Development Of Milk And Dairy Sector In Georgia Marketing Essay

Development Of Milk And Dairy Sector In Georgia Marketing Essay The purpose of the research was to identify the obstacle and barriers which discourage milk and dairy sector in Georgia. Through interviews with experienced people in this field and deep research, the main problems will be ascertained. First I define the current situation in Georgia including Georgian breeds of cows, organizations and projects involved in this sector and the opinion of experienced people about current situation. I gathered information from Danish, Swiss, Indian and American dairy sector reports, which gave the helped me to identify what necessary factors of successful milk sector lacks Georgia. At the end of the research implementation and best possible recommendations and will be offered. INTRODUCTION It has been a long time since milk became an everyday product for humans. Today milk is consumed by many people in their everyday lives and milk production is high in order to satisfy demand. Milk is high in nutritional value; it is a great source of essential Vitamins that are vital to the human organism. Many dairy products are made from milk such as butter, ice-cream, cheese, cottage cheese, flavored milk drinks, yogurt, and cream and so on. Georgia faces some problems with milk production. The local fresh milk is available only seasonally (from April till October), in Winter only imported powdered milk from Ukraine or Belarus is accessible. Another problem is degeneration of thoroughbred cows; they are mixed with local mongrel cows, which results in fewer productivity. Cows in Georgia usually produce two to three tones of milk in a year, comparison to European cows it is twice smaller number. Georgia has a great potential to flourish this sector, but it is not used properly. Some investment, regulatory rules and support from foreign organizations and Ministry of Agriculture is necessary to solve the obstacles and develop milk production sector in Georgia. Many organization are involved in expand the dairy sector and also couple of projects take place, in order give support to local milk producers. FROM FARM TO TABLE 1.1 Cows and lactation process Cows, our main source of milk, produce about four to seven tons of milk each year. The quantity of milk produced by a cow depends on its weight and its diet. Usually a cow weights from 380 to 720 kilograms and produces 12 times its weight of milk each year. A standard cow eats about 770 kilograms of grain, 1 200 kilograms of grass and hay, 2 800 kilograms of silage and drinks about eight gallons of water every day. Everyday a cow needs to eat more than 2 kilograms of hay and grain which contain essential minerals, vitamins and corn. In order to produce a high quantity of milk, a cow must drink water. Farmers use special milking machines twice in a day. It is necessary for every cow to get milked because once their udders are full they start to feel uncomfortable. Milk must be refrigerated after in order to keep it fresh. Milk producers keep milk refrigerated approximately one to two days after which it is loaded on trucks. Special trucks take it to the factory where it is processed. This is where milk is divided into cream and skim milk and is standardized by the fat content. Milk is delivered to the factory from different farms and thus levels of fat vary. The process of differentiating the milk by the amount of fat is called standardization. The level of fat determines the value of the milk and hence the salary of the farmer. In order to enhance the nutritional value of milk, factories add Vi tamin D and Vitamin A (good for strong teeth and bones). This process is called fortification. The next step is packaging and delivering the milk to stores, where it is also kept in the refrigerators to keep it fresh and cool. Then milk has to be pasteurized to kill and remove the harmful bacteria. This is done by heating it to more than 70 (Celsius) degrees and after 15 seconds suddenly cooling it to 2-3 Celsius, which is its normal storing temperature. After pasteurization and cooling, milk undergoes a process called homogenization, where milk is forced through tiny openings under high pressure. The homogenization process is necessary for breaking down the fatty drops of cream, so every globule of milk will have the same level of cream and the cream will not float on the top of the milk. This whole action from standardization to pasteurization is called processing. Milk producers usually test milk for its water level, fat content and the percentage of bacteria. Water usually is not added to milk. However, sometimes it happens that water from machinery is mixed in with milk by chance. The quality of milk is determined by processing and also on the food intake of the cow. The quantity, quality and flavor o f the milk depend on the food which is eaten by the cow. The main components of milk are 87% water, 4% lipid, 5% lactose (carbohydrate), 3.3% protein and 0.7% minerals. But these numbers can vary depending on the cow breed, its diet and the phase of lactation. Although levels of components vary in milks, different kinds of milk can be stored together in the same tanks. 