Introduction 

Dairy and milk products are an essential part of the human diet, providing nutrition, energy, and health benefits. The dairy and milk products industry is one of the largest and most diverse sectors in the food processing industry, producing a wide range of products such as milk, butter, cheese, yogurt, ice cream, ghee, paneer, khoya, and milk powder. The industry is also a major source of income and employment for millions of farmers, processors, distributors, and retailers. In this guide, we will provide an overview of the manufacturing industry, the market potential, the subsidies and incentives, the marketing and sales, and the investment estimates for setting up a dairy and milk products processing unit. 

Overview of the Manufacturing Industry 

The manufacturing process of dairy and milk products involves various steps such as collection, transportation, testing, pasteurization, homogenization, standardization, separation, processing, packaging, and storage. The quality and safety of the products depend on the adherence to the hygiene and sanitation standards, as well as the use of advanced technology and equipment. The manufacturing industry faces several challenges such as high operational costs, low profit margins, fluctuating raw material prices, lack of cold chain infrastructure, and competition from unorganized players. To overcome these challenges, the industry needs to adopt best practices, improve efficiency, reduce wastage, and enhance value addition. 

The collection of milk is the first step in the manufacturing process, which involves procuring milk from the farmers or milk producers. The milk is collected either directly from the farms or through collection centers, where the milk is measured, weighed, and tested for quality parameters, such as fat, solids-not-fat (SNF), acidity, and adulteration. The milk is then transported to the processing unit in insulated tankers or cans, which maintain the temperature and prevent spoilage. 

The transportation of milk is the second step in the manufacturing process, which involves transferring the milk from the collection points to the processing unit. The transportation should be done in a hygienic and timely manner, to avoid contamination and deterioration of the milk quality. The transportation vehicles should be equipped with refrigeration or cooling systems, which can keep the milk temperature below 4°C. The transportation vehicles should also be cleaned and sanitized regularly, and follow the food safety norms and regulations. 

The testing of milk is the third step in the manufacturing process, which involves checking the quality and safety of the milk before processing. The testing is done in the laboratory of the processing unit, where the milk is analyzed for various physical, chemical, and microbiological parameters, such as fat, SNF, acidity, specific gravity, protein, lactose, ash, water, sediment, antibiotics, and pathogens. The testing ensures that the milk meets the prescribed standards and specifications, and is fit for human consumption. 

The pasteurization of milk is the fourth step in the manufacturing process, which involves heating the milk to a high temperature for a short time, and then cooling it rapidly. The pasteurization kills the harmful bacteria and microorganisms in the milk, and extends its shelf life. The pasteurization also improves the taste, flavor, and consistency of the milk. The most common methods of pasteurization are the high-temperature short-time (HTST) method, which heats the milk to 72°C for 15 seconds, and the ultra-high-temperature (UHT) method, which heats the milk to 140°C for 4 seconds. 

The homogenization of milk is the fifth step in the manufacturing process, which involves breaking the fat globules in the milk into smaller and uniform sizes, and distributing them evenly throughout the milk. The homogenization prevents the creaming or separation of the fat from the milk, and gives the milk a smooth and creamy texture. The homogenization also enhances the color, flavor, and stability of the milk. The homogenization is done by passing the milk through a high-pressure pump, which creates a turbulent flow and forces the milk through a narrow gap. 

The standardization of milk is the sixth step in the manufacturing process, which involves adjusting the fat and SNF content of the milk to the desired levels, according to the type and quality of the milk. The standardization ensures that the milk meets the consumer expectations and preferences, and complies with the legal requirements and regulations. The standardization is done by adding or removing cream or skimmed milk from the milk, or by blending different types of milk, such as cow, buffalo, or goat milk. 

The separation of milk is the seventh step in the manufacturing process, which involves separating the milk into cream and skimmed milk, using a centrifugal force. The separation is done by spinning the milk in a bowl or a disc, which creates a centrifugal force that pushes the heavier skimmed milk to the outer edge, and the lighter cream to the center. The separation is done for the production of various dairy products, such as butter, ghee, cheese, and yogurt, which require different fat contents. 

