The previously tax-exempt packaged milk is now taxed at 18 per cent, making it more costly than in France, Australia, Amsterdam or Paris. A Bloomberg article compares that in dollar terms, a litre of packaged milk costs $1.33 compared with $1.29 in Amsterdam, $1.23 in Paris, and $1.08 in Melbourne.

The recent hike in packaged milk prices in Pakistan has raised serious concerns about the nation’s already prevalent malnutrition issues. According to data presented at a meeting with Unicef representatives, malnutrition costs the country an estimated three per cent of GDP.

However, one could argue that higher prices impact a select few since packaged milk’s penetration in the country is abysmal. And therein lies the problem. Packaged milk penetration is around 3pc of the total milk available for consumption. However, the pie has grown with population growth and other factors, says Managing Director of Tetra Pak Pakistan Limited Awais Bin Nasim in an interview with Dawn.

Decades of negative perceptions

Tetra Pak, a leading player in the packaged milk market, holds a market share of approximately 72pc for packaged beverages and 75-80pc for packaged milk in Pakistan. But the needle has not moved in the last four decades, with the penetration rate stagnant at 3pc, acknowledges Mr Nasim.

With sales dropping 40pc since the implementation of new taxes, the organised dairy sector is in a dire state

The general perception in Pakistan is that companies put preservatives in milk, which is why milk lasts longer. This is simply not true, asserts Mr Nasim. Any living organism requires air and light — blocking these two elements prevents the growth of bacteria, which is the purpose of Tetra Pak’s six-layer packaging. Once the milk carton is opened, its life decreases to days. If it truly had preservatives, milk would last longer even after the carton was opened, Mr Nasim argues.

In most parts of the country, the milkman delivers milk at the doorstep at a rate of roughly Rs220-300 (in Karachi) compared to about Rs380 for packaged milk, while also extending credit. The convenience, price difference, and availability of credit for products considered close substitutes have made it difficult for packaged milk to make significant inroads in market share. Add to that the unfavourable perception of preservatives, packaged milk has had an upward battle, he laments.

Another aspect is the cultural cycle — growing up drinking loose milk has led sons and daughters to continue the practice as mothers and fathers.

Contaminated milk

In developed countries, loose milk is considered unsafe due to its high bacterial content. Studies have shown that up to 40pc of the bacteria entering households can come from loose milk, which is why many countries have banned its sale over the last century, says Mr Nasim.

In contrast, Pakistan continues to rely heavily on loose milk. Fresh milk is often harvested in unsanitary conditions and lacks proper cold storage and transportation facilities. “Milk needs to be stored at a minimum of four degrees. Otherwise, its bacterial growth multiplies rapidly, spoiling the milk,” he explains. Instead, dairy farmers perforce add ice to keep the milk cool, diluting it.

Total pore count (TPC) in milk refers to the number of microorganisms present in a millilitre of milk. It is a measure of the milk’s microbial quality and safety. A lower TPC indicates better hygiene and less contamination. The globally accepted limit for TPC in milk is typically around 10,000 bacteria per millilitre. This ensures that the milk is safe for consumption and has been handled and stored properly. In Pakistan, the number can go as high as 30 million, says Mr Nasim.

Wasted potential

Despite producing a substantial 70 billion litres of milk annually, Pakistan remains a net importer of dairy products. This paradox is largely due to an inefficient production and distribution systems leading to significant wastage.

Approximately 40bn litres of the total milk produced is consumed locally by farmers, used for making sweets and fed to calves. This leaves about 30bn litres for the commercial market. Roughly 20-25pc of the milk produced is wasted due to inadequate storage and transportation infrastructure.

Pakistan’s total import bill of fuel fluctuates around $10bn. We waste about 14bn litres of milk — at a price of $1 litre internationally; theoretically, if the milk wasted could be exported, the fuel bill could be offset, hypothesises Mr Nasim.

Pakistan’s milk yield is amongst the lowest in the world. Pakistan produces about five litres a day per animal, whereas elsewhere, it is over 35 litres per day, he explains. If we could double our yield, which would still be far lower than the world averages, we would “quite literally have rivers of milk in Pakistan”, he quips.

Pakistan’s yield is lower because of a lack of know-how. Initiatives like the Dairy Hub programme have demonstrated that by focusing on animal nutrition, water availability, and health monitoring, milk yield can be increased by up to 30pc within a year. Implementing these measures nationwide could result in an additional 20bn litres of milk production annually.

Middlemen’s windfall

The organised dairy sector is not against taxes, Mr Nasim clarifies, but the playing field is not level. As the price of packaged milk has risen, the price of raw milk has increased as well with the hike being pocketed by the middlemen — the arthis.

The middlemen are pocketing the price increase of Rs50-100 of raw milk, whereas the big packaged milk companies work directly with the farmers. When the price of packaged milk increases, the middlemen profit, whereas the farmers working in the organised sector lose out.

A possible exit?

The sales of packaged milk have dropped by 40pc as inflation and the additional 18pc of tax have made the dairy product untenable for many of its consumers. Many have shifted to hybrid use, opting for loose milk for tea and packaged milk for drinking.

If the tax remains in place for the next five years, the impact on the packaged milk sector will be ‘devastating,’ Mr Nasim says solemnly. The scale of operations of the packaged milk factories requires a minimum level of production and demand to remain sustainable. The facilities are fast approaching the level where it will not remain sustainable, he cautions.

Suggesting a way forward, Mr Nasim talks about implementing pasteurisation laws called Safe Milk Law. It requires that as soon as milk is harvested, it undergoes heat treatment and harmonisation before transportation to stop the growth of bacteria. However, the fragmented nature of the dairy sector and the limited resources of many farmers pose challenges to its widespread implementation.

Published in Dawn, The Business and Finance Weekly, September 2nd, 2024