Success of India’s dairy sector is not just thanks to private players

Ashok Gulati-Ayushi Khurana (G&K hereafter) compile the many visible indicators of the growth and importance of the milk-economy in their article :

Read : From Plate to Plough: India, A land of milk and money

These include the quantum of production, rate of growth, share in GDP; and their comparisons with those of other sectors or countries.

G&K’s concluding recommendation that “let the prices be determined by market forces” should be largely acceptable. But whether “the private sector entering this sector in a big way” opens up “the gates of creativity and competition” depends on its drawing correct lessons from how “the co-operatives;[have done] a great job.” This note is an effort at looking at some factors beneath the surface; to put in perspective the totality of dairy development and balance the impression created by the G&K article; that this is largely due to market forces.

Organised sector market share

But first some clarifications. G&K appear surprised that co-operatives and organised private dairies handle only about 20 per cent of the milk production. The reality is that in tier two towns and below, private vendors still control milk supply to households. Plus, the bulk of the raw milk is used for producing sweets.

Even during the licence-permit raj, large private diaries existed and did quite well. Nestlé had a plant near Amritsar in Punjab with the collection of milk spread to several surrounding districts. Glaxo (now a part of Hindustan Unilever) ran plants at Aligarh and Etah. Hindustan Milkfoods (now a part of Hindustan Unilever) operated from Rajahmundhry  in Andhra Pradesh. All these were dedicated to products such as Nestlé’s Baby Food, Complan and Horlicks, but they were large operations, with daily milk collection amounting to around 1,00,000 litres. When this writer studied them in the 1980s and 1990s, he found their ground operations no different from those of the co-operatives. Operation Flood wisely stayed away from these areas.

G&K have the found milk production growth rate between 2004 and 2014 to be exceeded by that between 2015 and 2021. They attribute this to the capacity created by the new private sector dairies. But most of the private dairies have followed the template set by the co-operatives. While foodgrain production went up about three times from about 108 million tons in 1970-71 to 300 million tons in 2019-20, milk production increased by an astounding nine times in the same period from 21 million tons to over 200 million tons.

History of dairy cooperatives in India

To understand how this came about, we need to go back 75 years to the start of dairy co-operatives. In 1946, Tribhuvandas Patel, a Gandhian and a follower of Sardar Vallabhbhai Patel, led some Kheda district dairy farmers to strike against the Greater Bombay Milk Scheme (GBMS), which used to refuse to take their milk in the winter, because there was a surplus. The farmers succeeded, with political backing, in getting GBMS to accept their milk year-round. They quickly formed a co-operative, the Anand Milk Union Ltd (Amul) with 246 members and recruited a US-trained dairy engineer, Verghese Kurien, to be their manager.

Amul grew quickly and Kurien realised that strikes could only go thus far. The solution to the natural periodicity of milk production lay in processing the excess milk in the flush (winter) season into milk powder and butter (milk fat). These could be recombined in the lean season to ensure a year-round even supply of milk.

Kurien managed to get a UNICEF grant for a plant of economic size. The Amul dairy was established in 1956. Kurien also realised that more money could be made by selling some milk fat as table butter and the recombined milk could be leaner.

The cooperative evolution phase

New co-operative dairies had come up in neighbouring Mahesana and Banaskantha districts on the lines of Amul. Kurien roped them in a similar plan of activities. Voltas became the marketing agent for Amul butter. The rest, as they say, is history. So the first pillar of success is to tie together micro-level production, economic scale processing and large-scale marketing with a brand.

Meanwhile, something quite revolutionary was happening in dairying households. Traditionally, women looked after the buffaloes and took the milk to the collecting station. They also started receiving weekly payments for the milk delivered. We can only imagine the impact this would have had seven decades ago. Terms like gender equality and self-help groups were yet to be coined, but they were in action in Gujarat’s dairying villages. This became the second pillar of the development of the milk economy.

Cooperative is a family decision making unit

But the most important effect was on the family decision-making. Now that they had regular, dependable and often sizeable cash income supplementing their periodic and uncertain crop incomes; they could see dairying as an enterprise, and not a subsistence or default occupation. The market power asymmetry was effectively countered by co-operatives, which were large enough to enjoy economies of scale through the use of technology. Their concern moved from remunerative prices to their stability, value-addition and surplus generation for all. Administrative interventions such as support prices or monopoly procurement are not required since farmers’ organisations can powerfully lobby to protect their interests. That is the most important third pillar.

To attribute the development of the milk economy of India to market forces and the entry of private entities into the activity solely or mainly would be superficial. It is these three major pillars that are responsible for the happy statistics G&K cite.

This column first appeared in the print edition on July 13, 2021 under the title ‘Not by market alone’. The writer has been involved with the milk economy since 1975. Suggestions and comments by Pankaj Jain are gratefully acknowledged.

Source : The Indian Express July 13 2021 , written by Shreekant Sambrani