Innovative procurement practices help dairy sector in India


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Milk collection center - India. Photo: National Dairy Development Board

India is the world’s largest producer as well as consumer of milk and milk products. India nevertheless faces a shortage of milk and milk products due to increasing demand from the fast growing middle class in the country.

The National Dairy Plan Phase I (NDP-I), a Central Sector Scheme of the Government of India, which is supported by National Dairy Support Project (NDSP), aim to increase milk productivity and market access for milk producers, which are both necessary to meet the growing demand for milk. NDP-I is being implemented with a total investment of about US$350 Million, out of which the Bank has extended a Credit of US$219 Million through the NDSP.

The National Dairy Development Board (NDDB) is the main implementing agency for the NDP-I. At the decentralized level, NDP-I is being implemented by about 150 end‐implementing agencies (EIAs) scattered over the country. 

The Project involves some innovative procurement practices and improvements in upstream milk supply chain, which are described below:

Supply chain strengthening for village-based milk procurement:

There are currently about 15 million milk producers in India, who are members of about 150,000 village dairy cooperatives. As milk is a highly perishable item, any weakness in the upstream supply chain may result in milk spoilage before reaching the processing plants.

Challenges include:

  • detecting possible adulteration
  • determining milk purchase price  for each of the milk producers at the purchasing point in real time
  • ensuring milk producers maintain hygiene while bringing milk to collection centers.

To address the above challenges, the NDSP financed EIAs’ purchase and installation of bulk milk chillers (BMC) at village milk collection points, which generate savings in transportation, operations, handling and processing costs. For streamlining milk collection and testing for quality of the milk supplied, EIAs also purchased standardized Automated Milk Collection Units (AMCU) and Data Processor-based Milk Collection Units (DPMCU) at collection centers along with associated IT systems. Adulteration testing kits were also supplied. These EIAs also procured Milk Cans and provided them to producers to ensure hygiene while bringing milk to collection centers. As on date about US$50 Million have been committed for strengthening of the upstream supply chain. Village-level infrastructure for milk collection and bulking has also helped in faster release of payment to milk producers.

The NDSP also encouraged formation of new village-level cooperatives to bring new producers to supply the milk. Since the mid-point of the project’s implementation period, 23,487 villages have been covered and 660,935 additional milk producers have organized. Upon completion of the NDSP, this component is likely to result in incremental annual financial gains of US$38 Million.     

Framework Agreements for Decentralized Procurement of equipment:

About 150 EIAs across the 18 participating states of India require some standard items repeatedly (for example, Bulk Milk Cooling Unit). Because of this and the varying capacity among the EIAs, NDDB proposed the use of Framework Agreements (FA) for such items. In NDSP, FA were centrally set-up by NDDB but are being operated by EIAs, who issue purchase orders and release payments.
As the EIAs had never used FA in the past, a series of training workshops were organized for them. Time taken in placing purchase orders under FA is 18‐25 days (in comparison to National Competitive Bidding or NCB, which is around 120 days and shopping which is around 30‐45 days). It was also noted that on average 4.9 Proposals have been received for FA, which is higher than average for NCB in most Bank-financed projects. Use of FA has not only resulted in accelerating procurement process but also in monetary saving up to 15% in many cases.

Procurement oversight and quality assurance:

In regards to decentralized procurement of equipment oversight under the NDSP, the NDDB hired the services of a reputable inspection agency for quality checking of items procured by EIAs under FA arrangements. To minimize the scope for any deficiency in quality of items supplied, a Quality Assurance Plan (QAP) was developed for each item, and inspections started right from the manufacturing stage of equipment. Apart from detection and rectification of defects in items by the supplier, these proactive measures resulted in cancellation of FA of some suppliers, who were unable to adhere to required quality standards. Third party QA for civil works was also arranged. Monitoring integrity of the procurement process at this level was handled by a NDDB-hired professional. These findings were used by NDDB to design capacity building program for EIAs.

A web-based Procurement management information system (MIS) was developed to help NDDB monitor utilization of FA set-up by it as well as overall progress on decentralized procurement. The MIS also helped EIAs in sharing data among each other.

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#India faces dairy shortages due to demand from a growing middle class. 

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Shanker Lal

Lead Procurement Specialist

Join the Conversation

Mike Syner
May 04, 2016

I love to read articles likes this. I hope this will help the dairy sector in India.

S Sarkar
May 05, 2016

Great achievement by NDDB, which they done again like "Operation Flood" programme that transformed India from a milk-deficient nation into the world's largest milk producer.

Rehan Hyder
May 05, 2016

I think this is almost a plug n play project that can be implemented in Pakistan as well. The FA approach used under National Dairy Support Project (NDSP)has been a great help in designing similar arrangements for three concurrent projects

Jesus Humberto González
June 28, 2016

Me interesan mucho lo procesos de innovación social exitosas que puedan ser replicadas en los sectores pobre de México y de América Latina

joseph shine
May 05, 2016

very informative article on the challenges in the dairy sector and how innovative procurement can lead to greater efficiencies and savings.Will be interesting to know how milk pricing is determined.
Do all the FW holders provide the same rates. If not, it will be interesting to know whether a mini-competition is held between FW holders or do the implementing agencies have the option of approaching any one of the FW holders.

