Pakistan.
Enforcement is done through health service delivery channels of provincial
governments. The District Health Officer and Deputy Health Officer function as
food inspectors for sampling and inspection. On the other hand, the concerned
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Municipality Corporation may also appoint food inspectors and sanitary
inspectors for sampling purposes. Any other public servant can also be appointed
as inspector and can execute the power of food inspector. The Sanitary and Phyto
Sanitary (SPS) Agreement lays down certain requirements that aim to ensure
transparency in the implementation of SPS measures in member countries.
Members are required to establish specific contact points to facilitate
communication regarding SPS measures. This involves firstly, a single national
enquiry point, which is responsible for responding to queries from a single
national notification authority, which is responsible for all procedures
associated with notification of new or amended SPS measures. These
notifications and measures serve as guidelines for customs and health authorities
in importing countries in assessing risk failure to notify and convince importing
countries that SPS measures are up to date and implemented results most of the
time in time-consuming inspections and quarantine measures which effectively
hurts exporters by creating trade barriers.
3.4 IN-HOUSE QUALITY ASSURANCE Physical dispersal of gawallas and small dairy farms makes enforcement of
quality standards difficult, but crucial. One factor would be the tracking of milk
that is largely collected through informal channels, from hundreds and thousands
of farmers and gawallas to the processing unit. Other issues where control is
expected to yield positive results include adequate testing/laboratory facilities and
close monitoring of staff to ensure that necessary quality checks are made and
standards enforced.
3.5 RATIONALE FOR SETTING UP A UHT MILK PROCESSING PLANT
The rationale for setting up the proposed UHT milk processing plant of 100,000
litres per day capacity includes:
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26
Current availability of more than 33.0 million tonnes per day (projected figure 2006) of raw milk, out of which only 2 3% is actually being processed.
A current market size of more than 200 million litres per annum of processed milk, market for processed milk growing at more than 20% per annum for the
past 3 years and projected to continue growing at the same rate for the next
5years.
The Government of Pakistans Strategic initiative for the milk processing industry which includes; increasing milk yield per animal, stronger
enforcement of laws relating to adulteration and hygiene, a media program
aimed at informing consumers about the dangers of consuming raw milk, a
concentrated program by the dairy industry promoting the use of UHT treated
milk.
Availability of requisite technology for setting up a UHT processing plant and trained manpower for running the same.
Huge export potential for UHT treated milk in the Region, with Pakistan being the only milk surplus country in the Region.
In view of the above it is suggested to establish a UHT milk processing unit of
100,000 litres per day capacity with provision of expansion in the future.
3.6 PROPOSED UHT PROCESSING UNIT As already stated in Chapter 2, the demand for UHT milk is currently estimated at
200 million litres per annum which is increasing at an annual rate of 20%. With
only 2 3% of the more than 33.0 million tonnes of milk produced annually,
(projected figure for 2006) being processed and the abundant availability of milk,
especially in central Punjab the case for setting up of a UHT milk processing plant
very strong.
3.6.1 THE UHT PROCESS Although pasteurization effectively eliminates potential pathogenic
micro-organisms, it is not sufficient to inactivate the thermo resistant spores in
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27
milk. The term sterilization refers to the complete elimination of all micro
organisms. The food industry uses the more realistic term "commercial
sterilization"; a product is not necessarily free of all micro organisms, but those
that survive the sterilization process are unlikely to grow during storage causing
product spoilage.
Milk can be made commercially sterile by subjecting it to temperatures in excess
of 100 C, and packaging it in air-tight containers. The milk may be packaged
either before or after sterilization. The basis of UHT, or ultra-high temperature, is
the sterilization of food before packaging, then filling into pre-sterilized
containers in a sterile atmosphere. Milk that is processed in this way using
temperatures exceeding 135 C, permits a decrease in the necessary holding time
(to 2-5 s) enabling a continuous flow operation.
3.6.2 ADVANTAGES OF UHT
High quality:
The reduction in process time due to higher temperature (UHTST) and the
minimal come-up and cool-down time leads to a high quality product.
Long shelf life:
Shelf-life greater than 6 months, without refrigeration, can be expected.
Packaging size:
Processing conditions are independent of container size, thus allowing for the
filling of large containers for food-service or sale to food manufacturers.
Cheaper packaging:
Cost of package and storage; transportation costs; laminated packaging allows for
use of extensive graphics.
