Title of Manuscript: Feasibility Analysis of Dairy Ventures in India

Author 1 Author 2 Author 3

Full Name Meka Dhananjay
Apparao
Nicola M Shadbolt Daniel Conforte
Affiliation Institution of Food
Nutrition and Human
Health, Massey
University, New
Zealand

Institution of Food
Nutrition and Human
Health, Massey
University, New
Zealand

Institution of Food
Nutrition and Human
Health, Massey
University, New
Zealand

Mailing
Address
29A Union Street,
Hokowhitu,
Palmerston North
4410, New Zealand

Email Address dhananjay.apparao@g
mail.com

Phone +64210581486
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Contact Author: Nicola M Shadbolt (Author 2)

Title: Feasibility Analysis of Dairy Ventures in India
Abstract
India is the largest producer and consumer of milk and milk products in the world. With
rapid economic growth, the demand for milk is expected to increase at a faster pace than
supply and the resulting supply-demand gap could reach 40 million tonnes by 2022. This
situation presents an opportunity for alternative milk supply options to be introduced,
possibly by multinational dairy companies. As imports of dairy products into India are strictly
regulated by means of tariffs and non-tariff barriers these multinational dairy companies
would therefore have to meet their milk supply from domestic sources. But starting and
operating a successful dairy business in India is not an easy task. It is challenging because the
complicated business environment, subsistence type of farming system, lack of quality feeds,
large un-organised sector, fragmented structure of the industry, poor rural infrastructure, huge
socio-cultural diversity and drastic climatic variations, make the process of milk production
and procurement extremely complex. It is therefore important for a multinational dairy
company to thoroughly investigate and understand all the different models it can pursue and
perform a thorough feasibility analysis, before starting a dairy venture in India.
To date there has been limited research on possible larger scale milk supply models for
India. Nor has a comprehensive framework of feasibility analysis specifically for dairy
ventures in India been developed. In order to address these concerns, this study has identified
four possible milk supply models that a multinational dairy company could adopt. It has then
developed a comprehensive framework of feasibility analysis for dairy ventures in India. The
framework was tested on two possible milk supply models, which demonstrated that by
means of this framework it is possible to achieve a robust, disciplined and scientific method
of evaluating the feasibility of large scale dairy ventures in India.
Key words: Feasibility studies, Dairy, India

