Packaged milk business struggles to retain customers

New taxes, ongoing case in apex court add to their worries

KARACHI: The packaged milk industry has been finding it hard to maintain its sales for quite a long time. New taxes and an ongoing case in the Supreme Court on milk quality have made it difficult for the companies to take advantage of the growing milk demand in the country.

To win back disgruntled customers, a leading company even opted to provide discounts. The company says it has succeeded in regaining some sales, but it is not a sustainable way to stay relevant in a business.



The government abolished the zero-rating regime (tax refunds on imports) in 2015 while earlier this year the Supreme Court ruled that only six milk brands of the country were fit for consumption. Due to the ruling, a negative perception developed among people against the industry as a whole.

For about two and a half years, the industry has absorbed cost pressure due to new taxes to retain the customers. When the pressure mounted further and was eventually passed on to consumers, the companies started losing their customers.

“Absolutely, the zero-rating abolition is aggravating the difficulty for the packaged milk industry,” said a Nestle spokesperson in an email to The Express Tribune.

Pakistan’s milk market has great potential and it is growing. Dutch dairy cooperative Royal FrieslandCampina acquired Engro Foods for around $500 million, which was the biggest foreign investment in Pakistan, apart from the Chinese.

However, the industry is facing huge challenges. Pricing problems are shaking the industry as net revenues of Engro Foods in third quarter of the current year shrank 16%. The company reported gross margins of 16.5%, down 4.2 percentage points.



On the other hand, the industry is still striving for damage control as the Supreme Court has stayed proceedings till December 2017 in order to also take up the loose milk quality issue.

“We are awaiting a final verdict from the Supreme Court. A final, timely and affirmative verdict will be helping in putting the issue to rest,” said Pakistan Dairy Association Secretary General Farrukh Shahzad Mughal.

Published in The Express Tribune, November 19^th, 2017.

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