S Sarkar
May 05, 2016

Great achievement by NDDB, which they done again like "Operation Flood" programme.

Vinod Ladhani
May 05, 2016

Informative article.

May 05, 2016

Great piece of article. I particularly liked the application of concept of upstream supply chain for highly perishable goods.

S v madan mohan
May 05, 2016

Framework agreement s are effective in decentralised procurements. In my Organisation we had used it reasonable success for fast moving spare parts and cosumables

Richard Olowo
May 05, 2016

Great example of 'fit-for-purpose' project procurement strategy. Congratulations.
This is a good mix of centralized (FA) and decentralized procurement (Purchase Orders) by EIAs.
More details of the FA would be interesting in this blog. It may be possible to have even more efficiency gains within the FA process

Rehan Hyder
May 06, 2016

'Chief' forgot to thank you as well for the support I received for developing FAs. Thanks Richard n Shanker

May 05, 2016

Thank you for posting interesting Blog on how to use Framework contract in decentralised procurement environment.
The EIAs may not have adequate capacity for drafting specifications for equipment like bulk milk cooling unit. As mentioned in the Blog, the aggregation of requirement certainly helped the project to achieve price reduction based on the economy of scale /volume discount. The Framework contracts helped EIAs to procure their requirement with ease and also helped EIAs to achieve savings in terms of procurement cost, time and efforts.
The same/similar equipment installed at the field helps EIAs in operational / annual maintenance. The approach met the basic tenets of procurement and value for money.
Renewed Thanks and regards,

Fred Rabello
May 05, 2016

Very good approach. Gongrats! An example of holistic intervention, which express our governance knowledge and leadership.

B. Dutta Biswas
May 06, 2016

I love to read great piece of articles likes this. Thank you for posting such nice interesting Blog.

Satya Panda
May 06, 2016

Great achievement by NDDB. It displays the real professionalism on the part of NDDB for successful implementation of FA method of procurement. This is worth replicating in other projects, where there is multiple implementing agencies doing repetitive procurement of same products.

Y M Patel
May 09, 2016

In addition to the cost reduction, FA systems also helped to bring transparency in procurement, quality products and later stage would easy for maintenance of similar types of equipment & machineries.

Geeta Shivdasani
May 09, 2016

Innovative procurement practices in the Dairy Sector has boosted the rural economy and has also proved to be a tool for empowering women, as a majority of stakeholders at the grass root level are women. It has resulted in a fair, transparent and quality based milk procurement system operating with greater efficiency, with greater access to the organized milk processing sector and value for money procurement ! Such innovative procurement practices will ultimately result in creating a modern and sustainable Dairy Sector, contributing to India's food security, supporting sustainable rural development and meeting the present and future consumer demand for dairy products in India ! Congratulations on bringing about this innovation in collaboration with NDDB !

krishan chand
June 24, 2016

innovative procurement practices in the dairy sector our society wants one hundred self help groups/joint libility groups in ambala haryana india they demanded such innovative procurement practices will ultimately resulet in creating a modren and sustainable dairy sector contributing to india s food security supporting sustainable rural development and meeting the present and future consumer demand for for dairy product in india i congratulations on bringing about this innovation collaboration with nddb

Kuruppachatil Varkey Peter
June 24, 2016

The success story behind NDDB revolves around policy initiative,technology,dairy farmers co-operative and above all commitment of Padma Bhushan Late Dr Varghese Kurian.Political leadership of Late Lal Bahadur Sasthri and Late Indira Gandhi supported Dr Kurian.Involvement of Indian bureaucracy was kept at distance.Dairy farmers decided the price of their produces.Buffallo milk powder was made for the first time in India."Amul" became a household name.No milk powder was imported.

Dr Mrs Sushma Joiya Pandit
June 30, 2016

,,,,,,Integrated Congress of Women Entrepreneurs is a National TRUST intending to bring White Revolution in India. We are educating the villagers to make up their minds for setting up at least one Milk nDairy
In spite of having all necessary documents the Nationalized Banks are not at all cooperating with the prospective Dairy Entrepreneurs with the result the ladies are discouraged We request NDDB to generate a pool of financing the village ladies foe setting up Dairies or Nabard be told to liberalize in granting the loan to rural ladies for making them eligible of having at least 20 Cattle.

Bharat Satpathy
November 01, 2016

To read above article, we all know that if we want to see a developed country, than Thurston on village development. Every village must have latest dairy with good quality of cows and buffalo. Village must generate revenue so that Villagers will not move to urban

Modern Dairy Machines
November 14, 2018

A greater diligence to know about the procurement practices in the dairy practices, outsourcing not only the village based practices, but also an insight to the quality assurance. Astonished with reading! Keep up.