This is not the document you are looking for? Use the search form below to find more!

Report home > Art & Culture

Dairy Processing

0.00 (0 votes)
Document Description
The dairy processing industry’s most important role in the transformation of the Turkish economy may be as the gauge by which to measure the modern manufacturing sector's pace of development. Dairy processing is an important component of the broader food processing sector and is also one of the sectors that best illustrates the bi-modal nature of the economy. Although Turkey's modern dairy processors are quite productive by benchmark standards, they still control much less than 50 percent both of raw milk processed and of employment. The remainder is accounted for by traditional operators, the mandıras. Thus, since mandıras – while controlling a major share of sector production and employment – are only a fraction as productive as their modern counterparts, they drag down total sector productivity to only 50 percent of the US level. Policymakers’ ability to solve the challenges of informality among mandıras, and in the closely related retail sector downstream, will dictate the pace at which overall sector productivity rises
File Details
  • Added: August, 29th 2010
  • Reads: 566
  • Downloads: 39
  • File size: 432.87kb
  • Pages: 22
  • Tags: downstream sector, productivity, benchmark standards
  • content preview
Submitter
  • Username: monkey
  • Name: monkey
  • Documents: 474
Embed Code:

Add New Comment




Related Documents

Effect of Processing Methods on Cholesterol Contents and Cholesterol Oxides Formation in Some Dairy Products

by: shinta, 11 pages

The effects of pasteurization, boiling, microwaving, processing and storage of milk and some locally produced dairy products on cholesterol contents and cholesterol oxides formation were ...

Food Processing Market - India - Sample

by: john, 9 pages

Food Processing Market - India December 2009 Executive Summary Food processing industry in India is valued at USD XX bn and is growing at a a% annual rate ...

Effect of Grinding High Moisture Corn on Its Utilization by Dairy Cows Fed Alfalfa Silage

by: shinta, 3 pages

Alfalfa silage (AS) is one of the forages most commonly fed to dairy cows. However, during ensiling 50 to 60% of its CP is converted to NPN. Synchronization of energy fermentation ...

Value Added Dairy Products : An international perspective

by: luisa, 9 pages

This paper examines a number of factors which have a bearing on the market for value- added dairy products. Milk, more than most agricultural products, is closely associated with the transformation ...

Effect of diet on the fatty acid pattern of milk from dairy cows

by: shinta, 8 pages

Twelve dairy cows 130 days in milk were sorted by milk production and body weight and assigned to three feeding regimens in a 3 × 3 Latin-square design, in order to study the effects of diet on ...

Serum Retinol and Beta-Carotene Concentrations in US Dairy Cows

by: shinta, 10 pages

Beta-carotene is a carotinoid present naturally in plant tissue. In un-supplemented herbivore diets it serves as the primary source of vitamin A activity. In most modern livestock diets, ...

The electronic nose applied to dairy products : a review

by: shinta, 12 pages

The state-of-the-art and current trends in the development of “aroma” analysis with electronic noses are reviewed with special reference to applicationstodairy-products ...

A Survey of Cassava Processing Machinery in Oyo State

by: shinta, 4 pages

Survey of cassava processing machinery was carried out to evaluate the followings: different cassava processing machinery, the most acceptable machine, effect of cost of machinery on the ...

Effect of food components and processing parameters on DNA degradation in food

by: shinta, 9 pages

The effect of food components on degradation of DNA by DNaseI (EC 3.1.21.1) was monitored by electrotransformation of Escherichia coli, making it possible to determine the number of plasmid ...

Influence of high environmental temperatures and evaporative cooling on some physiological, hematological and biochemical parameters in high-yielding dairy cows

by: shinta, 10 pages

The objective of this study was to ascertain if regular cooling by sprinkling could influence the heat stress in high-yielding dairy cows and which of monitored parameters are suitable heat ...

