Animal Husbandry

Bulk Milk Cooling Units (BMCUs)

1. Introduction: 1.1 Animal Husbandry sector is one of the key area for rural development in our country. This sector along with fisheries contributes to 5.26% of the total GDP. India is endowed with a large milk production base comprising of 185 million cattle and 98 million buffaloes (Livestock census 2003). In terms of bovine population, it is having highest buffalo population in the world. The large bovine production has translated into India being the total largest milk producer in the world with annual milk production estimated at 104.8million tonne per annum (2007-08.). The Indian dairy industry is contributing significantly to the country's economy, besides improving the health standard by increasing the nutritional value of the food. The present (2007-08) per capita availability of milk is 252 gms per day against the World average of 265 gms. It is estimated that 22.45 million households are involved in livestock sector. 1.2 The role of dairy development in improving the nutritional standards of the people, generating employment opportunities and enhancing income level in rural areas especially for small and marginal farmers and agriculture labourers has been well established. Over the years, the country has maintained a growth rate of about 4 per cent per annum in milk production. In terms of value of output, milk is now the single largest agricultural commodity, way ahead of paddy and wheat. It is projected that by the year 2020, the annual demand for milk in the country would be 170 million tonnes. It is therefore a great challenge to increase milk production to meet the ever-increasing demand by improving the productivity and management of dairy animals. Indian Dairy Industry is more competitive and poised to play a major role in the global dairy market. Hence commercialisation of dairying besides traditional rearing of few animals by small and marginal farmers and manufacture of milk products is the need of the hour. 1.3 Dairy products form one of the fastest growing segments in the livestock product export. The major products exported are malted milk foods, ghee and cheese (to some extent) to the countries like Bangladesh, UAE, Nepal, Sri Lanka, Bahrain and Oman. The export performance during the years 1980-81 to 1995-96 was quite satisfactory. Subsequently, there is a fall in exports of milk products. As per the APEDA estimates, the export of milk and milk products to currently existing markets would increase to Rs.285 million and to new markets to Rs. 155 million. Thus the exports is likely to touch Rs.440 million by the turn of the century. The GATT agreement further gave a boost to the dairy industry, as India has a comparative cost advantage in regard to milk production. NABARD has been actively involved in credit disbursement for various investments under dairy sector. It also encourages development of new products through its research and development funds besides guiding various entrepreneurs in new areas of business and technology.

1.4 Having made a significant stride in production and processing, our country is topping the Globe as the highest milk producer. Now it the time to upgrade the quality of milk in similar quantum to provide hygienically safe milk and milk products to the consumers. The sole criterion for determining quality should no longer be FAT/SNF but should also be bacteriological quality of the milk, which is possible only by the proper handling of milk from the udder of the animal to the super market shelf. Since the ambient temperature in our country is as high as 45o C, improvement of raw milk quality is possible only by the careful milking conditions and its prompt cooling to 4 oC or below. Maintenance of the quality of milk from udder to consumer is a major challenge. For meeting this challenge and ensuring cold chain there is need for installation of Bulk Milk cooling units in the milk-shed areas and use of insulated tanks / reefer vans for transportation of milk. Dairies are already taking such initiatives but there is need for further investments. Similarly, for direct marketing of products there is potential for establishing retail-marketing outlets with facility of cooling cabinets and deep freezers. 1.5 The best alternative to the present collection system of milk is cooling of milk immediately after milking by Bulk Cooling Tanks. The usage of such tanks have become popular in the recent past because it not only helps in increasing the shelf-life of milk but also provides systematic and simple way of the procurement of milk. Also ensures procurement of more Milk by covering untapped farther areas for Milk Collection. 1.6 As per the latest Draft Codex International Code of Hygienic Practice for Milk and Milk Products from Codex Secretariat, if the milk is not processed within two hours of milking, it is required to be cooled to a temperature below 7oC. Therefore, the Dairies who have to market their milk and milk products in International Market will have to comply with the Codex International Code of Hygienic Practice and cold chain will become a must for them. The initial capital investment will pay back in the long run, as the system will eliminate the use of milk cans, milk sourage, reduction in transportation cost, better return etc. 2. Objectives The financial assistance is extended for purchase of bulk milk coolers with the following objectives.