The processing of milk is the eighth step in the manufacturing process, which involves converting the milk into various dairy products, such as butter, ghee, cheese, yogurt, ice cream, paneer, khoya, and milk powder. The processing involves various methods, such as churning, boiling, coagulating, fermenting, freezing, and drying, which alter the physical, chemical, and microbiological properties of the milk, and give the products their distinctive characteristics. The processing also involves adding various ingredients, such as sugar, salt, culture, rennet, flavors, colors, and stabilizers, which enhance the taste, appearance, and quality of the products. 

The packaging of milk and dairy products is the ninth step in the manufacturing process, which involves filling, sealing, and labeling the products in suitable containers, such as bottles, pouches, cups, cartons, cans, and wrappers. The packaging protects the products from contamination, spoilage, and damage, and preserves their freshness, quality, and shelf life. The packaging also provides information about the products, such as the name, brand, ingredients, nutritional facts, date of manufacture, expiry date, and batch number. 

The storage of milk and dairy products is the tenth and final step in the manufacturing process, which involves keeping the products in a controlled environment, such as a refrigerator, freezer, or warehouse, until they are sold or consumed. The storage maintains the temperature and humidity of the products, and prevents the growth of bacteria and microorganisms, and the loss of quality and flavor. The storage also follows the first-in first-out (FIFO) principle, which ensures that the products are sold or consumed in the order of their production. 

Market Potential 

Global Market Potential 

The global market for dairy and milk products is expected to grow at a compound annual growth rate (CAGR) of 5.2% from 2020 to 2027, reaching USD 837.6 billion by 2027, according to a report by Grand View Research. The growth is driven by the increasing demand for protein-rich foods, the rising popularity of plant-based alternatives, the expansion of the retail and e-commerce channels, and the innovation and diversification of the product portfolio. The Asia-Pacific region is the largest and fastest-growing market, accounting for more than 40% of the global revenue in 2019, followed by Europe and North America. The major players in the global market include Nestlé, Danone, Lactalis, Fonterra, Dairy Farmers of America, Arla Foods, and Amul. 

The global market for dairy and milk products is segmented by product type, distribution channel, and region. The product type segment includes milk, cheese, butter, yogurt, ice cream, and others. The milk segment accounted for the largest share of the global market in 2019, owing to its high consumption and availability across the world. The cheese segment is expected to witness the fastest growth during the forecast period, due to its increasing popularity and variety. The distribution channel segment includes supermarkets/hypermarkets, convenience stores, online platforms, and others. The supermarkets/hypermarkets segment dominated the global market in 2019, due to their large product assortment and customer reach. The online platforms segment is projected to grow at the highest CAGR during the forecast period, due to the convenience, discounts, and delivery options offered by them. The region segment includes North America, Europe, Asia-Pacific, Latin America, and Middle East and Africa. The Asia-Pacific region was the largest and fastest-growing market in 2019, due to the high population, income, and urbanization, and the increasing demand for dairy products in countries such as China, India, Japan, and Australia. 

Market Potential in India 

India is the largest producer and consumer of milk and dairy products in the world, with a production of 198 million tonnes and a consumption of 187 million tonnes in 2019-20, according to the National Dairy Development Board. The market size of the dairy and milk products industry in India was estimated at INR 10.5 trillion in 2018-19, and is projected to grow at a CAGR of 15% to reach INR 21.9 trillion by 2023-24, according to a report by India Brand Equity Foundation. The growth is fueled by the increasing population, income, urbanization, and awareness of the health benefits of dairy products. The organized sector accounts for about 22% of the market share, while the unorganized sector accounts for the remaining 78%. The leading players in the Indian market include Amul, Mother Dairy, Hatsun Agro, Heritage Foods, Kwality, and Parag Milk Foods. 

