Dairy Economics, Statistics and Management Division, National Dairy Research Institute, Karnal – 132 001, Haryana.
The favourable policy regime for boosting value-added dairy products and the buoyant national and international markets for such products have led to a substantial growth of private players in the business of dairy processing in India. This paper has analysed the growth trends in sales, value of output, investment, capital and labour productivity of firms in dairy processing, and has estimated their technical efficiency along with the factors affecting it. The study is based on the secondary data for the period 1991–92 to 2000–01 culled from the financial statements of 33 major private dairy firms, including five MNCs. Technical efficiency has been measured using the time varying stochastic frontier production function model. The sales performance of processing firms has been found quite encouraging, as 23 of the 33 firms have registered positive growth in sales and value of output. The productivity of capital and labour has also increased in about 60 per cent firms. However, the average technical efficiency scores (0.47) have been found on the lower side. Poor capacity utilization as captured through capital output ratio has emerged as an important factor causing inefficiencies in production. The study has concluded the critical element in enhancing the productivity and efficiency of Indian and MNCs is improved capacity utilization, which is possible only if more milk flows through the organized sector. For this, the firms need to provide support to the dairy farmers in terms of price incentives, quality feed input supply, regular veterinary services, etc. The establishment of such linkages between the dairy farmers and firms would go a long way in strengthening the business opportunities for both, milk producers and product manufacturers.
