A Report on Relative study on DDC and Sita Ram Dairy in Nepal

Submitted to: SMART PROGRAM Apex College (Pokhara University) Kathmandu

Submitted by: BBA-BI (FORWARD)

Ananta Pandey Jyoti Upreti Maduri Sarma Saurab Kumar Sanjel Srijan Poudel Ujwala Rijal

August 18, 2011

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Acknowledgement
Our special thanks goes to our helpful mentors, Mr. Kul Rijal, Ms. Shital Moktan and other mentors of different programs. We would also like to thank the two organizations namely DDC and Sita Ram Gokul Milk for providing the necessary information, without which this report would not have been a success. We would like to thanks marketing department head of DDC Mr. Min Kaji Shrestha and engineering department staff Mr. Rabi Shrestha for supporting us while collecting information. The supervision and support that they gave truly helped in the progress of the report. The co-operation is much indeed appreciated. We are indebted to many of our colleagues to have supported us without whom the report would not have been a success. Last but not least we wish to avail ourselves of this opportunity, express a sense of gratitude and love to our friends and beloved parents for their manual support, strength, and help and for everything.

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Executive Summary

Nepal's first milk processing plant was built in Lainchaur 40 years ago with help from New Zealand and the UN. Until then, even in Kathmandu, people kept cows at home and had no reason to buy processed milk.Dairy Development Corporation, established under corporation Act 2021 BS. DDC-a fully state owned corporation, initiated for the economic advancement of the poor farming communities, has flourished into a nationwide movement with an annual collection over 60 million litres of milk from more than 75 thousand milk producers through 888 milk cooperatives spread out in 33 district. With the sate-of-art infrastructure comprising of fully modern dairy plants, 11 cheese manufacturing units, 45 milk chilling plants and highly qualified dairy specialists, DDC is a precious asset in the economic development of our nation. At DDC, they are uncompromising about a strict adherence to quality of milk & milk products, hygiene and sanitation of the plants. They pledge to uphold the grand tradition set by their predecessors and to endorse the trust and faith placed in them by their valued customers. In its ten years operation Sitaram Gokul Milks Kathmandu stands at second rank among the competitors. Despite of entering new organizations in this sector, the organization is being consistent in its service and trying its best to develop and benefit the consumers as well as the farmers. Designed capacity of Sitaram Gokul Milks Kathmandu Limited is80,000 litters milk per day. Its effective capacity is 60,000 litters milk per day and actual capacity is 35,000 litters milk per day. This organization is located in the suitable place and not too far from their main

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market. In the context of market share it has occupied 20% of the total market. And it has targeted to achieve the first position in coming seven years.

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Table of Content Acknowledgement Executive Summary Chapter I -Introduction 1.1 History of Dairy Organization in Nepal 1.2. Objectives of the study 1.3. Research Methodology 1.3. Limitations of the Study Chapter II- Analysis and Interpretation 2.1. Various products and service 2.2. Pricing 2.3. Distribution Channel 2.4. Source of raw material and supply chain management 2.5. Collection Network 2.6. Capacity Management 2.7 Problem facing by these organizations 2.7.1. Problem faced by DDC 2.7.2 Problem faced by Sita Ram Gokul Milk Chapter III 3.1 Conclusion 3.2 Recommendation Bibliography List of Abbreviation

Page Numbers A B (1-3) 1 3 3 3 (4-9) 4 5 5 6 7 8 9 9 9 (10-11)

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LIST OF ABBREVIATION

BBABI

Bachelor of Business Administration in Banking and Insurance

DDC MPCS KMSS BMSS HMSS LMSS NMSS JMSS DMSS MPPSS WWW CC MT

Dairy Development Corporation Milk Producers Cooperative Societies Kathmandu Milk Supply Scheme Biratnagar Milk Supply Scheme Hetauda Milk Supply Scheme Lumbini Milk Supply Scheme Nepaljung Milk Supply Scheme Janakpur Milk Supply Scheme Dhangadi milk Supply Scheme Milk Product production & Supply Scheme World Wide Web Chiling Centre Metric Ton

