OVERVIEW OF DAIRY INDUSTRY

Transcription

1 CHAPTER 1 OVERVIEW OF DAIRY INDUSTRY

2 CHAPTER 1 OVERVIEW OF DAIRY INDUSTRY 1.1 Introduction 1.2 Co-operative Movement Globally 1.3 Co-operative Movement in India 1.4 Co-operative Movement in Gujarat 1.5 Objectives of Dairy Co-operatives 1.6 The National Co-operative Dairy Federation of India (NCFDI) 1.7 The National Dairy Development Board (NDDB) 1.8 Co-operative Dairying in India 1.9 Anand Pattern 1.10 Operation Flood Programmes 1.11 Impacts of Operation Flood 1.12 Pitfalls in the Operation Flood 1.13 Role of Dairy Co-operatives 1.14 Dairy Co-operatives in Gujarat 1.15 Co-operative Companies playing in Dairy Industry and its Brands 1.16 Milk Production and State-wise Milk Production in India 1.17 Problems and Prospects of Dairy Industry in Gujarat 1.18 Steps to revive Dairy Co-operatives 1.19 SWOT Analysis of Indian Dairy Industry 1.20 Dairy Industry in India at a glance

3 CHAPTER 1 OVERVIEW OF DAIRY INDUSTRY 1.1 INTRODUCTION Maximum people of thickly populated India live in villages. Majority of them are involved in agriculture. The cattle animal is correlated with agriculture in India as the old method of cultivation is still vogue here. Rearing of cattle animal is also an additional source of income of the villagers in our country. We get from our ancient history that the domestication of the cow and the buffalo dates back to nearly 4000 years. Scriptures of India refer to the wealth through the word Godhan. Maximum proportion of cows and buffaloes of the world are seen in India. Dairy enterprise is an important occupation of the farmer. In India, nearly 70% of the people depend on agriculture. It is the backbone of India. It is mainly a rural occupation closely associated with agriculture. More than 2,445 million people economically active in agriculture in the world, probably 2/3 or even more ¾ of them are wholly or partly dependent on livestock farming. The dairy sector in the India has shown remarkable development in the past decade and India has now become one of the largest producers of milk and value-added milk products in the world. The dairy sector has developed through co-operative in many parts of the state. Traditionally, in India dairying has been a rural cottage industry. Semi-commercial dairying started with the establishment of military dairy farms and co-operative milk unions throughout the country towards the end of the 19 th century. In earlier years, many households owned their own family cow or secured milk from neighbors who had one. With the increase in urban population fewer households could afford to keep a cow for private use and moreover there were other problems also like the high cost of milk production, problem of sanitation etc. restricted the practice; and gradually the 1

4 family cow in the city was eliminated and city cattle were all sent back to the rural areas. Gradually farmers living near the cities took advantage of their proximity to the cities and began supplying to the urban population; this gave rise to the fluid milk sheds we see today in every cities of our country. Prior to the 1850s most milk was necessarily produced within a short distance of the place of consumption because of lack of suitable means of transportation and refrigeration. The Indian Dairy Industry has made rapid progress since Independence. A large number of modern milk plants and product factories have since been established. These organized dairies have been successfully engaged in the routine commercial production of pasteurized bottled milk and various Western and Indian dairy products. With modern knowledge of the protection of milk during transportation, it became possible to locate dairies where land was less expensive and crops could be grown more economically. In India, the market milk technology may be considered to have commenced in 1950, with the functioning of the Central Dairy of Aarey Milk Colony, and milk product technology in 1956 with the establishment of AMUL Dairy, Anand. Indian dairy sector is still mainly an unorganized sector as barely 10% of our total milk production undergoes organized handling. Beginning in organized milk handling was made in India with establishment of Military Dairy Farms. Handling of milk in co-operative Milk Unions established all over the country on a small scale in the early stages. Long distance refrigerated rail-transport of milk from Anand to Mumbai since 1945 pasteurization and bottling of milk on a large scale for organized distribution was started at Aarey (1950), Calcutta (Haringhata, 1959 ), Worli (1961), Madras (1963) etc. establishment of Milk Plants under the Five-Year plans for Dairy Development all over India. These were taken up with the dual object of increasing the national level of milk consumption and ensuing better returns to the primary milk producer. Their main aim was to produce more, better and cheaper milk. In 1965, National Dairy Development Board (NDDB) was set up with the object of meeting the increasing demand of milk specially in urban areas as well as developing 2

