Bangladesh: Social gains from dairy development

Bangladesh has a population of 140 million people; more than 80 percent of them, or approximately 15 million households, are located in rural areas. An estimated two-thirds of those households own livestock. Although population growth is slowing, there are still almost 1 000 people per sq km – the highest density of any country in the world (excluding small island-nations and city-states). The dwindling per capita land resource is one of the causes of persisting poverty in the county, according to contemporary human development reports from the United Nations Development Programme (UNDP): More than half the population owns less than 0.5 acres; the bottom 40 percent possesses just 3 percent of the total land area; 48 percent live below the poverty line; and 30 percent consume less than 1 900 calories per day (the minimum desired level is 2 300 calories).

Agriculture generates two-thirds of total employment, contributes a quarter of total export earnings and provides food security to the increasing population. Crop production and animal husbandry are interdependent in the country’s mixed-farming system, with livestock performing multiple functions, including the provision of food, nutrition, income, savings, draught power, manure, transport and other social and cultural functions. With livestock, people who are poor and landless can still access common property resources, such as roadsides, open grazing areas and water bodies. Cattle are by far the most important farm animals; smallholders possess the majority of them, and they are directly linked to family income, nutrition and welfare. While animal husbandry is a part of mixed farming, the system of production is not well integrated, and maximum value is not always gained from the inputs and outputs. There is scope for basic improvements that can lead to greater integration and productivity.

The history of the sector

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

Acute scarcity of milk following independence from Pakistan in 1971 prompted the Government to commission two dairy studies, with support from FAO and the Danish International Development Agency (DANIDA). The studies’ authors recommended establishing a sustainable cooperative dairy development programme based on buying surplus milk from smallholder producers and combining the businesses of Asto and Milk Vita into the Eastern Milk Producers' Cooperative Union Ltd, which became Bangladesh Milk Producers Cooperative Ltd (BMPCUL) in 1980.

The Milk Vita Cooperative Dairy Complex was established in 1973 and operated until 1978 under the auspices of the Ministry of Local Government, Rural Development and Cooperatives, with support from FAO, DANIDA and UNDP. The cooperative model was largely adapted from the successful Anand Pattern Dairy Cooperative in India. Two dairy plants and three milk collection centres were built, and milk collection from smallholders started in 1976. The Government also established a small dairy at Savar in the mid 1970s, close to Dhaka, to provide government employees processed milk from its Central Cattle Breeding Station.

At Milk Vita, the gap between milk supply and demand was originally met by recombining butter oil and the skimmed milk powder (that DANIDA and the European Economic Community provided) into liquid milk. By the end of the 1970s, more and more village cooperatives had been established and annual milk collection from some 36 000 smallholders had rapidly built up to 15 million litres. But by the mid 1980s, Milk Vita had virtually collapsed, with less than 3 million litres of milk collected annually. The problem was attributed to unfair competition from imports flooding in from subsidized over-production in Europe. At that time, whole milk powder was retailing at less than 20 percent of its cost price in Europe and one-third of the cost of milk production in Bangladesh.

By the beginning of the 1990s, import taxes were imposed to counter the adverse impact of the cheaper imports. Also at that time and following the recommendations of the FAO technical assistance team, the Government withdrew from day-to-day management of the dairy cooperative. Professional managers took over, turning Milk Vita into a profitable business.

Recent developments

Fortuitously, the turnaround at Milk Vita coincided with a growing market for processed milk as urbanization accelerated. This encouraged other investors to adopt parts of the Milk Vita smallholder dairy model. The sector now engages many enterprises, as Table 1 indicates. In 1990, processors collected just 1 percent of the total milk production of 1.5 million tonnes (30 000 litres per day); by 2006, this had increased to 7 percent of 2.27 million tonnes (384 000 litres/day).

