Pakistanis tend to find strange solutions to collective problems. When successive governments failed to provide electricity, people resorted to individual UPS machines and private big and small generators instead of finding similar solutions at their respective local neighbourhood level, which would have been much cheaper than individual household-level alternate power set-ups. Likewise, Pakistanis would rather pay heavy price for drinking bottled water or water purchased from private hydrants than pay adequate water taxes and push the government to improve public water supply system.
Similar is the story of milk. Because the typical neighbourhood milk supplier the gawala model is known to mix water, powder, chemicals, and whatnot in very unhygienic conditions, society seems to have decided to shift to UHT milk instead of fixing the current system or finding a better solution such as pasteurised milk.
There is no ambiguity that pasteurised milk has better nutrition value than UHT; however, in Pakistan, the processed milk is dominated by UHT players. They set the prices, and pasteurised and open milk (gawala) players follow the suit with appropriate discounts.
Out of tens of billions of litres of milk produced per annum, the share of processed milk is less than 10 percent. That is too low as compared to around 30 percent in India, while processed milks share in Turkey and other countries is even higher. Nonetheless, the share of processed milk doubled in Pakistan in the last ten years as new players entered the market.
The question should not be on the affordability of the affluent who today are the prime consumers of processed milk; but the focus should rather be on the hygiene and adulteration of loose milk versus processed milk. There are minimum pasteurising laws implemented in many countries to discourage the consumption of loose milk which could be adulterated and unhygienic. Shouldnt such laws be implemented in big cities of Pakistan?
The fact that milk prices in Pakistan are much higher than in the developed world is shocking and counterintuitive. This implies there is something fundamentally wrong in the whole value chain model deployed here. Yes, the European and other developed markets have huge subsidy mechanisms ranging from farmers (per animal basis) to value chain (processing and transportation) and retailers. At the end, the consumer enjoys the surplus; but that is somehow missing in this part of the world. Yet, the prices of processed milk in India are even at 10-20 percent discount to what consumers pay here.
The prime reason for higher intermediary cost is that two big players in the UHT business have very few processing plants Nestle has two while Engro just has one. They collect the milk from nooks and corners of Sindh and Punjab and bring it to their plants, process it, package it, and then supply it back to retail shops across the country. The double transportation from collection to plants and plants to retailers demonstrates inefficiencies in the model.
The usual practice in Europe and Australia is by having small brands working in pockets for instance, every 50 miles the milk brand changes. There are cooperative models working with collecting milk from a pocket, processing it there, and retailing it in the same area. And mostly, the better quality pasteurised milk is being sold. In that way, transportation cost is reduced to less than half and consumer gets better pricing. The packaging cost of UHT (Rs15 per litre pack) is higher than that of pasteurised (Rs5-12 per liter).
Why cant Pakistan replicate the European model? One reason till the recent past was the energy shortfall in the country, though now its improving day by day. Pasteurised milk has a short life (5-7 days) and it needs to be chilled. By virtue of this, the model cannot be scaled up to the whole country with one or two plants; and for catering to small market (50-mile radius), the investment for energy provision is probably too high.
There are two recent developments to favour expansion of pasteurised milk market lately: Firstly, the energy situation is improving and that would reduce the cost of having cold supply chain. Secondly, Engro is being acquired by FrieslandCampina, and the latter has grown out of a corporative model in Holland. They can replicate the model in Pakistan and can scale up the pasteurised milk market. But this process may take years as the Dutch company is, seemingly right now, interested in dumping cheap milk powder from home to here. That would swell their margins but elude the pasteurised milk market development.
That pasteurised milk is better than UHT milk in quality is a foregone conclusion. In the context of the rising middle class thesis, as the electricity situation improves, alongside the growth in home refrigeration, individual consumer preference for pasteurised milk can be expected to improve. The question is whether these individual preferences will transpire into reality or not.
When it comes to technology, preference, and choice, the notion is that technology is as good as its people. When Chinese alchemists accidently discovered gunpowder in the 9th century, they never used it for warfare for a few hundreds of years. And even they first used to scare people before they fought them instead of using it as an explosive to kill people. It was much later when the then Chinese tyrants used gunpowder for explosives. The Westerners, however, started using gunpowder as an explosive almost as soon as they gained knowledge of it.
Likewise, while the internal combustion engine and electricity led to growth in private transport culture and suburbanisation in the US, in Europe, the same technologies paved way for public transportation system (railways) and the strengthening of urban culture. The fate of Pakistans milk consumers, therefore, lies in the choice they make. Whether they will make the right choice, and how they will make it heard in the din created by UHT corporate giants is another question.
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