To enhance the keeping quality of milk and also to avoid economic losses to farmers due to spillage/sourage of milk. To produce improved quality products for export as well as to meet the domestic requirements. To reduce the transportation cost by regulating transportation of the milk on alternative days and also through reduction in expenditure on purchase and maintenance of cans.

3. Potential areas: With increasing competition for milk procurement, the milk processing units are now entering the untapped areas for meeting their milk requirements. However, this has resulted in increase in transportation cost for procurement in the range of Rs. 0.30 to as high as Rs. 1.25 per litre in Hilly areas. Thus, BMCUs provides a viable option for reducing the transportation cost as also maintaining the milk quality. Bulk Milk Cooling Units were first introduced by the Milk Cooperative Unions of Kaira, Baroda and Mehsana districts in Cooperative Sector and in private sector by Dynamix Dairy in Maharashtra and Nestle in Punjab. The scheme has been well taken and now majority of the milk processing units are installing BMCUs in their milkshed areas. This item of investment has picked up steam with support from GoI schemes namely Venture capital fund for Dairy and Strengthening/ Development of Agriculture Marketing Infrastructure wherein interest free revolving loan and capital subsidy is being provided for taking up this investment. 4. Beneficiaries: Milk Agents, Village Milk Cooperative Societies of Cooperative Milk Union or Milk Collection Centres of private Dairies. 5. Project Details: Components: The major components of Bulk Milk Cooling Unit comprises of bulk cooling tank of varying capacities (500 to 5000 litres), DG set and accessories such as water heater, water storage tanks etc.

Capacity :The capacity of Bulk Milk Cooling Units is ranging from 500 to 5000 litres. Equipment suppliers: The machinery should be as per BIS standards and are presently manufactured in the country by De Laval, Fabtech, IDMC, PRAJ, etc. Besides this many local fabricators are also manufacturing good quality BMCUs at reasonable rates. Processing: The operations involve collection and chilling of milk to a temperature of 4oC Advantages:

Elimination of souring/curdling of milk because of cooling at the collection centre itself. Adulteration of milk and spillage from cans can be eliminated during transport. Transportation cost of milk can be brought down by regulating transportation to the main dairy either on alternative days or once in a day. Saving of initial investment on purchase of cans and subsequent maintenance cost (Repairs, cleaning etc.) of those cans. Improved quality of milk can be supplied to the main dairy to manufacture quality products for domestic as well as export markets. Flexibility in milk collection time results in increase in volume of milk collected at the centres. Farmers will get better returns for the quality of milk. Chilling at the Main dairy can be avoided.

6. Technical Collaboration: Since the process is simple, no technical collaboration is envisaged for the project, however the Milk Unions/Private Dairy Plants would be providing guidance to the societies/collection centres in purchase and installation of Bulk Milk Coolers, and also training of manpower in operations and maintenance. 7. Capital Cost: The capital cost varies with the capacity and the specifications of the Bulk Milk Coolers. However, two models have been considered i.e. 2000 and 5000 litres capacity, whose unit costs are Rs. 7.00 lakh and 18.50 lakh respectively. The detailed unit cost is given in the Annexure I. It is assumed that the space available in the existing collection centre/cooperative society will be sufficient to install the equipment and accordingly no cost on civil structures is considered. Alternatively, the space required for housing the equipment can also be taken on rent and. In case if the civil structures are required to be considered, the same may be considered under project cost. 8. Economics of the project: Based on the various techno economic parameters furnished in Annexure II, the economics of the project has been worked out and presented in Annexure III A and B for two different models. The items of income include reduction in souring/curdling of milk, spillage and pilferage of milk, saving of expenditure on transportation, purchase and maintenance of cans and chilling cost received from the union while the expenditure includes the operational cost of cooler (fuel/power), repairs, maintenance and additional manpower. In case if the unit is financed along with Automatic Milk Collection Station, the existing staff of the society will be sufficient to manage the unit. No additional expenditure on manpower is required. 9. Financial Analysis: The cash flow statement covering the Benefit Cost Ratio (BCR) Net Present Worth (NPW) and Internal Rate of Return (IRR) has been worked out for the project and presented in Annexure IV. For the models of 2000 litres and 5000 litres, the BCR is 1.23:1 and 1.33:1, NPW is Rs. 4.985 lakh and Rs. 15.86 lakh and IRR is 35 % and 43 % respectively. The entire bank loan can be repaid in six / seven years without any grace period. ( Annexure V) 10. Financial assistance:

