Report on Dairy MILK Operation

MILKO – Drink well Live well

Report on

MINI DAIRY Milk Pasteurizing Unit

Submitted To

Mr. Muhammad Afaq Mazhar Submitted By

Muhammad Adnan Faisal Muhammad Ibrahim Syed Imran Hussain Anjum Siddiqui Mirza Ali

Date of Submission November 20, 2010

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ACKNOWLEDGEMENT Report of this nature requires a great deal of effort. We owe a debt of gratitude to those people who aided us in the compilation of this report. Firstly, we thank Almighty Allah for giving us the strength to compile this report. We specially express our gratitude to our course facilitator Mr. Muhammad Afaq Mazhar for giving us the opportunity and confidence to prepare such kind of report. Without his support, valuable information and continuous guidance and direction, compilation of this report would not have been possible. The preparation of this report has been most informational and rewarding, it truly helped us to know and realize the magnitude and importance of operations functions.

Sincerely, Muhammad Adnan Faisal Muhammad Ibrahim Syed Imran Hussain Anjum Siddiqui Mirza Ali

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EXECUTIVE SUMMARY ……………………………………………………….………….. 4 INTRODUCTION ……………………………………………………………………………. 5 PROJECT BRIEF ………………………………………………….…………………….….. 12 VISION STATEMENT …………………………………………….………………….…….. 14 MISSION STATEMENT……………………………………………………………………... 15 DESIGN OF GOODS ……………………………………………………………………….. 16 MANAGING QUALITY …………………………….……………………………………….. 18 PROCESS STRATEGY ……………………………………………………….……………. 21 LOCATION STRATEGY ……………………………………………….…………………… 25 LAYOUT STRATEGY ………………………………………………….…………………… 26 HR STRATEGY ………………………………………………………………….………….. 27 SUPPLY CHAIN …………………………………………………………………….………. 28 PROJECT ECONOMICS …………………………………………………………………… 30 REFERENCES …….…………………………….…………………………………………... 31

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Executive Summary Our group has chosen to work on Mini Dairy Pasteurizing Unit which is most important category as Milk is the very basic need of daily life. We have studied and plan the entire business operations and make a comprehensive report on starting a business on Mini Dairy Pasteurizing Unit. Pakistan is an agriculture country and our basic source of earning is agriculture food. Pakistan is the fourth largest producer of milk in the world with an average of 34 billion litres of milk produced according to various estimates in year 2009 but there still is a large room for improvement which can be seen by a comparison with the US and other countries. The livestock and agriculture market is untapped and is expected to grow an additional 3 billion litres in the next few years at a growth rate faster than most sectors and 30 percent by 2015. The company is planned to establish a unit in sub-urban areas of any major city and we have chosen surrounding areas of Karachi such as Port Qasim / Landhi as it will fulfill our basic requirement of set up a dairy plant such as Road, Electricity, Water, Gas, Telephone etc and would be very feasible to collect the Raw Milk in near sub-urban areas i.e. Bhens Colony and other rural areas through Indus High way. Milko is the brand name of our product and it will be packed in 250ml, 500ml and 1000ml as per current need of the customers. It would be packaged Long Shelf Life Milk with the process of Ultra High Temperature (UHT) which can give expiry life near about six (06) months. This project will cost us around 27.5 million and 50% will be Debt from bank. Machinery will be imported from India as it has the most advanced technology in dairy sector through their representative office in Karachi – Pakistan. As per our expectation Pay back period is near about 2.77 years.

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1. Introduction Milk is considered as one of the most nutritionally complete, natural liquid food. It is rich in high quality protein, essential minerals, and vitamins that are beneficial for human health. Along with all these essential nutrients, milk also contains a number of microorganisms. Most of these bacteria, present in milk are generally harmless. In fact, some of them are beneficial for us in some way or the other. But several factors such as the health of the animal, improper handling, pollutants from air and water etc. can contaminate raw milk and make it potentially dangerous. Milk is a valuable nutritious food that, if untreated, will spoil within a few days. However, there are a number of preservation techniques that can be used at a small scale to extend its shelf life by several days, weeks or months. Some of these processing methods also produce foods that have different flavors and textures, which can increase the value of the milk when these products are sold. This Technical Brief gives an overview of the types of dairy processing that are possible at a small scale of operation

1.1 Milk Economy Overview Pakistan is the world’s fourth largest milk producer with an annual milk production of 34 billion liters. The milk economy contributes an estimated 11 percent to Pakistan’s GDP but most of it, around 97per cent, is informal. There has been a long awaited need for initiating mega projects to bridge these gaps and to convert the 97% informal economy into an organized one with a formal workforce.

