India's new milky way

Jyotika Sood | 04 febrero 2014 | soberanía alimentaria | India

Chinanibhai Jivabhai Patel of Sandesar village in Gujarat has done well for himself. He owns a two-storey house, a car, keeps 15 heads of cattle and employs two workers to look after them. In fact, all the 300-odd dairy farmers in this small yet prosperous village in Anand district are equally well-off. Sandesar symbolises the success of India’s White Revolution that transformed the country from milk-deficient to the world’s leading milk producer. Along the way the revolution, which continued for 26 years till 1996, pulled millions of rural dairy farmers out of poverty.

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At the helm of the revolution were milk producers’ cooperatives. Devised by Verghese Kurien, popularly known as the Milkman of India, these cooperatives allow dairy farmers to run everything themselves, from collecting and processing milk to marketing it and other dairy products. It is done through a democratic set-up. Anyone with a cow or buffalo can join the cooperative body and elect its office bearers. “The model has been a boon to dairy farmers like me. I had just two cows when a dairy cooperative was organised in my village some 40 years ago and a milk collection centre was set up,” says Patel, now the chairperson of Sandesar Village Dairy Cooperative Society. The cooperative has also funded much of the village development work, including construction of roads, village school and primary health centre, he adds.

There are other benefits of being part of a cooperative. “You have a veterinarian on call; artificial insemination is done at a nominal rate or for free, depending on the society; you get cattle feed at factory prices and can avail interest-free loans from the cooperative. What more could a dairy farmer ask for?” says Chaman Patel of Mogri village in Anand who sells three litres of milk a day. The icing on the cake is the annual bonus that the cooperative shares with its members. Last year, he got around Rs.50,000 as bonus.

Small wonder then that from 1946, when the first dairy cooperative was formed in Kheda district of Gujarat, their number has increased to 155,634 in 2012-13, according to the National Dairy Development Board, the apex body for promoting the dairy sector in the country (see ‘Making every drop count’). The Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the iconic Amul brand of dairy products that spurred the White Revolution, is the country’s leading cooperative with three million members and collects 3.6 million litres of milk a year. In 2012-13, it registered a turnover of Rs.11,668 crore. In contrast, multinational company Nestle, which has been operating in the country for over 50 years, collects 1.3 million litres of milk a year from 0.1 million farmers.

Across the country, there are 24 state-level federations of dairy cooperatives, which have brought 15.11 million dairy farmers—21 per cent of the country’s dairy farmers—into their fold, and scripted an extraordinary success story not seen in any other sector. Even states like Jharkhand, Nagaland, Assam, Sikkim and Tripura, which produce negligible amount of milk as compared to other states, have the cooperative system in place. The saying in the dairy cooperatives is, “Every drop counts.”

And it does. Together, these cooperatives have helped transform India from being a country dependent on imports of milk and dairy products, from baby food to butter, to a growing exporter of dairy products. In 2012-13, the country produced 132.4 million tonnes of milk (15 per cent of the global production), worth Rs.270,000 crore, making it one of the world’s largest milk producers, and exported 87,824.21 tonnes of dairy products, worth over Rs.1,412 crore. Most of the exports are to Bangladesh, Egypt, UAE, Saudi Arabia, Algeria and Yemen.

This is the bright side of the much-celebrated model, also known as the Anand-pattern dairy cooperative. There is another side—of stagnation and decay; of the power games played by political parties to control the cooperatives; and of the inability of the National Dairy Development Board (NDDB) to strengthen and deepen the network of dairy cooperatives. About 85 per cent of the villages remain untouched by the cooperative network.

New challenges

NDDB was set up in 1965 to fulfil the vision of the then Prime Minister Lal Bahadur Shastri, who wanted to promote the dairy industry through cooperatives after visiting Anand. To give impetus to the movement, NDDB launched Operation Flood in 1970 with funding from the World Bank (see ‘Road to milk sufficiency’). Under the programme, dairy cooperatives were set up in villages across the country. These cooperatives procured milk and in return provided to the members input services, modern dairy management and technologies to increase milk production and augment rural incomes. These services went a long way in making the country milk-sufficient. Around the same time, to ensure that private players do not dominate the dairy sector, the government introduced a policy that restricted milk processing and product manufacturing to small firms and cooperatives. Only two private companies existed then—Nestle and Milkfood Limited. High import duties on milk and dairy products and stringent licensing provisions for private dairy industry created a protected market that helped cooperatives to expand.