1.2 Milk process model (Based on Cornell University model) 1.3 Condition of lactation Until lactation the farmer has to make sure that the udder, the flanks and the teats of the milk producing animal are clean. Her udder has to be washed and massaged with a warm detergent sanitizer solution. To decrease infectivity, the first flow of milk from each teat has to be separated from other streams of milk because this flow includes all the organisms that entered the teat while it was opening. It is dangerous, when the producing animal has an infected udder, it might hold numerous, potentially harmful, organisms. In such a case, it is likely, that there will be harmful diseases. One of the most hazardous diseases is called Mastitis, which can add numerous organisms in milk. Farmers have to pay careful attention that the cow is milked until the udder is empty because if some milk remains in the udder it will spoil. Milk usually spoils when microorganisms generate noxious and degraded proteins, fat of milk and carbohydrates. The farmer or the personal responsible for lactation of the milk producing animal has to be in good health condition. Hands have to be washed carefully with special bactericidal solution and the nails have to be kept away from dirt. They have to have a clean handkerchief, a surgical mask and wear neat and clean uniforms. Following protocol is obligatory in order to prevent milk from epidemics and harmful diseases, for the personal or the farmer may be carrier of such infections or diseases. The main milk viruses are brucellosis, tuberculosis and Q fever. However there are also other, infrequent, bacteria and diseases found in milk such as pneumonia, toxoplasmosis, streptococcal infections, and anthrax and so on. 1.4 Milk Powder Powder can be manufactured from milk which has much longer lifecycle than fresh milk does. The powder manufacturing process consists of subtracting water from milk at the lowest possible cost under strict hygiene settings. The 87 percent of water which milk contains is removed by boiling it at low temperature and keeping it under reduced pressure. Approximately thirteen kilograms of milk powder can be produced one hundred liters of milk. In order to liquidate milk, it must be mixed with water. Like normal milk, liquidated milk powder must be refrigerated in order to keep it fresh. One of the main reasons why powder is manufactured is the ease of bulk transportation. It is also cheaper than fresh milk. Fresh milk cannot be transported easily for long distances. For example, if in Georgia there is a shortage of milk; neighboring countries (Ukraine or Belarus) do not export fresh milk because it spoils easily during transportation. It is obvious for everyone, that fresh milk tastes bett er and is healthier than powdered milk. The level of fat in powdered milk is almost zero and it may not be fortified with Vitamin D and Vitamin A. GEORGIA 2.1 Current situation in Georgia In 1993, the population of the area presently under the control of the Georgian Government was some 4.8Â  million. In 2005, the number had decreased to less than 4.3Â  million, but the decrease in population has not affected the urban and rural areas equally. The decrease in the rural population was only some 100,000 people, 20% of the total decrease and less than half of what would have been expected. One of the reasons for this is that when the economy fell and jobs were lost, many Georgians returned to their original rural areas and engaged in agriculture as a survival strategy. Georgia is a mountainous country in which the development of livestock production started long ago. It has always been an important part of the agriculture sector and of the national economy in general. Farmers raised cattle, pigs and chicken in the lowlands, while in the highlands sheep farms were the major source of income for many households. The transition has significantly affected the livestock sector in Georgia. During the social unrest in 1992-93 the number of livestock sharply decreased. These numbers began to increase after 1995. Subsistence farmers diversify their production. They usually own milk producing cows, pigs and a few chickens. Milk, meat and eggs are produced for both home consumption and for sale. The daily cash income of rural households largely depends on the sale of livestock products, especially milk, cheese and meat. The interest of certain companies in the private sector in livestock production has increased over the past 15 years which has increased the use of feed crops in Georgia, especially maize and barley. A rapid increase in maize production following Georgias land privatization policies in the mid-1990s is a direct result of the private sectors interest in livestock. 