Business Today

Losing Flavour

Dairy cooperatives need to shed their political tone and focus on business to stay afloat
twitter-logo Ajita Shashidhar   New Delhi     Print Edition: August 25, 2019
Losing Flavour
Photograph by Reuben Singh

In April this year, Mehsana Dairy, the fourth biggest union of India's largest milk cooperative, Gujarat Cooperative Milk Marketing Federation (GCMMF, which owns brand Amul), announced that it would break away from the parent cooperative to register as a multi-state cooperative and sell its products under the brand Dudh Sagar. The reason given by the Mehsana Chairman was lack of adequate patronage from GCMMF. Mehsana Dairy has been at loggerheads with GCMMF ever since its former Chairman Vipul Chaudhary was removed as GCMMF Chairman after the BJP came to power at the Centre in 2014. Three months later, the revolt has died out, and the milk federation's Chairman, Ramsinh Parmar, and Managing Director, R.S. Sodhi, dismiss the threat as a political gimmick.

"Just before elections, Mehsana always announces that it wants to split and become a multi-state cooperative, but the hype dies out after elections. The truth is that it can't survive without the Amul brand," says Parmar.

The root cause of the rift has been politics between the state's Congress and BJP arms that have been using the milk unions as their vote banks. "The Mehsana chairman had ambitions of becoming the GCMMF chairman. Since he was backed by the Congress, he wasn't favoured by the ruling BJP. This reflected in the union's balance sheets, milk procurement decreased, the federation didn't pick up its products and it landed in severe debt," says a senior dairy expert, not wanting to be named.

Politics has torn apart the dairy cooperative fabric across the country. Dr Verghese Kurien, the father of the White Revolution, had envisioned dairy cooperatives as farmer organisations led by a team of professional managers whose role would be to connect the farmers to the market. His vision has sadly eroded. Of the 187 million litres of milk procured per day in India, 30 per cent is procured by the organised sector - half by cooperatives and half by the private sector. A decade ago, less than 10 per cent of the organised sector comprised private players. There were around 175 cooperative milk unions a decade ago; this has dropped to 145. Barring Amul (GCMMF), Nandhini (Karnataka Milk Federation), Saras (Rajasthan Milk Federation) and Sudha (Bihar Milk Federation), which have consistently increased milk procurement and processing, the others have failed to grow.

Mahanand, the dairy federation of Maharashtra, for instance, used to procure close to 3-3.5 million litres of milk per day in its heydays, but its procurement over the last decade has dipped to just 3,00,000-4,00,000 litres per day. Similarly, about 20 years ago, Parag (Uttar Pradesh) used to be the third biggest dairy cooperative in the country, collecting close to 1.5-2 million litres of milk per day. But today it barely collects 3,00,000-4,00,000 litres a day. It has 10 dairy plants across the state, but most are lying unused. States such as West Bengal, Odisha and Jharkhand have been unable to increase their procurement beyond 2,00,000-6,00,000 litres per day for the last few decades. West Bengal's dairy federation had partnered with the private dairy company Metro Dairy between 1992 and 2017. The partnership eventually had to be called off as a public-private partnership didn't make sense.

"The dairy sector needs continuous investments but the government never allowed us to make those investments. If elections were round the corner, they wouldn't allow us to increase milk prices. It was tough," says a former employee of Metro Dairy.


What ails dairy cooperatives?

Around 35% of the milk produced in India comes from the organised sector. The cooperatives used to dominate the organised milk market, but in the past six-seven years, there has been a shift. The private dairy companies are collecting 16-19% of the milk, while cooperatives' collection has dropped to 15-16%.