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CHAPTER I Introduction
1.1 History of Dairy Organization in Nepal
Nepal's first milk processing plant was built in Lainchaur 43 years ago with help from New Zealand and the UN. Until then, even in Kathmandu, people kept cows at home and had no reason to buy processed milk. The Dairy Development Corporation (DDC) was formed in 1969 and as Kathmandu became urbanized, demands for processed milk soared. Another plant capable of processing 5,000 liters and hour was set up in 1978 in Balaju. Two more plants were built in Hetauda and Pokhara with Danish assistance. Veterinarian Heramba Rajbhandari oversaw the DDC's expansion during those heady days. But he understood that the government would never be able to meet Kathmandu's growing demand for milk and dairy products. In fact, by the early 1980s, Nepal had a milk deficit. Pertaining to the context of Nepal's economy and uplifting the living standard of Nepalese farmers, Nepal's dairy sector is providing handsome contribution. It is one of the nation's small industrial sectors that are contributing for paving the path of economic growth. And Sita Ram Gokul Milks Kathmandu Limited and DDC are helping in concreting the backbone of nation's economy. Dairy Development Corporation was established on 2009 B.S. in Tusal, Kavrepalanchowk, Bhaktapur, Langtang, Rasuwa where it started with the collection of small amount of milk and producing Yak Cheese as well. Then in Kathmandu, Bhotahiti too it was established on 7|Page

2010/2011 B.S. starting the official milk processing process. It is established under corporation Act 2021 BS. DDC-a fully state owned corporation, initiated for the economic advancement of the poor farming communities, has flourished into a nationwide movement with an annual collection over 60 million liters of milk from more than 75 thousand milk producers through 888 milk cooperatives spread out in 33 district. The main objectives of DDC are:

Provide a guaranteed market for milk to the rural farmers with fair price. Supply pasteurized milk and milk products to urban consumers. Develop organized milk collection system to meet increasing demand for pasteurized milk and milk products.

Develop an organized marketing system for milk and milk products in urban areas.

Sita Ram Gokul Milks Kathmandu Limited embarked its career in 2052 B.S. as mediator for social welfare and development of Nepalese farmers. It was lead by Late Shankar Lal Kedia with an investment about 26 corers, whose main objective was to act as mediator in transferring the milk of farmers to the Nepalese homes. As the time changed, it established itself as one of the emerging commercial organization by introducing product line of milk, ghee, butter, peda etc. keeping the objective uniform. The main objectives of Sita Ram Gokul Milk are: To help the local farmers and milk vendors to generate substantive income Procuring milk from the surrounding villages and distributing it to the cities.

1.2 Objectives of the study To observe the various capacities of the Organizations. To tackle the random distractions occurred during production process. To know the market pricing of their products.
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 To know their distribution channels. 1.3 Research Methodology

We selected both primary and secondary data collection method following both the internal and external sources. We referred to numerous sites for the information. We went through to many articles written by a various writers for the collection of data. For the statistics we referred to the reports submitted by the primary researcher few years back. We personally visited the head office of both the organizations to collect important data and information required to complete the report.

1.4 Limitations of the Study

This is simply a comparative study of Sita Ram Gokul Milks Kathmandu Limited and Dairy Development Corporation. Its limitations can be pointed as below:

The report is mostly based on secondary data due to the difficulty in collecting primary data.

This report is based on limited data available from the organization because the organization wants to keep the transaction details secret.

Due to unavailability of data for the current year, this report is based on the data from previous years.

The study was conducted with limited financial resources.

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CHAPTER II
Analysis and Interpretation 2.1 Various products and service
DDC Milk Production Butter Production Ghee Yoghurt Cheese Ice-Cream Paneer Skimmed Milk Powder DDC Fresh Lalmohan Peda Rasbari Mozzarrella Cheese (Pizza Cheese) Sita Ram Gokul Milk Pasteurised milk Butter Ghee Yoghurt Peda, etc.

From the above data we can clearly see that DDC has many products and services offered as compared to that of the Sita Ram. The reason behind this is certainly the operating time period of the organization. DDC being the first dairy in the nation because of which the company has high source of raw milk and with which they produce numerous products like, ice cream, paneer, lalmohan, etc.; people trust their products. They prefer DDC products rather than any other. The taste, quality, quantity, different products offered are beyond comparison. However, the products and services offered by the company are gaining the trust and faith of the customers because of which the number of customer are increasing day by day. As compared to DDC, Sita Ram Gokul Milk is new in the market even then they are establishing their market in the market very nicely. The management has been further planning to introduce new products in the market. Slowly they are gaining popularity in the Nepalese society. 10 | P a g e

DDC and Sitaram Milk provide some package of milk for different social program like blood donation, political seminar, and meeting for free of cost.