Content Preview
Dairy Processing










Dairy Processing

McKinsey Global Institute
315

Dairy Processing
Dairy Processing
The dairy processing industry’s most important role in the transformation of the
Turkish economy may be as the gauge by which to measure the modern
manufacturing sector's pace of development. Dairy processing is an important
component of the broader food processing sector and is also one of the sectors
that best illustrates the bi-modal nature of the economy. Although Turkey's
modern dairy processors are quite productive by benchmark standards, they still
control much less than 50 percent both of raw milk processed and of
employment. The remainder is accounted for by traditional operators, the
mandıras. Thus, since mandıras – while controlling a major share of sector
production and employment – are only a fraction as productive as their modern
counterparts, they drag down total sector productivity to only 50 percent of the
US level. Policymakers’ ability to solve the challenges of informality among
mandıras, and in the closely related retail sector downstream, will dictate the
pace at which overall sector productivity rises.
The modern segment of the Turkish dairy processing industry has been developing
steadily for at least the last decade; however, it still has much room to grow before
it assumes the dominant role in the sector. Modern processors operate automated,
large-scale milk processing plants. They steadily introduce new, higher-value-
added products to consumers who are gradually expanding their taste preferences.
Mandıras, on the other hand, are traditional milk processors with very small-scale,
labor-intensive processing facilities and informal operations. They tend to stay
focused on a limited range of basic milk, butter, cheese, and yoghurt/ayran
products.
The two segments of the dairy processing industry perform differently in
productivity terms. Modern processors’ performance – with labor productivity the
measure – is at about 93 percent of US levels. On the other hand, mandıras have
only one-third the productivity of modern processors.
In the face of superior product range and quality offered at good prices by
productive modern processors, mandıras survive by evading social security and
tax obligations and by not adhering to sanitary standards. This creates cost
advantages that are as great as 20 percent compared to players who honor their
obligations – an amount sufficient to keep many mandıras in business much longer
than they would otherwise be able. They are aided significantly by the fact that
70 percent of the food retail distribution system also operates informally and
willingly serves as the key distribution channel for their products. On the demand
McKinsey Global Institute
317

Dairy Processing
side, consumers’ low level of knowledge about hygiene further aids mandıras to
find markets for their sub-quality products.
The Turkish dairy processing industry has significant potential to improve its
productivity. One vehicle is to modernize the traditional sector by obliging
mandıras either to upgrade and operate formally or to exit, leaving volume to those
players who will so operate. The other vehicle is productivity improvements by
the modern processors, mainly through increasing capacity utilization rates, which
are currently very low. Completing the loop, these low capacity utilization rates
are partly a result of capacities developed by modern processors in anticipation of
capturing sales from the traditional segment.
It is only possible to foster the development of the Turkish dairy processing
industry by ensuring both that an increased share goes to modern processors
(including those who make the transition from traditional operators) and that the
mandıras that stay in business are those that have modernized and improved their
productivity. Policy change has a major role to play in improving productivity in
this sector by enforcing regulations that create the level playing field that will
enable this shift.
A developed dairy processing industry will not only create more than 70,000 new
jobs by 2015, but also will supply healthier and cheaper products to consumers as
a result of increased output and productivity.
The rest of this chapter elaborates on these themes, offering:
¶ First, an overview of the industry
¶ Next, our assessment of the sector's productivity performance
¶ Third, an analysis of the performance gap and some opportunities to
close it
¶ Fourth, a discussion of other factors, both within the industry and
external to affecting productivity
¶ And finally, our recommendations to policy makers.
318
McKinsey Global Institute