2.2 Herds of cows in Georgia Most herds of cows in Georgia are a mixed breed in origin. There are a number of different breeds that are commonly identified. The major livestock breeds are: Caucasian mountain breed; Megrelain breed; Caucasian Brown breed, Russian Red breed, Black White Russian Friesian breed and Jercy breed. The Caucasian Mountain breed is predominantly found in North-East Georgia and is considered as a small breed. It weighs approximately 275 kg and produces low quantities of milk. This bread is used for mostly for meat production. The Megrelain breed, mostly found in the valley and mountains in the West Georgia, is also a small breed. However, these cows produce more milk than does the Caucasian mountain breed. It produces approximately 500 to 1 500 liters per lactation, depending on the supplementary food that is given to the producing animal. It has a reddish or brownish coat and weights about 300 kilograms. The Caucasian Brown breed produces significantly more milk than both the Megrelian b reed and the Caucasian Mountain breed. These cows are the offspring of Brown Swiss bulls with the local breeds. They weigh about 500 kilograms and produce from 2 500 to 3000 liters per lactation. The Caucasian Brown breed is a great milk and meat source. Currently most Caucasian brown breeds are producing offspring with local breeds and so, over time, if this trend continues the Caucasian Brown breed may no longer have its genetically superior qualities. Another large breed is the Russian Red breed which weights from 450 to 500 kilograms and can produce from 4 000 to 5000 liters of milk. However, similar to the Caucasian Brown breed, it is breeding with local bulls, which will cause the degradation of the original breed. The Black and White Russian Friesian breed, another large quantity milk source, produces 3 000 to 5 000 liters of milk per lactation. However, this breed is so small in number that it is in danger of becoming extinct. The Jercy breed is originally from Denmark and w as brought to Georgia by UMOCR and financed by USDA in 2002. They were sent to two locations; Sagarejo and Signagi. However, pregnant Jercy cows in Sagarejo had adaptation related problems and did not survive. In contrast, the Jercy cow breeds in Signagi have successfully adapted to their new environment and have increased in number since 2002. The Jercy breed is can produce more milk than local breeds can and its milk has higher levels of fat; approximately 4 to 5 percent. Georgian farmers stated that the average milk yield was around 1,200 kg per cow. However, statistical data in the country and by region and district indicates that the average milk yield varied around 1,000 kg. 2.3 Ascertaining the problems through interview #1 Zurab Tskitishvili, director of a milk production factory and a highly experienced man in this field, agreed to give an interview and share his opinion about the current situation in Georgia concerning milk production, issues regarding livestock, and certain unsolved problems. According to Mr.Tskitishvili Georgian livestock production is below its maximum potential capacity. He stated that, livestock producers lack incentives to produce for large markets because of the absence of reliable supply chains for their products. They predominantly continue to produce at near subsistence levels, with low productivity. At the same time, the larger scale Georgian manufacturers of livestock products are not purchasing the amount of raw materials from Georgian livestock farmers that they could be purchasing. He states that, they could tap into the growing urban markets if they decide to invest the time and money. They face formidable challenges and risks in the development of effective supply ch ains for livestock products. They also face challenges associated with high interest rates and aggressive international competition. Faced with these costs and uncertainties, processors have opted to satisfy most of their demand by importing milk powder. According to Mr.Tskitishvili the effect of these constraints is that the supply chain for the main livestock products is dysfunctional. For farmers, it means that their considerable capital asset in the form of livestock is performing far below its potential, leading directly to severe financial difficulties. Nevertheless, there is an opportunity to supply the urban markets with fresh Georgian-sourced products. Most manufacturers of dairy and meat products confirm that Georgian consumers show a distinct preference for such products, which can easily be sold to them when the necessary supply chains are established. The statistics on agriculture in Georgia are not very reliable since most production comes from farms that consume all or most what they produce. However, estimates show a cattle population of some 1.1 million heads, with slowly rising figures. Milk production reached 700,000 tons of milk in 2001, which is insufficient for the Georgian milk and dairy demand. Self-sufficiency is about 60-65% and the remaining milk products are imported. Average yields are not more than 1,000 1,300 kg/cow per year. These low yields are a result of the loss of the former markets, the undeveloped infrastructure and the lack of support services, such as veterinary services, advisory services, artificial insemination and inputs supply (quality seeds and fertilizers). Many farmers are stuck in a low input low-output trap and domestic production suffers from import competition. The decayed state of the irrigation and drainage systems is also a major constraint to increasing (crop) yields and the competitive ness of domestic production with imports. Moreover, a lack of monitoring of the food intake of