Political Bickerings

Maharashtra's Mahanand dairy was one of the pioneers of the dairy cooperative movement in the 1940s, but is unfortunately now one of the worst run. In the last two decades, it has split into several smaller s, manned by various political parties. Unlike Amul, which has a milk union in every district, Maharashtra has six-seven unions per district, and each has its own chairman, staff and brand. According to an industry expert, the state has over 200 cooperative milk brands - among the big ones are the Kolhapur Union, which sells under the brand name Gokul, and the Pune Union, with the brand Katraj. In fact, Gokul sells more milk (5,00,000-6,00,000 litres) per day in Mumbai than Mahanand. "Maharashtra is a classic example of a disjointed political system. Milk union leaders break off due to political ideologies and form smaller unions with their loyalists. Mahanand hasn't been able to do anything about it," explains a senior dairy industry executive.

There is also the matter of money. While other state cooperatives pay upwards of Rs 26 per litre of milk, Maharashtra is known to pay about Rs 21 per litre.

Apart from this, despite having multiple brands, most of these milk unions do not convert their milk into value-added products. They convert milk into skimmed milk products and sell to private dairy companies. So, when milk powder prices crash, the state gets affected the most. Maharashtra also has the highest number of private dairy companies like Schreiber Dynamix (which co-packs for brands such as Laughing Cow, Britannia and now Fonterra), Parag Milk Foods and others. But Amul sells the highest quantity of milk here; the likes of Nandhini and Mother Dairy (Delhi) are also present.

In Uttar Pradesh, political fighting led to the government completely overlooking the interests of the state-run cooperative, Parag. In fact, during 2002-07, the state cooperative sold most of its procurement to Mother Dairy (Delhi). Thereafter, instead of revamping its own cooperative, the government promoted Amul, which has set up plants in Varanasi, Kanpur and Lucknow. "This demoralised Parag and the cooperative has been virtually destroyed," shares an expert.

"Politics is a speed breaker for our growth," admits Rakesh Singh, Managing Director, Karnataka Milk Federation. He believes that Nandhini (which procures 8.4 million litres of milk per day) would have easily overtaken Amul had it not been for politics. "The office of the chairman of most dairy cooperatives has become an extension of their political office," he says. Dairy cooperative elections are often marred by incidents of kidnapping of candidates, or voters being taken on expensive junkets.

Leadership Challenge

When GCMMF was established, the vision was to set up a farmers' organisation managed by professionals. "He (Kurien) ensured that political parties or state government had no role to play in the day-to-day operations," says Rahul Kumar, CEO, Lactalis India. However, only Amul has professional leadership. The heads of most cooperatives are bureaucrats who are in the role for not more than one-two years at a stretch and have limited understanding of the sector. The Orissa Milk Federation (OMFED), for instance, at one point had two to three managing directors in a single year. "We don't have a full time MD, hence, the dairy sector doesn't get the attention it needs. Our MD is the animal husbandry secretary and water resources secretary and he has no time for dairy," says Sarojini Mishra, Chairperson, OMFED.

The Karnataka Milk Federation's Singh admits that most bureaucrats consider dairy a punishment posting. "I was in Delhi. When they told me I am getting posted as MD of Nandhini, I thought I had had enough and I should resign from the service. However, within two hours of taking over, I realised there couldn't have been anything better." Singh, who has spent over three years in this role, considers himself a shield between the elected representatives and his colleagues at Nandhini.

Lack of Professionalism

The role model for Indian dairy cooperatives is Amul. It's Founder Chairman, Kurien, not only helped 3.6 million farmers find a market to sell their produce, he also invested in building a long-term brand equity. Amul has also been consistently investing in technology and distribution. But other cooperatives, even successful ones like Nandhini, lack this kind of professional thinking.

"We don't have the resources," says Singh of Nandhini. Most of our plants are outdated and should ideally be phased out or run in partnership with a private company, he says. Despite having 250 value-added SKUs, Nandhini products are available only at its own booths as it does not have the expertise to market and distribute.

R.S. Sodhi, MD, Amul

Since cooperatives are farmer-run organisations, the focus is more on the farmer's betterment than brand building. "To build a professional business, one needs to take risks, and over here I am not even expected to take risks," explains Singh.