5 the rural economy through the enhancement of the milk production of the country. In 1970 National Dairy Development Board took up Operation Flood Programme in order to organise Milk Producers Co-operative in several probable places of India taking the Kaira District (Anand) Co-operative Milk Producers Union Limited (AMUL) of Anand, Gujarat. The presence of milk cooperatives all over the country helps to organize the industry and give this sector a distinct advantage. Cooperatives allow for much easier marketing of the end product as compared to other businesses. Cooperatives assure the farmer of not only a market for their product but also take care of logistical issues like transportation and containers. The farmer is spared these costs as well as the cost of putting up a retail outlet. Cooperatives allow for stable selling rate which does not change even when they yield is surplus. Payments are guaranteed to milk producers and ensured within a maximum of 30 days. Cooperatives play an important role by eliminating middlemen and the associated costs. Dairy co-operatives are found everywhere in both developed and developing countries. In developing countries, it is one of the income sources of their rural economy whereas in developed countries it takes as a sustainable business. These countries face different types of problems. Developing countries focus on increase in production volume of milk and milk product, and developed countries do on enhancement of milk product, brand, and merger of dairy cooperatives. Dairy cooperatives have been getting various opportunities as well as facing different challenges. They are going to formulate different types of strategic planning to cope with these challenges and to get success. Strategic plans of dairy cooperatives in developing countries are, generally to increase production volume of buffalo milk, bring about the internal improvement in cooperative societies, reduce cost of production, and provide quality service to consumer through skill, trained and educated manpower. Strategic plan of developed countries is quite different from that of developing countries. Their strategic plans are to merge different dairy cooperative 3

6 societies/institutions into a dairy cooperative, and compete in the global market with quality of products. Co-operative Movement has been recognized as an effective instrument for the economic development of the rural masses and for improvement in the socio-economic condition of the underprivileged. 1.2 CO-OPERATIVE MOVEMENT GLOBALLY The genesis of co-operative movement can be traced back to the first half of the 18 th century. Industrial revolution in U.K. had increased the production of morality and values of mankind as man was replaced by machine. Because of lust and lure for the production, it had directly resulted in the exploitation of the mankind and so cooperative movement took birth in U.K. for removing the bad conditions of laborers. From England, co-operative movement spread out all over the world and had been changed in to the great movement which can be seen by the following table: Table - 1.1: Cooperative Movement in various countries Sr. No. Types of Cooperatives Country Name 1. Consumer s Cooperatives England, Russia and Sweden 2. Credit Cooperatives Germany, Italy, Sweden and India 3. Marketing Cooperatives Canada, U.S.A. and Australia 4. Land Mortgage Credit Germany, England and France 5. Dairy Cooperatives Denmark and New Zealand 6. Farming Societies Russia, Yugoslavia and Palestine 7. Housing Societies U.S.A., Sweden and Israel 8. Producers Cooperatives Labour France and England Societies 9. Labour Societies Italy 10. Insurance Cooperatives England 11. Cooperative Education England (Source: Pranab Chakrabarty, Problems of Co-operative Development 1967.) 4

7 1.3 CO-OPERATIVE MOVEMENT IN INDIA 1904: The Co-operative Credit Societies Act i.e. the first Co-operative Law of India was passed. 1912: The Co-operative Societies Act, 1912 had wider scope for other types of cooperatives to function. 1919: Government of India Act, Co-operation as a subject was transferred to provinces. 1942: Multi-unit Co-operative Societies Act, delegated the power of Central Registrar of Co-operatives to State Registrars for all practical purposes. 1984: Multi-State Co-operative Societies Act. 1991: Brahma Prakash Committee comes out with the Model Co-operative Societies Act, with lesser state involvement. 1995: The Government of Andhra Pradesh passes the new Mutually Aided Cooperative Societies Act, granting autonomy to the co-operatives. 2002: Multi-State Co-operative Societies (MSCS) Act, 2002 replaced the MSCS Act, : Companies Amendment Act, 1956 provides an alternative to the institutional form that is presently available to co-operative enterprises. 2004: Task Force on Revival of Co-operative Credit Institutions set up under the chairmanship of Prof. A. Vaidyanathan. 1.4 CO-OPERATIVE MOVEMENT IN GUJARAT The first agricultural credit society registered under the 1904 Act was Vilaspur Co-operative Credit Society in the Dascroi taluka of Ahmedabad district. Kaira District Milk Union Ltd. Popularly known as AMUL was established by Late Sri Tribhuvandas Patel in December 1946 at Anand. The state has also been ahead in the organization of Agricultural Marketing Cooperatives, Non-agricultural Co-operative Credit Societies, Forest Labourers 5

8 Societies for Adivasi, Co-operative Housing, Poultry Co-operatives, Lift Irrigation and Industrial Co-operatives. The co-operative movement in Gujarat is similar to the mild Dairy cooperative movement of Gujarat. Due to the exploitation of the middlemen called the Bhatiya, the farmers decided to form their own association to save their interest. So, the first co-operative society was started in 1939 in Surat and that was the beginning of new era of co-operative movement in Gujarat. Before the birth of Amul Dairy, Anand, there was no systematic marketing for milk in Gujarat and in India also and then, with the birth of Amul in 1946, the co-operative movement began as a revolution and then it emerged as a White Revolution. 1.5 OBJECTIVES OF DAIRY CO-OPERATIVES The dairy co-operative is based on following objectives: 1. To develop the skills of dairying in rural people and prepare them to accept this activity as a joint business along with farming. 2. To develop co-operative societies at village, taluka and district level. 3. To encourage dairying in co-operative sector and to strengthen the co-operative dairies and unions to be economically strong. 1.6 THE NATIONAL CO-OPERATIVE DAIRY FEDERATION OF INDIA (NCDFI) The NCDFI is the fourth tier of the APDC. All the state-level federations are members of NCDFI. They become members by paying the requisite entrance fee and purchasing shares. The NCDFI board consists of all the chairpersons/managing directors of the state federations/ state unions/territory unions. The main function of the NCDFI is to promote the dairy industry on a cooperative basis. It offers services in procurement, processing and marketing of milk and milk products from one state to another within the country and is also responsible for international marketing. NCDFI also coordinates the supply of milk and milk products 6