Dairy Processing
INDUSTRY OVERVIEW
The Turkish dairy processing industry constitutes about 0.4 percent of GDP and
around 0.2 percent of employment. Within the context of this study, the definition
of dairy processing includes both liquid milk processing and the manufacture of all
milk products, and excludes non-registered milk processing in homes and farms.
For the purpose of the study, the boundary of the industry value chain has been set
between receiving raw milk from the upstream and delivering processed products
ready for shipment to the downstream. Dairy farming and wholesale/retail
distribution are also out of the scope of this study for productivity analysis
purposes, since they make up distinctly different parts of the industry value chain.
This section looks at industry and product segmentation and at the industry's
evolution.
Segmentation of industry players
Of around 9.7 million tons of raw milk produced in Turkey, only about 63 percent
leaves the farm as raw milk. The remaining 37 percent is either consumed in the
farm by the farm members or processed in the farm to cheese, yoghurt, or butter,
reaching the consumer via unregistered channels like street sellers and small
grocers. Of the raw milk that leaves the farm, more than one-third is sold as raw
milk on the street directly to consumers (Exhibit 1). Around 4,000 dairy
processors process the rest of the raw milk that leaves the farm. Significant
insights can be gained by looking at these processors in two segments: modern
processors and traditional processors, or “mandıras.”
Modern processors. Modern processors consist of two types: those with
integrated facilities and those focused on feta cheese production. Integrated
facilities are highly automated plants with a main focus on UHT/pasteurized liquid
milk, yoghurt/ayran, and skimmed milk powder manufacturing. International best
practice players operate in this segment. Feta cheese-focused modern processors
specialize in feta cheese processing, which is relatively less automated than other
dairy product manufacturing. In this report both integrated facilities and feta
cheese-focused modern players will be referred to as “modern processors.”
Modern processors typically have around 100 to 200 employees.
Currently there are about 118 establishments in the modern processor segment,
which processes 43 percent of the raw milk supplied to the industry and employs
34 percent of the full-time equivalent employees (FTEs) in the industry.
Mandıras. These are traditional processors that mainly manufacture feta cheese,
yoghurt, and ayran. Their manufacturing processes are heavily labor intensive.
Players in this segment are mostly operating informally, evading taxes and

McKinsey Global Institute
319

Dairy Processing
Exhibit 1
RAW MILK BREAKDOWN
Raw milk flow
X%
Percent of total
Production
Turkish raw milk flow
Raw milk equivalent ton; percent
The industry
100% =
112
9.8
Farmers
100% = 3.9
35,000
million
million
million
37%
Raw milk
7
Consumed
Raw milk
consumed/
in the farm
processed
or processed
23%
in the farm
and sold by
the farmer
37
Direct/street sales
Raw milk
Open bazaars
57
66
23%
Open
23
Raw milk
milk sales
supplied to
93
the market
Mandıras*
Groceries
Packaging
23
Mandıras*
17%
43
34
Modern
17
processors
Modern processors
Hyper/supermarkets
EU total
Turkey
Produc-
Employ-
1994
2000
tion
ment
* Processors with a capacity of less than 10 employees
Source: State Planning Organization; Agricultural Economics Research Institute; State Institute of Statistics; European Commission Common
Agricultural Policy 2000


employing workers without fulfilling social security obligations, and not forced to
meet sanitary standards in production.
It is estimated by the State Planning Organization that there are around
3,700 mandıras that process around 57 percent of the raw milk that is supplied to
the industry. Mandıras generally employ fewer than 10 employees and altogether
they represent 66 percent of the total employment in the dairy processing industry.
Product segmentation
The Turkish dairy processing sector produces all major types of dairy products;
however, product variety is not as vast as in Europe or the US. Per capita
consumption levels for milk and dairy products are also low, on average
56 percent of US levels (Exhibit 2). There are four main types of dairy products in
Turkey: drinking milk, cheese (mainly feta), yoghurt/ayran, and butter/milk
powder).
Drinking milk. Drinking milk is processed either through industrial processing or
simply home processing, i.e., boiling raw milk at home.
Industrial processing of drinking milk is typically performed in modern
processors. Processing is done either through pasteurization (for daily milk) or
sterilization (via ultra-high temperature, or UHT, techniques). Pasteurization is
320
McKinsey Global Institute

Dairy Processing
Exhibit 2
PER CAPITA CONSUMPTION COMPARISON: US VS. TURKEY
Indexed, US (2000) = 100
Butter and milk powder consumption
per capita

100
67
US
Turkey
Yogurt/ayran consumption per capita
100
739
Milk and dairy products consumption
per capita