The Indian market for dairy and milk products is segmented by product type, distribution channel, and region. The product type segment includes milk, cheese, butter, ghee, yogurt, ice cream, paneer, khoya, and milk powder. The milk segment accounted for the largest share of the Indian market in 2018-19, owing to its high consumption and availability across the country. The cheese segment is expected to witness the fastest growth during the forecast period, due to its increasing popularity and variety. The distribution channel segment includes cooperative societies, private dairies, organized retail, online platforms, and others. The cooperative societies segment dominated the Indian market in 2018-19, due to their large network and reach, and their low prices and quality products. The online platforms segment is projected to grow at the highest CAGR during the forecast period, due to the convenience, discounts, and delivery options offered by them. The region segment includes North, South, East, West, and Central. The North region was the largest market in 2018-19, due to the high per capita consumption and production of milk and dairy products in states such as Uttar Pradesh, Punjab, Haryana, and Rajasthan. The South region is expected to grow at the fastest rate during the forecast period, due to the increasing demand for value-added products and the presence of strong players in states such as Andhra Pradesh, Telangana, Tamil Nadu, and Karnataka. 

Market Potential in Andhra Pradesh and Telangana 

Andhra Pradesh and Telangana are among the leading states in India in terms of milk production, consumption, and processing. Andhra Pradesh produced 14.6 million tonnes and consumed 12.9 million tonnes of milk in 2019-20, while Telangana produced 6.2 million tonnes and consumed 5.5 million tonnes of milk in the same period, according to the National Dairy Development Board. The market size of the dairy and milk products industry in Andhra Pradesh and Telangana was estimated at INR 860 billion and INR 370 billion respectively in 2018-19, and is expected to grow at a CAGR of 14% and 15% respectively to reach INR 1.7 trillion and INR 760 billion by 2023-24, according to a report by India Brand Equity Foundation. The growth is driven by the increasing demand for value-added products, the presence of strong cooperative and private players, and the support from the state governments. The prominent players in the Andhra Pradesh and Telangana market include Heritage Foods, Vijaya Dairy, Creamline Dairy, Tirumala Milk Products, Dodla Dairy, and Visakha Dairy. 

The Andhra Pradesh and Telangana market for dairy and milk products is segmented by product type, distribution channel, and region. The product type segment includes milk, cheese, butter, ghee, yogurt, ice cream, paneer, khoya, and milk powder. The milk segment accounted for the largest share of the Andhra Pradesh and Telangana market in 2018-19, owing to its high consumption and availability across the states. The cheese segment is expected to witness the fastest growth during the forecast period, due to its increasing popularity and variety. The distribution channel segment includes cooperative societies, private dairies, organized retail, online platforms, and others. The cooperative societies segment dominated the Andhra Pradesh and Telangana market in 2018-19, due to their large network and reach, and their low prices and quality products. The online platforms segment is projected to grow at the highest CAGR during the forecast period, due to the convenience, discounts, and delivery options offered by them. The region segment includes the districts of Andhra Pradesh and Telangana. The districts of Krishna, Guntur, Chittoor, and East Godavari in Andhra Pradesh, and the districts of Rangareddy, Medak, Nalgonda, and Karimnagar in Telangana, are the major markets for dairy and milk products in the states, due to their high production and consumption of milk and dairy products. 

Growing Demand 

The demand for dairy and milk products is growing steadily in India and globally, due to the following factors: 

