Ashok Gulati and Ayushi Khurana (hereafter G&K) compile the many visible indicators of the growth and importance of the dairy economy in their article (‘Let the market work‘, IE, July 5). These include the quantum of production, the growth rate, the share in GDP and their comparisons with those of other sectors or countries.
G & K’s final recommendation that “let prices be determined by market forces” should be broadly acceptable. But if “the private sector which enters this sector in an important way” opens “the doors of creativity and competition” depends on its good lessons to be learned from the way in which “cooperatives …[have done] a great job. ”This memo is an effort to examine some factors below the surface, to put the totality of dairy development in perspective and to balance the impression created by the G&K article that this is largely due to market forces. .
But first a few details. G&K seems surprised that cooperatives and organized private dairies process only about 20 percent of milk production. The reality is that in cities of level two and below, private vendors still control the milk supply to households. In addition, most of the raw milk is used to produce candy.
Even during the license raj, large private newspapers existed and functioned fairly well. Nestlé had a factory near Amritsar in Punjab with the milk collection spread over several surrounding districts. Glaxo (now part of Hindustan Unilever) operated factories in Aligarh and Etah. Hindustan Milkfoods (now part of Hindustan Unilever) operated from Rajahmundry in Andhra Pradesh. All of these products were dedicated to products such as Nestlé’s Baby Food, Complan and Horlicks, but they were large operations, with a daily milk collection amounting to around 1,000,000 liters. When this writer studied them in the 1980s and 1990s, he found that their ground operations did not differ from those of co-ops. Operation Flood wisely stayed away from these areas.
G&K found that the growth rate of milk production between 2004 and 2014 is exceeded by that between 2015 and 2021. They attribute this to the capacity created by new dairies in the private sector. But most of the private dairies followed the model established by the cooperatives. While food grain production has tripled from around 108 million tonnes in 1970-71 to 300 million tonnes in 2019-2020, milk production has increased nine-fold over the same period. from 21 million tonnes to over 200 million tonnes.
To understand how this happened, you have to go back 75 years to the beginning of dairy cooperatives. In 1946, Tribhuvandas Patel, Gandhian and follower of Sardar Vallabhbhai Patel, led some dairy farmers in Kheda district to strike against the Greater Bombay Milk Scheme (GBMS), which refused to take their milk in winter because there was a surplus. Farmers have succeeded, with political support, in getting their milk accepted by GBMS all year round. They quickly formed a cooperative, Anand Milk Union Ltd (Amul) with 246 members and recruited a US-trained dairy engineer, Verghese Kurien, to be their manager.
Amul grew rapidly and Kurien realized that strikes could only go that far. The solution to the natural periodicity of milk production lies in the transformation of excess milk during the hunting season (winter) into powdered milk and butter (milk fat). These could be recombined during the lean season to ensure a uniform supply of milk throughout the year.
Kurien succeeded in securing a grant from UNICEF for an economic-sized factory. The Amul dairy was established in 1956. Kurien also realized that it was possible to make more money by selling milk fat in the form of table butter and that the recombined milk could be leaner. .
New cooperative dairies had sprung up in the neighboring districts of Mahesana and Banaskantha, on the Amul lines. Kurien roped them up in a similar activity plan. Voltas became the marketer for Amul’s butter. The rest, as they say, is history. Thus, the first pillar of success is to link micro-level production, economic-scale processing and large-scale marketing with a brand.
Meanwhile, something quite revolutionary was happening in dairy households. Traditionally, women tended the buffaloes and brought the milk to the collection station. They also began to receive weekly payments for milk delivered. We can only imagine the impact this would have had seven decades ago. Terms like gender equality and self-help groups had not yet been coined, but they were in action in the dairy villages of Gujarat. It has become the second pillar of the development of the dairy economy.
But the most important effect was on family decision making. Now that they had regular, reliable and often large cash incomes supplementing their periodic and uncertain farm incomes, they could view dairy farming as a business and not as a subsistence or default activity. The asymmetry of market power was effectively countered by cooperatives, which were large enough to benefit from economies of scale through the use of technology. Their concern has shifted from remunerative prices to their stability, their added value and the generation of surpluses for all. Administrative interventions such as support prices or monopoly purchases are not necessary since farmers’ organizations can lobby powerfully to protect their interests. It is the third most important pillar.
To attribute the development of India’s dairy economy to market forces and the entry of private entities into the business only or primarily would be superficial. These three major pillars are responsible for the happy statistics cited by G&K.
This column first appeared in the print edition on July 13, 2021 under the title “Not by market alone”. The author has been involved in the dairy economy since 1975. Pankaj Jain’s suggestions and comments are greatly appreciated.