Presented by Steven J. Staal as a keynote address at the 74th Annual Conference of the Indian Society of Agricultural Economics, Maharashtra, India, 18-20 December 2014

1. Livestock Marketing and Supply Chain
Management of Livestock Products
Steven J. Staal
International Livestock Research Institute
74th Annual Conference of the Indian Society of Agricultural Economics
December 18 - 20, 2014 • Aurangabad, Maharashtra, India

2. Outline of the Presentation
• Global Trends in Livestock Markets and Demand
• Livestock Trends in India
• The Role of Smallholders
• Forces Driving Unorganized and Super Markets
• Linking Farmers to Markets
• Upgrading Unorganized Markets
• Key Lessons and Conclusions

3. Trends in Livestock Markets and Demand
• Some of the most dynamic
markets both globally and in
South Asia are for livestock and
livestock product.
• This Livestock Revolution is
being driven largely by local
demand due to growth in
purchasing power and
urbanization.
0
20
40
60
80
100
120
140
0 10000 20000 30000 40000 50000
Percapitameatconsumpion(kg/year)
Per capita GDP (US$ PPP)
Japan
China
India
Brazil
Growing Incomes = increased consumption of livestock products

4. Projected change in global and regional demand for
food to 2050: Livestock and other commodities
-50
0
50
100
150
200
250
300
350
developed developing SSA SA
%change2005/07to2050
cereals root/tuber meat dairy
Source: Modified from Alexandros and Bruinsma (2012)
• Developing country demand for meat and milk may grow
by 50% to 2050. South Asia, with currently low per capita
meat consumption, may grow the fastest, estimated at 4%
annually to 2050.

5. Where will the supply come from to meet this
growing demand?
• Livestock products are perishable and require drying, freezing,
canning to trade. Generally only 10% of global meat and milk is
traded.
• Large majority of supply to developing countries will thus be
produced in developing countries, which is already happening.
• Developing country milk production is expected to grow by 1.8%
annually to 2050 (2.0% in the case of South Asia), compared to
only 0.3 % for developed countries.
• For meat the expectation is over 3% annual growth for
developing countries, compared to 0.4% for developed countries

6. 0
500
1000
1500
2000
2500
Global 1987 Global 2012 Asia 1987 Asia 2012
In$2004/06billions
Crops Livestock
Net Value Of Global Agricultural Production
1987-2012
Source: Delgado (2014)
• The share of value of production in Asia has grown to nearly half of the
global total, and the share of livestock in value of agricultural production
had also increased significantly, both globally and in Asia.

7. Livestock trends in India
• Livestock value increasing in share, recently
estimated at some 27% of agricultural GDP,
steady at 5% of total GDP even while
agricultural GDP declines in share.
• India is the world largest milk producer, and
growing, although trade in dairy products
remains relatively small.
• India also the world’s largest bovine meat
exporter since 2012, mostly offtake from
dairy buffalo systems.

8. Trends in the quantity and value of production
of milk and meat in India since 1980
0
5
10
15
20
25
30
35
40
45
50
0
40
80
120
160
1980 1985 1990 1995 2000 2005 2010
NetProductionValue
($1000Int.inMillions)
Production
(Tonnes,inMillions)
India Milk Production
Production: Whole fresh, cattle & buffalo
Net Value: Whole fresh, cattle & buffalo
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1980 1985 1990 1995 2000 2005 2010
NetProductionValue
($1000Int,inMillions)
Production
(Tonnes,inMillions)
India Meat Production
Production: Cattle & buffalo Production: Goat & sheep
Production: Chicken Production: Pig
Net Value: Cattle & buffalo Net Value: Goat & sheep
Net Value: Chicken Net Value: Pig
Source: FAOStats
The quantity and value of milk increasing
steadily at an annual rate of some 4%
since 1995
The case of meat, the feature that stands out
clearly is the strong growth in poultry
production.