cows is also a prevalent problem in Georgia. While Georgia is not a heavily polluted country, the garbage disposal system is poor in some areas. Therefore there is sometimes garbage lying around for cows to eat. Certain cow milk does not meet Georgias food safety and quality standards due to the diet of the cow. In order to increase good quality milk production, it is necessary to strictly monitor what cows are eating. If the government were to establish a good garbage disposal system in these regions then cows would only have access to healthy food Electricity is sometimes not available in certain regions, making it difficult to install milking equipment and cooling tanks in those areas. Fodder production and conservation is difficult because of the lack of farm machinery and good seeds. The lack of farm machinery increases dependence on desirable weather conditions which are beyond the control of cattle grazers and farmers. Concentrates are expensive in relation to the price of milk. Milk production is highly dependent on natural grazing, which combined with spring-calving, causes high seasonal fluctuations in milk production. This is again reflected in the price of milk, which varies from around 25 Tetri/kg (25 Tetri is equivalent to 10 Euro cents) in summer to 45 Tetri/kg in winter. Grain can be sold for 55-60 Tetri/kg in winter. The quantity of animal food products produced within Georgia does not meet the Georgian populations demand for these products. In 2005, (the latest statistical data available) the total milk production in Georgia was 788,000 tons or about 65% higher than 1995. During the same period, per capita milk consumption increased from 146 kg to 238 kg or a 63% increase, while imports increased from 228,000 tons to 268,000 tons or an increase of 12.6%. The majority of the increase in total milk consumption was covered by local production, thus reducing dependency on imports and increasing the self-sufficiency ratio from 68% in 1995 to 75% in 2005. The increase in total milk production was mainly due to an increased number of cows. The main reason for low productivity is the short lactation period (250 to 280 days) and the lack of quality winter feed. During the winter cows are generally not milked. They are mainly fed straw and in some cases with hay. Grass is cut late in the summer when it has already lost its nutritional value. The production of fodder crops is limited by the scarcity of the arable land and lack of irrigation. Milk production from cows can be greatly improved by better nutrition management and health control. 2.4 Ascertaining the management of cow feed through interview #2 After the interview, it became obvious that cow food intake is an unresolved problem. Ia Mirazanshvili, a representative of GRM international, discussed in an interview the details of managing cow feed. She works for GRM international, which is leading international development Management Company specializing in the provision of project design, management expertise and technical assistance to development projects for bilateral and multilateral funding agencies, governments and corporations. GRM international is starting a new project in Georgia which will be based on dairy sector development. Ia Mirazanshvili provided me with the current information and future development strategy regarding feed production. About twelve years ago 260,000ha were used for the production of 516,000 tons of cereals, which represented 36% of the local consumption. In 2005, the total land for cereal production increased to 355,000 ha or by 35.6 %, which resulted in the total production of 703,000 tons, cov ering 49% of the local consumption. One third of the total production, 332.000 tons, was used for feed and two thirds for direct consumption by population. According to statistics from the Office of the Ministry of Agriculture, since 2007 farmers interest in cereal production has significantly declined due to an unfavorable domestic price. In 2005/2006 production of maize amounted to 421,000 tons, half of which was used for animal feed. The self-sufficiency ratio in maize is between 97 percent and 100 percent. In the country, there is only one feed mill located in Marneuli, some 40 km south of Tbilisi. The mill is owned by the Dogan Company from Turkey. It has a capacity of 1 t/h of feed for fish and 5 t/h of feed for cattle. The information on the total volume of feed sold in one year is not available. The mill is not equipped with an analytical laboratory or quality control system. There are no tariff or non-tariff barriers for the importation of compound feed. The majority of sma ll to medium-sized farms do not use compound feed. However, in view of the expected increase in meat consumption (in 2005 per capita meat consumption was 32,5 kg compared with 29 kg in 1995, a 12% increase) and the necessary changes in pig production systems, Mrs. Mirazanshvili assumes that the demand for compound feed, particularly for monogastric animals would increase in the near future. As for the livestock sector, improvement of the local market for locally produced milk and dairy products, stabilization of prices close to their present levels and an increase in milk yields per cow could have a positive impact on demand for milk replacements for calves and on the consumption of compound feed for dairy cattle. Although there is a limited (niche) market for quality beef, it is difficult to assume that cereal based beef production will play an important role in the cattle sector of Georgia. The future development of the feed industry in the country will greatly depend on the level of self-sufficiency in cereals, and the world market prices of cereals and other imported components. It may be assumed that the consumption of cereals for feed production would increase parallel with an increased yield from cereals presently very low at 2.0 tons/ha to a higher level, which should be attainable in the local agro-climatic conditions and improved agronomy. 