Other developments since the 1990s:

• Government-sponsored investment incentives for a few medium- and large-scale farmers to purchase improved dairy animals; this initiative largely failed because the farmers were not well integrated into the dairy input supply and value chains and were unable to repay their loans.
• Cheap sweetened condensed milk is being produced from imported powder milk, sugar and vegetable oil by four large companies: Danish, Starship, Goalini and Kwality. The condensed milk has captured the lion’s share of the tea-drinking market, though it is not a dairy product because it contains vegetable oil. The business model of these companies is based on the continued availability of cheap (subsidized) milk powder from developed countries. They have been hugely profitable because they took advantage of low international commodity prices. It will be interesting to see how they adapt their business model to cope with the recent significant increases in prices.
• Foreign investors such as Arla Foods Denmark (Dano brand) and the New Zealand Dairy Board (Anchor brand) have imported milk powder in bulk for repacking.

Table 1: Milk processing capacity, 2007

Dairy sector policy and strategy

Following the establishment of Milk Vita, two dairy development studies were initiated in the 1980s as a preface to scaling up cooperative dairying elsewhere in the country. The Government and UNDP/FAO sponsored both studies. The first, in 1984, led to the National Cooperative Dairy Development Plan. The Chairman of the Indian National Dairy Development Board (NDDB) orchestrated the second study, in 1987, which led to expanding the earlier plan into a formal strategy for dairy development in Bangladesh. The strategy proposed a regional approach, based on setting up four regional dairy cooperatives to collect milk from smallholder village cooperatives and process and market it safely and affordably to lower-income urban groups. The regional dairy cooperatives would be enveloped into a national dairy federation or a dairy development board. Detailed implementation programmes were prepared but have remained shelved for more than two decades.

Current government policy for agriculture aims to provide an enabling environment and supportive role in moving from a predominantly state function to a more diversified and environmentally sustainable commercial venture. The strategic framework targets non-crop agriculture, such as fishery, poultry and livestock, for accelerated investment.

After an intensive stakeholder consultation process, the Directorate of Livestock Services (DLS) and the Ministry of Fisheries and Livestock (MOFL) drafted the National Livestock Policy in 2005. It was finalized in 2006 under the recently completed Grameen Bank/UNDP/FAO Community Livestock and Dairy Development Project (CLDDP). Although the DLS and the MOFL adopted the policy, it has yet to be approved by the Cabinet, due largely to the succession of interim governments and prevailing civil unrest since it was prepared. Although the policy contains no separate dairy component, the Milk Vita and Grameen–CLDDP dairying models are promoted as “models for early adoption”.

Once approved, the policy will have several more tough challenges:

• implementation of the policy recommendations;
• acceptance of institutional reforms;
• establishment of regulatory frameworks and a legal body;
• enforcement of the laws and regulations;
• quality control assurance;
• collaboration with the private sector for veterinary services and simple diagnostic facilities.

The Government’s National Strategy of Accelerated Poverty Reduction (NSAPR, 2005) sets out ways and means for achieving two of the Millennium Development Goals (MDGs): halving poverty and halving under-nutrition by 2015. The strategy document states that while the livestock sector as a whole grew 3 percent during the 1990s, poultry has demonstrated the most impressive growth rate, at around 10 percent per annum since the mid 1970s. Growth in milk production generally has mirrored the general trend in the livestock sector, with low productivity a major limitation to sector development because production remains primarily for subsistence and is highly dispersed. With rapid urbanization and income increases, the demand for livestock products, such as meat, milk and eggs, will continue to rise. The strategy targets local milk production to replace imports, which currently range between 10 and 20 percent of annual consumption. The strategy promotes community-based organizations of production, processing and marketing to overcome the constraints. Smallholder milk producers thus are expected to play a key role in helping to achieve the target and, in so doing, helping Bangladesh to achieve the MDGs relating to poverty and nutrition.

The NSAPR includes a school lunch programme to improve attendance and reduce the incidence of malnutrition as well as generating demand for local produce and catering services through backward and forward links. Community participation is a key driver. Currently, the United States’ Department of Agriculture funds a small school milk programme in Bangladesh, for which the US company Land O’Lakes imports milk and then recombines it with its milk powder. Although they enhance the nutrition intake of school-age children, school milk schemes using imported milk powder have limited sustainability and are less beneficial to livelihood development as those using locally produced milk.