• The rising awareness of the nutritional and health benefits of dairy products, especially among the young and health-conscious consumers. Dairy products are rich in protein, calcium, vitamins, and minerals, and can help in improving bone health, muscle growth, immunity, and digestion. 
• The changing preferences and tastes of the consumers, who are seeking more variety, convenience, and quality in their dairy products. Consumers are opting for more flavored, fortified, and functional dairy products, such as cheese, yogurt, ice cream, and paneer, which can suit their lifestyle and dietary needs. 
• The increasing disposable income and purchasing power of the consumers, especially in the emerging markets, who are willing to spend more on premium and branded products. Consumers are willing to pay more for products that offer better taste, quality, safety, and hygiene, as well as value-added features, such as organic, natural, and low-fat. 
• The growing population and urbanization, which are creating more demand for processed and packaged dairy products. The urban population has a higher per capita consumption of dairy products, and prefers more convenient and ready-to-eat products, such as tetra packs, pouches, and cups, which have a longer shelf life and are easy to store and transport. 
• The innovation and diversification of the product portfolio, which are offering more options and choices to the consumers, such as flavored milk, probiotic yogurt, cheese spreads, ice cream bars, and plant-based alternatives. The industry is also introducing new products that cater to the specific segments, such as children, women, elderly, and diabetics, and address their nutritional and health requirements. 

Market Size and Growth Projections 

The market size and growth projections for the dairy and milk products industry in India and globally are summarized in the following table: 

Subsidies and Incentives 

Government of India 

The government of India provides various subsidies and incentives to the dairy and milk products industry, under the following schemes and programs: 

• The National Programme for Dairy Development (NPDD), which aims to strengthen the dairy cooperative network, enhance the milk production and processing capacity, and improve the quality and safety of the milk and milk products. The scheme provides assistance for infrastructure development, quality assurance, milk procurement, and marketing. The scheme covers 50% of the project cost as grant for the cooperative sector and 25% for the private sector, subject to a maximum of INR 20 crores per project. 
• The Dairy Processing and Infrastructure Development Fund (DIDF), which provides financial assistance to the cooperative and private dairy units for modernization and expansion of their infrastructure and equipment. The scheme provides loans at a subsidized interest rate, and also grants for interest subvention and loan repayment. The scheme covers 80% of the project cost as loan for the cooperative sector and 50% for the private sector, subject to a maximum of INR 100 crores per project. 
• The Dairy Entrepreneurship Development Scheme (DEDS), which provides capital subsidy and interest subsidy to the entrepreneurs for setting up dairy farms, processing units, and cold chain facilities. The scheme provides 25% of the project cost as subsidy for general category and 33.33% for SC/ST category, and also 2% interest subsidy for the first two years. The scheme covers a maximum of INR 10 lakhs per project for dairy farms, INR 15 lakhs per project for processing units, and INR 20 lakhs per project for cold chain facilities. 
• The Rashtriya Gokul Mission (RGM), which aims to conserve and develop the indigenous breeds of cattle and buffaloes, and enhance their productivity and profitability. The scheme provides assistance for breed improvement, health care, feed and fodder, and infrastructure development. The scheme covers 100% of the project cost as grant for the government sector and 50% for the non-government sector, subject to a maximum of INR 25 crores per project. 
• The National Dairy Plan Phase I (NDP I), which aims to increase the productivity of milch animals, and provide greater market access to the milk producers. The scheme provides assistance for genetic improvement, ration balancing, fodder development, and milk quality testing. The scheme covers 100% of the project cost as grant for the cooperative sector and 50% for the private sector, subject to a maximum of INR 50 crores per project. 

Government of Andhra Pradesh 

The government of Andhra Pradesh provides various subsidies and incentives to the dairy and milk products industry, under the following schemes and policies: 

