Value Chain Finance to Dairy Sector-A Case Study of Eastern Uttar Pradesh

Abstract

Background: Dairy sector has highly fragmented supply base and unique ecosystem of delivery resulting that a chain of value addition actors involved in its production and distribution. Value chain financing approach provides opportunities to develop equitable business models that better link all actors in the value chain. Accordingly, this study has carried out to assess the diversity of financial arrangements and the actors involved in dairy value chain in the Eastern Uttar Pradesh. The study also brings about the relatively prominent components/actors of the dairy value chain that could be emphasised while financing dairy value chain. Method: The value chain actors including milk producers have identified purposively and interviewed with well-constructed scheduled. The study has analysed on the data collected from 64 milk producers in 8 villages, 3 inputs suppliers, 8 milk collectors/assemblers, 4 milk transporters, 1 milk processor and 12 distributers for the year 2019-20. Result: The study observed that there is vast network of financing institutions have engaged in the financing of dairy value chain in the study area. Financing agencies have identified the set of activities associated with milk value chain and determine the structure of finance accordingly, in order to minimize costs, to maximize efficiency and to reduce risk. However, there are several informal mechanism of value chain financings also existed parallel to institutional finance due to informal sources are willing to lend money more easily without collateral. Relationships between actors in the value chain facilitate informal financial flows directly to his client actors is also observed in the study. The study has further inferred that among all the actors involved in milk value chains, the processor, producer and distributer have added greater value addition in comparison to other actors in the value chain.