Affordable and readily available cattle treatment and other development support provided by Milk Vita and Grameen-CLDDP have encouraged the expansion of milk producers. Still, even though the Government now generally recognizes smallholder milk production in its development strategy, the absence of a comprehensive national dairy policy may limit the growth of the sector. What has been achieved so far primarily relates to the influence of a milk collection system introduced by dairies, which has resulted in a fairer price system for producers. Initially, a government ministry set Milk Vita’s prices; but since becoming more independent in the early 1990s, Milk Vita has decided its own prices, in competition with the other dairies as well as imports.

Smallholder milk producers and marketing models

Smallholder milk producers play a key role in dairy markets in Bangladesh. They supply all the domestic milk for the informal traditional market and three quarters of the formal processed market (Annex I provides an illustration of the various smallholder milk producers). Milk Vita and Grameen–CLDDP institutionally promote the empowerment of smallholder dairy farmers, both men and women, in the value chain and business ownership/management process, which encourages their participation. Other processing dairies tend to focus on milk collection only.

Informal traditional markets model

Smallholder milk producers sell milk directly to consumers or milk supplier/middlemen at local markets (Figure 1). The middlemen cater to the demand of sweetmeat shops, bakeries, consumers, more distant markets and vendors. They pay producers up to 50 percent less for their milk than other models, such as those described in the following sections. In many cases, the middlemen provide loans to smallholders with interest rates of up to 20 percent per month.

Figure 1: Traditional milk trader model

Milk Vita Cooperative model

The Milk Vita Cooperative model was adapted from the world-renowned Anand Model in India. It modestly started in the mid 1970s by providing 4 300 very poor, often landless, households in remote rural areas with a complete package of milk production-enhancing technologies, organizational skills and a milk collection-processing-marketing system. It has since grown into a successful commercial dairy enterprise, collecting from more than 100 000 smallholder members of some 1 200 primary village cooperatives and then processing and distributing the milk to all major cities in the country. In 2006, smallholder milk producers sold 75 million litres of milk surplus. They also earned patronage dividends from Milk Vita’s profits. The resulting increase in milking cow numbers and savings generated has helped cushion them against the devastating effects of severe flooding that regularly afflicts the country.

A novel aspect of the Milk Vita operation is its urban distributor cooperatives. These use locally fabricated “ milkshaws” – an insulated box mounted on a traditional three-wheeled-cycle rickshaw chassis – to deliver affordable pasteurized milk and dairy products to urban shops and consumers.

The Milk Vita model (Figure 2) created jobs, reduced collection and distribution costs and improved milk quality by cutting delivery times, especially in congested city areas. One off-farm job was created for every 35 litres of milk collected, processed and marketed, and more than half those jobs are in rural areas. Democratically elected milk producer and distributor cooperative members are now in the majority on Milk Vita’s board of directors. These achievements encouraged the Government to withdraw from the day-to-day management, enabling the board to hire professional managers, which led to improved performance and created a platform for further expansion to bring more poor people into the dairy value chain. Since the late 1990s, Milk Vita has invested more than $10 million to expand its milk collection, processing and marketing network and now delivers safe and affordable milk and dairy products to some 5 million low-income urban dwellers.

Figure 2: Milk Vita Cooperative model

The benefits of the Milk Vita Cooperative model:

• The model is a holistic, cow-to-consumer model.
• Milk production and productivity increase.
• Household nutrition and incomes increase.
• Communities are empowered through poor farmers’ participation in the organized cooperatives and through accountability of the Milk Vita board and management to its milk producer members.
• Quantity of affordable and safely processed milk and dairy products for urban consumers is increased while the quality is enhanced.
• Substantial off-farm employment is generated.

Milk Vita continues to be a flourishing venture and has many recent imitators that have set up similar enterprises to process and market 70 million litres of milk annually. However, these enterprises do not provide cattle development or productivity-enhancement support and technology to milk producers.

Private entrepreneur model

Private dairies, some owned by non-government organizations (NGOs), such as the Bangladesh Rural Advancement Committee (BRAC), usually operate through milk supplier/middlemen (known as ghoshes or dudhwalas) in place of rural groups or cooperatives (Figure 3). They collect milk for a specific dairy, however, smallholders involved in the system do not receive any value-added benefit – only the basic price for their milk.