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Following are the figures of Pakistan milk producing capacity & its usage extracted from the Tetra Pack’s site.

The annual milk production of 33.6 billion liters in Pakistan is shared between a 71% share for the rural economy and a much smaller urban share of 29%. Only 4% of the total production of milk is processed and marketed through formal channels. For the other 96%, a multi-layered distribution system of middlemen has evolved to supply milk.

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Despite only a small percentage (4%) of milk being processed, the (UHT) market is growing at a steady rate of 20% a year. •

Only 0.52 Billion liters UHT and 0.05 Billion liters pasteurized milk is available in the country.

•

In urban areas 4.7 Billion liters milk is provide by Gawalas.

•

1.27 Billion liters processed milk is sold by the milk shops.

There is a potential of about 5.5 billion liters of milk sold in the urban areas, because in urban areas people are more health and quality conscious and secondly the income level of urban population is also good so this segment has potential for UHT and Pasteurized milk.

1.2 Methods of Milk Processing There are four main methods used to process milk that are suitable for small-scale operation:

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•

Cooling fresh milk to extend the shelf life by a day or two, or freezing it (also making ice cream).

•

Heating milk to destroy both contaminating micro-organisms and naturally occurring enzymes that change the flavour of milk.

•

Making the milk acidic to slow down or prevent the growth of spoilage bacteria or food poisoning bacteria (this also changes the milk to a curd).

•

Reducing the amount of water in milk products to slow down or prevent the growth of bacteria. This may be combined with adding sugar (to make milk confectionery) or salt (in cheese or butter production), both of which also prevent bacteria from growing.

1.2.1 Cooling Cooling does not destroy bacteria or enzymes but it slows down their activity. Cooled raw milk keeps its quality for a few days before it is processed. Milk products such as yoghurt, cheese, butter and pasteurized milk are also cooled to ensure they have the required shelf life for distribution to shops and retail storage. At the smallest (micro-) scale of operation, a refrigerator set at 4-5oC can be used to cool milk, but most dairy processors use a milk cooler (Figure 3) or cold store to cool milk in bulk before it is processed. Finished products should be stored in a separate dispatch store at 4oC +/- 2oC, or for frozen milk and ice cream, frozen in a freezer operating at below -18oC.

1.2.2 Heating There are regulations in most countries that specify the time and temperature that milk should be heated to pasteurize it. Most specify that milk should be heated to 63oC for 30 minutes higher temperatures and shorter times are used in larger commercial operations but the equipment needed to do this is more expensive.

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1.2.3 Acidifying Acid is produced in milk by the growth of certain types of harmless bacteria called 'lactic acid bacteria'. They are normally present in milk and are also used as starter cultures in the production of yoghurt (Technical Brief: Soured milk and yoghurt). Lactic acid bacteria convert milk sugar (lactose) into lactic acid, which increases the acidity of the milk and prevents the growth of harmful bacteria. The removal of lactose means that these products can be eaten by people who suffer from lactose intolerance. The acid also creates the characteristic curd of yoghurt. The shelf life is extended by several days and the changes in flavour and texture make this a popular product in most regions.

1.2.3 Removing water Separating milk fat from the watery part of milk produces cream. This can be made as a product for sale, but care is needed because there is a greater risk of cream causing food poisoning. Production of cream is not recommended except by the most experienced smallscale dairies. However, cream is also used to make butter and ghee which have lower moisture contents and are much safer. When butter is prepared and stored correctly, it can have a shelf life of several months. Clarified butter (ghee) also has a shelf life of several months. Both are high-value products and have a good market in most countries. In cheese-making, a curd is produced and the watery part of milk is separated as ‘whey’. ‘Cottage’ cheese or simple curd cheeses are relatively easy to make at a small scale, but hard cheeses require greater levels of investment, and more skill and expertise. It is recommended that market research is undertaken to find which types of cheese are popular before contemplating production, because in some areas the demand for hard cheese is small. Training in production should then be obtained from an experienced cheese-maker. Another process is boiling milk to evaporate water and produce a brownish gel that is eaten as a snack food or sweet. The product has a shelf life of a few weeks and may have ingredients such as sugar, colour, spices, fruits or nuts added to give a variety of products