Introduction
India is the largest milk producer in the world with an annual production in excess of 110
million tonnes in 2009 (International Dairy Federation (IDF) 2009). India is also the worlds
largest consumer of dairy products, consuming nearly 100% of its production. Yet, per-capita
milk consumption (91 kg/year) in India is lower than the world average (103 kg/year). Being a
traditional dairy products consuming nation, with rapid economic development and increasing
house-hold incomes, it is expected that per capita milk consumption will increase considerably in
India. Its estimated that Indias demand for dairy products will increase to around 200 million
tonnes by 2021-22 (National Dairy Development Board (NDDB) 2011). Since dairy imports into
India are strongly regulated using tariffs and tariff rate quotas, much of Indias demand would
need to be met by the domestic dairy industry. However, based on past trends it is projected that
Indias domestic industry will only be able to supply 160 million tonnes resulting in a shortfall
of close to 40 million tonnes (NDDB 2011). This growing demand for dairy products and likely
supply-demand gap presents an opportunity for multinational dairy companies to venture into the
Indian dairy market with alternative milk supply models.
Starting and operating a successful large scale dairy business in India is not an easy task,
especially for a multinational company with little or no experience in India. The complicated
business environment, subsistence type of farming system, lack of quality feeds, large un-
organised sector, fragmented structure of the industry, poor rural infrastructure, huge socio-
cultural diversity and drastic climatic variations make the process of milk production,
procurement, processing and marketing extremely complex. These inherent issues and supply
chain complexities make it vital for a new entrant (multinational dairy company) to thoroughly
investigate and understand all the different models it can pursue and perform a thorough
feasibility analysis, before starting a dairy venture in India.
Although several types and methods of conducting feasibility studies have been described,
none of the research studies have looked at analysing and identifying approaches for conducting
feasibility studies for dairy ventures in India. Moreover, the standard and depth of pre-
investment feasibility studies in India in general and dairy ventures in specific are often not of a
sufficiently high level to ensure well informed decision making at successive stages of the pre-
investment process.
This paper addresses these concerns by developing a comprehensive framework of feasibility
analysis that can be applied to assess the feasibility of large dairy ventures in India. Additionally,
no study has looked at identifying and evaluating possible India specific milk supply models that
multinational dairy companies can adopt. We addressed this issue by identifying suitable milk
supply models for India. Furthermore we also tested the framework of feasibility analysis by
applying it to assess the feasibility of two milk supply models identified. On the whole, based on
the rationale of our study, there were three distinct objectives:
1. Identify/develop models that could be used by multinational dairy companies to meet milk
supply needs in India.
2. Review existing approaches for feasibility analysis and develop a framework feasibility
analysis that can be applied to large scale dairy ventures in India.
3. Test the framework of feasibility analysis by applying it to two of the milk supply models
identified.
Materials & Methods
Research Method and Design
To achieve our objectives, a qualitative research approach has been selected. Qualitative
research usually starts with a loosely defined research problem (Leedy and Ormrod 2001). But as
the study progresses the researcher gains a better understanding of the problem being researched,
and is able to ask specific questions (Leedy and Ormrod 2001). The qualitative research process
is thus evolutionary in nature and assumes structure/shape over the course of the study. This has
been the case in our research study as well.
Data Collection & Analysis
Given the unique nature of the research problem being addressed, most of the data used was
obtained from secondary sources. To identify milk supply models in India, a comprehensive
review of literature as well as informal discussions with relevant stakeholders from the Indian
dairy industry was performed.
An extensive literature review was performed to understand the purpose, mechanics and
methods used for conducting feasibility studies. Based on comprehensiveness, ease of use,
flexibility and specific issues related to this research study, four approaches that could be used
for developing a framework for feasibility analysis of large scale dairy ventures in India were
identified. Elements of these four different approaches were then integrated and a single holistic
framework of analysis with two levels of analysis was developed.
When the framework was applied to a specific milk supply model, once again data from
secondary sources was used. For example, for the analysis of the world dairy sector, information
was primarily collected from reports published by the International Dairy Federation,
International Farm Comparison Network, and Food and Agricultural Organisation. For the
analysis of the Indian dairy sector a wide range of secondary sources such as news and magazine
articles, journal publications, industry/government reports and internet sources were used. For
the analysis of the Indian business environment, secondary sources used included reports
published by Business Monitor International, Economic Intelligence Unit, World Bank and
Political Risk Services.
For each of the model/project specific parameters that needed to be assessed in our
framework, data were collected from mainly secondary sources. These sources included internet
resources, magazine and news articles, journal publications and government reports. Data were
also collected from primary sources that included practicing field veterinarians, professionals in
dairy companies, engineers and agricultural officers
As a part of the data analysis process, all relevant data were initially screened to identify key
factors and conceptual themes that were outlined as critical in our framework. Following which a
filter was applied and only essential data that reflected a vital concept or phenomenon that was
relevant to the parameter being assessed were recorded. This data were then condensed and
categorised in a logical manner to meet the specific requirements and reinforce each theme
within the parameter that they represented.
Results & Discussion
Identifying Milk Supply Models
Based on the suitability (fit with) to the broad (general) vision, objectives and operations of
multinational dairy companies, we identified four possible models a multinational dairy