9 to institutional consumers such as the army. Further, it organizes and operates the national milk grid. It helps the member federations in the purchase, storage and distribution of machinery and equipment. The State Dairy Cooperative Federation The district dairy cooperative unions are federated into a state-level cooperative milk marketing federation by subscribing to it at least one share. The federation is responsible for developing and implementing policies on cooperative marketing of all member unions liquid milk and milk products, the product-price mix, cooperative provision of joint services (such as AI and breeding) and cooperative marketing of support services to members. Out of its net profit, the federation distributes the profit share among all the member unions according to the milk procured by them and the provision of by-laws. The federation board consists of the elected chairpersons of all member unions and the federation s managing director; other members are representatives of registrar cooperative societies and nominees of NDDB. Only the elected chairpersons of the member unions have voting rights and elect the chairperson of the federation. The federation board is advised by its programming committee, which is composed of each member union s chief executive, the federation s chief quality control officer and one or more non-voting co-opted technical representatives of NDDB. The federation s managing director is the committee s chairperson, and the general manager, its secretary. The programming committee meets once every month and is also responsible for day-to-day implementation of the board s policies and plans. District Cooperative Milk Unions All the registered village dairy cooperatives are affiliated with and members of the district cooperative milk producers union, which enables them to jointly own a dairy processing plant and cattle feed plant. In order to become a member of the union, a 7

10 registered society has to pay a nominal entrance fee and must purchase at least one share of the union. The union is controlled by a board of directors consisting of 16 to 17 members, of whom 12 are democratically elected from among the chairpersons of the member village dairy societies. The remaining 4 to 5 members include the union s managing director as a member secretary, one or two representatives of financing institutions and a nominee each from registrar cooperative societies and the federation. These five members are not eligible to compete for the post of chairperson, who is elected by ballot by the board of director members. One-third of the elected board members retire every year by rotation so that each member carries out his duties for three years. This ensures continuity in management. The board frames the general policy for the union and employs the managing director/general manager. While the board determines the number, type and pay scales of personnel, it is the managing director/general manager who appoints the junior staff. The union carries out five important elements: (i) procurement, processing and marketing of milk; (ii) provision of technical inputs (support services); (iii) strengthening of the dairy cooperative movement; (iv) organization of extension activities; (v) rural development services. The union owns and operates a dairy plant, a cattle feed plant, fodder and bull mother farms, semen collection stations and a centre for animal husbandry activities. In addition, the union carries out research, development and other promotional activities for the overall benefit of milk producers. The union provides macro-level inputs such as compounded cattle feed, fodder seeds and various veterinary services including round-the-clock emergency visits at the producers doorstep. The total cost of these programmes is included in the milk price structure. It is therefore at the union level that professionals are hired for specialized purposes that individual producers cannot afford. 8

11 The union distributes among producers dividends on their shares and bonus in relation to the quantity of milk supplied by them during the year. The milk products processed by the union are marketed through the federation. A special feature of the Anand Pattern is that the unions are under continuous audit to maintain financial propriety. Village Dairy Cooperative Societies (DCSs) The basic unit in the Anand Pattern is the milk producers cooperative society, a voluntary association of milk producers in a village who wish to market their milk collectively. Every milk producer who has at least one milch animal that is owned can become a member of the cooperative by paying a nominal entrance fee and purchasing at least one share. At a general meeting of all the members, the representatives are elected to form a managing committee, which runs the day-today affairs of the cooperative society by setting the policies and appointing necessary staff. Out of nine managing committee members, one member is elected as chairperson. Every morning and evening the society buys the surplus milk from its producermembers. The producer is paid for milk usually within 12 ho urs (for morning milk, in the same evening and for evening milk, the next morning). The payment is made on the basis of fat and SNF (solids-not-fat) content of the milk supplied by the individual producer. The district milk union organizes the transport of collected milk twice daily (whenever the dairy society has no bulk coolers) or according to the schedule based on the quantity of the milk collected and the capacity of bulk coolers from all its affiliated member cooperatives. The producers in this system are not only ensured regular and remunerative payment for their milk, but also have access to the milk production enhancement inputs, support services, to further improve their productivity and income. The micro-level support services such as veterinary first aid and AI are organized by village societies. One of the staff members of the society is trained to carry out these functions. 9