2.2 Pricing
The pricing of the products manufactured by both the dairies are quite similar. It is due the neck to neck competition between these dairies. The price of milk equals at the level of Rs 22 per 500ml. The price of curd produced by both the dairies is Rs 125 per liter. DDC produces various other products like ice cream, paneer, cheese, and their rates are quite affordable.

The government policy of fixing the producer and retail prices is a major deterrent to the development of the dairy industry. Prices are set under a climate of political influence with no relevance to general market conditions inside Nepal or to border prices.

2.3. Distribution Channel

Whatever is the milk production, first they try to sell it in nearer market instead of dairy cooperative because they get better price from local consumers as compared to dairy cooperatives and they also save transportation. DDC has 40 franchises, where the shops are only allowed to sell the products of DDC. Further it has 4 distributers who bring out the milk from dairy and sell them to the various shops. There are two distributers inside the valley and 2 outside the valley. Compared to DDC, Sita Ram Gokul Milk has less number of distributers and franchises. Due to less number of distributors, the company itself delivers the milk packet to the respective places

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every day. It has six hundred distribution booth and forty-eight salesperson and good infrastructure.

2.4. Source of raw material and supply chain management

DDC and Sita Ram Gokul Milk collects milk from farmers, through chilling centre, local collection agent and diary a cooperative processes it and distributes it through its own retail chain and other independent distributor. At present, there are eight milk supply schemes in different parts of the country under DDC. DDC has been collecting cow, buffalo and chauri milk from 40 districts. Milk is collected through the farmers owned, Milk producers Cooperative Societies (MPCS). Its present milk collection network has spread from Panchthar in the East to Surkhet in the West. In the Fiscal Year 2065/2066 DDC purchased about (approx.) 1,48,000 liters of milk per day from the farmers. Chilling Centers (CC) established under the Milk Supply Schemes is in operation across the country for chilling the milk collected from the MPCCs. There are total 791 MPCCs to collect milk from farmer and 63 Chilling Center are established in 34 districts. Sita Ram Gokul Milks Ktm. Ltd. is supplying the milk and various products to Nepalese consumer by collecting raw milk mainly from Chitwan, Nawalparasi, Kavre, Nuwakot, Biratnagar and Rupendehi. It collects buffalo and cow milk in 3:2 ratios. Raw milks are collected from farmer with the help of local collection agent and chilling centre established locally. Chilling centers are collect milk by measuring percentage of fat and quantity of milk. These collected milk are brings to its manufacturing office Kritipur by 7 road tanker. It is collect milk from 13 chilling centers among which 11 are run by the organization itself and the remaining by

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the co-operatives. Received milks are first pasteurized in pasteurized tank to kill all bacteria in milk. It makes it standardized pasteurized milk and package it.

Market Share
20%

DDC (60%) Sita Ram (20%) Others (20%)

60% 20%

FIGURE: PIE CHART SHOWING THE MARKET SHARE OF THE DIFFERENT DAIRY ORGANIZATION

2.5 Collection Network

The MPCs (Milk Producers Co-operatives) collect milk from member farmers and supply milk to chilling centers owned by the DDC. The DDC has 43 chilling centers located in 28 districts, collecting milk from 34 districts and supplying milk to 6 different milk supply schemes. The milk supply schemes of the DDC also receive milk directly from the MPCs rather than via chilling centers. The milk collection channels for the Sita Ram Gokul Milk are fairly similar to those of the DDC.

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Very few private sector dairies own chilling centers or receive milk through chilling centers. Sita Ram Gokul Milks collects milk through eight chilling centers located in five districts. They have eleven chilling centre of their own and two with association with corporate chilling centre.

2.6 Capacity management

Dairy faces two types of seasonal challenges, one is lean season (April-July) when milk production is low but demand is high and another is flush season (August-March) when milk production is high as compared to lean season. In lean season they are not getting sufficient milk from the dairy cooperatives where as in flush season they doesnt buy all the milk as supplied by the cooperatives. In flush season dairy offers a milk holiday to control excess milk supply. In case of undersupplied they mix some powered produced during oversupplied to meets its market demand. During this process they cannot mix extra powdered more than its standard product quality. DDC Hetauda Milk Supply Scheme also supports KMSS & BMSS by supplying excess milk above their local requirement. Biratnagar Milk Supply Scheme manufactures skimmed milk powder from its excess milk and milk excess from other supply schemes. However, Sita Ram Gokul Milk doesnt collect excess raw milk than its market demand; in case milks are not totally sold in any particular day, returned milks are re-pasteurized and send it to market next day. They had introduced Milk holiday on certain days during the flush season to control excess milk supply. To mitigate this problem, in according with the Ten Year Dairy Development plan prepared with the assistance of Danish Government, project for establishing a Skimmed Milk Powder Plant was initiated in 2048(1991)at BMSS and is in operation since December 1994. Capacity of this powder plant is 3.0 MT. of powder per day. 14 | P a g e