company can use for meeting its milk supply needs in India. In the first model (Single Tier
Dairy Farming Model) we suggest establishing (multiple) large scale dairy farms (>3000
cows/farm) that are owned (either wholly or in partnership) and operated by the dairy company.
It is expected that this model will give significantly greater control over the supply and quality of
raw material. No dairy company has used this model in India as yet.
In the second model (Two Tier Dairy Farming Model) we suggested establishing a two
level farming model consisting of 1) nucleus farms and 2) satellite farms. The nucleus farms
could be the focus of this operation and will be owned and operated by the dairy company. It will
be significantly larger than existing commercial dairy farms about 500- 1000 animals. The
satellite farms will be smaller in size (25 150 animals) and in relatively close proximity (<100
km) to the nucleus farm. They will be almost wholly owned (the dairy company can have a
minority stake) by dairy entrepreneurs/progressive dairy farmers. The satellite farms will
function as distinct entrepreneurial units but will receive technical/ management oversight and
support services from the dairy company. The satellite farms will have a contractual obligation to
produce milk of a standard quality and supply 100% of their production to the dairy company.
The satellite farms will also be open to audit/inspection by the dairy company. The Chitale group,
a dairy company based in Maharashtra state of India, uses a similar model
In thethird model (Retail Procurement Model) we suggest sourcing milk from small and
large dairy farmers without establishing dairy farms. Most cooperatives and private dairy
companies in India use this approach to source milk. The cooperative usually establishes a milk
collection centre at each of its primary milk societies (at village level) - covering a few hundred
farmers and the farmers deliver milk (usually twice a day) to the collection centre. The milk from
each collection centre is then transported to a chilling station or processing plant by the
cooperative.
Unlike cooperatives, most private companies do not deal with producers directly but instead
work with milk procurement agents at the village level. The dairy company negotiates its terms
of trade with the agent and the agent in turn negotiates his terms of trade with the producer. The
dairy company supplies the agents with milk coolers (Bulk Milk Tanks/ Vat) and necessary
equipment for performing routine milk testing at a milk chilling centre. The costs of running the
milk chilling centre are usually borne by the agent. The agent has a contractual obligation to
supply milk of standard quality and pre-determined volume to the dairy company.
In the fourth model (Wholesale Procurement Model) we suggest using one or more third
parties to supply milk. The third party will ideally be an existing dairy processor (either privately
owned or a cooperative) with well-developed milk sourcing operations. The third party will have
a contractual obligation to supply milk of specified standard and volume on a regular basis to the
dairy company. Through this approach large volumes of milk can be sourced from one or few
suppliers, thus preventing the need to establish and develop the elaborate infrastructure required
for sourcing milk directly from producers. The third party could also perform the task of
processing milk or manufacturing products as per the specifications of the dairy company,
thereby eliminating the need to establish a processing plant. A few well known dairy/food
companies in India (Nestle, Unilever, and Danone) use this model to meet some of their supply
needs.
Developing the Framework of Feasibility Analysis
We have identified four approaches that can be applied to conduct a feasibility analysis of a
dairy venture in India. The first approach is the method developed by the United Nations
Industrial Development Organisation (UNIDO Approach) specifically for conducting industrial
feasibility studies (UNIDO 1978). This approach allows for a stage-by-stage analysis of the
various components of a feasibility study. It is comprehensive, flexible and covers all the vital
components of a general feasibility study.
The second approach (S & S Approach) is a simple yet useful method for conducting a
feasibility study. It is adapted from the book how to prepare a feasibility study written by
Stevens and Sherwood (1982). It is not as comprehensive or in-depth as the UNIDO approach;
hence it cannot be used as stand-alone method for feasibility assessment. However, there are
certain elements of this approach that can be used to compliment other approaches and add value
to the Framework.
The third approach (R-W-W approach) is not a feasibility study by itself, but instead is a
tool that can be used for screening and evaluating projects. The tool comprises of - 1) Risk
Matrix, and 2) Real-Worth -Win (R-W-W) screen and is considered to be a disciplined and
systematic process to identify and fix problems that constrain a project, to contain risk, and
expose problems that cannot be fixed (Day 2007). The origin of this method lies in the area of
innovation and product development and is therefore designed to specifically assess the viability
of new products /technologies /services /innovations. The underlying concepts and principles of
this method can be applied to assess the feasibility of a wide range of projects.
The fourth approach (AgSystems Approach) looks at feasibility studies from a (agro-
industrial) systems perspective. This approach has been adapted from the work of J ames Austin
Agroindustrial Project Analysis (Austin 1992) and focuses on the distinctive nature of
agroindustrial projects and the design factors critical to its success. The approach is based on the
rationale that agroindustrial projects are a part of an integrated system with vital inter-linkages
and focuses on four systemic linkages -1) Production chain linkages, 2) Macro-micro policy
linkages, 3) Institutional linkages, and 4) International linkages (Austin 1992). The feasibility
analysis therefore requires a comprehensive understanding of how these four linkages interact
and affect the viability of the agro-industrial project. To add additional depth to this analysis, the
inter linkages are viewed in conjunction with the three core operations of agroindustries 1)
procurement, 2) processing and 3) marketing. Since this approach introduces an agroindustrial
angle to project analysis, we believe it can generate vital insights that may not be revealed by the
other approaches.
Each of the four approaches identified has distinct strengths and weaknesses (Table 1).
Table 1: A Comparison of the relative Strengths and Weaknesses of the Four Approaches
Chosen
S. No Parameters/ Factors
Considered
Approach
I
(UNIDO)
Approach
II
(S & S)
Approach
III
(R-W-W)
Approach
IV
(AgSystems)
1. Contextual Factors
2. Project Rational &
Context

