This paper examines the value chain of milk based on the procurement system of raw milk by dairy processing units. Applying simulation model Vensim PLE x32 package, we map the product flow and core actors involved in the liquid milk value chains of the informal sector based on primary data collected from 27 small and micro dairy processing units. The findings show that the cost of milk procurement (transportation cost, reception cost and chilling cost) as well as the processing cost of milk was lower in the case of the collection centre (Model 1) among all the three models studied. Integrated production and processing system (Model 2) has higher profits of Rs. 7.21 per litre of milk than model profit (Rs. 2.5/l), whereas the vendor system (Model 3) has a lower profit (Rs. 0.47/l) than model profit. Integrating milk production with processing and maintaining quality throughout the chain is the major reason for realizing higher profits under Model 2. Leveraging the milk value chain of the informal sector requires training in milk handling, packing and processing of milk, reducing transportation and processing cost and establishing procurement systems.