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1.3 Processed Milk Industry The processors remain a key driver of the dairy industry with constant reinvestments and diversification of product portfolio. The processors have a small share of 3-4% of the total produced milk, whereas they invest the most and pay the highest taxes. The eight major dairies of the country include Nestlé, Engro, Nirala, Halla, Noon, Milac, Dairy Bell, Dairy Crest and Premier, while other smaller ones have also emerged. Nestle is the biggest processing industry of the sector, collecting over 1000 tons of milk daily. Similarly Haleeb, Noon Dairy, HALLA (Idare-e- Kisan), Dairy Crest, Nirala Dairy and Premier Dairies are continuously investing to upgrade their plants. The majority of Pakistani consumers continue to use loose milk. However, in urban areas the trend is reversing and processed milk consumption is growing more than 20% per year. Of the different types of processed liquid milk, UHT milk packs are by far the most popular products In 2007, dairy producers in Pakistan realized that consumers were buying small packages (250ml) of plain white milk for use as creamer in the country’s most popular beverage: tea. Consumers preferred the richer taste of tea made with UHT milk, and smaller packages were more affordable. So producers began developing and marketing special tea creamer recipes in 200ml packages. In addition to improving the taste profile of tea, the new size also made tea creamer more affordable than plain white milk. Today, a tea creamer represents more than 25% of the LDP market which will achieve a CAGR of 28% from 2009 to 2012, according to Tetra Pak.

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.

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2. Project Brief Mini Dairy – Milk Pasteurizing Unit Mini dairy is a small scale-milk-processing unit where milk is pasteurized and packed into aseptic carton boxes. Mini dairy is an economically a viable and financially a profitable project.

2.1 Project Cost Total project cost of this Milk Pasteurizing Unit is Rs. 27.411 million. Out of this, capital cost of the project is Rs. 27.21 million, and the rest is the working capital.

2.2

Pasteurization

Pasteurization is the process of heating the milk up to 70ºC for a certain period of time and then cooling it to 4ºC. The heat treatment must guarantee the destruction of unwanted pathogenic microorganisms and should not affect the taste & nutritional value of the milk. The commercial significance of pasteurizing milk is to increase the shelf life of the milk. For pasteurized milk, a standard formula of 3.5% fat contents and 9.5% SNF (solids not fat) have to be maintained according to law. The fresh milk has 4 to 6% fats. The extra fat contents are removed through cream separator during milk processing. After cream separation, some milk powder is mixed and homogenized to make standardized milk of 3.5% fat and 9.5% SNF. This extra milk cream is sold to the sweet makers fetching higher prices.

2.3 Forms of Pasteurization There are two forms of pasteurization. •

HTST &

•

UHT

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The first, most common form of milk pasteurization is HTST, which stands for High Temperature Short Time. This process involves heating milk to 72-75 degrees Celsius with a holding time of 15-20 seconds before it is cooled. Along with correct cooling, pasteurisation will supply milk with longer shelf life. With proper chilled distribution, pasteurised milk has a shelf life of 5-15 days.

The second form of milk pasteurization is UHT, which stands for Ultra High Temperature. UHT (ultra-heat treated) is to kill all the microorganism in the milk at a temperature as high as 135 to 152 centigrade in order to give the milk a longer shelf life.

2.4 Proposed Milk Processing Capacity Mini dairy unit with 2000 liters milk intake capacity per hour is an economical size for starting a milk processing business. However, due to the time required in installation and running of the unit, it is expected that the plant would achieve 100% efficiency in sixth year of operations.

2.5 Final Product Packaged UHT pasteurized milk which has a longer shelf life.

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VISION Statement

“To become the best household care company that serve the needs of the markets we serve and meets customers satisfaction“

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MISSION Statement

To be the best Packaged Milk Company by focusing on quality, consumer needs and marketing excellence, while showing care towards employees & being fair to all stake holders.