2.7 Problem facing by these organizations

2.7.1. Problem faced by DDC 1. Political influence: Due to the instability of political situation in the nation, there is frequent change in management because of which decisions, future plans and polices changes every now and then hindering the flourishment of the organization. 2. Insufficient Budget: Lack of budget affects the replacement of old equipments with the new ones because of which the rate of productions gradually declines, and lower production means, company cannot live up to the demand for the products in the society. 3. Appointment process: The organization cant hire employee as they want, in order to appoint new employee lengthy process is to be followed which is time consuming and troublesome. 4. Lack of infrastructure: This is the measure hindrance faced by the organization. Due to lack of infrastructure DDC is not being able to reach every door steps in the nation and which directly affects its rate of revenue. 5. Pricing: Even when the production cost is high, company cannot make decision on its own to increase the price of the products, because of which company bare huge amount of loss. 2.7.2. Problem faced by Sita Ram Gokul Milk 1. Lower demand: Due to high competitive market, the demand for Sita Rams products is quite low as compared to that of DDC. 2. Labor union problem: Being the privately owned company, it faces the problem of labor strikes time and again, that directly affects the production, distribution, collection capacity. 15 | P a g e

3. Legal problem: Due to frequent changes in the rules and regulations, the management faces the problem in managing its resources efficiently and effectively. 4. Insufficient Budget: the replacement of old equipments with the new ones cannot be done due to insufficient budget because of which the rate of productions gradually declines and faces the problem of over demand. 5. Lack of infrastructure: Due to lack of infrastructure Sita Ram Gokul Milk is not being able to reach many places to collect raw milk which helps in manufacturing various milks products.

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CHAPTER III 3.1. Conclusion

As we can see in the above, DDC has the maximum influence over the market i.e. up to 60% where as Sita Ram Gokul Milk and other dairies have only 20%, 20% influence respectively. DDC is the first national dairy of Nepal that gave the farmers benefit of earning reasonable price for the milk they produced in their home. No matter how good products Sita Ram Gokul Milk launches, customers are always attracted towards the government owned DDC. Being government owned company, the farmers wont have to face the risk of certain alternation in the prices they receive for the milk produced. However, these reason does not stop the up rising popularity of Sita Ram Gokul Milk, among all the dairies present in the nation, it ranks in second after DDC. They can consistently increasing their production capacity, collection capacity and various new products. Sita Ram Gokul Milk is planning to launch new products like paneer, curd, etc in the near future. With such increase in pace of development, the day when they will make it to the top is not far. By observing, analysing, and studying above-mentioned all the factors we can conclude that this company is established by Kedia group as a social service organization, which later turned as business organization. They are helping four lakhs people of different districts like Nawalparasi, Rupendehi,Kavre, Chitwan, Nuwakot etc.

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3.2. Recommendation
DDC has the benefit of being a public owned company but due to rise in competition it can face hurdle any moments. It needs to maintain its quality, products type, quantity in order to prevail in the competition and be in first rank among competitors forever. It should introduce new products that would attract even new and more number of customers. DDC should make sure that it does not degrade its products and services. It can further introduce new schemes for farmers so that there would be increase in input of raw materials because raw milk is the only source for producing its products.

Whereas, Sita Ram Gokul Milk should search new markets and consumers for competitive advantage. The organization should also recruit more skilled manpower and should adapt new technology in order to meet the goal. It should further introduce new products so that it can live up to the expectations of its new customers and entertain new ones. With its strong manpower and other resources it will overcome the challenges and will set itself as one of the leading organization in the context of Nepalese economy.

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Bibliography
National Milk Marketing Strategy, Final Report, 2001, National Dairy Development Board, Kathmandu, Nepal

Dairy Development Corporation: Annual report, 2007/ 2008. Dairy Development Corporation, central office, lainchaur Kathmandu, Nepal.

Website: www.kediaorganization.com

Website: www.dairydev.com.np

Website: www.scribd.com

Website: www.ilri.org

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