3. Demand & Market
4. Production, Technical &
Engineering

5. Material Input/Supply
6. Location & Site
7. Labour & Management
8. Project Economics
9. Financial Analysis
10. Risk Issues
11. Implementation and
Scheduling

12. Political & Legal Issues
13. Socio-Economic Impacts
14. Environmental Impacts
15. Sustainability*
16. Degree of being
HOLISTIC

17. Ease of Application
18. Flexibility of Assessing
other parameters (Ex.
Goodwill, Follow on
opportunities, etc)

Note: This is a relative assessment
-Indicates the approach that is BEST suited of the five for assessing a given
parameter/ factor
-Indicates the approach that is LEAST Suitable of the five for assessing a given
parameter/ factor
* For the assessment of Sustainability, a modification of the method recommended by
IFCN (2010) was used.
On the whole, to use as a stand-alone approach, the S& S approach is the weakest while the
UNIDO and RWW approaches are much more robust (Table 1). Although each of these
approaches appears to be different, their end objectives are similar to identify if a particular
project is worth pursuing. However, to increase the accuracy of a feasibility study, as well as to
make it multi-dimensional, it would be essential to follow a more holistic approach.
Assessing Feasibility of Dairy Ventures in India in Using the Framework
In order to have a more holistic approach, the feasibility study framework we developed
integrates elements from all four approaches, and had two levels of analysis. Guidelines and
principles recommended by all four approaches were used for assessment of the parameters
identified. But importance given to each approach, depended on the relative strength of that
approach with regards to the parameter being assessed. For example, in the assessment of Project
Rationale & Context, the exact order of importance of approaches used was Approach I>
Approach IV >Approach III >Approach II. This is in line with the relative strength of
Approaches for that particular parameter (Table 1).
The first level of analysis focuses on describing the underlying contextual factors that shape
and influence the outcomes of large scale dairy ventures in India. The outcomes of the level 1
analysis are put into context in the level 2 stage of the feasibility analysis process. The second
level of analysis is specific to the milk supply model being assessed. The main focus is on
identifying the project/model specific feasibility parameters to be assessed, and subsequently
capture necessary data for each of these parameters. Additionally outputs from level 1 were
rigorously screened/evaluated and put it into context for the specific milk supply model being
evaluated.
Level 1 Analysis
This analysis is based on rationale that agro-industries in general and the dairy sector in
specific do not exist either in a vacuum or in isolation. But instead they exist in a largely
interconnected global web of governments, markets, institutions and industries (Austin 1992).
The dairy sector in particular is an integral part of the global food market and the key to
understanding the global food industry lies with understanding changing consumer
demands/preferences and the food industrys efforts to meet these demands (Gehlhar 2006).
However, the global Food Market in itself is extremely dynamic and the process of transporting
food from the farm to the table has become more complex, and involves diverse local, national,
and global agents and networks (Regmi, 2003). These evolving Food Markets are driven not only
by changes in consumer preferences, but also by technology, linkages between members of the
food supply chains, and prevailing policies and business environments (Regmi, 2003).
Based on this rationale and principles recommended primarily by approach IV and
secondarily by approach I of our framework, we identified three critical contextual factors that
need in-depth analysis and understanding. These were The World dairy sector, the Indian dairy
sector and the India business environment. We believe this analysis will identify any significant
barriers to entry as well as critical factors that influence the success or failure of a dairy venture
in India. The concepts and themes covered in this analysis (Level 1) are not bound to a specific
milk supply model, but instead have a significant bearing/influence on any/all of the milk supply
models identified. Although an in-depth assessment of world dairy sector, Indian dairy sector
and India business environment was performed, only a brief summary is presented here.
World Dairy Sector
Over the last three decades the livestock sector in general and dairy sector in particular has
witnessed rapid global expansion in both production and consumption. The main driver of this
livestock revolution has been population and income growth, coupled with increased
urbanization and change in consumer preferences to livestock products. Dairy has been an
integral part of this revolution and world milk production has increased considerably over the
last there decades. In 2009, world milk production stood at 699 million tonnes (MT) with the
largest producers being EU-27 (150 MT), India (110 MT), and USA (86 MT) (International
Dairy Federation 2009).
But, dairy is a very sensitive industry in many countries (both developed and developing) and
is therefore protected by various trade policies. Milk is also a bulky and perishable commodity.
