Dairy Chain: Farmer to Consumer
In this section, the margins in the dairy chain in Sirajganj are analyzed. Due to practicality and comparability among dairy channels, it is assumed here that each dairy channel buys one kg of 4.5 percent fat milk, processes it into their most popular liquid milk product, without adding any other ingredient (i.e. water, milk powder, etc.) and sells milk and cream, if extracted, at local (retail) prices.
Although there is a value-adding business through combining locally produced milk with imported milk powder and water to produce dairy products, this is beyond the scope of this analysis. Therefore, these dairy chain calculations should be seen as an exploratory exercise intended to support other sections of this study.
The Dairy Channels
Co-op 3.5 %: Co-operative buying milk at 4.5 percent fat and selling at 3.5 percent fat.
Sweetshop 1.5 %: Private local processor buying milk at 4.5 percent fat from the milkman, extracting fat and casein to produce sweet dairy products, and selling milk at about 1.5 percent fat. The fluid milk business is marginal.
Direct sale 4.5 %: Dairy farmer selling their milk directly to the consumer with 4.5 percent fat.
The ‘Co-op’ represents the formal sector whereas the others represent informal channels.
Input Costs of the Dairy Chain
Milk prices paid to the farmer by the co-operatives are slightly lower (12 percent) than the prices paid by the ‘sweetshop’, through its milk collectors, commonly known as milkmen. Due to the high milk demand from nearby population centres and the competition with dairy cooperatives operating in the area, these travelling milkmen often pay higher prices than the competition as a way to secure supply for the sweetshops in urban areas.
Returns of the Dairy Chain
The average consumer prices are 0.48 and 0.42 US$ for the milk and cream produced from an initial kg milk in the formal and informal sectors respectively. The formal sector’s 15 percent higher premium is largely due to its milk pasteurization and packaging. However, this difference between the sectors will diminish as other value adding steps are considered. The sweetshops are versed in adding value to the milk by separating and adding value not only to the cream but also to the casein and the whey. The Bangladeshi consumers seem to pay less attention to the fat content of their milk than their Indian or Pakistani counterparts; which might partially explain the low number of buffaloes in Bangladesh.
Margins (Output – Input Value)
The margins attained from processing and retailing vary between 0.07 and 0.23 US$/kg milk by dairy channel. The formal sector (co-op) has a 50 percent higher margin than the informal sector (sweet shop). Farms selling their milk directly have the lowest margin as they do not participate in the ‘cream business’. It should be mentioned that in the analysis for the farm selling directly the marketing costs were included in the production cost. The formal channels and the sweetshops have about half and one quarter of the margin of European dairy chains (0.3 to 0.5 US$/kg).
Margins and Farmers’ Shares
Farmers’ shares in the total consumer prices are higher in the informal sector (sweetshop) than in the formal one (65% vs. 53%).