To increase sales, cash-strapped DDC looks to private companies and the Chinese market

Following a dramatic decline in the demand for raw milk and dairy products in recent years, the cash-strapped state-owned Dairy Development Corporation (DDC) is under tremendous pressure to pay Rs580 million in debts owed to dairy farmers.

According to a recent statement by DDC, the biggest dairy company in Nepal, the dairy industry is experiencing its worst recession as a result of weak demand. For the previous two years, packaged raw milk, powdered milk, and ghee have been accumulating in its warehouses without being sold.

One factor contributing to the decreasing demand for dairy products has been identified as people’s declining earnings. Meanwhile, there appears to be an excess of milk due to the widespread smuggling of Indian dairy products into Nepal across the 1,800-kilometer porous border.

Achyut Wagle, an economic analyst, notes in his piece “White ‘flood’ on the streets” in the Post that the price differential between the two nearby marketplaces is a major factor in the “smuggling” of milk products from across the border. For instance, a liter of milk costs Rs130 in Nepal, but it currently costs INR62 (Rs100) in India’s neighboring state of Uttar Pradesh.

A profit of about INR20 per liter is an alluring margin that merchants can take advantage of by crossing the border a short distance.

To avoid milk shortages in the domestic market, the Nepali dairy sector unexpectedly asked the government to remove prohibitions on the import of skimmed or full cream milk powder in April of last year. Dairies blamed the decline in home milk production on factors including the COVID-19 pandemic and the occurrence of lumpy skin disease in cattle.

Both the pandemic and the lumpy skin disease had a significant impact on commercial animal husbandry, causing many farmers to abandon the industry after suffering significant losses.

In February, ten months later, there was an excess of milk. Dairy businesses found it difficult to sell their milk. The majority turned it into butter and powder, but there was no market for butter and powdered milk, therefore tons of the goods were left stacked in storage facilities.

The continuous economic downturn, according to both state-owned and commercial dairy enterprises, has reduced dairy consumption, halted cash flow, and raised farmer liabilities as unsold products languish.

Dairy farmers in Nepal began a statewide protest in February, which included a 10-day demonstration focused on Kathmandu, calling for dairy corporations, including the DDC, to pay them.

Summertime saw no improvement in the demand for dairy products either.

The DDC recently made the unexpected decision to sell 10,000 liters of milk per day to a private enterprise.

The DDC’s general manager, Surya Prasad Paudel, stated, “We are nearing the end of a contract with a private dairy that manufactures dog chew, commonly referred to as ‘chhurpi,’ to sell 10,000 liters per day.” “Dog chew is exported to the US market by the company.”

“It will be a major breakthrough for the DDC if everything goes according to plan.”

According to Paudel, “this will generate cash flow and partially solve the ongoing problem.”

Leading Nepali pet food exporter Manaram Group announced that, as part of a pilot experiment to evaluate the quality, it will begin purchasing 500 liters of whey—a liquid left over after milk has been curdled and strained—on Tuesday.

The founder of the Manaram Group, Rajendra Kumar Shrestha, stated, “We will purchase whey from DDC and manufacture dog chew that will be exported to the US market.”

We need 10,000 liters every day. We will purchase that quantity of high-quality whey if DDC consistently delivers it. However, the group declared that it would not purchase powdered skim milk.

Under the “Himalayan Dog Chew” brand, Manaram Group has been exporting 100 tonnes of dog chew to the US market each month. The chew is made at its Godak, Ilam, facility.

The team has been manufacturing dog chew at the Ilam plant and gathering 6,000 liters of milk from neighboring areas. “We also purchase dog chews from small local dairy farmers in the districts of Dhankuta, Sankhuwasabha, Ilam, Panchthar, and Taplejung because the milk collected is insufficient.”

According to Shrestha, there is a growing need for dog chewing in the United States. “To meet the demand, we require over 10,000 liters of milk every day.”

As more and more individuals own pets, there has been an increase in demand for dog chewing in international markets, especially in the US, Canada, and the UK.

Compared to the same period last fiscal year, the first four months of the current fiscal year, which ended in mid-November, saw a 17.6% increase in the shipping of dog chew from Nepal.

Data from the Trade and Export Promotion Center shows that during the review period, Nepal exported dog chew valued at Rs1.15 billion. Dog chew worth Rs1.02 billion, Rs77.29 million, and Rs19.57 million were exported from the US, Canada, and the UK, out of a total of Rs1.15 billion.

In the most recent fiscal year, which concluded in mid-July, the nation exported dog treats valued at Rs3.18 billion.

Industry insiders claim that as more people purchased pets during the COVID lockdowns, demand for dog chew increased significantly in the US and Canada.

According to officials, dealers are barely able to meet demand for the hard cheese manufactured from yak milk because American and Canadian dogs adore it.

Due to their 60% protein, calcium, and vitamin content, dog chews are popular. Yak and cow milk make up 99 percent of the dog’s chew. It is also prepared with other ingredients, such as salt and lime juice.

Since 90 percent of the nation’s dog chew production is exported, exports have increased by more than 240 percent in the last six years.

DDC stated that it plans to sell its butter in China as well.

“The paperwork to ship butter to Tibet has been sent by us. They may need some time to review the paper and get back to us. However, we have hope for this project,” Paudel stated. “As agreed upon, the company will export 30 tonnes of butter either weekly or monthly, contingent on demand.”

Through a Nepalese trading organization that has been exporting herbs and other goods, the DDC will ship butter to China.

In the current fiscal year, Nepal sent 22 tonnes of butter to India for a total value of Rs 7.20 million. In the same way, during the first four months of the current fiscal year, four tons of butter valued at Rs4.37 million were shipped to Japan.

As of currently, DDC owes dairy farmers Rs580 million.

On September 27, the DDC asked the government for a loan to compensate the farmers because sales did not increase over the summer when dairy products were most consumed.

The Public Debt Management Office then made a Rs600 million loan available.

Paudel stated, “We anticipate the dues to be settled by the middle of July.”

To purchase milk from farmers around the nation, the business has instituted a quota system.

Each month, DDC purchases milk from farmers valued at Rs 200 million.

“As the cost of collecting milk has increased, we have instituted a quota system for purchasing milk from dairy farmers in Dhangadhi and Nepalgunj under our Milk Supply Scheme project,” Paudel stated.

DDC claims to have 600 tons of butter and 500 tonnes of powdered milk on hand at the moment.