As result only 7% of world milk production is traded internationally. In recent years the demand
for dairy products has remained stagnant in developed nations. Consequently, dairy companies
operating in the big and mature markets such as Europe and USA face limited market growth
opportunities in terms of volumes per capita and growth can only occur by increasing market
shares or switching to higher value-added products. In contrast the demand for dairy products
has been quite robust in the developing countries and multi-national dairy companies are
increasingly looking towards these markets for ensuring growth in sales and revenue. However,
entry into these markets could be quite difficult. One such emerging market which presents both
an interesting challenge and opportunity for dairy companies is India.
Indian Dairy Sector
India is the largest milk producer in the world with an annual production in excess of 110
million tonnes in 2009 (International Dairy Federation 2009). The Indian dairy markets value
was estimated to be about 42.5 Billion US$ in 2007 (Dairy India 2007). The dairy industry in
India is integrally linked to the overall economic well being of the country because it serves as a
vital source of employment and provides livelihood opportunities to millions of small farmers in
rural India.
The average herd size of a dairy farmer in India is about 3 animals and farming systems are
essentially of a low input/subsistence type. As a result the productivity of these dairy animals
(1000kg ECM /year) is extremely low and quality of milk is poor. For most of these farmers,
dairying is a secondary occupation- with off farm employment or crop farming being the main
source of income. Moreover, the primary purpose of rearing dairy animals for these farmers is to
produce milk for self-consumption and satisfy a nutritional need; and selling milk (marketable
surplus) for profit is a secondary objective.
Apart from low productivity, another significant drawback is that the dairy industry is
underdeveloped and fragmented. Its estimated that only 25 percent of the marketable surplus is
delivered to the organized dairy sector which comprises of cooperatives and privately owned
milk processing companies. The remaining 75 percent of milk is marketed through the un-
organized or informal sector which comprises primarily of milk vendors. The milk vendors
generally source milk directly from farmers (in rural/peri urban areas) and sell fresh
(unprocessed) milk directly to their customers/consumers (in urban areas). The quality of raw
milk in India is also a major issue. A recent survey on Milk Quality across India by the Food
Safety and Standards Authority of India (FSAI) reported that 69 per cent of milk samples
collected failed to meet the basic quality standards (FSSAI 2011).
Although India is the worlds largest consumer of dairy products, consuming nearly 100% of
its production, per-capita milk consumption (91 kg/year) in India is lower than the world average
(103 kg/year) (IFCN 2010). With rapid economic development and increases in family incomes,
it is expected that per capita milk consumption will increase considerably in India. Its estimated
that Indias demand for dairy products will reach around 200 million tonnes by 2022 (NDDB
2011). Since dairy imports into India are strongly regulated using tariffs, tariff rate quotas, and
non-tariff barriers much of Indias demand has to be met by the domestic dairy industry.
However, based on past trends, Indias domestic industry will only be able to supply 160 million
tonnes resulting in a shortfall of 40 million tonnes (NDDB 2011). This growing demand for
dairy products and likely supply-demand gap presents an excellent opportunity for multinational
dairy companies to venture into the Indian dairy market.
Indian Business Environment
The overall business climate in India is characterised by excessive red tape, lack of
transparency, high levels of corruption, an archaic legal system, weak labour conditions and a
volatile security outlook. Foreign businesses have to manoeuvre through a maze of rules and
certifications to obtain approvals needed for setting up businesses in India (unless they are
operating within a special economic zone). Moreover, opposition from strong labour unions and
political constituencies has slowed reform in such areas as FDI, exit policy, bankruptcy, and
labour law. Additionally a significant challenge affecting the business environment in India
centre on its poor infrastructure. Due to these issues, India ranks a relatively lowly 134 (out of
183 countries) on the overall ease of doing business according to the World Bank's 2010 Doing
Business survey.
Level 2 Analysis
In this analysis, each of the 15 parameters identified in our framework are assessed
individually using the guidelines prescribed by two or more approaches (Table 2). Using the
mechanics of the RWW (approach III) as an example, the process of assessing each parameter in
our framework was simplified through the framing of well-defined questions and identifying
answers (Table 2). Based on a subjective analysis of data/information pertaining to each question,
a best answer is identified (Table 2). The flexibility of this method allows the researcher to
incorporate and analyse any specific issues/concerns that might arise within the context of the