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3. Design of Goods UHT Pasteurized milk is a marketable product and its demand is increasing with the increase in awareness among the consumers. Following are the reasons for increasing the demand of processed milk: •

Mass sale of adulterated milk by Milkmen is letting the urban low-income segment to shift from home delivered adulterated milk to self-purchased pasteurized milk from branded companies.

•

People are getting more quality and health conscious & they prefer branded food items for both quality & status reasons

•

The way milk is treated at the retail shops, people are attracting towards processed milk

•

Influence of media due to which people are moving towards packaged milk

3.1 Product or Brand Name Our product name is MILKO which is a pure, safe & fresh milk for all purposes. It is pure in terms of essential ingredients, safe from the harmful bacteria and fresh because it is a healthy and nutritious drink. Reason for choosing MILKO as a brand name is that our milk could be use for all purposes and letter “O” mentioned in the name represent “all purposes”. Our moto is “Drink well Live well”

3.2 Product Mix The product mix consists of Packaged Milk of 1 liter, 0.5 liter & 250 ml in the following ratio. Product

% of Production

1000 ml 500 ml 250 ml

30% 30% 40%

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3.3

Packaging and Pricing

Initially we will launch our product in three most required packs i.e. 250m, 500ml, and 1000ml and further we can launch 2000ml economy pack as per need of our customers. Our pricing strategy is on going pricing strategy. Here i: • • •

250ml Rs.20/500ml Rs.37/1000ml Rs.70/-

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4. Managing Quality As we mentioned in our Vision statement, we serve and meet customer satisfaction which surely impossible without focusing on Quality that’s why we have highlighted our Mission statement that our focus in quality and consumer needs. We will briefly describe how we will ensure the quality in our product.

4.1 Spoilage, food poisoning and preservation Milk is not only nutritious for people, but also for bacteria. Because milk is a low-acid food, bacteria are able to grow in it and contaminate any products that are made from it. If milk is not properly processed or if it is contaminated after processing, bacteria can change the flavor, texture or color of dairy products, to spoil them and make them unacceptable for sale. Other dangerous bacteria can grow in milk and cause food poisoning. Illnesses such as tuberculosis, brucellosis and typhoid fever can also result from using poor quality milk or milk that is not properly processed. All types of dairy processing therefore need careful control over the processing conditions and good hygiene precautions to make sure that products are both safe to eat and have the required shelf life. Processors must pay strict attention to hygiene and sanitation rules throughout the process, from milking the animal to final sale of products. These are described below and also in Technical Brief: Hygiene and safety rules in food processing.

4.2 Dairy building and facilities It is important that a suitable room is set aside as a dairy and it is only used for processing. The size of the room depends on the amount of milk being processed, but typically a small-scale unit that processes 100-500 litres per day requires an area of approximately 50m2. The room should be hygienically designed and easily cleaned to prevent contamination of products by insects, birds, rodents or micro-organisms. A panelled ceiling should be fitted rather than exposed roof beams, which would allow dust to accumulate that might Institute of Business & Technology (BIZTEK)

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contaminate products. There should be no holes in the ceiling or roof, and no gaps where the roof joins the walls, which would allow birds and insects to enter.

4.3 Equipment All dairy equipment should be designed and constructed so that it can be easily dismantled for cleaning (e.g. there should be no blank ends to pipework that would harbour stagnant milk). Mixing bowls, boiling pans etc. should have a smooth internal surface without corners, and all welds should be ground to a smooth finish. Ideally, all dairy equipment should be made from stainless steel, but alternatives include polished aluminium, or food grade plastic for containers and equipment that are not heated. Mild steel cannot be used because it will rust and contaminate products, and brass, iron or copper cannot be used because they promote rancidity in milk fats. The layout of equipment within the room (Figure1) should allow food to move between different stages in a process without the paths crossing. This reduces the risk of contaminating finished products with raw milk. There should also be sufficient room behind equipment for cleaning.