Figure 3: Private entrepreneur model

Grameen–CLDDP model

This is a profitable, integrated, community-owned crops-livestock-fish farming system that operates in one of the three poorest areas of the country and includes a dairy chain module. Established in 2000, the model was pioneered under the Grameen Bank/UNDP/FAO CLDDP project. Very poor landless families are organized into groups of five people. These village group members (VGMs) can access commercial loans for raising livestock and other income-generating activities. Some 80 percent of them have opted for dairy cows. The loans include compulsory animal feed and insurance components. VGMs have access, at full cost, to all the inputs needed to produce and market milk. They supply their milk surplus to community-owned milk collection centres for primary processing at community-owned dairy enterprises. The pre-processed milk is then sold to established dairies like Milk Vita, Bikrampur Dairy and Grameen Danone Foods for further processing and marketing. Some processed milk is also marked locally. The VGMs own 70 percent of the community feed mill and dairy enterprises (Grameen owns the other 30 percent) and thus share in the profits. While in some ways it is a social dairying model, it is also commercial in operation.

The feed mill enterprises provide quality dairy rations, compounded from locally available agriculture by-products, for the VGMs who either have insufficient land or no land at all to grow their own feed and fodder. Once the smallholders have four or five cattle, they have enough dung to take a loan for a bio-digester to produce gas for cooking and lighting. The spent slurry from the bio-digester is then used to fertilize and increase the productivity of fish ponds. Every two or three years the ponds are emptied, the slurry dried and used as crop fertilizer. In this way, smallholder dairying has become an important component of an integrated and environmentally sustainable farming system for poor people.

Figure 4: Grameen�CLDDP model

Conclusions and prospects

Tens of thousands of very poor rural households have moved out of poverty as a result of the successful introduction of the holistic Milk Vita and Grameen–CLDDP smallholder dairying models. Many families now own up to 20 cows and have intensified and commercialized their milk production. The two models embrace a complete cow-to-consumer package of input and output services, and their ongoing scaling up has helped put the dairy sector in Bangladesh in a unique position to take advantage of the recent huge increases in the cost of imported dairy products, especially milk powder, by substituting imports with domestically produced milk.

The policies proposed in the draft National Livestock Policy (2006) and the National Strategy of Accelerated Poverty Reduction (2005) recognize that milk produced at the community level by smallholder households can play a significant role in improving nutrition, incomes and jobs. It is clear that a more detailed, long-term dairy development strategy is needed to translate those policies into a national dairy programme that clearly focuses on smallholder milk producers.

Such a strategy might include a clear vision/mission statement for enhanced smallholder participation in dairying; it could promote smallholder dairying under the National Livestock Policy as one of the strategies to help Bangladesh achieve its Millennium Development Goals of halving poverty and halving under-nutrition by 2015.

Three overarching strategic objectives that would help expand the dairying sector:

• raising awareness among policy makers and consumers about the nutritional benefits of local milk and dairy products;
• increasing the number of smallholders involved in profitable milk production and dairy value chains through diversification and better integration of their household/farm businesses;
• encouraging processors to set up smallholder milk procurement systems to substitute imports and enhance national food security.

It is important that an inventory be undertaken of appropriate dairy chain models, including their:

• competitiveness
• investment costs
• associated risks.

This could be accompanied by an inventory of strategic public- and private-sector stakeholders and followed by the development of an indicative investment programme with a focused, time-bound national action plan containing realistic and measurable targets, such as raising milk and dairy products consumption from 18 kg to 25 kg by 2015

Government and dairy stakeholders should jointly develop the strategy, which should clearly identify the areas best addressed by the public sector and those best addressed by the private sector. The strategy would then inform policy-makers and industry stakeholders about opportunities for future investments in smallholder-oriented dairy development.

References

Publications and articles on the dairy subsector are very limited in the country. Most of the available literature is in the shape of project documents, souvenirs and seminar/symposium and study papers.