Bulk Milk Cooling units of various sizes would be considered for refinance support by National Bank. Therefore all participating banks may consider financing this activity subject to their technical feasibility, financial viability and bankability. 11. Lending Terms and other requirements: 11.1 Margin Money: The society or Milk collection centre should normally meet 25% of the project cost either out of their own resources or through subsidy. 11.2 Interest rate: Interest rate will be as determined by the financing bank. In the present case we have considered interest rate of 12% per annum. 11.3 Security: As stipuilitated by the RBI 11.4 Insurance: The financing bank may ensure that the society takes adequate insurance cover for the asset 11.5 Repayment period: Depends upon the gross surplus generated. In case of 2000 litres, it is 7 years and for Rs. 5000 litres, it is 6 years without any grace period. 12 Special terms and conditions: The special terms and conditions of the project are given in Annexure VI. Annexure - I Project cost for Bulk cooling unit (Rs. In lakh) S.no Particulars

2000 lit. 5000 lit. 6.80 0.20 7.00 1.75 5.25 18.00 0.30 18.30 4.58 13.73

i ii iii iv v
Annexure - II

Cost of Bulk Milk Cooler with DGset Installation and commissioning Total cost Margin Money (25%) Bank loan (75%)

Technoeconomic parameters and assumptions

Technoeconomic parameters
Sr.No. A Income Installed capacity (liters per day) 2000 5000 Particulars 2000 lit. 5000 lit.

Capacity utilisation (%) First year Second year Third year 60.00 70.00 80.00 60.00 70.00 80.00

Fourth year Reduction in souring and curdling of milk as % of milk procured Reduction in spillage and pilferage in cans during transportation as % of milk procured Cost of raw material - Milk (Rs./lit.) Payment received from unions for chilling of milk (Rs./lit) Saving in investment and repair of cans (Rs./lit.) Saving in transportation cost of milk (Rs./lit.)

90.00 1.00 1.00 15.00 0.3 0.03 0.2

90.00 1.00 1.00 15.00 0.3 0.03 0.2

Expenditure

Power and fuel consumption (Rs. /lit.) Repairs and maintanance (Rs. /lit.) Manpower - one person (Rs.per month Stationary & misc. expenses (Rs./ month) Rent of building (Rs. p.m.)

0.35 0.02 5000 1250 300

0.35 0.02 5000 1250 300

Others Depreciation (% Interest rate (%) Repayment period (years) 10.00 11.00 7 10.00 11.00 6

Annexure - III (A) Income and expenditure - Bulk Milk Cooling Unit (2000 l/ unit)

Rs.lakh
S.N o Particular I 1 2 3 4 Installed capacity (lts) Capacity utilisation (%) Milk procurement (in litres / annum) Income Payment received from milk union for chilling 1.314 1.533 1.752 1.971 2.19 2.19 2.19 2.19 2.19 2.19 2000 60.00 70.00 80.00 90.00 100.00 100.00 100.00 100.00 100.00 100.00 73000 73000 73000 73000 73000 0 0 0 0 0 II III IV V YEAR VI VII VIII IX X

43800 51100 58400 65700 73000 0 0 0 0 0

Saving due to reduction in souring and curdling of milk (@ 1%) Reduction in spillage (@ 1%) Saving in repairs and replacement of cans Net saving on transportation cost of milk Total income 5 Expenditure Power and fuel consumption Repairs and maintanance Manpower - one person Stationary and miscellaneous expenses Rent of building Total expenditure 6 Gross surplus