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3.6.3 DIFFICULTIES WITH UHT
Sterility:
High performance equipment and plant are needed to maintain sterile atmosphere
between processing and packaging (packaging materials, pipe works, tanks,
pumps); sterility must be maintained through aseptic packaging; this would
require higher skilled operators.
Keeping Quality:
Heat stable lipases or proteases can lead to flavor deterioration, age gelation of the
milk over time - nothing lasts forever! There is also a more pronounced cooked
flavor to UHT milk.
3.6.4 UHT METHODS
There are two principal methods of UHT treatment:
Direct Heating
Indirect Heating
Direct heating systems:
The product is heated by direct contact with steam of potable or culinary quality.
The main advantage of direct heating is that the product is held at the elevated
temperature for a shorter period of time. For a heat-sensitive product such as milk,
this means less damage.
There are two methods of direct heating:
1. injection
2. infusion
Injection: High pressure steam is injected into pre-heated liquid by a steam
injector leading to a rapid rise in temperature. After holding, the product is flash-
cooled in a vacuum to remove water equivalent to amount of condensed steam
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29
used. This method allows fast heating and cooling, and volatile removal, but is
only suitable for some products. It is energy intensive and because the product
comes in contact with hot equipment, there is potential for flavour damage.
Infusion: The milk product stream is pumped through a distributing nozzle into a chamber of high pressure steam. This system is characterized by a large steam
volume and a small product volume, distributed in a large surface area of product.
Product temperature is accurately controlled via pressure. Additional holding time
may be accomplished through the use of plate or tubular heat exchangers,
followed by flash cooling in vacuum chamber. This method has several
advantages:
instantaneous heating and rapid cooling no localized overheating or burn-on suitable for low and higher viscosity products
Indirect heating systems The heating medium and product are not in direct contact, but separated by
equipment contact surfaces. Several types of heat exchangers are applicable:
plate tubular scraped surface
Plate Heat Exchangers: Similar to that used in HTST but operating pressures are
limited by gaskets. Liquid velocities are low which could lead to uneven heating
and burn-on. This method is economical in floor space, easily inspected, and
allows for potential regeneration.
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30
Tubular Heat Exchangers: There are several types:
shell and tube shell and coil double tube triple tube
All of these tubular heat exchangers have fewer seals involved than with plates.
This allows for higher pressures, thus higher flow rates and higher temperatures.
The heating is more uniform but difficult to inspect.
Scraped Surface Heat Exchangers: The product flows through a jacketed tube,
which contains the heating medium, and is scraped from the sides with a rotating
knife. This method is suitable for viscous products and particulates (< 1 cm) such
as fruit sauces, and can be adjusted for different products by changing
configuration of rotor. There is a problem with larger particulates; the long
process time for particulates would mean long holding sections which is
impractical. This may lead to damaged solids and over processing of some
liquids.
3.6.5 PACKAGING OF UHT PROCESSED MILK The most important point to remember is that packaging must be sterile! All
handling of post-process product must be within a sterile environment.
There are 5 basic types of aseptic packaging lines which can be used for
packaging UHT processed milk:
1. Fill and seal: preformed containers made of thermoformed plastic, glass or
metal are sterilized, filled in aseptic environment, and sealed.
2. Form, fill and seal: roll of material is sterilized, formed in sterile
environment, filled and sealed e.g. tetrapak.
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31
3. Erect, fill and seal: using knocked-down blanks, erected, sterilized, filled,
sealed. e.g. gable-top cartons, cambri-blocs.
4. Thermoform, fill, sealed roll stock sterilized, thermoformed, filled, sealed
aseptically. e.g. creamers, plastic soup cans.
5. Blow mold, fill, seal:
There are several different package forms that are used in aseptic UHT
processing:
cans paperboard/plastic/foil/plastic laminates flexible pouches thermoformed plastic containers flow molded containers bag-in-box bulk totes
It is also worth mentioning that many products that are UHT heat treated are not
aseptically packaged. This gives them the advantage of a longer shelf life at
refrigeration temperatures compared to pasteurization, but it does not produce a
shelf-stable product at ambient temperatures, due to the possibility of
recontamination post-processing.
3.7 THE UHT PROCESS FLOW The UHT Milk Production Flow Chart is shown in Figure 5 below, the basic
functions performed are as follows:
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CHART - 3
UHT PROCESSING AND PACKAGING PLANT
BASIC BLOCK DIAGRAM
Receipt and filtration of the raw milk: In this stage, raw milk which is received
from the farms is tested for quality and filtered before being stored at a
temperature of 4oC. This temperature reduces the formation of micro-organisms.