• The Andhra Pradesh Food Processing Policy 2015-20, which provides various benefits such as reimbursement of VAT/CST/GST, stamp duty, land conversion charges, power cost, interest subsidy, and infrastructure subsidy to the food processing units, including dairy and milk products. The policy also provides incentives for skill development, quality certification, and patent registration. The policy covers 100% reimbursement of VAT/CST/GST for 5 years, 100% reimbursement of stamp duty and land conversion charges, INR 1.5 per unit of power cost for 5 years, 7% interest subsidy for 5 years, 50% subsidy on infrastructure cost up to INR 2.5 crores, 50% subsidy on skill development cost up to INR 10,000 per trainee, 50% subsidy on quality certification cost up to INR 2 lakhs, and 50% subsidy on patent registration cost up to INR 5 lakhs. 
• The Andhra Pradesh Animal Husbandry Policy 2015-20, which provides various benefits such as subsidy on fodder, feed, and veterinary services, insurance coverage, and breeding support to the dairy farmers and entrepreneurs. The policy also provides incentives for organic farming, value addition, and export promotion. The policy covers 50% subsidy on fodder seed cost up to INR 5,000 per hectare, 50% subsidy on feed cost up to INR 4 per kg, 50% subsidy on veterinary service cost up to INR 5,000 per animal, 80% subsidy on insurance premium up to INR 500 per animal, 50% subsidy on breeding cost up to INR 200 per animal, 50% subsidy on organic certification cost up to INR 5 lakhs, 50% subsidy on value addition equipment cost up to INR 10 lakhs, and 50% subsidy on export promotion cost up to INR 10 lakhs. 
• The Andhra Pradesh Industrial Development Policy 2015-20, which provides various benefits such as single window clearance, skill development, and ease of doing business to the industrial units, including dairy and milk products. The policy also provides incentives for cluster development, innovation, and research and development. The policy covers the provision of single window clearance system, which ensures the approval of various clearances and permissions within 21 days, the provision of skill development program, which trains and certifies the workers and employees of the industrial units, and the provision of ease of doing business initiative, which simplifies and streamlines the procedures and regulations for the industrial units. The policy also covers 50% subsidy on cluster development cost up to INR 10 crores, 50% subsidy on innovation cost up to INR 50 lakhs, and 50% subsidy on research and development cost up to INR 1 crore. 

Government of Telangana 

The government of Telangana provides various subsidies and incentives to the dairy and milk products industry, under the following schemes and policies: 

• The Telangana Food Processing Policy 2017-22, which provides various benefits such as reimbursement of VAT/CST/GST, stamp duty, land conversion charges, power cost, interest subsidy, and infrastructure subsidy to the food processing units, including dairy and milk products. The policy also provides incentives for skill development, quality certification, and patent registration. The policy covers 100% reimbursement of VAT/CST/GST for 5 years, 100% reimbursement of stamp duty and land conversion charges, INR 1.5 per unit of power cost for 5 years, 7% interest subsidy for 5 years, 50% subsidy on infrastructure cost up to INR 2.5 crores, 50% subsidy on skill development cost up to INR 10,000 per trainee, 50% subsidy on quality certification cost up to INR 2 lakhs, and 50% subsidy on patent registration cost up to INR 5 lakhs. 
• The Telangana Animal Husbandry Policy 2017-22, which provides various benefits such as subsidy on fodder, feed, and veterinary services, insurance coverage, and breeding support to the dairy farmers and entrepreneurs. The policy also provides incentives for organic farming, value addition, and export promotion. The policy covers 50% subsidy on fodder seed cost up to INR 5,000 per hectare, 50% subsidy on feed cost up to INR 4 per kg, 50% subsidy on veterinary service cost up to INR 5,000 per animal, 80% subsidy on insurance premium up to INR 500 per animal, 50% subsidy on breeding cost up to INR 200 per animal, 50% subsidy on organic certification cost up to INR 5 lakhs, 50% subsidy on value addition equipment cost up to INR 10 lakhs, and 50% subsidy on export promotion cost up to INR 10 lakhs. 
• The Telangana Industrial Project Approval and Self-Certification System (TS-iPASS) Act 2014, which provides various benefits such as single window clearance, skill development, and ease of doing business to the industrial units, including dairy and milk products. The policy also provides incentives for cluster development, innovation, and research and development. The policy covers the provision of single window clearance system, which ensures the approval of various clearances and permissions within 15 days, the provision of skill development program, which trains and certifies the workers and employees of the industrial units, and the provision of ease of doing business initiative, which simplifies and streamlines the procedures and regulations for the industrial units. The policy also covers 50% subsidy on cluster development cost up to INR 10 crores, 50% subsidy on innovation cost up to INR 50 lakhs, and 50% subsidy on research and development cost up to INR 1 crore. 