Ali , A. M. 2002. Development of rural cooperatives: Problems, opportunities, challenges and removal measures. CICTAB Seminar, Dhaka . Registrar, Cooperative Directorate. (paper)

Chowdhury, A. M. 1979. Consolidation of cooperative dairy complex. Bangladesh Milk Producers’ Cooperative Union Ltd Dhaka. (official project document)

FAO. 2007. Draft project completion report, by B. T. Dugdill . Community Livestock and Dairy Development Project (BGD/98/009). Dhaka.

FAO. 2007. Draft project completion report. Grameen Bank/UNDP/FAO Community Livestock and Dairy Development Project (BGD/98/009).

FAO. 2000. Milk Vita in Bangladesh: A case study, by B. T. Dugdill and A. Bennett . Rome .

FAO. 2000. Grameen Bank demonstrative milk processing enterprises, Workshop Paper No. 3, by B.T. Dugdill . Community Livestock and Dairy Development Project (BGD/98/009). Dhaka.

FAO. 1986. Project completion report. Cooperative Dairy Project (BGD/79/033).

Government of Bangladesh. 2005. National strategy for accelerated poverty reduction.

Haque, S. A. M. A. 2005. Role of milk producers’ cooperative societies for poverty alleviation and economic development in Bangladesh . Seminar paper presented at Celebration Ceremony 100 Years of Cooperative (1904-2004). Dhaka.

Haque, S.A.M.A. 2002. Dairy cooperatives in Bangladesh. Seminar paper presented at the Asian Seminar, Hiroshima University , Japan .

Haque, S.A.M.A.1994. Balancing, modernization, rehabilitation and expansion of the cooperative dairy complex. BMPCUL. Dhaka. (official project document)

Hossain, M. 1982. Conversion of government loans and investments in cooperative dairy complex into grant. BMPCUL. Dhaka. (official proposal to the Government of Bangladesh)

FAO. 1984. National cooperative dairy development plan, by G. C. Juneja, H.J.G. Gansey and R.G. Mertin. DP/BGD/79/033 Field Document-6, Cooperative Dairy Organization and Extension Programme (Phase-II), Dhaka.

Kastrup, D. 1972. Observation and recommendations regarding development of Lahirmonhanpur Plant, Pabna district, Bangladesh . Danish International Development Agency. Dhaka.

Khan M. H., Patwary M. S., Hossain M.S. & Nath S.R. 1990. Milk for our people: A state of art study on the supply of milk throughout Bangladesh by the cooperative societies of milk producers. Cooperative Directorate, Motijheel. Dhaka. (official project document)

Kurien, V. 1987. A strategy for dairy development in Bangladesh, by the Chairman of the National Dairy Development Board, Anand, India. BMPCUL. Dhaka.

Latif, S. 1973. Cooperative dairy complex project. BMPCUL. Dhaka. (official project document)

Livestock Directorate. 1998. Development and activities. Dhaka.

Livestock Directorate. 2003. Annual report. Dhaka.

Ministry of Fisheries and Livestock. 2006. National livestock policy. Government of Bangladesh. Dhaka.

Ministry of Fisheries and Livestock. 1992. Livestock development policy, Government of Bangladesh. Dhaka.

Nielsen , P. 1973. Survey report and recommendations: Lahirmonhanpur and ASTO Dairies. DANIDA. Dhaka.

Rahman, M., Ali, M.M.I. & Haque, S.A.M.A. 2000. A policy study on the dairy development in Bangladesh. Bureau of Sociological and Economic Research and Training, Bangladesh Agricultural University. Mymensingh , Bangladesh . (study document)

Rangnekar D. & Thorpe W. (Editors). 2001. Smallholder dairy production and marketing – Opportunities and constraints. International Livestock Research Institute.

Souvenir. 2004. Conference of Agriculturists Forum of Bangladesh. Dhaka.

Souvenir on the Seventh Bi-Annual Conference and Seminar (2003); Bangladesh Animal Husbandry Association. Paper presented by Kbd. Syed Altaf Hossain.

Annex I: Milk flow chart

Milk production information from the Directorate of Livestock Services, processing information from dairy plants and flow data estimated from market operation /tendency.

Annex II: Milk price chart (December 2007)

Conversion: 70 taka = US$1

Cooperatives, other dairies and the market.