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

Relevance: This article explains the reasons behind the success of the cooperative model of the dairy sector

Synopsis: Micro-level production, processing and marketing, and change in perception played a critical role in increasing milk production.

Background

• Some attribute the milk production growth in India 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.
• However, major pillars like Micro-level production, processing and marketing, and change in perception played a critical role in increasing milk production.

What are the three pillars responsible for the growth of the Milk economy in India?

The first pillar of Success: How it happened

• 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).
• According to the Greater Bombay Milk Scheme, companies 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.
• Kurien realised that 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.
• New co-operative dairies had come up in neighboring 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.
• So, the first pillar of success is to tie together micro-level production, economic scale processing, and large-scale marketing with a brand.

The second Pillar of Success:

• 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.
• The economic rise of Women in the dairy sector yielded gender equality and encouraged the formation of self-groups in Gujarat’s dairying villages.
• This became the second pillar of the development of the milk economy.

The third pillar of Success:

• The most important effect was on the family decision-making.
• Since 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 mainly, would be superficial. It is these three major pillars that are responsible for the growth of the milk economy in India.