Most dairy cooperatives are also weighed down by extra manpower, which has not been trimmed due to fear of political repercussions. "Our cost of production is Rs 7 per litre. For private players, it is around Rs 1.50 per litre. Our biggest cost is employees," says Mishra of OMFED.

The decision-making process is slow too. "During flush (periods), private players give five packets free for every 50 packets; we can't do that. If we do, we will need to pass a resolution, and get the Board's permission. By the time we do all this, the flush season is over and the loss has been incurred."

The Subsidy Issue

Subsidies form an important part of the cost equation. The government of Karnataka gives a Rs 6 subsidy to a farmer for every litre of milk procured. In all, around Rs 1,500 crore of subsidy is doled out every year in the state, as a result of which milk production has gone up to 8.4 million litres per day. But the state needs only five million litres per day. So, the milk federation either converts its milk into powder or sells pouch milk in states such as Maharashtra.

The retail price of milk in Karnataka is among the lowest in India - Rs 35 per litre - while Amul sells at Rs 46 per litre. But the cooperative is not allowed to increase milk prices. "Subsidy is good but the money should be used for the development of the dairy sector," says Sodhi of GCMMF.

Mishra of OMFED says, "The last time we increased prices was in 2014. The government gives us Rs 2 subsidy per litre of milk for seven months, but not during the flush season. That's not enough." She adds that if the (Odisha) government supplies milk to mid-day meals, the cooperative can procured more milk and that will reduce its overhead costs. "(Plus), it would have been a permanent marketing source for us. We have to pay more to our farmers and also find new options to market," says Mishra of OMFED. The cooperative pays Rs 26 to its farmers. They could pay more, she adds, if they procure 1-1.2 million litres per day. For that they need higher subsidy from the government.

Being Bossy

Brand Amul is fondly called the Taste of India and is an immensely respected brand. But this does not extend to its parent, GCMMF, whose expansion into other states has drawn flak.

Amul, with procurement of 24 million litres per day, has excess milk, which it is selling in other states. It is also sourcing milk in those states. In West Bengal, for instance, it procures 3,00,000-4,00,000 litres per day and carts the remaining from Gujarat, which has made it the leading brand in the state. "By paying the farmer immediately, we have won the farmer's trust in West Bengal. This is important for a successful dairy cooperative business," says Sodhi.

Srikumar Misra, Founder of Odisha-based start-up, Milk Mantra, feels that new age dairy entrepreneurs who are focusing on bringing efficiency to the entire dairy value chain are not being adequately supported and that Amul has got a disproportionate amount of government support, which is turning out to be a dis-service to the dairy sector in underdeveloped regions. "Amul has created such an over-supply in Gujarat that this milk is taken to several regions across the country. This impedes the growth of fresh milk consumption and growth in localised sourcing, impacting the income of local farmers." he says.

A senior dairy industry expert alleges that Amul doesn't give the same incentives, such as bonus during festivals, to its farmers in other parts of the country as it does in Gujarat.

Mishra of OMFED says by allowing the likes of Patanjali and Amul to sell milk in Odisha, the state government is curbing the growth of the state cooperative. "Our state is capable of 4.2 million litre procurement per day. Then why are we allowing Amul and Patanjali to sell milk here?" she questions.

What Next?

The Indian dairy cooperatives need urgent reinvention in order to say afloat. "It's high time the cooperatives work like a business organisation," says Kumar of Lactalis India.

The central government also needs to look more seriously at dairy as a source of employment for rural India, in addition to agriculture. Though the new central government has formed a Ministry for Animal Husbandry, Kumar of Lactalis India believes that dairy should be a separate ministry. "In the next 10 years, the dairy sector can provide 1.2 crore jobs. Every 1,00,000 litre of milk creates 6,000 jobs and one can earn Rs 5,000-6,000 per month from this," says Sodhi.

The dairy sector in India is vast and has political and social implications. Any solution will have to tackle these factors as well.

@ajitashashidhar

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