But that was before 1991. Following economic liberalisation, the government delicensed the dairy industry. Since then there has been a sharp rise in the number of private players. “No study has been done by NDDB or by the Department of Animal Husbandry, Dairying and Fisheries on the growth of private players in India’s dairy sector,” points out Rakesh Mohan Joshi, chairperson of the international projects division at the Indian Institute of Foreign Trade, Delhi. NDDB admits that the private sector has surpassed the market share of cooperatives. Its 2010-11 annual report states: “It is estimated that the capacity created by them (private dairies) in the past 15 years Some of the big private players in the market today are Hatsun Agro, Heritage Foods, Tirumala Milk Products, VRS Foods, Sterling Agro Industries, Dynamix Dairy Industries and Bhole Baba Dairy Industries, each handling more than one million litres of milk per day (lpd). There are also a clutch of smaller private companies, handling 0.5 million to 1 million lpd each. Hyderabad-based Heritage Foods is a classic example of the soaring growth of private dairies. Between 2012 and 2013, milk procurement capacity of the company increased by 72,000 lpd; its turnover grew by almost 16 per cent from Rs.1,093 crore to Rs.1,268 crore. While private companies are surging ahead, cooperatives have been mired in politics and shady dealings. Several cooperatives are now lying defunct, though the animal husbandry department is yet to do any comprehensive study on this.

Sources in the animal husbandry department point out that politics is the major problem affecting the cooperative system. Even the well-managed political behemoth, GCMMF, is not free from such interference. GCMMF and its brand Amul flourished during the Congress regime in Gujarat. When the Bharatiya Janata Party (BJP) came to power for the first time in the state in 1995, it tried to take over Amul. The interference became palpable during the election of the chairperson of the Kaira District Cooperative Milk Producers’ Union, the initiator of the Amul dairy. Usually, the chairperson is elected by the union’s board members, who in turn get elected by village society members. The BJP government directly nominated three members to the board. Amul went to court and won the case. But winning a case against the government was no win. Today all the district unions have BJP-affiliated chairpersons, barring the Kaira union, which has a Congress-affiliated chairperson, and another district union with an apolitical chairperson, they say.

An analysis of 14 major state milk federations by Down To Earth shows that only five federations are chaired by elected milk producers, while the rest are headed by governmentnominated chairpersons. In fact, 12 federations have government officers as managing directors, who are frequently transferred. Nine federations have state government equity; six have over 51 per cent government equity.

Analysts say in such cases, the government influences the decision of board members of a federation. For instance, if the government feels that increase in milk prices is going to affect consumers, the board does not hike the price, which affects dairy farmers.

Amrita Patel, chairperson of NDDB that oversees dairy cooperatives, says, “State governments treat dairy cooperatives as their private institutions because they are vote banks.” Her concerns are not unfounded. There have been instances where state governments used subsidies as bait to control these huge conglomerations of milk producers.

Consider the Karnataka Milk Producers Federation Ltd (KMF). With 2.2 million dairy farmers as members, KMF is the second largest cooperative in India after GCMMF. In May last year, soon after the Congress Party came to power in Karnataka, Chief Minister Siddaramaiah announced milk subsidy would be doubled to Rs.4 per litre. According to state officials, the subsidy is likely to benefit the cooperative members and would cost the state exchequer about Rs.500 crore per annum. Following this move, milk producers in other states like Tamil Nadu, Kerala and Maharashtra are demanding similar subsidies.

“People get government subsidies for LPG cylinder and food grain, and industries get it for input material and exports. Then why cannot a milk producer avail the subsidy?” asks a member of KMF. Besides, the cost of animal feed has doubled. “How can a dairy farmer meet his input costs without subsidies?” he asks. Analysts say such politically motivated announcements induce disharmony among farmers of other states. Amrita Patel adds one cannot sustain an economy with subsidies and dairy cooperatives should operate independently.

