Dairy processing · Food processing and FMCG
Following milk solids from the collection centre to every product
A dairy buys milk by fat and solids-not-fat every morning and sells it as liquid milk, curd, butter, ghee and powder at very different margins. We track solids from the collection centre to each product, reconcile farmer payments to milk received, and cost each product from the solids it actually used.
In one paragraph
A dairy's raw material is bought on its composition, perishes within hours, and is split into several products whose combined cost has to be allocated. Our clients are private dairies and milk processors, usually at ₹25–1,000 crore turnover. They buy from farmers, collection centres or bulk-milk coolers and sell through distributors and retail. Owners and finance heads are the usual contacts.
Managing director or promoter, often with the procurement head
The economics
How the money moves in this trade
Milk is priced to farmers on fat and SNF content, collected twice daily and paid on short cycles. Procurement volume swings between the flush and lean seasons. In the flush season, surplus milk is converted into butter, ghee or powder and stored. In the lean season, stored products are used or milk is bought at higher prices. Working capital follows the season, with stock of fat and powder building for months.
Every product draws on the same pool of fat and solids, so product cost depends on how those solids are balanced and allocated. Losses happen at every transfer: collection, chilling, transport and processing. Liquid milk is exempt from GST, while butter, ghee, cheese and most other processed products are taxable. Input tax credit on common inputs therefore has to be apportioned between exempt and taxable supplies, and that is often done roughly at year end.
The problem
Where the numbers usually break down
Fat and SNF are not balanced through the plant
Kilograms of fat and SNF received are not reconciled with kilograms in products and recorded losses, so shrinkage hides inside processing.
Collection-centre testing is not checked
Fat and SNF readings at collection points are accepted as recorded, with no comparison against plant receipt tests.
Farmer payments are not reconciled to receipts
Payments to farmers and centres are made from collection data, and the total is not reconciled to milk actually received at the plant.
Stored fat and powder are valued at the wrong cost
Butter, ghee and powder made in the flush season are valued at a standard, not the cost of the milk that made them.
Input tax credit is apportioned roughly
Credit on common inputs used for exempt milk and taxable products is reversed on an estimate rather than on the method the rules set out.
What we do
The work, and the result each part produces
Solids balance
Fat and SNF tracked in kilograms from collection through chilling, transport, processing and products, with losses at each stage.
Every kilogram of fat and SNF is accounted for.
Procurement controls
Collection-centre readings compared with plant receipt tests, with variance by centre and route.
Testing and quantity differences are traced to a centre.
Farmer and centre payment reconciliation
Payments reconciled to milk quantity and quality received each cycle, with adjustments documented.
Payments match what the plant actually received.
Joint product costing
Milk cost allocated to liquid milk, curd, butter, ghee and powder on a stated basis using the solids each consumes.
Each product carries a defensible cost.
Seasonal inventory and funding plan
Stock of fat and powder valued at actual cost and projected through the season with its funding need.
The flush-season build-up is funded and valued deliberately.
Input tax credit apportionment
Common credit apportioned between exempt and taxable supplies each month on the prescribed method, with the annual recomputation done after the year closes.
Reversals are accurate and current, not a year-end estimate.
Where we start
The first steps of an engagement
Procurement, test and payment data
We ask for collection-centre fat and SNF readings, plant receipt tests, farmer and centre payment registers, production records by product and the GST returns.
Fat and SNF balance
Kilograms of fat and SNF received are balanced against kilograms in products and recorded losses, stage by stage. Centre readings are compared with plant receipt tests.
Payment reconciliation and credit method
Farmer and centre payments start being reconciled to milk received each cycle. Common input tax credit is apportioned monthly on the prescribed method.
First solids and product cost report
A solids balance showing where fat and SNF are lost, collection-centre test variance, and cost and contribution by product on a stated allocation basis.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Fat and SNF balance, received against accounted for
- Loss at each stage, by route and plant
- Collection-centre test variance
- Cost and contribution by product
- Fat and powder stock, valued and projected
- Input tax credit reversal against the prescribed computation
Who it suits
Written for, and not the right fit for
- You need FSSAI licensing or quality certification — those remain your responsibility.
- You operate a single milk route with no processing — the depth here may not be needed.
- Private dairies and milk processors procuring from farmers and collection centres.
- Processors converting surplus milk into butter, ghee and powder.
- Firms planning a new plant, a product extension or a bank renewal tied to seasonal stock.
Cities where this trade concentrates
Services
Services this work draws on
Costing and profitability
What each product, line and customer really contributes.
Explore service ↗Internal controls and risk
Controls sized to your business, documented and actually tested.
Explore service ↗GST, TDS and tax compliance
GST, TDS and income-tax prepared from reconciled data, not a working file.
Explore service ↗Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
Our plant already reports milk losses. What is different here?
Most plants report litres. Losses that matter are in fat and SNF, because that's what you paid for. A solids balance shows where value is lost, which a litre count can hide.
How do you decide how much milk cost goes into ghee or powder?
By the fat and SNF each product consumes, on a basis we agree with you and apply every period. The method should be stated and consistent, so product cost doesn't shift with accounting choices.
How should a dairy reverse GST credit on common inputs?
Monthly, on the method the GST rules prescribe, with an annual recomputation once the year closes. We apply that method and review past periods for differences, so the returns reflect the actual split between exempt and taxable supplies.
FSSAI licensing and food safety compliance are the client's own responsibility. Statutory audit and tax-audit reports are signed by an independently engaged CA; 5th Quadrant prepares the records and reconciliations behind them. Full detail is on our Professional Scope page.
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