larger parameter being assessed.
To add further structure to the analysis, answers to the questions were classified into one of
three categories Yes, Maybe and No. Additionally, to make interpretation easier a scoring
system was also introduced. Based on the analysis of the data, a Yes answer could receive a
score from 1 to 3, Maybe answer a score from 4 to 6 and No answer receives a score between 7
and 9. Depending on the relative importance of each theme a particular question represents,
weights can be assigned by a researcher if required. Following which an average feasibility score
(Ranging from 1 to 9) for the parameter can be calculated.
Once feasibility scores for all 15 parameters have been derived, the overall feasibility score
(Ranging from 1 to 9) and also feasibility profile for the project can be arrived at. Once again
weights can be included if required by an investor/researcher to stress the relatively greater
importance of certain parameters to the company/model.
Finally, an overall feasibility score of less than 3 indicates that project/model is feasible, and
is worth pursuing provided most critical parameters are not in the not-feasible spectrum. A score
greater than 3 and less than 6 indicates that further study is required to try and identify if more
feasible options are possible. And a score greater than 6 indicates that the project/model is not
feasible, and hence not worth pursuing any further (at this point in time).
Applying the Framework of Feasibility Analysis to Milk Supply Models
In this section, the frame work of feasibility analysis was evaluated using a hypothetical
situation. We assumed that a large multinational dairy company (DC) planned to enter the Indian
dairy market and is examining possible milk supply options. In this initial/pilot venture, the DC
will process 27 million litres of milk each year or approximately 75,000 litres of milk each day.
This is similar to the processing capacity of an average dairy plant in India.
Due to serious concerns regarding the quality and safety of raw milk supply in India, the DC
has decided that it would have to take control of the milk production process at farm level. In
both Models 3 and 4 the DC has no control over milk production at farm level and are therefore
ruled out. However, in both models 1 and 2 the dairy company has control of milk production at
farm level. Hence both models 1 and 2 will be evaluated using the frame work of feasibility
analysis that was developed.
For the purpose of this study, quality milk is defined as - Milk produced from healthy
/disease free cows. The milk will be free of antibiotics, chemical substances, hazardous materials
and adulterants. The mean SCC will be <150,000/ml, and bacterial levels will be within
prescribed international standards. Since the principle researcher of this study comes from the
Krishna district of Andhra Pradesh state in India, it was selected as the region where the DC will
establish its operations. Krishna District is one of the most prosperous and developed regions of
India.
Model 1 Single tier dairy farming system
The dairy company will establish a single 3000 cow dairy farm to meet its entire milk supply
needs. The cows will be purebred Holstein Friesians and will be imported from North
America/Europe/New Zealand. Each cow is expected to produce 25 litres of milk/day on
average. The cows will be completely housed indoors in barns and will be milked in a state of
the art milking parlour. They will be fed a total mixed ration comprising of maize, leucerne, crop
residues and local agro-industrial by products. The significant benefit of this model is greater
control over quality and shorter time to achieve scale.
Model 2 Two tier dairy farming system
The dairy company will establish and own a nucleus farm of 600 cows, and have control and
ownership of dairy assets in 80 satellite farms. The rationale being, the nucleus farm will
produce around 20% of the milk (15,000 litres/day), while the satellite farms will produce the
rest (60,000 litres). Each of the satellite farms will be owned and managed by local farmers. It
will have 50 cows and produce 750 litres/day. The lower production is because this model will
be more adapted to local conditions, especially animal genetics & management systems. Once
the model is perfected it allows for a two directional expansion strategy by - increasing size and
numbers of 1) nucleus farms, and 2) satellite farms.
Analysis of Feasibility of Model 1 & Model 2
The parameters assessed, specific questions asked and scores obtained by Model 1 and
Model 2 are shown in Table 2. Model 1 had a greater number of answers in the No (Not feasible)
spectrum than Model 2 (Table 2). Also, the number of parameters with an average score greater
than 6 was more for model 1 (n =4), than model 2 (n =1) (Figure 1).
The overall weighted feasibility score of model 1 was 5.5, while that of model 2 was 4.5.
This indicates that both models fall in the Maybe spectrum and further investigation/study is
required before a final decision can be taken (Figure 1). Importantly, Material Input/Supply,
Location & Site, Risk and Socio-Economic/Cultural issues appear to be significant constraints
for Model 1 (Figure 1). While Implementation & Scheduling issues appear to be the most
critical constraint for model 2 (Figure 1).