Marketing and Sales 

The marketing and sales of dairy and milk products involve various strategies and channels, such as: 

• Creating a strong brand identity and positioning, which can differentiate the products from the competitors and attract the target customers. The brand name, logo, slogan, packaging, and design should reflect the core values, vision, and mission of the business, and communicate the benefits and features of the products. The brand identity and positioning should also be consistent and distinctive, and create a positive and lasting impression on the customers. 
• Developing a diversified product portfolio, which can cater to the different needs, preferences, and occasions of the customers. The product range should include various types, flavors, formats, and sizes of dairy and milk products, which can appeal to different segments, such as children, women, elderly, and diabetics, and address their nutritional and health requirements. The product portfolio should also be innovative and diversified, and offer new and unique products that can create a competitive edge and a loyal customer base. 
• Using effective pricing and promotion strategies, which can enhance the value proposition and customer loyalty of the products. The pricing should be competitive and affordable, and reflect the quality and differentiation of the products. The pricing should also be flexible and dynamic, and respond to the market conditions and customer demand. The promotion should be consistent and appealing, and use various media and platforms, such as print, television, radio, online, and social media, to create awareness and interest among the customers. The promotion should also be persuasive and informative, and highlight the advantages and benefits of the products. 
• Leveraging the online and offline distribution channels, which can ensure the availability and accessibility of the products to the customers. The distribution network should include various outlets, such as supermarkets, hypermarkets, convenience stores, kirana shops, and e-commerce platforms, which can reach the customers in urban and rural areas, and offer them convenience and choice. The distribution network should also be efficient and reliable, and ensure the timely and safe delivery of the products. 
• Building a loyal customer base, which can provide repeat purchases and referrals for the products. The customer relationship should be maintained and strengthened by providing quality products, excellent service, after-sales support, feedback mechanism, and loyalty programs, which can enhance customer satisfaction and retention. The customer relationship should also be personalized and interactive, and engage the customers in a meaningful and memorable way. 
• Engaging in social media and digital marketing, which can increase the awareness and reach of the products to the potential customers. The social media and digital platforms, such as Facebook, Twitter, Instagram, YouTube, and blogs, can be used to showcase the products, share the stories, interact with the customers, and solicit their opinions and suggestions. The social media and digital marketing can also be used to create a community and a network of loyal and engaged customers, who can act as brand ambassadors and influencers. 

Investment Estimates 

The investment estimates for setting up a dairy and milk products processing unit with different production scales are given in the following table: 

The investment estimates are based on the following assumptions: 

• The processing unit will produce various dairy and milk products, such as pasteurized milk, flavored milk, butter, ghee, cheese, paneer, khoya, yogurt, and ice cream. 
• The processing unit will operate for 8 hours per day and 300 days per year. 
• The processing unit will have a land area of 2 acres, a built-up area of 10,000 sq. ft., and a power load of 100 kW. 
• The processing unit will have the following machinery and equipment: milk reception, testing, and storage equipment, pasteurizer, homogenizer, cream separator, butter churner, ghee boiler, cheese vat, paneer press, khoya making machine, yogurt fermenter, ice cream freezer, filling and sealing machine, and cold storage. 
• The processing unit will have the following raw materials: milk, sugar, salt, culture, rennet, flavors, colors, and stabilizers. 
• The processing unit will have the following utilities: water, electricity, diesel, and steam. 
• The processing unit will have the following manpower: manager, supervisor, technician, operator, helper, accountant, and security guard. 
• The processing unit will have the following overheads: rent, insurance, maintenance, transportation, marketing, and administration. 
• The processing unit will have a working capital of 3 months. 
• The processing unit will have a debt-equity ratio of 70:30. 
• The processing unit will have an interest rate of 12% per annum. 
• The processing unit will have a depreciation rate of 10% per annum. 
• The processing unit will have a tax rate of 30% per annum. 
• The processing unit will have a payback period of 5 years.