9. Annual value of dairy, meat and live animal
products imported and exported since 1995
0
20
40
60
80
100
120
140
160
180
1995 2000 2005 2010
Thousands(1000$US)
India Meat & Live Animal Trade Value
Import, Cattle & Buffalo Import, Goat & sheep
Import, Pig Import, Chicken
Export, Cattle & Buffalo Export, Goat & sheep
Export, Pig Export, Chicken
0
20
40
60
80
100
120
140
1995 2000 2005 2010
Thousands(1000$US)
India Milk & Milk Products Trade Value
Import, Whole Milk Import, Butter & Buttermilk
Import, Skimmed Milk Import, Cheese
Export, Whole Milk Export, Butter & Buttermilk
Export, Skimmed Milk Export, Cheese
Source: FAOStats
• Strong demand and increases in the quota for duty-free
milk powder imports, has produced higher powder
imports.
Sheep and goat exports growing

10. Livestock price trends in India
• The price/value trend seems to be towards
ruminant products.
• Monogastric production (poultry, pig) has
been demonstrated to be generally more
efficient at scale, using concentrate feeds.
Relative price of poultry has been in decline
for some time, as production has been
commercializing
• Ratio of mutton to poultry unit prices tripled
to 2.9 from 0.7 since 1963.
• Same trend in other developing countries, also
related to the fact that mutton is often
regarded as superior product in many
countries.

11. Role of smallholders in production
• Smallholders continue to dominate livestock production in many
developing countries, including India, and particularly in the case
of ruminants.
• Smallholder farmers are estimated to produce the large majority
of the small ruminants and 70% of the milk in India.
• In contrast the Indian poultry sector has been rapidly
commercializing and broiler production is estimated to be 70% in
the organized sector
• “two worlds” of livestock in India, competing sets of producers ,
differentiated mostly by state or region.
“leading” zones = production is increasingly commercialized and
market-driven (Haryana and Gujarat)
“lagging” = subsistence and livelihood oriented (Odisha)

12. Smallholders competitiveness
• The large scale “enterprise model” of production (1 objective and
benefit=profit) Capital intensive , mechanization and economies of scale
advantages only work when labor costs are high, dependent on market-priced
inputs and labor
• Competitiveness of smallholder livestock producers is closely
linked to their “household model” of production (multiple
objectives, multiple benefits). Multiple benefits, maximum use of low
cost resources and farm synergies, interactions, not completely dependent on
profits, up to 40% non-market “return”
• Smallholders are competitive. Multiple studies across
continents, including some studies from India, demonstrate
reasons for underlying competitiveness
• Limited economies of scale in production in ruminants
• Often comparable unit costs of production, small vs large
• Fresh/Traditional product markets also buffer import competition

13. Unorganized or informal markets
• Driven by a significant gap between buyer demand for
characteristics of market products, and the standards in the
formal market for those characteristics.
• The level of formally processed livestock products in India is low.
Only 6% of meat (including beef and pork) is formally processed.
• Organized market share in dairy is estimated to have grown to
only 25%, in spite of efforts in cooperative development efforts.
• Similar in other developing countries e.g. pork in Vietnam
• Informal markets generally generate more employment. Milk
markets in Africa and South Asia were found to employ between
1 and 5 full time people per 100 liters of milk handled daily, at
above the minimum wage

14. Consumption drivers shaping markets
Conceptual relationship between level of safety or
standards and consumer purchasing power

15. The “Supermarketization” Phenomenon
• “Supermarketization” is the increasing market share of large food
retailers. Convenience of being able to buy a wide range of products in a
single location, sometimes at lower prices, and to perceptions of higher
product quality.
• On-going “quiet revolution” in Indian food supply chains, with
modern retail sales growing at 49% annually, driven by the private
sector.
• Supermarketization’ threatens smallholder market participation,
although smaller impact on fresh foods.
- Driving higher standards for quality and food safety.
- Changing market structure towards vertical integration, larger
scale of production.

16. Linking farmers to markets

17. • In spite of Operation Flood and the Anand model, cooperatives
have had a mixed record in livestock supply chains, and have been
most prominent in dairy, where is continued growth.
Producer company: A hybrid between a private limited company and
a cooperative
• It aims towards greater levels of efficiency and developing opportunities
to move further along the value chain
• Some for handling a range of commodities with market niches, and some
are large, with thousands of members
• Although cooperatives can opt for conversion under the law, there is little
evidence of that occurring on a significant scale, and state support varies.
Collectives and producer companies

18. Contract farming
• Means to link smallholder producers to modern supply chains
to reduce risks and uncertainty among both producers and
buyers, manage quality and timing of supply
• However, may be large barriers to entry, e.g pig production
in Vietnam, and non-compliance is routine
• Most success examples are in poultry (broilers)
• Experience in dairy contract farming in India, “leakage” limits
application to dairy
• Key feature for success: Batch production and critical timing
• Emerging lessons: No clear livestock examples suitable for
smallholders, except poultry