12 Societies also market the liquid milk locally at the village level. In addition, supply of balanced cattle feed and fodder seeds and milk products are also channeled through societies. In addition to regular payment and support services, members also receive the price difference, dividend and bonus deriving from the net profit of the society s business as per the provisions of the society s by-laws. 1.7 THE NATIONAL DAIRY DEVELOPMENT BOARD (NDDB) The public sector impressed by the socio-economic changes that had been brought about by the dairy cooperative organization, proposed a national level organization that could replicate the APDCs. The GOI created the NDDB in September Then, under the National Dairy Development Board Act of 1987 passed by parliament and made effective on 12 October 1987, a restructured NDDB, a body corporate of national importance, was formed. The major objectives of NDDB are: Promote viable producer-owned and controlled organizations primed to produce, procure, process and market milk and its products, as well as other commodities, so as to: (i) maximize productivity and optimize the producers' share of the consumer price paid; (ii) influence and foster the development of the dairy and other agricultural industries. Generate funds to finance producer-owned organizations. Provide assistance for planning projects and appraising them for financing. Provide training for farmer leaders of the cooperative sector, as well as for the professionals employed therein. Provide cooperative-oriented education for all those involved in building cooperatives. Provide services to enable effective management of cooperatives. 10

13 Monitor achievements against physical and financial targets and take necessary corrective measures. Monitor the financial viability of projects. Create a data bank on all related activities to be shared with similar organizations. Promote industries to ensure fulfilment of the needs of the developmental projects undertaken by NDDB. Apply research and development and identify new technologies. Respond to other developing countries' requests to organize their developmental programmes on cooperative lines. Undertake any other special projects at the request of the central or state governments. 1.8 CO-OPERATIVE DAIRYING IN INDIA HISTORY OF DAIRY COOPERATIVE IN INDIA The Co-operative movement started in India in the last decade of the 19 th century with two objects in view, i.e. to protect the farmers from the hands of the private money lenders and to improve their economic condition. Madras province was the birth-place of this movement. With the setting up of an Agricultural Co-operative Banks there the movement took root in our Land and slowly gained strength. However, the growth of Co-operative movement in India during British rule was very slow and haphazard one. In most of the cases, the provincial governments took the lead. The foreign ruler had only made some committees or framed a few rules and regulations. But they did not take any wide-ranging programme to spread the movement all over the country. The golden era of Co-operative movement began after India had won freedom. Within two decades of independence the membership of primary societies had increased four times while the share capital and working capital increased 23 and 31 times respectively. 11

14 The history of Dairy Development Movement in India is a new one. During the preindependence period this movement was limited to a few pockets of Calcutta, Madras, Bangalore and Gujarat. The most notable of this venture was Kaira District Cooperative Milk Producers Union Limited of Anand, Gujarat. But after independence the National Government took great initiative in setting up new Dairy Co-operatives in many parts of the country. The National Dairy Development Board was set up to make the ambitious project a success. An impressive development has taken place as far as dairying as co-operatives are concerned. Strengthening the cooperative business is a thrust area that focuses on expanding and reinforcing the cooperative infrastructure at every level and enhancing market potential through modern dairy plant technology, new product development and innovative marketing. Today, women dairy farmers are encouraged to play a major role. Thus, it has become an important instrument for their empowerment. NDDB is committed to increase women participation by establishing 2,062 women dairy cooperative societies with 90,000 women participants. ORIGIN The history of Dairy Development Movement in India is a new one. During the preindependence period this movement was limited to a few pockets of Calcutta, Madras, Bangalore and Gujarat. The most notable of this venture was Kaira District Cooperative Milk Producers Union Limited of Anand, Gujarat. But after independence the National Government took great initiative in setting up new Dairy Co-operatives in many parts of the country. The National Dairy Development Board was set up to make the ambitious project a success. DEVELOPMENT The organized dairying in India was started at the end of 19 th century when military dairy farms and creameries were started to meet the demands of the armed forces and their families. The first dairy co-operative society was established at Allahabad in 12

15 1913. After this the Calcutta milk supply societies union was established in Till 1938 there were only 19 unions with 264 primary societies and 11,600 milk producer members. However, dairy co-operatives did not make much headway in the preindependence period. The first major landmark in the development of co-operative dairying in India was the establishment of the Kaira District Co-operative Milk Producers Union Ltd (KDCMPUL). Before the establishment of Amul, the milk marketing system in the district was controlled by contractors and middle men who used to exploit the milk producers in all possible ways, there by earning huge profits. As a result there was growing discontent among the milk producers. On the advice of Sri Sardar Patel and under the able leadership of Sri Tribhuvandas Patel, it was decided to organize primary dairy co-operative societies which led to the emergence of Amul on 14 th December, The dairy co-operatives in Kaira district under the able guidance of Sri Tribhuvandas Patel and Dr. Varghese Kurein, its chairman and general manager respectively, followed an integrated approach to dairy development linking all the major elements of dairying viz., production, procurement, processing and marketing and achieved remarkable progress. Today AMUL is the largest dairy plant in the country handling on an average about 8.5 lakh liters of milk per day collected from 3.65 lakh milk producers from over 880 villages of the district. The ultimate result is that Anand or Amul became a model world-wide for a co-operative. 1.9 ANAND PATTERN The unprecedented success of AMUL stimulated the farmers in other districts of Gujarat to emulate their example. Thus, the integrated approach to co-operative dairy was successfully adopted in Gujarat and later it came to be known as Anand-pattern of dairy co-operatives. This Anand model of co-operative structure was built on vertically integrated co-operatives linking rural producers with urban consumers. It is a three-tier structure. The three tiers are: 13