Pasteurisation of Milk: This mild form of heat treatment kills pathogenic
bacteria that may be present without affecting the nutritional value or flavour. It
also extends the shelf life by reducing the spoilage bacteria. Pasteurised milk can
be kept for up to five days. The process involves heating milk to 71 oC for at least
15 seconds and then cooling it rapidly to less than 6oC. The device used for
heating and cooling is called a heat exchanger or pasteurizer.
Homogenisation of Milk: Homogenization is a process that involves forcing
milk through a tiny hole under considerable pressure. This breaks up the fat
globules making them smaller and of a uniform size. If large gat globules are left
in the milk, these will rise to the surface and form a layer of cream, but in
homogenized milk, the fat stays evenly distributed throughout the bottle or
carton.
Raw milk reception Raw milk storage
Milk pasteurisation,deaeration
homogenisation & standardisation
Raw milk cooling
Past. Milk storage
Distribution & Warehousing
UHT treatment
Utilities: -Electricity - Steam - Cooling water - Compressed air
Automation
CIP
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33
Standardization of Milk: UHT Milk is toned to a butter fat content of 3.5%
and solid-not-fat content of 8.9% (standardized milk). Assuming the supply of
pure milk (either from buffalo or cows), the only adjustment needed before
processing should be a reduction of the butter fat content, this is usually done by
either removing cream or adding 800 litres of water to every 1,000 litres of raw
milk, this reduces fat to 3,5% but also reduces the SNF content to less than that
allowed under the law, to make up for this we add 83Kgs of Skim Powder Milk to
the 1,800 litres of milk.
UHT: This form of heat treatment kills all bacteria in milk and it practically
becomes sterile. The UHT process involves sterilising homogenised milk by
a continuous process using direct or indirect heating. With direct heating the
temperature reaches 140 150oC either by injecting steam directly into the milk
or by forcing milk through a fine nozzle into a tank filled with steam. The milk
is then cooled in a sterile vacuum chamber, where added steam or excess water is
evaporated.
3.8 TECHNICAL REQUIREMENTS & THEIR AVAILABILITY
3.8.1 LAND: A plot of land having an area of around 10 acres near Lahore has been proposed.
The present value of land near Lahore is estimated at Rs.0.45 million per acre.
3.8.2 BUILDING & CONSTRUCTION:
The total constructed area has been envisaged at 7,000 square meters to house the
main production facility and storage of the packaged milk, UHT milk needs to
stay in the factory warehouse for a minimum of 3 days to allow for stabilization
before it can be transported. The total cost of the building and civil works has
been estimated at Rs.70.0 million.
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34
3.8.3 MACHINERY AND EQUIPMENT:
A modern UHT plant of 100,000 liters per day needs to be purchased from a
supplier of UHT processing machinery. There are a number of suppliers or their
agents in Pakistan. It is estimated that a plant of the capacity specified above
would cost Rs.400.0 million including storage tanks, processing machinery,
packaging machinery, quality control laboratories, installation, startup etc.
3.8.4 OTHER MISCELLANEOUS ITEMS:
This would include fixed assets like office equipment, workshop equipment,
tools, furniture and fixtures, vehicles etc amounting to Rs.20.0 million.
3.8.5 WORKING CAPITAL:
Milk is a business in which cash flow is very high and companies in the industry
tend to generate cash surplus on a regular basis, most of the milk is purchased on
a 1-week credit basis and the finished product is sold on cash. Some advance is
paid especially in the summer months when raw milk production goes down.
Working capital is mostly required for paying for packing material, finished
goods in warehouse that needs to be stabilized before release into the market, for
paying of utility bills, wages, petrol for vehicles and for spares. The Working
Capital requirements have been estimated at Rs.70 million.
3.8.6 CONTINGENCIES:
Contingencies for the first year of operation have been estimated at 20.0 million.
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CHAPTER 4
GOVERNANCE AND MANAGEMENT STRUCTURE
4.1 GOVERNANCE STRUCTURE It is proposed that a special purpose company be set-up to establish and operate the proposed dairy unit. The Companies Ordinance 1984 with amendments
thereof, and Code of Corporate Governance issued by the Security and
Exchange Commission of Pakistan (SECP) regulate establishment and
governance of a limited company (public or private) in Pakistan.