These 50-year-old institutions are now failing us, says Amrita Patel, Kurien’s protege. “Professio nalising cooperatives, so that they can market their products better to compete with private players has been difficult,” she adds. Amrita Patel’s biggest worry before she leaves NDDB in February this year is how these farmersbased institutes would compete with multinationals like Nestle, Britannia and Danone. To insulate farmers from political interference and to counter the increasing competition from private players, NDDB is trying out new experiments.

Hope in producer company

In 2003, following recommendations of NDDB, the government amended the Companies Act and introduced the concept of producer companies in it. Its aim was to give dairy cooperatives a new lease of life by allowing them to form milk producer companies.

Under this model, a group of at least 10 dairy farmers or cooperatives can register themselves as producer companies, while retaining the cooperative principles at the core. This would protect their interest from government interference. Amrita Patel, who has high hopes from the model, calls milk producer companies new generation cooperatives.

Milk collection centre, Chotila, Gujarat (Photo: Chinky Shukla/CSE) The milk producer company works like any other company with board of members and a group of experts with defined roles. In such a set-up only producers are the shareholders of the company. But unlike companies where voting rights are based on shareholding, the producer company provides the unique provision of one member one vote irrespective of shareholding. It does not allow shareholders to trade their shares and the shareholding of a member depends on the quantity of commodity he or she contributes to the company.

In 2005, NDDB launched a pilot project in the Saurashtra region of Gujarat to spread awareness about the model among dairy farmers. It also trained 150 officials about implementing the model. These officials visited 2,260 villages across the region in September 2012 to mobilise dairy farmers to form a milk producer company. “Institutional building was a difficult task in this arid region where women still have to travel about 5 km to fetch water,” recalls Sanjay Kumar Govani, one of the training officials. “I held meetings in Chotila village of Surendarnagar, which is 160 km from Anand. I would explain to them a producer company and its benefit. But the moment I told them about investments, I was looked upon with suspicion,” Govani adds.

Parmar Bechaarbhai of Chotila admits that initially the idea of investment seemed absurd.
“But when we did the calculations, we realised that we shall be the owner of a company like people in cities. Besides, the village cooperative was lying defunct because the secretary would often miscalculate milk fat content and pay less. Most cooperative members were selling milk to traders,” he says. Bechaarbhai sells about 10 litres of milk a day. According to the rules, he was eligible to buy 10 shares of the producer company. For this, he had to make one-time capital investment of Rs.100 per share, or Rs.1,000. Soon 85,000 milk producers in the region agreed to join the producer company. In 2013, NDDB got the Rs.12.70 crore company registered as Maahi Milk Producer Company, says Govani, who is now the head of producer institution building with Maahi. That year, NDDB floated another such company, named Paayas, in Rajasthan. With over 40,000 members, Paayas has a shareholding investment of Rs.4.7 crore. As of July 2013, there were 23 milk producer companies in the country.

NDDB promoted the model in villages untouched by the cooperative network or where cooperatives were defunct. But the model seems to be gaining traction among district-level cooperative unions as well.

The lead was taken by Visakha Dairy union in Andhra Pradesh, which converted itself to Vijaya Visakha Milk Producers Company in 2006. Prakasam, Karimnagar and Sangam Cooperative milk unions in the state followed suit. Chelimada Rajeshwar Rao, earlier chair-person of Karimnagar dairy union and now director of the Karimnagar Milk Producers’ Company, says, “The political interference compelled us to become a producer company.” In Andhra Pradesh, cooperatives are governed by the A.P. Cooperative Societies Act 1964. The Act was amended in 1995 to give more autonomy to the cooperatives, for instance, giving them freedom to hold elections and not include government representative on board. In 2003, when Chandra Babu Naidu was the chief minister, cooperatives started following the 1995 Act. Then in 2004, Y S Rajsekhara Reddy came to power. “He asked us to go back to the 1964 Act. We revolted and went to the high court. The court ordered in our favour. The state government challenged the ruling at the Supreme Court. The apex court judgement also favoured us,” says Rao. The Reddy government then abolished both the 1995 and 1964 laws and came up with a new piece of legislation in 2010. “These flip-flops hampered the working and decision-making of cooperatives, so we decided to become a producer company. Now our focus is on growth and benefit of farmers,” he adds.

