Is there room for a dairy behemoth?

Source: The post is based on the article “Is there room for a dairy behemoth?” published in the Livemint on 15th May 2023.

Syllabus: GS – 3: Marketing of agricultural produce and issues and related constraints.

Relevance: About the challenges faced by the dairy cooperatives.

News: Many cooperatives are struggling financially. In this situation, creating a pan-India mega-brand will be hard.

About India’s milk revolution

Operation Flood was launched in 1970. Various successful dairy cooperatives emerged in different states. Amul is the largest fast-moving consumer goods (FMCG) brand, surpassing the turnover of giants like Hindustan Unilever. Besides Amul, there’s Nandini in Karnataka (the second-largest dairy cooperative), Aavin in Tamil Nadu, Milma in Kerala, Gokul in Maharashtra, Verka in Punjab, Saras in Rajasthan, and Sudha in Bihar (the largest cooperative in eastern India).

What is the success of India’s milk revolution?

The other success of the operation are,

-India is the largest producer of milk in the world—accounting for a fifth of global output—even though productivity per animal is low.

-Milk is the largest farm product valued at close to ₹10 trillion annually and produced by over 80 million rural families.

-Per capita milk availability grew over four-fold, from 107 gm per day in the 1970s to 427 gm in 2021, despite a growing population.

-Farmer members of cooperatives receive between 75-85% of what the consumer pays for dairy products. This compares with 25-50% share in other farm products.

-Multinational dairy giants were unable to crack India’s dairy market due to the strength of successful cooperatives.

Due to its success, the cooperation ministry (set up in July 2021) will help usher in the White Revolution 2.0 by setting up cooperative societies in 200,000 of the 500,000 uncovered villages.

What are the challenges faced by the dairy cooperatives in India today?

Financial struggles: A 2020 research paper on farm value chains found that 95 of the 175 milk unions it studied were in loss. The bulk of loss-making cooperatives—55 out of 95 unions—were from Uttar Pradesh, the largest milk-producing state.

Issues with the expansion of Amul: Since farmers from other states cannot be members of the Gujarat Cooperative Milk Marketing Federation (GCMMF), Amul behaved like a private sector entity outside Gujarat. In short, Amul entered other states, but it did not follow the Anand model (Anand dairy was owned by farmers and elected farmer representatives managed it).

Issues with the expansion of other dairy cooperatives: The expansion might create benefits like regional balancing (of supply and demand) and logistical benefits. But, the expansion of dairy cooperatives might increase unfair competition that will ultimately hurt farmers. Further, they will destroy local cooperatives by predatory pricing.

State funds are used to support local dairies (for fodder, artificial insemination, and veterinary services). So, the expansion of cooperatives directly waste the investment of state funds.

Issues with One India one model: One India-one Brand is a thought process aligned with present-day political realities. Dairy cooperatives entering another state may increase competition, transparency and efficiency in the dairy value chain. But the larger the cooperative, the lesser its accountability to members. Further, they become more vulnerable to a technocratic capture with a select few taking all decisions.