2.5 Organizations involved in improvements of Georgias milk sector From the interview with her it became obvious that this field is considered an important field by many Georgian and foreign organizations. GRM international along with NGOs and other prominent organizations are involved in the Georgian dairy industry. The Swedish International Development Agency (SIDA), through its implementing agency OPTO International, is managing the ongoing Support to the Milk and Dairy Sector in Georgia project. This project has developed three main components the mobilization and capacity building of small dairy farmers/householders and development of supply chains for milk and dairy products; the establishment of an industry association, the Dairy Industry Promotion Association (DIPA); and improved Food Safety information. The World Bank (WB) is currently preparing a Livestock Development Programme. The formulation report for this project has been presented and the project design is to be discussed in July. UMCOR has carried out agricultural projects in Georg ia since 1997. Although they are not engaged in any project currently, they are assessing potential projects in two regions; Shida Kartli and Samtskhe Javakheti. In both regions they are conducting soil tests and looking at farmer association opportunities. The Georgian Ministry of Agriculture and Food (MAF) imported 10,000 doses of semen from Worldwide Sires in the US (Brown Swiss, Jersey and Holstein), of which 3,000 doses, mainly Jersey, are left. MAF are in the process of importing 500 in-calf heifers (300 Brown Swiss and 200 Holstein). They are planning to distribute up to 30 animals to individual farmers (2,000 Euro per cow). GTZ have their Developing Agrarian Sector project, which has been operating for the past two years. This assists MAF in developing their Food Quality and Safety standards. They have two pilot regions: Samtskhe Javakheti for beef production and Shida Kartli for fruit production. In addition, GTZ ran the Business Development Programme in Borjomi a Regional Development Initiative project with US$ 3.5 million funding from BTC Partners (BP), which ended at the end of 2008. The project was established for a year and a half, concentrating increasing milk production from cows and honey production from bees. They have 1,300 farmers with 5,000 cows, all of which have been registered and ear-tagged. Animal health is a key component of the project; 30% of cow blood samples have been taken and tested. 2.5 SWOT analysis The genetic straits of milk producing cattle in Georgia are problematic in establishing a thriving dairy industry. In order to move one step forward, the genetics of cows in Georgia needs to be improved. Only certain types of cow breeds can produce desirable quantities of milk to fuel a large dairy industry. We can assume that genetic improvement should be an integral and essential element of a complete strategy and national program for dairy development. Perhaps the development of the cattle sub-sector in Georgia could be a part of the solution. Potentials and constraints are summarized in the SWOT analysis above. Defining breeding objectives (e.g. assessment of the market and the future demand for products, increased milk production, type of milk required, desired characteristics of cattle with regard to production systems and methods, etc) is the first step towards the treatment and development of the sub-sector. This should be done by farmers on local levels and coordinated at th e level of the state. SWOT Analysis of Current Production Systems Strengths a) High demand for milk and milk products: in 2005, the country imported 268,000 tons of milk (mainly milk powder) or 25% of the total milk consumption; b) Growing per capita consumption of milk: from 146 kg in 1995 to 238 kg in 2005; c) Nutritional habits of the population and a diet that includes daily consumption of cheese (particularly local types such as Sulguni and Imeruli) and fermented products; d) More than sufficient numbers of cows: in 2007, there were about 700.000 milking cows; e) 276,000 he of pasture land. Weaknesses a) Low productivity of cows about 1000 kg; b) Poor and inadequate nutrition, particularly during the winter; c) Short lactation period 250 to 280 days; d) Poor management of dairy cows and inadequate housing; e) Lack of sanitary control and inadequate veterinary support (TBC, brucellosis, mastitis); f) Difficult access to credit; g) Lack