Corporate Governance is a set of institutional and market-based mechanisms that
encourage controllers of a company to maximize the value of a company for its
owners. The conduct of the corporation is a three-way process involving the board
of directors, top management and the employees. At the core of corporate
governance is empowerment at all levels shareholders, the board, and top
management. The law applicable to a company is the law of the country.
Principles and rules on corporate governance need to be laid down in the Articles
& Memorandum of Association (Incorporation) and the Regulations of Board of
Directors. The proposed governance structure is illustrated on the following page.
The business of the company is to be managed under the directions of the Board
of Directors. The Board is responsible for establishing broad corporate policies
and for the overall performance of the company. The core responsibility of the
directors is to exercise their business judgment and to act in what they reasonably
believe to be in the best interests of the company.
The Boards Corporate Governance Committee is required to review the
principles and rules regularly in the light of prevailing best practices and it is
required to forward suggestions for improvement to the Board for approval.
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36
The Boards Corporate Governance Committee is also responsible for considering
matters of corporate social responsibility and matters of significance in areas
related to corporate public affairs and the companys employees and shareholders.
The Boards job should be to create and maintain a structure that will ensure
harmony and cooperation between management and the employees in pursuing
the goals and objectives of the organization rather than simply rubber-stamping
the actions of management.
The Boards Audit Committee will have two fundamental responsibilities;
internally it will oversee the annual external audit to ensure the accuracy and
integrity of the financial statements as required by legislation. It will also ensure
that there are no breakdowns in corporate governance rules and procedures,
including the rules of ethical conduct and internal control. The Audit Committee
would also be the practical monitor collecting information regarding corporate
misconduct and encouraging those with such information to come forward.
CHART 4
PROPOSED GOVERNANCE STRUCTURE
The Company Share-Holders
Board of Directors
Chairman
Chief Executive
Officer
Corporate Governance Committee
Corporate Audit Committee
Manager Procurement
Manager Marketing
Manager Finance
Internal Auditor & Quality Assurance
Manager HR &
Admin.
Plant Manager
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37
4.2 MANAGEMENT STRUCTURE The paramount duty of the Board of Directors is to select a Chief Executive
Officer (CEO) and to oversee the CEO and the other senior management staff in
the proper and ethical operation of the company.
The Board would identify, and periodically update the qualities and
characteristics necessary for an effective CEO of the company. With these
principles in mind, the Board should periodically monitor and review the
development and progression of potential internal candidates against these
standards.
The CEO will be in-charge of the day-to-day management of operations and is
responsible for ensuring that the company and management functions are
organized, run and developed in accordance with the law, Articles of Association
and decisions taken by the Board, and the Annual General Meeting of the
Shareholders.
The management structure, presented in Figure 7 comprises of various
departments including milk procurement, plant operation, quality assurance,
human resource, finance, marketing & sales, internal audit and field staff.
The structure is characterized by clear assignment of responsibilities as well as a
reduced number of interfaces.
The selected CEO will be responsible for delivering policy and performance for
customers, society, staff, suppliers and the business. The core activities are briefly
described as under:
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- - - 1 1 - 1 1 1 8 1 - 6 4 10 6 - - - - - 2 2 1 - 45
- - 1 - - - - - - - - - - - - - - - - - - - - - - 1
- - - 1 - - - - 2 10 - - 5 2 6 6 2 2 6 4 12 - - - - 58
1 6 - - - - - - - - - - - - - - - - - - - - - - - 7
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CHART - 5
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HUMAN RESOURCE DEPLOYMENT
Plant Manager
Secretary
Board
- Chairman- Directors (6)
Milk Collection
Marketing
Finance
Total
The Company
Corporate Audit Committee
HR &Admin
CEO
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4.3 RAW MILK PROCURMENT & TRANSPORTATION This department will be responsible for purchasing milk from the pucca dhodis
the success of the plant will hinge on this crucial function, as the plant will only
be successful in the long run if it is able to have a secure raw milk supply. To
ensure that milk quality is maintained, chillers will be provided to the pucca
dhodis who will be paid for the maintenance of these chillers. In addition to
maintaining the quality of the milk at the collection points, the department will
also be responsible for transporting the raw milk to the plant. As milk will be
collected from a number of collection points, the department will be responsible
for ensuring that inferior milk from one supplier does not mix with the milk
collected from another supplier. Also the department will be responsible for
measuring the fat and the solid not fat content of the milk.