4.4 Cleaning and sanitation Good sanitation is essential in all dairy processing. Equipment should be thoroughly cleaned after each day’s production, using a cleaning schedule that indicates which equipment is to be cleaned, who is responsible for cleaning it, how it should be cleaned, how frequently it is done, and who is responsible for checking that cleaning has been done properly. All equipment should be washed with hot water and a cleaning agent that is recommended for use with dairy products, and then rinsed with chlorinated water. Equipment and surfaces should be allowed to dry in the air, because wiping with cloths can re-contaminate them. If they are available, brushes with colored bristles are preferred because the colored material can be seen easily if they are lost in machinery or in the product. At the end of a working day, a slight ‘chlorine’ odor in the processing room indicates that it has been properly cleaned. Institute of Business & Technology (BIZTEK)

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Dairy processing creates large volumes of liquid effluents that contain milk fat, lactose and protein, and this is highly polluting. Some wastes (e.g. whey from cheese-making) should be used as animal feed or to make drinks or whey cheese, rather than being discarded down the drain. Local regulations may require special treatment of dairy effluents and producers should consult local authorities to plan proper effluent disposal. If mains drainage is not available, at small scales of production a soak-away should be constructed in a place that cannot contaminate drinking water supplies or pollute local streams or lakes.

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5. Process Strategy As we know a process strategy is an organization’s approach to transform resources into goods and to find out a way to produce goods that meet customer requirement and product specifications within cost. It also has long term effect on efficiency and production as well as flexibility, cost and quality of goods produced. We have decided to adopt Product Focused Strategy in which all operations will be proceeding one by one. It is also called Line Flow Production or Continuous production. In this strategy facilities are organized by product which is give smooth operation flow.

5.1 Process In a Pasteurizing unit we have set of procedures for processing of Milk which will give desire output.

5.1.1 Milk Reception Milk will be received through any contractor / agent or directly milk form houses will be immediately forwarded to cold storage house for storing. As per routine procedure Laboratory technician will test and measure this milk for quality assurance purpose. If it would be appropriate for human health it will be stored for further process otherwise it will be rejected and return to form house or destroyed as agreed.

5.1.2 Standardization Standardization is defined as the industrial adjustment of milk or cream fat content to a precisely specified or desired value. It is of key importance for our industry (dairy) which faces the challenge of transforming a gift of nature into standardized serial products for daily consumption.

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In general, the fat content of raw milk is higher than the fat content of the various dairy products to be manufactured. The standardized fat content of these products usually ranges between a minimum of 0.5 and a maximum of 3.5 percent.

5.1.3 Homogenization Since milk is an oil and water combination, it doesn’t stay mixed. Homogenized milk is run through tiny tubes, sometimes during the pasteurization process to keep fat and liquid molecules together. Fat molecules are reduced in size and tend to disperse more evenly throughout the milk so that creaming on the top of milk doesn’t occur. You can also use the homogenization process to reduce overall milkfat in milk. 2% milk is stripped of some of the fat molecules to produce lower fat milk.

5.1.4 Pasteurization / Sterilization Pasteurization is used to kill harmful microorganisms by heating the milk for a short time and then cooling it for storage and transportation. Pasteurized milk still is perishable, however, and must be stored cold by both suppliers and consumers. Milk can be made commercially sterile by subjecting it to temperatures in excess of 100° C, and packaging it in air-tight containers. The milk may be packaged either before or after sterilization. The basis of UHT, or ultra-high temperature, is the sterilization of food before packaging, then filling into pre-sterilized containers in a sterile atmosphere. Milk that is processed in this way using temperatures exceeding 135° C, permits a decrease in the necessary holding time (to 2-5 s) enabling a continuous flow operation.

5.1.5 Storage & Distribution Sterilized / Pasteurized milk will be packed in Tetra Pak packaging which will give extended shelf life. As per our country’s weather it is recommended to store it in cool environment. From our cold store it will be distributed to our distributors / wholesalers for consumers.

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Process Flow

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5.2 Plant and Machinery In a pasteurization unit, the major cost of equipment is Mini Dairy Plant which is the combination of pasteurization plant, boiler, chiller, cream separator, thermostatic tank etc, which can be purchased from any growing country such as India, China, UK, Australia as they have a advanced in agriculture and food technology. We have decided to deal as follow: For Plant: SSP PVTLIMITED Registered & Corporate Office 13, Milestone, Mathura Road Faridabad, Haryana – India Tel: +(91)(129)4183700

Representative Office 921 – 924, Trade Tower Near Service Mess Main Abdullah Haroon Road Karachi – Pakistan Tel: +(92)(213)5651282/83

For Packaging: Tetra Pak Pakistan Ltd 316, Upper Mall, Lahore Tel: +(92)(423)5718542 Here is the cost break up of required plant and machinery.