16 The primary Dairy Co-operative Society at the village level is the first-tier that consists of members who own milch animals within the village jurisdiction and supply milk to the co-operative society on regular basis. District co-operative milk producer s union at the district level is the secondtier that in which all primary societies are members. It is managed by a Board of Directors the majority of who are elected by the presidents of primary dairy co-operative societies. The district union is responsible for the procurement, processing and marketing of milk and also to provide technical inputs like firstaid, emergency veterinary services, Artificial Insemination (AI) facilities, fodder seeds, cattle feed and for training the staff of the primary societies. Co-operative federation at the state level is the third-tier to which all the district unions in a state are federated. The federation s board consists of elected chairman of the district unions and representatives of the state government. Its primary purpose is to maximize returns to the milk producer members through centralized marketing, purchase and quality control. SALIENT FEATURES OF ANAND PATTERN DISTRICT CO-OPEARTIVES (APDC) The salient features that have contributed to APDCs are as follows: A single commodity approach; handles only the milk business. Four-tier organizational structure; an integrated structure owned, managed and controlled by milk producers members themselves, which handles milk production, procurement, processing and marketing, and provides support services for milk production enhancement. Democratically elected boards from among their members in all the four tiers, i.e. the village DCS, the district milk union, the state federation and the national federation. The board members are authorized to decide upon the policies for total democratic governance. 14

17 Employment of professionals by the cooperatives and professional managers answerable to the cooperative boards. The basic philosophy of the Anand Pattern; combining the power of its people with professional management in a vertically integrated cooperative structure that establishes a direct linkage, eliminating all middlemen, between those who produce the milk and those who consume it, either in the form of milk or milk products. This structure transfers the largest share of consumers money to the producers, creating an incentive to improve production. It supports production by exposing farmers to modern technology. Placing the farmers in command as the owners of their cooperative involves them in the process of development. The democratic form of the cooperative provides an underpinning for democracy in the country, through a foundation of a democratic institution right down to the village level. Transparency maintained in business: by-laws providing continuous and concurrent audit. Cash and regular payment to producers for the milk supplied by them. Awareness raised on clean milk production and animal husbandry practices, which resulted in higher quality of milk production and breed improvement. THE REPLICATION OF ANAND PATTERN Sri Lal Bahadur Shastri, the then Prime Minister of India, visited Anand in 1964 to inaugurate the cattle feed plant. Having been immensely impressed with the success of dairy co-operatives in Gujarat, he has advocated the replication of Anand pattern dairy co-operatives throughout the country. Accordingly, the government of India established the National Dairy Development Board (NDDB) in 1965 to replicate this pattern throughout the country by implementing the Operation Flood (OF) programmes for this purpose. The Indian Dairy Corporation (IDC) was set up in 1970 to handle the donated commodities, the generation of funds and their disbursement for the dairy development programmes. 15

18 1.10 OPERATION FLOOD PROGRAMMES Development Operation Flood (OF), the world s largest dairy development programme ever undertaken, aims at setting up of a modern dairy industry to meet India s rapidly increasing need for milk and its products and making it viable and self sustaining growth. The project undertook the colossal task of upgr ading and modernizing production, processing and marketing of milk with the assistance provided by the World Food Programme (WFP). The aim was to create a Flood of rurally produced milk, assuring the farmer of remunerative price and ready market, and the urban consumer of wholesome milk at stable and reasonable prices by linking the main producing areas to the main consuming centers in urban areas. Operation Flood I ( ): The programme laid emphasis on setting up of Anand pattern rural milk producers co-operative organizations to procure, process and market milk and to provide some of the essential technical input services for increasing milk production. OF-I was launched in 1970, following an agreement with the WFP, which undertook to provide 1,26,000 tonnes of Butter Oil (BO) as aid for financing the programme. The programme involved organizing dairy co-operatives at the village level, providing the physical and institutional infrastructure for milk procurement, processing, marketing enhancing services at the union level and establishing of city dairies. The main thrust was to set up dairy co-operatives in the milk sheds, so as to link them to the four metro cities of Mumbai, Calcutta, Delhi and Chennai, in which a commanding share of the milk markets was to be captured. The overall objective of Operation Flood I was to lay the foundation of a modern dairy industry in India which would adequately meet the country s need for milk and milk products. Funds for Operation Flood I were generated by the sale of SMP and Butter Oil. A total of Rs crore was invested in the implementation of the programme. The achievements of OF-I are furnished in table 1.2. By the end of OF-I about 13,300 DCS, 39 milk sheds were 16

