Introduction

While milk makes up a large portion of the Indian diet with growing incomes and urbanization, it is however by no means a luxury food. Milk or its products is something consumed practically by every class. Given a chance, even the poorest person would love to spread desi ghee rather than vanaspatti over his chapattis.

Household consumer expenditure survey data for 2007-08 (July-June) just released by the National Sample Survey Organization’s (NSSO) shows that milk and derived products accounts for 14.9 percent of the average rural monthly spending on food, while for urban India it is 18.3 per cent. It is next only to cereals but ahead of vegetables, edible oil, egg, fish and meat, pulses fruits etc. when accounted for individually.

During the recent past, the hype about flood of spurious milk and milk products in the market, created by print and electronic media lead to greater demand for packaged milk and milk products. Therefore more number of milk processing units is coming up in the country. The financial assistance for setting up of these units is being provided by various financial institutions including banks.

In the field of milk processing units for of following activities can be set up.

• liquid milk packaging
• Indigenes milk products like paneer, khoa, channa etc.
• Ice Cream
• Different varieties of cheeses.
• Flavored milk etc.

Project Formulation for Bank Loans

A project can be prepared by a beneficiary in consultation with technical persons from Government departments or private entities. Before preparation and submission of the Project report to the financing institution, beneficiary should also visit existing units, and discuss the profitability with the practicing entrepreneurs. Preferably beneficiaries himself/herself should undergo training on technical and financial aspects of the project.

The project report should include information on land, availability of portable water, machinery, processing details, marketing aspects, training facilities, experience of the entrepreneurs and type of assistance/subsidy available from state/centre Government. The project should also include information on the type of machineries with their capacities to be purchased, processing performance, cost and other relevant input and output costs with their description. Based on this, the total cost of the project, margin money to be provided by the entrepreneur, requirement of bank loan, estimated annual expenditure, income profit and loss statement, repayment period etc. can be worked out and shown in the project report.

Many a times, the project submitted provides all the required technical information, but the presentation of the project report may be such that it might confuse the banker or may not contain the required economic appraisal resulting in delay or even rejection. The project should be realistic financially i.e. neither over nor under estimated. While scrutinizing the loan application for sanction, the banks are required to examine the project for its technical and economic feasibility.

(A) Technical Feasibility

This would briefly include:

• Relevance and utility – if the proposed activity is relevant.
• Source and availability of good quality milk for the project.
• Availability of training facilities.
• Plant location and site selection - If the location is appropriate and site is free from water logging, flood etc.
• Plant layout – Schematic layout plan of proposed milk plant needs to be provided along with equipment sequence.
• Plant machinery – Details of plant and machinery along with their capacities, cost and availability needs to be provided.
• Utilities – Necessary and sufficiency and their cost.
• Environmental/Pollution Aspects – Permission and social resistances.
• Legal matter – Approvals like CLU, Pollution control, Industry departments etc.
• Schedule of implementation
• Cost of wages and salaries
• Depreciation
• Promoters Background

(B) Economic Viability

This would briefly include:

• Unit cost – The average cost of milk to be procured.
• Input cost – Processing cost.
• Output cost – Cost of production of the products
• Volume of sales
• Growth Pattern
• Sustainability – whether the unit is growing and will be able to sustain the vagaries of market
• Internal rate of return – it is a measure of worth of investment
• Payback period
• Sensitivity analysis – the influence of the average annual forecast prices on the project worth should be tested by varying the forecasts.
• Income - expenditure statement and annual gross surplus
• Cash flow analysis
• Repayment schedule

In order, therefore, to cut short the delay and obtain optimum finance by providing reasonable figures, the project should contain the following information.

• Introduction – Brief information about the potential of the activity and demand for milk and milk products in the target market.
• Objectives – Purpose of the unit whether main occupation or subsidiary occupation.
• Entrepreneur – Name of the promoters, their background and experience.
• Location – Specific site and its area, distance from main road, availability of water, electricity etc.
• Housing – Total floor space required and also for the individual store etc.
• Equipment – List of equipment required, their capacity and cost alongwith quotations of major equipment.
• Management – Depends upon the size of the unit.
• Marketing system – If direct marketing or some specific marketing arrangement.
• Price and production norms – Average sale price of the produce
• Investment – Total investment including land development, equipment etc.
• Margin Money – Part of the total investment for the project to be borne by entrepreneur.
• Subsidy - It needs to be indicated if to be availed from any of the schemes of state/central Government.
• Loan Required – Total funds required from the financing institution.
• Loan repayment schedule – schedule for paying back loan and interest.

During the recent past due to recession, financial institutions have become much more vigilant and want to put in maximum number of safe guards before sanctioning the loan. In that case the specific requirements from the financial institutions need also to be incorporated in the project report.

Dairy Project Report & Financial Calculator