Can it retain the spirit?

This is not the first attempt of NDDB to infuse vigour in cooperatives. Earlier in 2005-06, it had asked its dairy company, Mother Dairy Foods Limited (MDFL), to enter into joint ventures with the state-level cooperative bodies, called dairy federations. Its aim was to strengthen the marketing infrastructure of the federations and enable regional brands such as Verka in Punjab and Aavin in Tamil Nadu to attain the stature of Amul. But as a condition of the joint venture company (JVC), MDFL was to hold 51 per cent of the share of each JVC. In the existing Anand model, the federations have the right to market the milk, both within and outside the states, using its brand name. But in the proposed set-up, the federation had to surrender its marketing role, including the rights over using its brand, to the JVC. The milk and dairy products are marketed by MDFL under its brand name.

What this model effectively does is convert the established three-tier cooperative structure into a two-tier arrangement, where the key marketing function is with a company over which farmers have no control. Another disadvantage of this model is that since state federations are minority shareholders in the JVC, they receive paltry profits. The dairy farmers in turn receive less bonus.

The model received a cold response from state governments. Kurien called it a defeat of the cooperative model where every cooperative was supposed to grow.

Amrita Patel says, “producer company is the only solution for dairy farmers.” But some analysts differ. Since producer company comes under the central law, in case of any discrepancy, the dairy farmer would have to approach the Registrar of Companies under the Ministry of Corporate Affairs or the Securities and Exchange Board of India (SEBI), an autonomous body to monitor companies. This is not possible for a small dairy farmer. In a cooper ative model, farmers easily approach the village cooperative if they face any problem.

An official with the Planning Commission says, “Producer company is a good idea to compete with the private dairy sector, but we cannot ignore the importance of cooperatives.” The cooperatives have failed because NDDB did not try to build awareness among cooperatives about ways to insulate themselves from political interference. It could have provided them technical and legal support to challenge the appointment of bureaucrat as managing directors or chairpersons of the democratic institution. In fact, in the past 10 years, NDDB did not take an initiative to improve the cooperative model and resorted to other models as the solution.

“When you work in the interest of milk producer, cooperative is the best solution. It is a democratic set-up where milk producers elect their representatives. The profits are shared equally among the cooperative members. But in a producer company there is a cap on profit sharing,” says the official. R S Sodhi, managing director of GCMMF, says one cannot discard the cooperative model just because some problems ail it. “Even GCMMF was threatened to be overtaken by politics. But its elected representatives have been scuttling any interference.”

The concerns of Sodhi and the Planning Commission officer stems from the fact that most dairy farmers in the country are small with two to three cattle heads. Unless the cooperative network expands, they can be easily exploited by the private players who are foraying into the Indian dairy sector to tap its growing market.

Big players set to milk dairy sector

Industry sources claim that it took the private sector just 2 0 years to surpass the market share acquired by the dairy cooperative sector over nearly half-a-century. “The remarkable thing is that these private dairies have come up without any subsidies or support from Operation Flood,” R G Chandramogan, managing director of Hatsun Agro, stated in a media article. In 2011-12, cooperative dairies procured about 28 million litres per day of milk, whereas the organised private industry procured more than 35 million litres a day. This works out to a 45:55 ratio in favour of private dairies. The figures assume importance when one considers the fact that only two cooperative federations—Amul of Gujarat and Nandini of Karnataka account for 51 per cent of the cooperative sector’s market share, stated the article.

These figures indicate the rate at which private players are foraying into the country’s dairy market. Multinational companies are leaving no stone unturned to appeal to the changing tastes and preference of the urban Indian. Just a few decades ago, dairy only meant milk, butter and ghee. With increasing demand for cheese, curd, paneer, pro-biotic drinks and icecreams, the market is now flooded with a gamut of value-added dairy products.