19 organized, enrolling 18 lakh farmer members. It achieved a peak milk procurement of 34 lakh litres per day (llpd) marketing of 28 llpd. Operation Flood II ( ): The background of the institutional framework of OF-II essentially comprised of the successful replication of the Anand pattern three-tier co-operative structure of societies, unions and federations. OF-II was designed to build on the foundation already laid by OF-I and the Indian Dairy Association (IDA) assisted dairy development projects in Karnataka, Rajasthan and Madhya Pradesh. The programme was approved by the Government of India, for implementation during the Sixth Plan period, with an outlay of Rs. 273 crores. About US $ 150 millions were provided by the World Bank and the balance in the form of commodity assistance from the European Economic Community (EEC). OF-II helped to market milk in about 148 cities and towns with a total population of 15 million through a national milk grid, linking these towns and cities to 136 rural milk sheds. The project was extended crores 34,500 village co-operative societies, covering 36 lakh farmer members. The peak milk procurement increased to a level of 79 llpd and milk marketing to 50 llpd. Operation Flood III ( ): The third phase aimed at consolidation of the gains of earlier two phases. The main focus of the programme was on achieving financial viability of the milk unions state federations and adopting the salient institutional characteristics of the Anand Pattern co-operatives. The OF-III programme was funded by a World Bank with a loan of US $ 365 millions, Rs crores of Food-Aid (75,000 tonnes of milk powder and 75,000 tonnes of butter/butter oil) by the EEC and Rs crores by NDDB from its own resources. The programme covered some 170 milk sheds of t wo countries by organizing 70,000 primary dairy co-operative societies. The World Bank granted provisional extension of OF-III credit upto April 30, Its major emphasis was to consolidate the achievements gained during the earlier 17

20 phases by improving the productivity and efficiency of the co-operative dairy sector and its institutional base for its long-term sustainability. Investments in OF-III were focused on strengthening the institutional management aspect of dairy co-operatives at various levels to establish financially strong, farmer owned and managed organisation. The OF-III also had provision for productivity enhancement inputs and institutional strengthening in the form of training, research, market promotion, monitoring and evaluation. Particular emphasis was placed on institutional and policy reforms. Efforts were made to expand infrastructural facilities in all major markets, linking them to milk sheds through the National Milk Grid (NMG) to ensure year-round stable milk supply. Marketing thus, becomes the linking force to improve procurement and strengthen the financial viability of the Unions. The role of NMG is crucial in ensuring the availability of milk to consumers and a remunerative price to milk producers by leveling out regional and seasonal imbalances in supply and demand. Marketing indigenous milk products forms an important part of the overall marketing strategy. Table 1.2 displays progress of dairy development during three phases of OF under four broad parameters namely procurement, processing capacity, market and technical inputs. Between 1971 and 2000 all the indicators of milk procurement witnessed 4 - digit increase in percentage terms. With regard processing capacity, the percentage growth in processing capacity was more in metro dairies (4-digit increased) than in rural dairies (3-digit increase). In milk marketing dairies in and towns either than those in metros had a cities better record (4-digit increased) and the same can be alert milk marketing powder. In permission of technical inputs there was a 3-digit increase in all the parameters. 18

21 Table 1.2: Dairy Development under Operation Flood Programmes in India Parameters Phase I Phase II Phase III % increase in 2002 over Panel A - Procurement Number of milk sheds Number of DCS (000 s) Number of farmers membership (in lakhs) Average milk procurement (llpd) Peak milk procurement (llpd) Panel B - Procurement Rural dairies (llpd) Metro dairies (llpd) Panel C - Procurement Metro dairies (llpd) N.A Other cities & town (llpd) Total marketing N.A Milk dairy capacity (llpd) N.A Milk powder production ( 000 tones/year) % Panel D - Procurement % increase in 2002 over 1981 Number of AI canters ( 000 s) N.A Number of AI Done (in lakhs) N.A Cattle feed capacity ( 000 tonnes/day) N.A Investment (Rs. Crores) N.A

22 1.11 IMPACTS OF OPERATION FLOOD Operation Flood has had far reaching impacts on the development of modern dairying facilities in the country. It has not only impacted growth in production and distribution of milk and milk products, but also dominated the rural development scenario by providing sustainable livelihood options to millions of rural farmers. A World Bank audit showed that of the Rs. 200 crores invested in Operation Flood (II), the net return into the rural economy has Rs crores per year over a period of ten years, or a total of Rs. 240,000 crores in all. No other major development programme in the world has matched this input-output ratio. The impact of Operation Flood on India s modern dairy sector has been paramount. From an insignificant 200,000 litres per day (lpd) of processed milk in , the organised sector is presently handling more than 25 million lpd in more than 400 modern dairy plants setup in different milk sheds in the country. One of the largest liquid milk processing and pasteurizing plants has been established in Delhi handling over 800,000 lpd (Mother Dairy). India s first automated dairy plant with handling capacity of 1,000,000 lpd has been established at Gandhinagar near Ahmedabad in Western India. Several domestic cooperatives have mushroomed, and many of them are now emerging as major players in the global market. The Gujarat Cooperative Milk Marketing Federation Limited, with its popular brand Amul, has become the one of the largest food companies in Asia, with annual turnover in excess of Rs. 30 billion. Operation Flood offers some very crucial lessons for policy-makers. The first lesson is inclusive growth. By establishing dairy cooperatives at the grassroots level, it brought the milk farmers into its ambit, and placed control in their hands to decide what and how much to produce and sell. This market-oriented, participatory approach to development led to many grassroot-level innovations in designing of the supply chain in dairy. 20