4.4 PLANT OPERATIONS AND QUALITY ASSURANCE A Plant Engineer with a degree in food processing will be appointed to run the
processing plant, he will be assisted by qualified and experienced quality
assurance staff headed by a food technologist. Very high quality standards need to
be maintained, as one of the reasons for urban consumers switching to UHT milk
is the hygiene aspect of the process. The plant maintenance staff will be
responsible for daily washing and sterilization of the plant. Plant is normally run
for 16 hours followed by a mandatory 8 hour shutdown period to allow for
cleaning of the plant and its peripheral machinery.
4.5 MARKETING & SALES A General Manager will head the marketing and sales function; he should have
vast experience in the field of FMCG marketing. Area Managers who will have
Sales Representatives working under them will assist the GM Marketing and
Sales. Distributors who will be appointed in all the major towns of Pakistan will
provide the selling function. The existing milk processing units currently employ
the suggested distribution network. In addition an institutional sales force will be
developed which will sell directly to large customers like the Canteen Stores
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Department (CSD), the Utility Stores Corporation (USC), major hospitals, hotels,
large restaurants, food caterers etc.
CHART - 6
PROPOSED MANAGEMENT STRUCTURE
4.6 FINANCE DEPARTMENT The finance department will handle all financial matters in terms of billing,
settlement of invoices, negotiating and finalizing deals, effectively managing the
huge amount of cash that a business like this generates, managing administrative
expenses etc. Payment recovery and preparation of accounts in terms of quarterly,
half yearly and annual reports in line with audit requirements will be some of the
other responsibilities of the Finance Department. The personnel required will
include a Senior Finance Manager assisted by Accountants and Assistant
Accountants.
Plant Manager
Works Manager
Technicians
Chemists Technical - Supervisors
Electrician
CEO
Manager Milk Procurement
HR Manager
Marketing Manager
Field Manager
Field Supervisor
Institutional Marketing Manager
Chemists Cold Storage Technical Logistic In charge
VeterinaryDoctor
Finance Manager
AccountsStaff
Finance Staff
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4.7 HUMAN RESOURCE DEPARTMENT The Human Resource department will focus on developing the human capital of
the company, keeping in mind the underlying importance of human capital in
modern business. The department will take a strategic approach to human
resources management for attainment of organizations strategic objectives. A
professional approach based on maximizing returns on investment through
development of farsighted policies to attract, train and retain human capital.
Additionally the department will determine compensations and grievance
handling procedures, set objectives, develop standards, appraise performance and
review results in order to meet the challenges of the present age.
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CHAPTER 5
FINANCIAL EVALUATION
5.1 CAPITAL COST OF THE PROJECT The estimated capital cost of the project would be around Rs.670.0 million, this
would include cost of land, building, machinery, other capital assets, working
capital etc.
TABLE 9
UHT MILK PROCESSING PLANT PROJECTED CAPITAL COST
(Rs in 000s)
S. # DESCRIPTION AMOUNT
1. Cost of Land (10 acres @ Rs. 0.45 million/ per acre) 45,000 2. Cost of construction of Plant Building (7,000 Sq.
meter @ Rs.10,000/ per m2) 70,000 3. Machinery & Equipment 400,000
4. Collection Chillers / Refrigerated Milk Collection Trucks 30,000
5. Other Vehicles 10,000
6. Other Plant and Machinery 20,000
7. Furniture & Fixtures 5,000
8. Working Capital 70,000
9. Contingencies 20,000
TOTAL 670,000
Funds have been provided for the purchase of raw milk, installation of chillers at
collection points, chiller trucks, a modern 100,000-liter per day UHT milk
processing plant with packaging facilities etc. The production process is a
continuous process and capacity has been calculated at 16 hours per day, the plant
must be compulsorily shut down for cleaning on a daily basis and the cleaning
and sterilization time is 8 hours. It is expected that the plant will run for 350 days
a year and in the first year capacity utilization will, on an average, be 50%, this
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conservative figure has been taken keeping in mind the difficulties in setting up a
milk collection network.
Land:
The plot of land having an area of around 10 acres near Lahore has been
proposed, justification for location of plant has been established in the Technical
Evaluation of the Pre-feasibility. The present value of land near Lahore is
estimated at Rs.0.45 million per acre.
Building & Construction:
The total constructed area has been envisaged as 7,000 square meters to house the
main production facility and storage of the packaged milk, UHT milk needs to
stay in the factory warehouse for a minimum of 3 days to allow for stabilization
before it can be transported. The total cost of the building and civil works has
been estimated at Rs.70.0 million.
