Dairy war

There is growing concern that the National Dairy Development Board's plan to help market the milk of State-level dairy federations will lead to multinationals taking over the marketing of dairy products in India.

Published : Mar 28, 2003 00:00 IST

FOR almost four decades they were like Siamese twins - Gujarat Cooperative Milk Marketing Federation (GCMMF) Chairman Dr. Verghese Kurien and the National Dairy Development Board (NDDB) chief Dr. Amrita Patel. Together they made the cooperative movement in India a resounding success.

Unfortunately, a disagreement, which began last August, has led to a falling out of sorts. Ironically, both organisations have the same long-term goals - to serve the interests of milk producers and save the cooperative movement. Yet from the ongoing sparring it appears that it is the method to achieve the goal that they disagree on. And as the two slug it out, their once amicable partners in the market, Amul and Mother Dairy respectively, have launched their own turf wars.

In August 2002, the NDDB, the country's apex body for dairy development, announced that it would establish joint ventures with State-level dairy federations in order to market their produce.

Of the existing 22 State milk federations, Milma (Kerala) and Vijaya (Andhra Pradesh) have already signed agreements. Talks are on with Verka (Punjab), Nandini (Karnataka), Parag (Uttar Pradesh) and Saras (Rajasthan). Once the agreements are signed and sealed, the products of these cooperatives will be sold under the NDDB's Mother Dairy brand.

Kurien has launched a full-throttled attack on the NDDB's plan. He feels that if the State-level federations surrender their marketing functions along with their brands, the cooperative dairy sector will effectively be handed over to the government, which will inevitably privatise these entities in the long run. "Essentially it amounts to backdoor privatisation. We should realise this now, particularly since similar efforts are currently going on with several public sector enterprises," Kurien told Frontline.

Amrita Patel, however, says the NDDB's intention is to help the several dairy cooperatives that are languishing under State control. "Their marketing is in a huge mess. All we are doing is partnering them to see that they do well." The NDDB plans to enter the joint venture through its wholly owned subsidiary, Mother Dairy Foods and Vegetables Limited (MDFVL), by holding a 51 per cent stake.

Questioning the NDDB's expertise in marketing, Kurien says, "Merely on the strength of hiring a couple of hands from multinational corporations, the Dairy Board cannot hope to take on the market". And he asks: "If any cooperative wanted help, why did they not approach us? Have we not shown that we know best how to market dairy products?" Amrita Patel counters: "If it requires a little discipline and professionalism to help the cooperatives, we are here to provide it." Her view is that marketing milk, and not its production, is the biggest challenge before cooperatives in the future and as such the joint ventures are a step in the right direction. While farmers have done their job by producing milk well beyond the requirement, it is marketing that is letting them down, she says. Milk procurement, for instance, has been growing at 9 per cent while marketing has grown by just 4 per cent. Farmers must get their fair share, she says. "We shall address marketing the produce as professionally as possible."

Kurien is not convinced. According to him, the basis of the cooperative movement is to allow farmers and their elected representatives complete control over the production, procurement and marketing of milk. The success of the Amul brand is a standing example. Why should Mother Dairy walk off with the marketing aspect, which is the most lucrative part of the chain? His biggest fear is that the marketing functions of the State federations will find their way into the hands of multinationals.

"It is one thing that multinationals swooped in on India when it emerged as the world's leading milk producer. It is quite another if they are allowed to walk away with the hard-earned work of the Indian farmer under the pretext of profitable marketing," Kurien says.

However, the NDDB argues that it is this very threat against which it is working. It believes the struggling State milk federations need to be bailed out before they become victims of the private sector onslaught. Amrita Patel says the State federations do not have the brand strength and marketing wherewithal to stand up against the multinationals, and that is where the NDDB plans to help them. Moreover, since the Cooperative Companies Act was passed in 2002, cooperatives allowed to become professional companies in all aspects and that has given them operational freedom to take decisions such as the one to work with the NDDB.

Kurien, who established the NDDB in 1965 and headed it until 1996, feels the NDDB's new direction must be ratified by Parliament. All parties should debate these issues openly because the NDDB is a statutory corporation of the government and is not a cooperative, he says. The NDDB was started with the aim of replicating the exceptionally successful "Anand pattern" of dairy development set by the Kaira District Cooperative Milk Producers Union in Anand, Gujarat.

Unfortunately, as much as it tried, the dairy board has never been able to replicate Anand's success. Nonetheless, under the leadership of Kurien, the cooperative movement gained momentum, particularly after the launch of Operation Flood.

Almost every State began a milk federation, which are fed by 170 milk unions operating in 285 districts, which cover 96,000 village-level societies. More than 10 million farmers across the country are members of these cooperatives and have largely benefited from the production of milk. India, which was once a milk-deficit country, today produces 84 tonnes and is the largest producer of milk in the world. Moreover, the White Revolution's most noteworthy achievement is that over the years it has been able to ensure a fair price for the farmer and keep milk prices within the reach of the consumer. This in spite of milk production increasing several-fold.

Yet, while Amul has gone from strength to strength, making a Rs.2,300-crore turnover and garnering almost 80 per cent of India's dairy market share, the other federations are finding it increasingly hard to make significant profits. Political interference, bureaucratic apathy, and a complete lack of knowledge of running cooperatives are some of the glaring reasons why they could never achieve success. "Unless it is truly run as a cooperative, it cannot be a success. If it is not run for economic reasons and the chairman and the board are not elected from among those who produce the milk, it will never succeed," says Kurien.

"Cooperatives need to be nurtured that is the only way they can be pulled out of a slump, not by turning them into PSUs (Public Sector Undertakings)," says B.M. Vyas, Managing Director of GCMMF.

Kurien and Amrita Patel are at loggerheads not just about the joint venture plan. Last summer Amul launched its ice cream in New Delhi, where Mother Dairy is the market leader. The two companies had an understanding that each will not invade the other's market. That is why Amul milk and ice cream, popular brands in western India, never entered the Delhi market. In fact, Amul avoided launching its ice cream in Delhi even when it went into adjoining Rajasthan and Madhya Pradesh. Mother Dairy, in turn, did not take its ice cream to Amul markets. Now that Amul has dishonoured the understanding, Mother Dairy is fighting back. In January 2003, it launched its butter brand in other States. It hopes to capture a 20 per cent market share in two years. This would definitely cut into Amul butter's 85 per cent share of the pie. Cheese, flavoured milk and lassi are some other products Mother Dairy has in the offing. Clearly, the battle lines are drawn, for Amul is hitting back by entering Delhi's liquid milk market this year. Mother Dairy has been the supreme leader in this segment ever since the NDDB was created.

No doubt Kurien is anxious about the future of cooperatives. Perhaps part of his fear is about the erosion of Amul's market leadership, says an analyst. Several of Amul's products are under considerable threat in the rapidly changing dairy market. For instance, multinationals and local companies are challenging its liquid milk segment. Butter has found competition in Nestle and Britannia. In the ice cream sector it faces the popular Kwality Walls, and in chocolates it has never stood much of a chance with Cadbury's and Nestle. "It would be unwise at this stage to stay deliberately out of markets. And Kurien of all people would know that," says the analyst.

At the heart of the dairy business stands the Indian farmer. By belonging to a cooperative, the farmer is completely protected against exploitation. It is because of this that the dairy industry in India has sustained itself and has become a force in the world market. Therefore, if the future of the cooperative movement is jeopardised, there will be no industry, no brand-war and certainly no issue of marketing, warns Kurien

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