0.657 0.7665

0.876 0.9855

1.095

1.095

1.095

1.095

1.095

1.095

0.657 0.7665

0.876 0.9855

1.095 0.219 1.46

1.095 0.219 1.46

1.095 0.219 1.46

1.095 0.219 1.46

1.095 0.219 1.46

1.095 0.219 1.46

0.1314 0.1533 0.1752 0.1971 0.876 1.022 1.168 1.314

3.6354 4.2413 4.8472 5.4531

6.059

6.059

6.059

6.059

6.059

6.059

1.533 1.7885

2.044 2.2995

2.555 0.146 0.6 0.15

2.555 0.146 0.6 0.15

2.555 0.146 0.6 0.15

2.555 0.146 0.6 0.15

2.555 0.146 0.6 0.15

2.555 0.146 0.6 0.15

0.0876 0.1022 0.1168 0.1314 0.6 0.15 0.6 0.15 0.6 0.15 0.6 0.15

0.036

0.036

0.036

0.036

0.036 3.487 2.572

0.036 3.487 2.572

0.036 3.487 2.572

0.036 3.487 2.572

0.036 3.487 2.572

0.036 3.487 2.572

2.4066 2.6767 2.9468 3.2169 1.2288 1.5646 1.9004 2.2362

Annexure - III (B) Income and expenditure - Bulk Milk Cooling Unit (5000 l/ unit)

(Rs. In lakh)
S.N o Particulars Installed capacity (lts) Capacity utilisation (%) Milk procurement (in litres / annum) Income Payment received from milk union for chilling 3.285 3.833 4.380 4.928 5.475 5.475 5.475 5.475 5.475 5.475 I II III IV V VI VII VIII IX X

5000

60.00

70.00

80.00

90.00

100.00 100.00 100.00 100.00 100.00 100.00

3 4

109500 127750 146000 164250 182500 182500 182500 182500 182500 182500 0 0 0 0 0 0 0 0 0 0

Saving due to reduction in souring and curdling of milk (@ 1%) Reduction in spillage (@ 1%) Saving in repairs and replacement of cans Net saving on transportation cost of milk Total income 5 Expenditure Power and fuel consumption Repairs and maintenance Manpower - one person Stationary and miscellaneous expenses Rent of building Total expenditure 6 Gross surplus

1.643

1.916

2.190

2.464

2.738

2.738

2.738

2.738

2.738

2.738

1.643 0.329

1.916 0.383

2.190 0.438

2.464 0.493

2.738 0.548

2.738 0.548

2.738 0.548

2.738 0.548

2.738 0.548

2.738 0.548

2.190

2.555

2.920

3.285

3.650

3.650

3.650

3.650

3.650

3.650

9.089 10.603 12.118 13.633 15.148 15.148 15.148 15.148 15.148 15.148

3.833 0.219 0.600 0.150

4.471 0.256 0.600 0.150

5.110 0.292 0.600 0.150

5.749 0.329 0.600 0.150

6.388 0.365 0.600 0.150

6.388 0.365 0.600 0.150

6.388 0.365 0.600 0.150

6.388 0.365 0.600 0.150

6.388 0.365 0.600 0.150

6.388 0.365 0.600 0.150

0.036 4.838 4.251

0.036 5.513 5.091

0.036 6.188 5.930

0.036 6.863 6.770

0.036 7.539 7.609

0.036 7.539 7.609

0.036 7.539 7.609

0.036 7.539 7.609

0.036 7.539 7.609

0.036 7.539 7.609

Annexure - IV (A) Financial analysis - BCR, NPW and IRR - Bulk Milk Cooling Unit of 2000 liters Particular I 1 2 3 4 5 6 7 8 Capital cost Recurring cost Total cost Income Salvage value of asset Total income Net benefits 7.000 2.407 2.677 2.947 3.217 3.487 3.487 3.487 3.487 3.487 3.487 9.407 2.677 2.947 3.217 3.487 3.487 3.487 3.487 3.487 3.487 3.635 4.241 4.847 5.453 6.059 6.059 6.059 6.059 6.059 6.059 2.940 3.635 4.241 4.847 5.453 6.059 6.059 6.059 6.059 6.059 8.999 -5.771 1.565 1.900 2.236 2.572 2.572 2.572 2.572 2.572 5.512 II III IV YEAR V VI VII VIII IX X

S.No

Discounting factor @ 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247

PW of cost @ 15% PW of benefits@15% 9 10 11 NPW BCR IRR

8.180 2.024 1.938 1.839 1.734 1.508 1.311 1.140 0.991 0.862 21.526 3.161 3.207 3.187 3.118 3.012 2.619 2.278 1.981 1.722 2.224 26.510 4.985 lakh 1: 1.23 35%