of extension service support; h) Poor rural roads and difficulties in sale of liquid milk to processors; i) Orientation of processors to use reconstituted milk for the production of fermented products. j) Lack of legislation and regulatory measures governing animal production and genetic improvement (food law, animal production laws and regulations). Opportunities a) Meeting the existing demand: local market can absorb 30 to 40 percent higher quantities of locally produced milk and milk products; b) Improved productivity, utilization and management of pastures and meadows (e.g. re-seeding, fertilization, mechanization, conservation of hay and grass silage); c) Increased production of food crops by rational utilization of land and water resources, including use of fallow and temporarily uncultivated land and rehabilitation of irrigation systems; d) Improved utilization of the existing genetic resources by better nutrition, housing, health care and management including separation of males from cows, use of healthy and licensed bulls for natural mating and use of locally produced and imported semen for selected best cows as potential bull mothers; e) Development of market and profit-oriented breeding objectives (e.g. increase in milk yield per cow, increase in slaughter weight of beef, decrease in the total number of cows) and of producer driven, owned and managed breeding programs aimed at genetic improvement through identification of animals, establishment of recording of productive and functional traits, genetic evaluation, use of the best local and imported bulls for natural mating and A.I. including the establishment of herd books of nucleus (elite) national herds of selected breeds and of the improved technical and business cooperation with European and world breed associations; f) Functional cooperatives and producers associations with their own extension and marketing services including milk collection centers established within the framework of development assistance projects with potential of spillover effects. g) Improved institutional framework (producers associations, commercial organization, extension, veterinary care, research) and human resources (training of farmers and technicians, international technical and commercial cooperation) in support of the attainment of policy, production and breeding objectives. h) Approval of legislative measures related to animal production, protection of consumers and safety of food; Threats a) Substantial decline in world prices of milk powder and butter; this may lead to an increase in import of skimmed milk for reconstitution and production of fermented products from imported material; b) Further decline in genetic potential and production capacity due to inbreeding and uncontrolled mating within herds and nahiri (group of animals from a village or from several owners grazing communal pastures); c) Further increase in number of cows with low genetic potential in reply to increased demand for milk and the lack of cows with higher genetic potential; d) Overgrazing of existing public pastures by an increased number of cattle; e) Outbreak of diseases and their spread throughout of the country due to inadequate control of movements of animals and the lack of existence of systems for identification and registration of animals and cattle keeping holdings. 2.6 Risk Analysis The Terms of Reference highlighted a number of risk factors that may affect the project accomplishment. An evaluation of these factors has been made during the Inception Phase with the following findings: Factor Risk Economic growth Economic crisis, low or negative growth Public finance Budget limits restricting Georgian partner responsibility Quality of public Corruption administration Agricultural development Policy mistakes, for example re-collectivization Dairy Sector Growth Stagnant raw milk supply; stagnant consumer demand Stalled reform of rich countries Continued export subsidies, low international powder agricultural and trade policies, prices especially as to expert subsidies Worsening of South Ossetian Refusal of Ossetian and Georgian work together security Conflict problems III. SOLUTIONS AND RECOMMENDATIONS In Georgia, 80% of milk is produced in the spring and summer, although demand for dairy products is greatest in the winter. Provided farmers can manage the additional husbandry, milking cows over winter is more profitable, as the winter price is usually twice or even three times that of the summer price. The SMDSP Project has been implementing a winter milk program including three activities. These include: planting of forage crops in each village, autumn calving, and special winter feed demonstrations, including trials and cost benefit analyses in concentrate usage and for the future silage maize. The lack of forage (hay and silage) is a major factor for promoting the seasonal calving during the spring. To extend the lactation period through year-round calving, the Project is promoting protection of forage crops through forage demonstrations in each Dairy Farmer Association (DFA). The planting and harvesting of forage crops is managed by the members of the DFA, who benefit from the output of the demonstrations. There is evi