Dairy worries

The new milk procurement policy of the Maharashtra government will affect the livelihood of farmers working in the dairy sector.

TWICE a day, Dattu Sopar Nirmal of Tandulwadi in Baramati district in Maharashtra cycles 3 km to the nearest milk collection centre to deposit 10 litres of milk. His two cows yield enough milk to ensure a reasonably steady income for him through the year. In fact, the income from milk is often higher than that from his three-acre sugarcane field. However, if the Government of Maharashtra implements its amended milk procurement policy, Nirmal will have to contend with the vagaries of free market forces. His income, for which he is largely dependent on the government, will soon depend on who gives him the best price.

Maharashtra has been the only State in the country where the government fixes a procurement price for milk and commits itself to buying at that rate all the milk offered by producers. The State government now incurs an annual loss of more than Rs.200 crores on this count. Hence, it has decided that it will buy only the quantity it requires, that is, 80 per cent of the 40 lakh litres that reaches its dairies daily. The remaining 20 per cent would have to be sold locally by the producer or the cooperative. Currently, the government collects a surplus of almost nine lakh litres a day. Owing to its procurement commitments, it is losing approximately Rs.45 lakhs a day. Government sources say that if the procurement burden is reduced as planned, the government can save about Rs.70 crores annually. The amended policy was to be implemented on January 1, 2002. However, since the dairy industry in Maharashtra is politicised and civic elections are to be held shortly, its implementation was deferred for a few more months. It is well known that the milk cooperatives in Maharashtra are the preserve of local politicians who look upon them as stepping stones to political power. "The dairy industry has been a major burden on the State," says Ramesh Kumar, Secretary, Dairy Development. "Implementing the policy is inevitable. It will happen within the next few weeks," Ramesh Kumar told Frontline. "Government policies have always been welfare oriented. In order to protect the interests of producers, they have completely ignored the commercial aspect of this industry."

Nirmal and his fellow village residents have little knowledge of the new policy. Nirmal told Frontline that he had faith in the Baramati Milk Union Cooperative, to which his village milk society belongs. "They look after us, we trust them. I am sure the union will take care of this," he said. Union chairman Vittalrao Suryavanshi is angry with the government's decision. "The sale of milk has provided an income to several families below the poverty line, landless labourers, small farmers and several uneducated and unemployed youth. If they do not protect these people's interests, they will be dealing with a lot more problems than surplus milk," he says. Suryavanshi says that milk production has helped thousands of farmers who are hit by the recession in the agriculture sector. He said that if the State did not buy all the milk, a large quantity of it would be wasted. "We will have to declare milk holidays, which we have not done for several years."

Suryavanshi also pointed out that private players were waiting to exploit the situation. "If the system of administered prices is removed, private players will squeeze the producer and the cooperative and buy the milk at the lowest possible price," he said. Suryavanshi, who is a member of the Maharashtra State Milk Kruthi Samiti Dudh Sangh, a committee of milk union representatives who are fighting the government's decision, said: "We in western Maharashtra are better off because sugarcane gives us some income. But they should think about those in Vidarbha and Marathwada, where crops have failed and milk is the only source of income." A representative of the Warana Milk Cooperative Union in Kolhapur, a powerful cooperative, echoed this sentiment.

Dairying would be the third sector in agriculture in the State, after cotton and sugarcane, to undergo fundamental policy changes (Frontline, February 1 and 15, 2002). Along with the announcement of the new procurement policy, the Maharashtra government also outlined a plan to withdraw from the dairy sector. It suggested downsizing and privatisation as the two alternatives. A government report recommended the retrenchment of 1,200 employees out of a total of 12,000 and the privatisation of three State-owned dairies located in Mumbai, the Aarey, Worli and Kurla dairies, which have caused a loss of about Rs.73 crores. "In the changing market situation, running milk dairies is not the kind of business the State should get into," says Ramesh Kumar.