100
US
Turkey
56
Fluid products* consumption per capita
US
Turkey
100
21
US
Turkey
Cheese consumption per capita
100
62
US
Turkey
* Includes drinking milk and ice cream
Source: U.S. Department of Agriculture; Agricultural Economics Research Institute; World Development Indicators; MGI analysis


performed in double-shell vessels, while sterilization is performed in special heat
exchangers. The investment requirement for special heat exchangers is higher than
double-shell vessels, and therefore top modern processors mainly use UHT
sterilization. Pasteurization equipment is relatively cheaper and used by the
remainder of modern processors.
Currently, per capita consumption of drinking milk in Turkey is low, indexing
around 21 relative to the US. In Turkey, 17 percent of produced milk is consumed
as drinking milk, 23 percent of which is processed by the industry, with the
remainder consumed as boiled raw milk.
Cheese. Although Turkey produces a wide variety of cheeses, around 85 percent is
produced and consumed as feta. Cheese production is performed by all types of
players: modern players, mandıras, and farms. Mandıra presence in cheese
manufacturing is much higher compared to other dairy products. This is mostly
because mandıras are not disadvantaged because of their small size: cheese has a
long shelf life and does not require daily distribution, and cheese production does
not necessarily require heavy investment in processing equipment . Therefore,
cheese production by its nature is relatively more labor intensive than other dairy
products. To make cheese, raw milk should be first pasteurized and then
fermented. Although the pasteurization stage is necessary for hygienic end
products, this stage is usually skipped in small mandıras because they lack
pasteurization equipment.
McKinsey Global Institute
321

Dairy Processing
Currently, the per capita cheese consumption in Turkey is around 62 percent of US
levels. In Turkey 44 percent of produced milk is processed to cheese, only
10 percent of which is processed in modern processors; the remaining part is either
processed in mandıras or in farms.
Yoghurt/ayran. Yoghurt is mostly consumed as plain yoghurt in Turkey. It is not
consumed as a dessert like in Europe, but consumed as part of a meal or as a meal
itself. “Ayran,” which is liquidized yoghurt, is consumed as a drink.
Yoghurt/ayran production is performed in modern processors, mandıras, farms,
and at home. It is possible to process milk to yoghurt either with an automated
production line or with only labor without using any significant equipment. This
flexibility in manufacturing has resulted in the fact that yoghurt is manufactured
not only by processors but also at home. Yoghurt is the second product after feta
cheese where mandıras are heavy producers.
Turkey is one of the top countries in terms of per capita yoghurt consumption. The
Turkish people consume more than 7 times the yoghurt that Americans consume
on a per capita basis. Twenty percent of the produced milk in Turkey is processed
to yoghurt. Only 16 percent of the processing is performed in modern processors,
with the remaining processed in mandıras, in farms, and in homes.
Butter and milk powder. Although butter is produced in modern processors as
well as mandıras and farms, milk powder is only produced in a handful of modern
processors that have integrated facilities for milk powder production.
Per capita consumption levels for both butter and milk powder are lower for
Turkey compared to the US; current per capita consumption is around 67 indexed
to the US at 100. Nineteen percent of the produced milk goes to butter and milk
powder production, and because of the necessity of integrated equipment for milk
powder production, 28 percent of the total production is performed in modern
processors.
Industry growth and evolution
There is an apparent paradox at work in this sector. On one hand, the share of
modern processors is growing rapidly, albeit from a small base. In 1994, modern
processors were processing 22 percent of the raw milk used in the processing
industry and they have increased this share to 43 percent in the last 6 years.
Accordingly, employment in the modern sector has been growing 17 percent a
year for the last 5 years (Exhibit 3).
On the other hand, raw milk production has not increased significantly in the past
decade. Combined with rapid population growth in Turkey this means that per
capita consumption of raw milk has actually decreased by 2 percent per year
(Exhibit 4). This does not fit the pattern of markets where the rapid development
322
McKinsey Global Institute

Dairy Processing
Exhibit 3
DEVELOPMENT OF EMPLOYMENT* IN THE DAIRY PROCESSING SECTOR
Employment development
Thousands of employees; percent
CAGR
4%
34.0
Share of raw milk in industry
Percent
31.8
30.8
100% = 28.5
29.1
28.5
66
0%
57
65
68
66
72
75
Mandıras
78
76
74
79
Mandıras
81
81
43
35
Modern
32
34
22
24
26
processors
34
1994
1995
1996
1997
1998
1999
2000
17%
Modern
25
28
processors 19
19
21
1995
1996
1997
1998
1999
2000
* Number of mandıras and the employee per mandıra is kept constant based on data from State Institute of Statistics and expert views
Source: State Planning Organization; MGI analysis