23 Secondly, efficiency is the key to success in food processing industries such as dairy, and thus, streamlining and strengthening of the supply chain holds paramount importance. With setting up of a strong supply-chain network, leakage from the system to middlemen can be checked and more returns can be realized for the milk producers (who are the ultimate stakeholders of the system). Thirdly, for higher price realization, one needs to graduate from simple, low-value commodities to high-value added processed products. Marketing holds the key to ensuring that products are available at the right place, at the right time, at the right price. Brand building is an essential exercise for all dairy companies to exploit the full potential of the dairy value-chain. Finally, the most crucial lesson of Operation Flood to all policy makers is that growth and development should be market-oriented and market-led. By developing the market forces, and ensuring healthy competition among different players in the market, a robust and transparent system can be developed, which benefits both the producers and consumers by ensuring quality products at value-for-money prices PITFALLS IN THE OPERATION FLOOD There are many pitfalls in the Operation Flood: 1. Operation Flood Successful in Limited States Only: The success of dairy cooperatives has been largely confined to a few states in India such as Gujarat, Punjab, Andhra Pradesh and Rajasthan, where brands like Amul, Verka, Vijaya and Saras have become household names. However, a large number of dairy cooperatives, unions and federations are defunct and are not able to create value for their members. Cooperatives in Uttar Pradesh (Parag Dairy), Kerala (Milma), and Madhya Pradesh (Uttam Dairy) are largely loss-making. A lot needs to be done to strengthen such nonperforming cooperatives. 21

24 2. Excessive Government Interference in Decision-Making: Excessive government interventions in the cooperatives due to vested political interests have led to massive politicization of dairy cooperatives. These cooperatives have a very large rural base, with millions of farmers as members, and they could play a major role during political elections. With electoral forces, and not market forces guiding the decision-making of the cooperatives, most cooperatives have become agencies for implementing the populist policies of the government, and thus unprofitable and unviable business units. 3. Limited Sources of Finance: Limited sources of finance available to these cooperatives also hinder the smooth functioning of many dairy cooperatives. The cooperatives cannot raise equity from the market, and have to depend either on their own retained earnings or on equity from member farmers. Both these sources are woefully inadequate for meeting the financial needs for technological upgradation and innovation, and thus the cooperatives have to resort to government loans and grants. This in turn makes them an easy prey for government interference in decisionmaking. 4. Politicization of Cooperatives: Politicization of cooperatives has caused a plethora of problems. Overstaffing, low capacity utilization, weak market orientation and poor financial controls have become the norm rather than exception in case if most Indian dairy cooperatives. Appointment of bureaucrats as managers of the cooperatives has been the case in Madhya Pradesh, Orissa and Uttar Pradesh. These bureaucrats do not have the professional skills required to manage such producer cooperatives. Consequently, under such bureaucratic heads, the cooperatives fail to respond to neither the needs of the producer farmers, nor the needs of the industry. 5. Government dictated input-output pricing: In case of most cooperatives the state government fixes the minimum producer price. For instance in Maharashtra and Punjab, the State Government fixes the selling price of milk to government dairies. 22

25 The selling price is determined by the government through on the spot interventions in case of Andhra Pradesh and Karnataka. This has caused inevitable distortions in the pricing of processed dairy products, and has adversely affected the financial health of the cooperatives. 6. Inability to Meet the Stringent Sanitary and Phyto-Sanitary Standards for Exports: Indian dairy industry, on an average, falls short of meeting the Sanitary and Phyto-Sanitary (SPS) requirements of the WTO Agreements, and thus is not able to compete in the global markets. As a direct consequence of this, most of the Indian dairy exports are directed to the Middle East and the developing nations of Asia and Africa where the SPS and other export regulations are not all that stringent. However, in order to be able to compete in the more remunerative markets of the West such as Europe and the US, there has to be a more concerted effort to make our dairy plants truly of global standards. Bangladesh and UAE account for around 45% of dairy exports from India. Indian exports to remunerative markets of USA, EU, Canada and Australia have been quite low. One reason for low exports of dairy products from India to these markets is that these developed nations are also the major milk producing nations of the world. Thus there does not exist much scope of meeting the unsatisfied demand in their economies. Also, these nations have very high and stringent SPS and FDA norms, which most Indian dairy manufacturers find difficult to comply with. The recent Clean Milk Production (CMP) campaign of the NDDB is a step in total quality management in dairy products. In other words, total quality management at every step from the cow to the consumer. This has been initiated keeping in mind the growing quality consciousness among consumers in domestic as well as in international markets. 23