0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Project
Rationale/Context
Demand & Market
Production &
Engineering
Material
Input/Supply
Location & Site
Labour &
Management
Project Economics &
Financial Analysis
Risk Issues Sustainability
Implementation&
Scheduling
Political &
Legal/Regulatory
Socio-
Economic/Cultural
Environmental
Impacts
Good-will & Follow
on opportunities
Other
Figure 1. Feasibility Profile of Model 1 and Model 2
Model 1 Model 2
Score 1 to 3 = Yes (Feasible)
Score > 3 to 6 = Maybe (Further Study Required)
Score > 6 to 9 = No (Not Feasible)
Although this analysis is based on in-depth data collection and analysis, it must be
remembered that the situation being studied is hypothetical, and the purpose of this exercise is to
test the framework and demonstrate its applicability.
Table 2. Assessing Feasibility of Model 1 and Model 2 using Framework of Analysis
S. No
Parameters
(Weightage %)
Questions framed
Score
Model 1 Model 2
1. Project
Rationale/
Context
Is model rationale sound? 3.00 4.00
(6) Does model fit into the larger context? 8.00 5.00
Does company have prior experience
in executing similar model?
4.00 7.00
Does company have superior
resources?
3.00 4.00
Is it in line with the vision & strategy
of the company?
4.00 4.00
Average Score 4.40 4.80
2. Demand &
Market
Is there a demand for the product? 3.00 3.00
(8) Are factors driving demand
known/clear?
3.00 3.00
Can customers buy it? 3.00 3.00
Is size of potential market large
enough?
4.00 4.00
Can an adequate market share be
achieved
5.00 5.00
Will customers buy it? 4.00 4.00
Can company understand and respond
to market?
6.00 6.00
Average Score 4.00 4.00
3. Production &
Engineering
Are the technical specifications
known?
5.00 6.00
(10) Can project/model be executed with
locally available technology &
materials?
8.00 5.00
Can technology & operational
standards be met easily?
7.00 5.00
Are local supply/support services
NOT critical/ essential?
7.00 5.00
Are local support services available/
dependable?
7.00 5.00
Does a value chain for the product
exist?
5.00 4.00
Can logistical challenges be easily
addressed?
6.00 6.00
Average Score 6.43 5.14
4. Material Input/
Supply
Can critical raw materials be
produced/ sourced?
8.00 5.00
(8) Is it of sufficient quantity? 8.00 4.00
Is it of acceptable quality? 7.00 5.00
Average Score 7.67 4.67
5. Location & Site Are climate and environment
conditions favourable?
9.00 6.00
(8) Can a project site be easily acquired? 8.00 5.00
Is it at reasonably close proximity to
markets?
6.00 5.00
Is it at close proximity to raw
materials?
6.00 4.00
Is local infrastructure adequate? 7.00 5.00
Can it function without support of
political establishments and
bureaucracy?
6.00 4.00
Average Score 7.00 4.83
6. Labour &
Management
Are sufficient un-skilled and semi-
skilled workers available locally?
4.00 3.00
(4) Do they (local skilled and semi-skilled
workers) have adequate/appropriate
experience/background?
7.00 4.00
Are sufficient supervisory &
managerial personnel available
locally?
6.00 5.00
Do they (local supervisory &
managerial personnel) have
adequate/appropriate
experience/background?
6.00 5.00
Can project be implemented without
Ex-pat managerial presence?
6.00 7.00
Is threat & impact of industrial strife
low?
5.00 3.00
Average Score 5.67 4.50
7. Project
Economics &
Financial
Analysis
Can costs be accurately determined? 4.00 5.00
(8) Will forecasted returns be greater than
costs?
4.00 4.00
Is forecasts riskiness low? 5.00 6.00
Is time to breakeven acceptable 4.00 5.00
Is ROI adequate (greater than 15%)? 4.00 4.00
Is NPV/IRR adequate? 4.00 4.00
Average Score 4.20 4.80
8. Risk Issues Is there a market risk* 6.00 6.00
(10) Is there a product risk* 7.00 5.00
Is there a significant input price risk? 7.00 5.00
Is there a significant output price? 5.00 6.00
Is there a food safety/human health
risk?
2.00 3.00
Is there an animal health/biosecurity
risk?
7.00 5.00
Is there a security risk? 5.00 5.00
Are there any potential causes for
project failure that cannot be
mitigated?

