'New economic policies, the real threat'

Interview with Dr. Varghese Kurien, chairman, National Cooperative Dairy Federation of India.

Dr. Varghese Kurien's name is synonymous with the dairy sector in India. He has had an integral role in making India the largest milk-producing country in the world. The milk revolution brought about by Operation Flood, and more specifically the Amul brand and the Gujarat Cooperative Milk Marketing Federation owe their success mainly to Kurien's pioneering spirit and leadership skills. As a key figure in the dairy industry, he has been opposing the Central government's decision to further deregulate and decontrol the dairy sector. In an interview to Anupama Katakam, Kurien discusses issues related to the Central government's decision to amend the Milk and Milk Products Order, 1992.

What do you think was the reasoning behind amending the MMPO?

As a part of its new economic policy, the government delicensed the dairy industry in 1991. But soon thereafter, recognising the anomalies that arose, the government notified the MMPO in June 1992. Apparently, this was not something the so-called votaries of liberalisation and globalisation had anticipated. Ever since, there have been all sorts of efforts to try and get the MMPO withdrawn - obviously with little success. So these lobbyists now want at least the procedure for registration of additional milk-processing capacities and the concept of milkshed to be discontinued.

Also, I suppose the amendments to the MMPO have been proposed with the simple assumption that the pace of investment in the dairy sector will be accelerated and this would facilitate faster growth, increase output, create more jobs and so on. But there is little realisation that the processing capacity registered under the MMPO (as of June 2001) was already 31 per cent of milk production and 63 per cent of the marketable surplus of the country. These figures are much higher - apparently close to saturation - if we consider the high-producing States of Uttar Pradesh, Haryana, Punjab and Maharashtra. And these are official figures released by the government. In the circumstances, there is very little scope for fresh investments in milk processing.

Once the amended MMPO comes into effect, what do you think is likely to happen to the cooperative sector and the milk producer?

To understand the implications of the proposed amendments, one must understand the MMPO in its current form. The objective of the MMPO is to maintain and increase the supply of liquid milk of desired quality in the interests of the public. Basically, the MMPO specifies standards of hygiene and sanitation to be observed by dairies; makes it mandatory for milk and milk products to conform to quality standards prescribed by the government; defines the responsibilities of intermediaries between milk producers and consumers; seeks periodic information to enable the government to consider appropriate action in exceptional situations; maintains and regularly updates a national database of the organised sector of the Indian dairy industry and provides for registration and regulation of dairies by designated registering authorities and a controller. Furthermore, only units handling more than 10,000 litres of milk a day or 500 tonnes of milk solids a year require registration under the MMPO.

But once the amendments are made on the lines proposed, the concept of milkshed and the procedure where approval for creation of additional milk processing capacities is based on estimation of availability of milk in an area or region will be discontinued. It is not difficult to imagine what would happen if these amendments are given effect. For example, between July 1991 and May 1992 there was no MMPO and no licensing. During that period, it is estimated (on the basis of reports of the Department of Industrial Development) that potential investors filed 876 industrial entrepreneurs memoranda to create manufacturing capacities for about 35 lakh tonnes of milk powder, 7 lakh tonnes of cream and butter, 3.3 lakh tonnes of ghee, 2.5 lakh tonnes of cheese and 41 lakh tonnes of other products. These capacities, if created, would annually use 60 to 70 million tonnes of milk each year - a quantity in excess of India's total milk production during the early 1990s. So, we may witness some similar rush creating a run on the existing milk in the milksheds, particularly in the summer months or the lean season. Other than the dairy cooperatives and a few genuine exceptions, nobody would be interested in the excess milk the producer has to offer in winter or the flush season.

Beginning with our milk producers, the resulting unhealthy competition will hurt all the players. If unchecked, this could erode the viability of dairy units. They will be unable to repay their loans. In turn, financial institutions will have to provide for bad debts and non-performing assets. These developments could well impact the healthy growth of the dairy industry. Unfortunately, even in the ultimate analysis, the real sufferers will be our milk producers. And of course, our nation's comparative and competitive advantages in milk production would have been frittered away.

With the scrapping of the milkshed concept, will there not be a regional imbalance in the development of the dairy sector?

It needs to be recognised that dairying cannot be an all-purpose poverty alleviation programme. Neither can dairy development single-handedly contribute to minimising regional imbalances. Agro-climatic conditions as well as the inclination of the people to pursue a particular occupation play an important part in facilitating development. Alphonso mangoes cannot be grown everywhere. This is also the case with livestock and dairying.

But once the milkshed concept is scrapped, there will be nobody - except perhaps dairy cooperatives - who may be interested to try and develop dairying in areas that may have medium to moderate potential. Evidently, it will be difficult to find a private sector company or an MNC (multinational corporation) that would like to establish its dairy business in areas that do not have high milk production and large marketable surpluses. Of course, to that extent, regional disparity will certainly get accentuated.

Why do you think a company like Nestle is opposing the scrapping of milkshed? Will they not now have access to other productive milksheds?