Annexure - IV (B) Financial Analysis - BCR, NPW and IRR - Bulk Milk Cooling Unit of 5000 liters

S.No Particulars 1 2 3 4 5 6 7 8 Capital cost Recurring cost Total cost Income Salvage value of asset Total income Net benefits Discounting factor @ 15% PW of cost @ 15% PW of benefits@15% 9 10 11 NPW BCR IRR

I 18.300 4.838 23.138

II

III

IV

VI

VII

VIII

IX

5.513 5.513

6.188 6.188

6.863 6.863

7.539 7.539

7.539 7.539

7.539 7.539

7.539 7.539

7.539 7.539

7.539 7.539

9.089 10.603 12.118 13.633 15.148 15.148 15.148 15.148 15.148 15.148

9.089 10.603 12.118 13.633 15.148 15.148 15.148 15.148 15.148 15.148 -14.049 0.870 20.120 7.903 5.091 0.756 4.168 8.018 5.930 0.658 4.069 7.968 6.770 0.572 3.924 7.795 7.609 0.497 3.748 7.531 7.609 0.432 3.259 6.549 7.609 0.376 2.834 5.695 7.609 0.327 2.464 4.952 7.609 0.284 2.143 4.306 7.609 0.247 1.863 48.593 3.744 64.459

15.866 lakh 1: 1.33 43%

Annexure - V (A) Repayment schedule - Bulk Milk Cooling Unit of 2000 liters Bank Loan Rate of interest

5.25 lakh
12.00%

(Rs. In lakh)
Year Bank loan outstanding At the beginning of year End of year I II 5.25 5.14 5.14 4.82 Gross Surplus 1.23 1.56 Net Principal Interest Total surplus 0.11 0.32 0.63 0.62 0.74 0.94 0.49 0.63 Repayments

III IV V VI VII

4.82 4.26 3.43 2.30 1.03

4.26 3.43 2.30 1.03 0.00 DSCR

1.90 2.24 2.57 2.57 2.57 1.74

0.56 0.83 1.13 1.27 1.03

0.58 0.51 0.41 0.28 0.12

1.14 1.34 1.54 1.54 1.15

0.76 0.89 1.03 1.03 1.42

Annexure - V (B) Repayment schedule - Bulk Milk Cooling Unit of 5000 liters Bank Loan Rate of interest

13.73 lakh
12.00%

(Rs. In lakh)
Year I II III IV V VI Bank loan outstanding At the beginning of year End of year 13.725 12.821 11.306 9.104 6.135 2.353 12.821 11.306 9.104 6.135 2.353 0.000 DSCR Annexure VI Special Terms and Conditions - Bulk Milk Cooling Units The financing bank may ensure that: Gross Surplus 4.251 5.091 5.930 6.770 7.531 7.531 1.82 Net Principal Interest Total surplus 0.904 1.516 2.201 2.969 3.782 2.353 1.647 1.539 1.357 1.093 0.736 0.282 2.551 3.054 3.558 4.062 4.519 2.635 1.700 2.036 2.372 2.708 3.012 4.896 Repayments

i.

ii. iii. iv. v. vi. vii.

the milk union/ dairy identifies the societies/ milk collection centres whose milk collection is about 1400-1800 litres and 3000-4000 litres per day for installing 2000 litres & 5000 litres capacity bulk milk cooling units taking into consideration of the likely acceptance of the dairy farmers for the shift in the system. the union/ dairy guides the society for purchase and installation of BMCU. the union/ dairy trains the secretary and other staff of the society/ milk collection centre in the operation and maintenance of BMCU. the society/ milk collection centre enters into an annual contract with the equipment supplying firm for maintenance of BMCU. the society/ milk collection centre insures the BMCU, provided the insurance coverage is available. the milk union/ dairy explores the possibility to get subsidy from other agencies for purchase of BMCU by the societies/milk collection centres. the union/ dairy provides tie-up arrangement for the repayment of bank loan.

viii. ix.

the union provides adequate compensation to the societies/ milk collection centre to meet the chilling cost of milk. the union/ dairy gives better price for good quality chilled milk supplied by the society/milk collection centre.

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