Are overall risks acceptable? 8.00 5.00
Average Score 5.88 5.00
9. Sustainability Can model be profitable without
government subsidies?
2.00 2.00
(6) Is cost of production less than US$
30/100 kg milk?
6.00 4.00
Is operating profit margin greater than
16%?
5.00 4.00
Is milk yield per cow greater than
7000 kg/year?
2.00 6.00
Is feed efficiency (kg milk/kg DM)
greater than 1.2
5.00 6.00
Is milk price greater than US$ 40/100
kg milk
4.00 4.00
Is labour price less than US$ 6/hour 3.00 2.00
Is quality of milk good? (SCC less
than 2000,000/ml & Bacterial count
less than 150,000 cells/ml)
2.00 4.00
Average Score 3.63 4.00
10. Implementation
and Scheduling?
Can a definite project timeline be
defined /designed?
4.00 6.00
(4) Can the targets in the timeline be met? 6.00 7.00
Are significant project overruns NOT
expected?
6.00 7.00
Average Score 5.33 6.67
11. Political &
Legal/
Regulatory
Issues
Is model NOT a politically sensitive
issue?
7.00 4.00
(6) Is general political environment stable
and favourable
5.00 5.00
Do political threats exist? 5.00 4.00
Are impacts of political threats small/
insignificant?
5.00 5.00
Can political system be prevented
from giving competitors unfair
advantages?
5.00 5.00
Is legal environment stable and
favourable?
6.00 7.00
Are rules, regulations and policies
affecting the model clearly defined/
transparent?
6.00 7.00
Can legal/regulatory system be
prevented from giving competitors
unfair advantages?
6.00 6.00
Average Score 5.63 5.38
12. Socio-Economic
&
Cultural
Impacts
Does it fit with the local culture &
norms
7.00 4.00
(6) Does it include participation of local
stakeholders
7.00 4.00
Does it deliver significant benefits to
local communities
7.00 4.00
Does it contribute towards
development of local dairy industry
6.00 3.00
Will it NOT cause displacement of
local farmers
6.00 3.00
Average Score 6.60 3.60
13. Environmental
Impacts
Does model pose a threat to
environment?
6.00 4.00
(6) Can environmental damage be
mitigated/contained /limited?
4.00 4.00
Is environmental damage (if any)
significantly less than existing
practices/systems?
4.00 4.00
Average Score 4.67 4.00
14. Good-will &
Follow on
opportunities
Will project generate good-will
locally?
7.00 3.00
(4) Will it enhance companies brand
equity?
5.00 3.00
Does it provide for follow-on
opportunities & new market access?
5.00 2.00
Average Score 5.67 2.67
15. Other Does model have a competitive
advantage?
4.00 3.00
(6) Can the advantage be sustained? 7.00 5.00
Is it known how competitors will
respond?
6.00 6.00
Can company be competitive? 4.00 4.00
Average Score 5.25 4.50
* For the assessment of Market Risk & Product Risk the guidelines (Risk Matrix)
suggested by Day (2007) were followed.
Summary & Conclusions
The biggest challenge Indias domestic dairy industry faces are increasing both production
and quality of milk to meet rising consumer demand and expectations. This challenge (expected
domestic Supply-Demand gap) presents multinational dairy companies with an opportunity to
enter the Indian dairy sector. However, the task of starting and successfully operating a large
dairy venture in India might be quite challenging - especially for a multinational company that
has little or no experience in India. It is therefore vital for a new entrant (multinational dairy
company) to identify and understand all the different models it can pursue, and perform a
thorough feasibility analysis before starting a dairy venture in India.
In our study, we identified four possible models a multinational dairy company can use for
venturing into the Indian dairy sector. We also developed a unique framework of feasibility
analysis for large scale dairy ventures in India. We then tested this framework by applying it to
two models (single-tier dairy farming model and two tier farming model) that a hypothetical
multinational dairy company might consider using.
By means of this framework we were able to achieve a robust, disciplined and scientific
method of evaluating the feasibility of large scale dairy ventures in India. As a part of our
framework of analysis a thorough study of the Global dairy sector, Indian dairy sector and the
Indian business environment was performed. The various global and local issues specific to the
Indian dairy market were highlighted through this process; all are critical to the success of any
dairy venture into India.
We suggest that future research should now focus on developing sub-models
(scenarios/options) within each identified model to identify milk supply options that are most
feasible as well as a best fit with a dairy companys vision, values and goals. The framework
of analysis can then be used to identify the most feasible option within each model.
The benefit of a rigorous feasibility analysis using this framework is presented as primarily
being the ability to forewarn of issues and so avoid the slower learning by experience that is a
common outcome when multinationals venture into new countries.
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