A few weeks ago, we saw press reports where Carlo M. Donati, chairman and managing director of Nestle India, argued - alongside India's dairy cooperatives - that assigning specific milksheds to individual dairies provides an incentive for the latter to undertake farm level investments to boost milk yields. Donati said, "We believe that even in a liberalised economy, investments should be protected and not made for someone else." Interestingly, Nestle's interests and position on the milkshed concept complements the views of our dairy cooperatives. Milk, one should remember is produced not from dairy plants, but from the udders of cows and buffalos. If yields have to go up, one has to invest heavily in disease control, genetic improvement of stock, feeding and extension programmes. Nestle realises the importance of these activities and, consequently, the need to have properly demarcated areas called milksheds.

The point is that if dairy cooperatives and MNCs like Nestle, belonging to two ends of the spectrum in their principles of how best to serve the interests of milk producers, are agreed on the concept of milkshed, then surely it is not so simple as to state that doing away with the concept will have healthy implications for milk producers. It will be interesting to see how doing away with the concept of milkshed will accelerate milk production. In fact, to begin with, we will watch with great interest how much new private investment is created in dairying during the next few years and whose cause will such investment serve.

It is said that cooperatives in other States are not functioning as effectively as they are in Gujarat. Will the opening up of the industry spell doom for such cooperatives?

First, let me clarify that even in its current form, the MMPO has already provided for substantial investment by the private sector. As per figures available from the Department of Animal Husbandry and Dairy Development (as of June 2001), about 212 cooperative units with an aggregate milk-processing capacity of 284 lakh litres a day have been registered under the MMPO. In contrast, 390 private units with a total milk processing capacity of about 302 lakh litres a day have been registered. And this has happened over the past decade. So, you can see that the dairy industry is more than open.

Yes, in some of the States dairy cooperatives have been unable to perform as well as in Gujarat. But this is owing to political interference, lack of professionalisation and restrictive cooperative legislation, not so much because the dairy industry is either open or closed.

Will not the milk producers in Gujarat continue to be loyal to the cooperative since they benefit directly from the cooperatives' success? Why should the cooperatives in Gujarat feel threatened?

Yes, by and large the milk producer would continue to be loyal to the cooperative. But, the lure and temptations of the market are difficult for even the well-educated and intelligent to avoid.

In a liberalised and globalised free market economy, it is easy for MNCs with deep pockets and abilities to influence governments of the world to weaken the cooperative structure. Once weakened, it will be difficult for our cooperative structure to regain its strength, even if those odd milk producers - who left their cooperative, tempted by larger pickings - would like to return to the fold. So, you see that the cooperatives in Gujarat do not feel threatened in the way you perceive it. The threat lies in the new economic policies that allow the mighty and the powerful to eat overnight into the strengths of the weak and the marginalised that they have painstakingly built over the decades. This is the basic issue.

If the private sector is allowed to import milk, it would have a huge impact on the livelihoods of millions of farmers. Is there any way around this?

It is not easy to import raw milk or liquid milk. What the private sector can do is to import milk powder and butter oil and recombine these with fresh milk and sell it in our domestic markets. But insofar as the threat from imports of milk powder is concerned there is a tariff rate quota in place where the first 10,000 tonnes of milk powder imported during a financial year attracts an import duty of 15 per cent ad valorem and imports beyond that level attract a uniform customs duty rate of 60 per cent. On the other hand, the Budget for 2002-03 proposes to reduce the customs duty on butter oil from 35 per cent to 30 per cent. This is a serious matter and we have already taken up the case with the Finance Minister to increase the customs duty on butter oil to 75 per cent.

By deregulating and decontrolling the dairy industry further, is not the government in a way defeating the purpose of the White Revolution? Or will it not amount to reversing much of what has been achieved?

The purpose of the White Revolution was to flood the country with milk. That objective has indeed been achieved. For the past few years India is the world's largest milk producer. Since 1970, India's milk production has increased by 400 per cent to more than 80 million tonnes in 2000-01. During the past three decades milk production has shown a steady compound growth rate, ranging from 4 to 4.5 per cent a year.

During the past two decades commercial imports of milk powder and butter oil have been negligible. Even in exceptional years, when domestic milk production was adversely affected owing to drought or other calamities, imports have been less than ten per cent of domestic milk powder production.

What are your thoughts on the future of the dairy industry in India?

The future of the dairy industry has to be built on quality. We will therefore need regulation that will not just enable the healthy and orderly growth of our dairy industry but will ensure that milk and milk products are produced, processed, manufactured, stored and sold by observing the best standards of sanitation, hygiene, quality and food safety. India's neighbours, especially those belonging to SAARC (South Asian Association for Regional Cooperation), are perennially deficit in milk and milk products. If we can establish long-term export interests in these countries, it will benefit our dairy industry in two ways. It could contribute to maintaining the current growth rate of milk production. It will also enable our dairy industry to remain globally competitive.

It is important to remember that dairying in India is a business that provides income to millions of our rural citizens. The cooperative structure efficiently managed is the best model to maximise the share of the consumers' rupee to the rural producer. Therefore, every effort must be made to strengthen this model. This is in the interests of both our rural milk producers and our nation.