19. Hubs and clusters
• Combine public and private sector actors; exploit the presence of a
number of actors in a dynamic process that can evolve over time to
change with needs of producers and the market; build on the
geographical proximity of multiple producers

20. EADD Dairy
hubs
Employs a
Business
Development
Services
approach
BDS is
catalyzing a
‘3rd party
actor

21. Innovation platforms
• ‘Innovation platforms’ as a means to
create new linkages between a wider
range of market actors & BDS
• IPs are simply arrangement which
allow individuals and organizations
to come together regularly to
address issues of mutual concern
and interest.
• Emphasis on ‘innovation capacity’ –
and fostering local ownership of the
process to enhance sustainability
• Typically not intended to be self-
sustaining organizations, but rather
to operate for a time to catalyze

22. Structure of the Innovation Platforms

23. Organisational issues in extensive and
dispersed livestock systems
Some livestock products markets are particularly resistant to forms
of collective action, often because of the structure of production.
• Small ruminants - may be raised as complementary outputs in mixed crop-
livestock systems or extensive systems
• The generally atomized , irregular and infrequent offtake of production, in
addition to distances, imposes market and organizational constraints.
• Low density of economic livestock activity in small ruminant production
systems, compounded by remoteness, poor infrastructure, and long-standing
traditional relationships between buyers and brokers
• Result is limited producer bargaining power, high TCs, asymmetrical
information, limited transparency in transactions

24. Food safety in livestock product markets
• India has been identified as a hot spot for threats from zoonotic
diseases for people.
• India emerged as the country at greatest risk globally (based on
analysis conducted of the interface of the three key factors of (a) poverty, (b) rapidly
changing livestock systems and (c) the prevalence of zoonotic disease)
• Disease transmission through livestock products – salmonella in meat,
brucellosis in milk, pathogens causing diarrhea in children
• In India, e-coli and campylobacter contamination in some meat
products at up to 50% among other pathogens. (It is difficult to obtain
systematic data on livestock product related threats to food safety in India)
• Aflatoxins may occur in milk from
animals fed contaminated feed (potentially
poisonous and carcinogenic effects in people )

25. Engaging with
unorganized markets for safety and quality
• (In East Africa and Assam) Through working directly
with informal market actors to increase both their
capacity for improved hygiene and food safety, as
well as their incentives for doing so.
• Informal market actors regarded as exploitative
middle men providing no real service and creating
threats to health
• Typically ignored by market development projects,
which prefer to work with groups of producers,
collectives and with modern private sector market
players
• Regulators and policy makers either ignore informal
market actors, or actively block their activities
• As a result, have no training and limited capacity

26. Training and certification with BDS
(In both East Africa and Assam)
Use a BDS approach to develop their capacity to upgrade value chains,
provide better services to clients, higher quality/safer products to
consumers
• Market actor training and
certification’ strategy has 3
components: (1) accreditation of trainers
generally in a local NGO or business development
services (BDS) provider, (2) training of market
actors by the BDS provider in handling, hygiene,
processing and business skills and (3) involvement
of he local regulatory agency to provide some sort
of certification or recognition of the trained market
actors

27. “Bridging the gap”
• ‘Bridging the gap’ strategy
• The gap between the inadequate traditional
standards on one hand, and the sometimes costly
standards of the modern market
• Address the reality that small scale or traditional
agents often occupy by far the largest market
share in developing countries
• An evolutionary process that recognizes that
• until consumer demand and willingness to
pay for higher food safety and quality
standards rises,
• informal markets will supply lower cost
products with lower standards, regardless of
policing or enforcement

28. Not discussed in this paper
• The potential for new ICT tools for better market information
• Policies and incentives to facilitate public-private-partnerships
and investment
• Livestock auctions, which have a mixed history in developing
countries
• Potential for valuable niche markets, branding and certification
for indigenous breeds of livestock e.g. indigenous chickens

29. Key lessons and conclusions
• Smallholders will likely continue to supply the bulk of ruminant
livestock products for the foreseeable future.
• In spite of supermarketization, unorganized or traditional markets
are likely to continue to be important.
• Continued innovation is needed for better linking smallholders to
markets.
• Extensive production systems may need specific development
models to address unique characteristics
• More use of BDS will reduce reliance on public services
• An evolutionary approach is needed to ‘bridge the gap’ between
unorganized and organized supply chains, for improving standards
over time.
• Research on these issues should continue.

30. Thank you
for your
attention

31. The presentation has a Creative Commons licence. You are free to re-use or distribute this work, provided credit is given to ILRI.
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