26 1.13 ROLE OF DAIRY CO-OPERATIVES Dairy farming plays a key role in the socio economic status of the large percentage of rural people especially in developing countries through provision of employment opportunities as well as supplementary income to the rural poor. However, evidence indicates that the proportion of dairy farmers engaged in subsistence agriculture in the developing world is still high despite the rapid increase in demand of livestock products. As a result, many countries are attempting to increase milk production by assisting small-scale farmers to integrate in markets since they are the most numerous and poorest of the farmer population as a whole. This has an impact on the provision of rural employment, increase in income and diversification away from traditional production to modern systems of production. Therefore, the co-operative system has proved to an effective vehicle for dairy development, particularly in rural areas. It has featured prominently in dairy development worldwide because of the range of skills involved in milk production and marketing that require a number of activities that can best be provided through collective action, thus through co-operatives. The role of co-operatives in dairy production is evident in the following ways: 1. Improvement in milk production Co-operatives have played a vital role in fostering dairy development in a number of countries in the developing world, particularly by providing a stable market environment and delivering necessary farmer services for smallholder dairy farmers. This has been made possible through the development of informal or traditional marketing channels which co-operatives have contributed to, and these markets are dominated by smallholder farmers. They control approximately 80% of marketed milk in many countries 1in SSA, South Asia and Latin America. Examples include Kenya (86%), Tanzania (98%) and India (83%). Dairy development through co-operatives is considered to be the most effective strategy for supporting smallholder dairy farmers, which is made possible by 24

27 providing a guaranteed market for milk; supplying feed at reasonable prices as well as provision of other services such as milk collection, provision of credit, veterinary aid, and artificial insemination. Access to necessary inputs and services is a major contributor to increase and sustain milk production. An increase in milk production has a positive influence in income generation which encourages farmers to invest in better dairy technology, such as improved dairy breeds and better feed, resulting in milk production being more profitable. Farmers produce better feeds and improve housing and care for their animals, which contribute to dairy development and hence an increase in milk production. 2. Improvement in milk marketing The marketing of milk presents serious challenges for smallholder dairy farmers because of its unique features that require special co-ordination in markets as compared to other agricultural products. According to Wolf and Hamm and Hovhannisyam, milk has three special attributes that distinguish its marketing from other agricultural products. Firstly, milk is a perishable product and unlike other agricultural products, it can only be stored for a few days in its liquid state. Secondly, most agricultural products are harvested twice a day. Thirdly, the supply and demand of milk is counter-cyclical over the year. These attributed are evidence that milk requires a secure market and co-operatives have proven to be a provider of such an assured milk market, as observed in countries like India, Kenya and Uganda. Moreover, these special attributes of milk contribute to high transaction costs in dairy production and marketing because of the high marketing costs for fluid milk, scattered nature of fluid milk markets and the risk attached to marketing milk as a perishable product. Because of its perishable nature, milk requires rapid transportation to the market in order to avoid losses arising from spoilages. Farmers lack post harvest infrastructure such as chilling facilities to keep milk in good condition hence the need for rapid transportation of milk to the market. This results in high transaction costs which negatively affect farmers decision to participate in markets, thus limiting them 25

28 from accessing markets. In this regard, co-operatives play a crucial role in minimizing transaction costs in dairy production because they improve market participation by overcoming barriers to assets, information, necessary services and, most importantly, by overcoming barriers to markets within which smallholders wish to sell their milk. Co-operatives therefore improve the marketing of milk through the minimization of transaction costs associated with marketing milk as a perishable product. Cooperatives provide a reliable market outlet to dairy farmers and they have the advantage in the collective marketing of milk which significantly lowers transaction costs among smallholder farmers. The provision of a reliable market outlet that is sufficiently rewarding for farmers acts as a stimulator for milk production an d cooperatives provide more marketing options to farmers. This in turn brings about major improvements in the production and marketing of milk as well as changes in consumption behavior of smallholder households since they consume a higher percentage of their produce. Co-operatives also enable value addition through the processing of milk into less perishable products which assists farmers in selling directly to final consumers, thereby earning more profit. Improvement in market access encourages more intensive dairy production in the form of improved dairy breeds and improved feed technologies that enable smallholder farmers to increase their income and employment, which in turn leads to improvement in the welfares of families, including those of women and children. An example of successful co-operatives in the dairy industry is found in India. More than 70% of India s milk is produced by households owning only one or two dairy animals and these producers form part of a nationwide network of dairy co-operatives. 3. Improving food safety and standards Increasing food safety concerns over the effects on health and recent global concerns have led to a growing interest among consumers in food safety assurances and traceability of products offered by farmers. As one of their advantages, co-operatives 26