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Protest over Amul’s entry into TN appears political

Tamil Nadu Chief Minister MK Stalin has raised a protest over the entry of Amul into the milk procurement scene in the State. The point of contention is whether Gujarat’s Amul (which like Karnataka’s Nandini sells its value added products in all States) should be allowed to procure milk outside its home State, in Tamil Nadu as well. This is a political turf war more than anything else, as a milk cooperative is also viewed as a political catchment area.

The economic case for allowing more players and competition is straightforward. The entry of more milk processors into this predominantly unorganised sector will lead to better returns for producers amidst heightened competition between buyers of their milk, with a similar scenario playing out for consumers as different brands compete for their wallet. Take the case of Tamil Nadu. State dairy Aavin procures above 30 lakh litres per day (LLPD), which is less than half the milk procured by the organised sector in the State. To place this in perspective, Amul procures 260 LLPD and Nandini 84 LLPD. They account for 80-90 per cent of the organised sector business in their respective States. Aavin accounts for about 15 per cent of milk output in the State, estimated by the National Dairy Development Board at 9-10 million tonnes annually. The dominance of the unorganised sector is evident. In the rest of the country, except Gujarat and Karnataka, the share of the organised sector (cooperatives and dairies put together) in milk output is estimated at less than 25 per cent, with cooperatives making up no more than 11-12 per cent. In a sector characterised by data paucity, it is estimated that the remaining 75-80 per cent is either consumed locally or sold to the unorganised players. Urbanisation, rising income and population growth point to a growing market for pasteurised milk and its products, while the supply side remains fragmented.

Meanwhile, the reason, it appears, for Aavin’s lower scale of operations compared to Amul and Nandini is that it has not invested adequately in value added products (processing and packaging technology) and nor has it expanded its market reach outside the State. Amul and Nandini convert over 20 per cent of their liquid milk into value added products of quality, as a result of which they are able to ramp up their procurement of milk, with its zero shelf life, with confidence. Aavin has only itself to blame. Competition could shake it up to reimagine its business model. The political class fears losing what it views as a vote bank, but Aavin is free to expand into untapped areas in the State (or outside it) by creating more milksheds, while permitting an Amul or a Nandini to do the same.

Amul too should focus on creating co-operative societies in areas where organised players are absent, rather than merely tap into an existing milkshed. Ultimately, the share of processed milk in milk output must increase dramatically for India to be a global player.

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