Machinery and Equipment:
A modern UHT plant of 100,000 liters per day needs to be purchased from a
supplier of UHT processing machinery. There are a number of suppliers or their
agents in Pakistan. It is estimated that a plant of the capacity specified above
would cost Rs.400.0 million including storage tanks, processing machinery,
packaging machinery, quality control laboratories, installation, startup etc.
On Farm Chillers, Refrigerated Trucks Etc.
As part of the collection chain, the Company will need to provide Chillers for
collection of raw milk as well as infrastructure like generators etc to run these
chillers, in addition refrigerated trucks would be required to bring the raw milk
from collection points to the factory, it is estimated that this will cost Rs.30.0
million.
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Other Vehicles:
This will include other support vehicles like service vans for in-field chillers, for
transporting of workers, vehicles for short haul deliveries to the regional
distributors as well as cars for executives. It is estimated that these will cost
Rs.10.0 million.
Other Plant and Machinery:
This will include stand by generators, water treatment facilities, tube wells etc.,
the cost is estimated at Rs.20.0 million.
Furniture & Fixtures:
This will include office furniture and fixtures as well as office equipment like
computers, operational software etc. The total cost is estimated at Rs.5.0 million.
Working Capital:
Milk is a business in which cash flow is very high and companies in the industry
tend to generate cash surpluses on a regular basis, most of the milk is purchased
on a 1-week credit basis and the finished product is sold on cash. Some advances
are paid especially in the summer months when raw milk production goes down.
Working capital is mostly required for paying for packing material, finished
goods in warehouse that has to be stabilized before release into the market, for
paying of utility bills, wages, petrol for vehicles and for spares. The Working
Capital requirements have been estimated at Rs.70 million.
Contingencies:
Contingencies for the first year of operation have been estimated at 15.0 million.
5.2 PROJECTED PROFIT & LOSS ACCOUNTS The projected income statements for the UHT milk processing plant for 5 years
are given in Table 10:
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TABLE 10
PROJECTED PROFIT & LOSS ACCOUNTS
(Rs in 000)
Description Year 1 Year 2 Year 3 Year 4 Year 5
Sales 560,000 616,000 672,000 728,000 784,000
Cost of Good Sold 287,875 316,663 345,450 374,238 403,025
Gross Profit 272,125 299,338 326,550 353,763 380,975 Admin & Related Expenses 70,550 76,265 82,047 87,899 93,826 Operating Profit 201,575 223,073 244,503 265,863 287,149
Depreciation 54,500 54,500 54,500 54,500 54,500
Net Profit Before Tax 147,075 168,573 190,003 211,363 232,649
Income Taxes (35%) 51,476 59,000 66,501 73,977 81,427 Net Profit after Income Tax 95,599 109,572 123,502 137,386 151,222
5.3 PROJECTED CASH FLOW The projected cash flow of the Project for 5 years is shown as under:
TABLE 11
PROJECTED CASH FLOW (Rs in 000)
Expected Cash Inflow Year 0 Year - 1 Year - 2 Year - 3 Year - 4 Year - 5
Equity Contribution 670,000 - - - - -
Operating Profit - 201,575 223,073 244,503 265,863 287,149
TOTAL 670,000 201,575 223,073 244,503 265,863 287,149
EXPECTED CASH OUTFLOW
Capital Investment 670,000 - - - - -
Payment of Taxes - - 51,476 59,000 66,501 73,977
Total 670,000 - 51,476 59,000 66,501 73,977
SUMMARY
Expected Cash Inflow 670,000 201,575 223,073 244,503 265,863 287,149 Expected Cash Outflow 670,000 - 51,476 59,000 66,501 73,977 Net Cash flow - 201,575 171,596 185,503 199,362 213,172 Cumulative Cash Flow - 201,575 373,171 558,674 758,036 971,208
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5.4 PROJECTED BALANCE SHEETS The projected Balance Sheet for the first 5 years is given below:
TABLE 12
PROJECTED BALANCE SHEET
(Rs in 000)
Description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
CAPITAL
Equity Contribution 670,000 670,000 670,000 670,000 670,000 670,000 Accumulated Profit & Loss - 95,599 205,171 328,673 466,059 617,281 Total Capital 670,000 765,599 875,171 998,673 1,136,059 1,287,281
LIABILITY
Long Term Liability - - - - - -
Tax Payable - 51,476 59,000 66,501