Of the 142 lakh litres of milk collected by 62 unions in the State daily, the government buys 40 lakh litres at an average rate of Rs.9 a litre. The remaining milk is distributed by the cooperatives directly or bought by private dairies at the administered price. Of the 40 lakh litres purchased, nine lakh litres is surplus. The surplus is processed and converted into products such as butter and milk powder. However, only the sale of milk is profitable. It is in the conversion that the government incurs losses, says K.B. Patil, Additional Secretary, Dairy Development, who is also in charge of the government dairies. The cost of converting milk into powder or butter is about Rs.3 a litre. It reaches Rs.5 a litre after the actual revenue realisation. Nine lakh litres of milk means a staggering Rs.45 lakhs a day. "We need only 80 per cent of the quantity we buy. It is up to the cooperative to distribute the rest," Patil told Frontline. Consumer subsidies and other costs raise the loss to over Rs.200 crores a year, against a total expenditure of Rs.1,100 crores.

A government report says that Maharashtra is the fifth largest producer of milk and the second largest producer of cow's milk in the country. About 75 lakh people depend on the dairy sector in the State for a living. An industry expert said that although the State attempted to emulate the successful Gujarat cooperative model, it did not succeed (see box). It failed mainly because of the politicisation of the cooperatives which, in turn, led to mismanagement. Moreover, the government failed to take advantage of the dairy sector's potential. The expert said that the new policy demanded much more from the cooperatives. "Maharashtra's cooperatives can hardly be defined as cooperatives. They have been no more than a transportation service, ferrying milk from the districts to the metros," he says. However, it will no longer be the same after the implementation of the new policy. For instance, they will be forced to develop a market and a distribution network, take a pro-active role in training farmers to produce quality milk, and set up processing and chilling facilities.

The State follows a three-tier system in the cooperative sector. Milk producers are members of a village-level cooperative. The village cooperative collects milk for the district union. The milk is then sent to various urban dairies for processing and distribution. There are 23,273 village societies and 99 taluk or district-level unions. Of the Rs.9 the State pays for a litre of milk, the village cooperative keeps 40 paise and the union 90 paise. After deducting various other payments, Nirmal, whose cows give him an average of 10 litres a day, will earn Rs.1,500 a cow each month. The village society keeps a record of the milk the producer has deposited and pays him/her every fortnight. Although farmers in Baramati say that the dairy business is lucrative, very few people agree that they make a substantial profit. "Actually, the benefit lies in that we get cash in our hands every 15 days," says Bharat Chavan from Undawadi in Baramati district. However, he says that a large part of the money is spent on the cattle or for repaying loans. "The earnings may be meagre, but at least we manage to fill our stomachs," says Chavan.

If anyone will benefit from the new procurement policy, it is private industry. However, Deepak Jain, executive director of Dynamix Dairy Industries Limited, said that if the cooperatives were better organised and the government became less hostile towards private dairies, the farmer would be the ultimate beneficiary. Dynamix is among the few private players in the dairy sector in the State. The company collects milk from the producer through an agreement with the district cooperative. Unlike the cooperative which pays the producers according to the amount of milk they deposit, Dynamix pays the producer according to the fat content in the milk. It is supposed to provide them an incentive to ensure that their cattle produce quality milk. If the cooperatives concentrate on producing quality milk, they will have no problem finding a market for the remaining 20 per cent the government is unwilling to buy. He says: "Moreover, private industry will make sure that all the milk is bought." Even if the milk producer sells at a low price, he will be selling a larger quantity. With the procurement price in Maharashtra being 10 per cent above the usual price, private players would prefer to set up shop in neighbouring Gujarat, where the price paid to the producer for a litre of cow milk is Rs.7.97. "Maharashtra," Jain says, "has the potential to enter the international dairy export industry. It is just a matter of formulating reasonable policies."

Under the Uruguay Round of the General Agreement on Tariffs and Trade, India had committed itself to integrating its dairy sector with the world market. Such a move, combined with the reconstruction of the environment in which the sector operates (for instance, the entry of the private sector and the removal of barriers to import), is likely to have a significant impact on the Indian dairy industry. But unless there is a substantial improvement in the earnings of producers like Nirmal and Chavan, the new developments will have little significance.