S Nagarajan, managing director of Mother Dairy, says, “Curd has traditionally been part of daily meal in the country. But the new segment of mobile, independent Indians prefers convenience and taste, so we introduced packaged curd and ready-to-eat yoghurt.” In 2012- 13, Mother Dairy registered a turnover of Rs.4,200 crore; Rs.614 crore came from milk products.

The awareness about hygiene has also brought about a noticeable change in the consumer habit. People prefer packaged dairy products to those available with local milkman and are ready to pay a premium for it. Himanshu Manglik, spokesperson for Nestle, says, “Consumers became concerned about the quality of milk because of frequent reports of adulteration of milk.” He claims that his company is making huge investments and creating technologically advanced collection processes to ensure that the milk meets stringent quality standards and sells the product under brand name Nestle a+, which is more expensive than that of Mother Dairy.

Companies are closely observing people’s choices—for instance, some people prefer cow milk over buffalo milk—and are cashing in on them. Joshi, chairperson of international projects division at Indian Institute of Foreign Trade, Delhi says, “Cow milk is popular in most developed countries. The trend is now picking up in India, though the country produces buffalo milk in huge quantities.” Small wonder then that a kilogram of ghee costs between Rs.250 and Rs.300 a kg, while ghee made from cow milk costs more than Rs.350 per kg. Taste, however, remains the prime factor, says a dairy market researcher at National Dairy Research Institute in Karnal. This is the reason private companies are now introducing flavoured products. According to the dairy industry, just the yogurt segment is so promising that Danone, a French dairy giant, which entered the Indian market three years ago, has confined itself to just flavoured yogurt and four other dairy products.urce: 2010 report by US Department of Agriculture

In November last year, Lactalis Group, another French dairy company, signed a deal with shareholders of Andhra Pradesh-based Tirumala Milk Products to acquire majority of its shares. Even the public sector company, Oil India Ltd, has decided to step into the dairy sector. In December 2013, it asked Anand-based Institute of Rural Management to carry out a feasibility study in Dibrugarh and Tinsukia districts of Assam to find out whether Anand pattern cooperative model can be replicated in the region. Its aim is to fill the gap in milk production in the northeastern region that was untouched by the White Revolution. The project named Kamdhenu plans to set up a milk production facility in upper Assam to establish dairy business in next five years.

NDDB officials allege that private players are cashing in on the cooperatives and infrastructure they have built over the past 50 years. “On the one hand, private dairy companies do not want to invest in institution building, such as organising dairy farmers and setting up milk collection centres. On the other hand, they earn huge profits by innovating dairy products to suit urban Indians,” says an official.

Besides, if no one taps the milk production potential of the 85 per cent of villages left out by the White Revolution, milk production of the country will remain stagnant. Since demand for milk far outstrips it supply, the official cautions that such a scenario will lead to a milk crisis. According to NDDB, milk production is growing at 3.3 per cent, while demand is growing at 5 per cent. Though NDDB has begun launching the National Dairy Plan at an expense of Rs.2,242 crore to increase productivity of milch animals, this will cover only cooperatives and milk producer companies.

Analysts point at another scenario. There are chances of private players exploiting dairy farmers. In a cooperative set-up, the state-level cooperative federation shares its profits with the milk producers at the end of the year. Private players would not share their profits with milk producers, nor will they provide additional services the way cooperatives do. NDDB hopes that producer companies would be a way to tackle private players.

But Amul, a cooperative model, is already giving tough competition to private dairy giants. After introducing a variety of dairy products, including butter, ghee, cheese, yoghurt, buttermilk, ice cream, cream, shrikhand, paneer, flavoured milk and basundi, it has recently launched a processed milk and cream with high-shelf life under the brand names: Amul Taza and Amul Moti. It has highly specialised packing, called ultrahigh temperature packaging, which can keep milk unspoiled for 90 days. Amul says the products offer consumers “a great value for money”.

In the early 1960s, Amul’s success story had inspired the formation of NDDB and dairy cooperatives across the country. Its time that NDDB and the cooperatives learn lessons from Amul once again and replicate its marketing strategies, innovations and ways to beat competitors.

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