16,075,000

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6. Location Strategy Location is the main factor for any industry as it will directly affect on Labor Productivity, Costs, Market and suppliers. It is highly recommended to choose any sub-urban area around the major cities should be selected for Dairy Milk Pasteurizing unit. Following infrastructure requirement should also be considered as it will improve the value of all over operations: •

Road

•

Electricity

•

Water

•

Diesel Fuel arrangement

•

Drainage

•

Gas

•

Telephone & Fax

We have selected the location, near Port Qasim or Landhi as major Raw Milk producing area (Bhens Colony) is near around and we are also connected to other rural areas of the province through Indus High way for our future needs.

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7. Layout Strategy Layout Strategy will always supportive to other strategies such as Product strategy, Process strategy, HR Strategy, and location strategy. Proper Layout will enables as to get the higher utilization of space, equipment, and people. It will improve flow of information, materials and also people. It will also improve employee moral and safer give safer work conditions. As a Dairy Milk Pasteurizing Unit, we have selected Product Oriented layout in which we seeks the best personnel and machine usage as per our plant need. Here is the planned layout:

Delivery Point

.

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8. HR Strategy Initially we have planned to hire a limited staff as it will reduce the fixed operating cost which will surely affect on over all finance. For advertising / marketing campaign we have plan to hire a outsourcing companies to meet our requirement and later on we can hire our own brand managers as well as marketing manager to meet our future goals. Here is the structure of our current staff with its expected salary which can be added as per situation.

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9. Supply Chain As dairy plant our raw material is pure natural milk which we will obtain from various milk farm houses. It can be collected through any Contractor or agent or later on we can get it directly from good / reputable farm houses. We will surely have to ensure the quality of raw milk (unprocessed) and have a set of agreement that we will return (deduct the price of) the rejected milk by our Quality Control persons and only approved milk will be sent to processing unit. Processing Unit will precede it according to our requirement as initially we have planned to produce Packaged Milk as Ultra High Temperature (UHT) for long shelf life. In Processing we will also separated the additional Creamer which will be sold out to various Bakers for sweet making etc. After processing of Milk, it will be packed in Tetra Pak Packaging and forwarded to warehouse for cold storage purpose for longer shelf life. From Warehouse, it will be dispatched to Wholesale distributors and then retailers where any customer can buy it and consume it as required.

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Flow Chart of Supply Chain:

Milk Farm Contractor / Agent Processing Unit

De-Creamer

Warehouse

Bakers

Wholesale Distributor Retail Store Customer / Consumer

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10. Project Economics Finance factor is always contributes a major part in success of any project. No doubt our primary aim is earning with addition to give quality products to our customers as per their needs. With the help of Small & Medium Enterprises Development Authority (SMEDA) we have analyze and calculated the requirement of Land, Building Infrastructure, Plant & machinery, Furniture / Fixture, Vehicle etc. and as per this calculation we require around 27.4 million for this project to establish. We have planned to obtain a 50% financing from banks and 50% will be our investment (13.7 million) as Equity. As per our planning Internal Rate of Return is around 43% and Pay back period will be 2.77 years (approximately). Here is the breakup of total project costing:

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11. References We have found all the materials from authentic websites and resources which are as under: Small Dairy Industry Guide Lines www.smalldairy.com Pakistan Dairy Development Company http://www.pddc.com.pk/ Tetra Pak Pakistan Pvt Ltd. http://www.tetrapak.com/business_solutions/from_idea_to_product/pages/default.aspx http://www.tetrapak.com/Document Bank/Food_categories/Tetra_Pak_Dairy_Index_2009_1.pdf Food and Agriculture Organization of United Nation http://www.fao.org/

http://www.fao.org/DOCREP/003/X6511E/X6511E00.htm#ch0 Department for International Development - UK http://www.dfid.gov.uk/ UK in Pakistan – British High Commission Islamabad http://ukinpakistan.fco.gov.uk/ http://ukinpakistan.fco.gov.uk/en/news/?view=PressR&id=21766681 Pakistan Standards and Quality Control Authority http://www.psqca.com.pk/ SSP Pvt. Ltd - India (Specialist in Dairy Processing Project) http://www.sspindia.com/contact.html Small & Medium Enterprises Development Authority http://www.smeda.org/sector-development/dairy-sector-brief.html

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