Exhibit 4
PRODUCTION OF MILK IN TURKEY
Raw milk production
Millions of tons
10.2
10.3
10.4
10.6
10.6
10.8
10.1
10.0
10.1
9.8
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Per capita production of milk and dairy products*
Liters of raw milk equivalent
CAGR = -2%
180
177
177
177
177
175
161
157
157
150
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
* All the raw milk produced is assumed to be consumed
Source: State Institute of Statistics; MGI analysis
McKinsey Global Institute
323

Dairy Processing


of modern processors accompanied by the proliferation of new product categories
and types accelerates total milk consumption.
The key to the contradiction lies in the barriers that exist to the creation of more
productive milk production and availability. Although raw milk production
productivity lies outside the scope of our study, we will return to key aspects of it
later in this chapter since they may directly influence processing productivity,
especially in the future.
PRODUCTIVITY PERFORMANCE
In this sector we have focused on labor productivity rather than on total factor
productivity (TFP) since it is a labor-intensive sector in which labor represents
70 to 80 percent of total factor inputs, even in modern processors. The labor
productivity performance of the Turkish dairy processing sector is calculated as
value added per labor-hour worked, where value added is calculated as value of
sales minus cost of goods sold.
Both value of sales and cost of goods sold figures for Turkish processors have
been adjusted with purchasing power parity (PPP). For this purpose, dairy product
output and raw milk input PPP factors were calculated respectively. Sales and cost
of goods sold of modern and traditional players have also been adjusted with their
respective market prices. (Please refer to chapter Appendix for further details on
methodology.)
As Exhibit 5 shows, labor productivity for Turkish dairy processing is about
50 percent of the US average. Within this total, productivity levels vary
significantly by segment. In fact, the productivity levels of modern processors are
very close to US average productivity, indexing at 93 percent of US levels. This
should not be surprising since two of the major players in Turkey – Nestle and
Danone – are subsidiaries of leading multi-national corporations, and other leading
players are part of well-established food groups in Turkey. On the other hand,
mandıras index at a low 27 percent of US levels.
OPPORTUNITIES TO CLOSE THE PRODUCTIVITY GAP
The potential labor productivity of the Turkish dairy processing industry is
estimated to be 96 percent of the US average compared to the current productivity
level of 50 percent of the US level (Exhibit 6).
324
McKinsey Global Institute

Dairy Processing
Exhibit 5
LABOR PRODUCTIVITY IN DAIRY
Indexed, US (1997) = 100
132
100
93
50
27
20
9
8
US large
US
Brazil
India
Russia
Turkey
Modern
Mandıras
processors*
average
average
average
average
average**
processors
(Turkey)
(2000)
(Turkey)
Share in total
34%
66%
employee
hours worked

* Processors with more than 250 employees
** Calculated based on weighted average of bottom-up company data
Source: Goskomstat; US Census of Manufacturing; OECD; MGI analysis


Exhibit 6
SOURCES OF LABOR PRODUCTIVITY IMPROVEMENTS IN DAIRY
Indexed, US (1997) = 100
78% of
the gap
96
8
38
50
Current
Modernization
Productivity
Potential
Turkish
of the
improvements
Turkish
productivity
traditional
in the modern
productivity
segment
segment
Source: Interviews; State Institute of Statistics; MGI analysis
McKinsey Global Institute
325

Download
Dairy Processing

 

 

Your download will begin in a moment.
If it doesn't, click here to try again.

Share Dairy Processing to:

Insert your wordpress URL:

example:

http://myblog.wordpress.com/
or
http://myblog.com/

Share Dairy Processing as:

From:

To:

Share Dairy Processing.

Enter two words as shown below. If you cannot read the words, click the refresh icon.

loading

Share Dairy Processing as:

Copy html code above and paste to your web page.

loading