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Dairy Cooperatives and Dairy Development in India

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 Dairy Cooperatives and Dairy Development in India

-- Dr. A. Seilan, Assistant Professor, Department of Economics, Scott Christian

College (Autonomous), Nagercoil - 629003. India
-

This article published in the edited book titled : Non-farm Sector and Rural Development
Edited By : Dr. P. Sundararaj
Published by : Novel Corporation, Chennai, India
Year of Publication : 2011
Pages in which this article appears : 428-440
ISBN No. : 978-81-904529-9-1

Dairy is an important sub-sector of Indian agriculture, accounting for nearly

17% of value of output from agriculture and allied activities. Dairying has emerged as
an important source of income and employment in rural areas, especially for marginal
and small farmers, who own about 33 percent of cultivable land mass but account for
almost 60 percent of female cattle and buffaloes in the country. Dairying contributes
to a third of the gross income of rural households and nearly half for the landless.
This sector is livelihood intensive and gender sensitive. Dairying is a
centuries-old tradition for millions of Indian rural households; domesticated animals
have been an integral part of the farming systems from time immemorial. Milk
contributes more to the national economy than any other farm commodity. Dairying is
largely an organized activity, consisting of milk vendors, sweet shops as well as other
milk sellers, constituting about 84% share in liquid milk market. The organized sector
in dairying is relatively new in historical terms and consists of modern processing
units. This sector handles the balance of milk procurement and sale.
The record of milk production is impressive and now India is the largest
producer of milk in the world. India’s milk production increased from17.0 million
tonnes in 1950-51 to 88.1 million tonnes in 2003-04. The per capita availability of
milk increased from 112 gms per day in 1968-69 to 231 gms per day at present .The
growth rate of milk production during the 5th Five Year Plan (1975-76 to 1979-80)
was 2.91 per cent per annum and it increased to 4.13 per cent per annum during the
Ninth Five Year Plan (1997-98 to 2001-02).
In terms of trade, the value of output from livestock at about Rs. 1,733 billion
in 2004-05 of which milk accounted for 68 percent3. In fact, the value of milk was
higher than paddy (Rs. 704 billion) and wheat (Rs. 480 billion). Thus, in terms of
value of output, milk is now the single largest agricultural commodity in India. Dairy
products account for 70 percent of the output of the livestock sector and also provide
employment to around 75 million women and 15 million men.

History of Dairy Co-operative in India

The Co-operative movement started in India in the last decade of the 19th
Century since the enactment of “the Co-operative Credit Societies Act, 1904 (Act 10
of 1904)” under the British hegemony on Raiffeisen model borrowed from Germany
with two objects in view, i.e. to protect the farmers from the hands of the private
money lenders and to improve their economic condition. Madras province was the
birth-place of this movement. With the setting up of an Agricultural Co-operative
Banks there the movement took root in our Land and slowly gained strength.
However, the growth of Co-operative movement in India during British rule was very
slow and haphazard one. In most of the cases, the provincial governments took the
lead. The foreign ruler had only made some committees or framed a few rules and
regulations. But they did not take any wide-ranging programme to spread the
movement all over the country.
It has been observed that the co-operative movement in India owes its origin
to agriculture and allied sectors. This sector has emerged as one of the largest in the
world and is playing an important role in socio-economic development of the country.
It is an attractive mechanism for pooling the meagre resources of its members for
solving common problems relating to credit, supplies of input and marketing of
produce. The golden era of Co-operative movement began after India had won
freedom. Within two decades of independence the membership of primary societies
had increased four times while the share capital and working capital increased 23 and
31 times respectively.
The dairy cooperative movement has been central to the development of
dairying in India. The history of Dairy Development Movement in India is a new one.
During the pre-independence period this movement was limited to a few pockets of
Calcutta, Madras, Bangalore and Gujarat. The most notable of this venture was Kaira
District Co-operative Milk Producers’ Union Limited of Anand, Gujarat -- better
known as Amul, founded in 1946 in response to the exploitation of district’s dairy
farmers. Dairy producers came under the influence of Ghandian philosophy and
nationalist revolutionaries, which prompted the growth of the dairy co-operatives. But
after independence, the National Government took great initiative in setting up new
Dairy Co-operatives in many parts of the country.
In 1973, the Kaira Cooperative Union set up a marketing agency named
Gujarat Cooperative Milk Marketing Federation (GCMMF), which follows a three-
tier structure at village, district and state level for procuring, processing and marketing
milk and milk products. The district units also provide technical back-stopping to the
milk producers and a range of services such as feed, veterinary care, artificial
insemination, education and training. These milk cooperatives of Gujarat today own
the GCMMF, the largest food products business in India. GCMMF is also the largest
exporter of dairy products from India and its brand name Amul is known all over the
world. This experiment laid the foundation of the cooperative movement in milk
production and marketing in India. The federal and egalitarian structure of these
cooperatives ensures social and economic equity to the milk producers and is one of
the major reasons for its success.
The government adopted this successful model and set up the National Dairy
Development Board (NDDB) in 1965 which prepared a blueprint for a milk
revolution across the country. Known as Operation Flood, this programme began in
1970 and was implemented across the country. It was also one of the largest rural
development programmes in the world which ran for 26 years and helped India to
emerge as the world’s largest milk producer in 2003-04 with a record output of 88.1
million tonnes.

Role of Dairy Cooperatives

In the rural sector, dairying and milk production is an important economic
activity and has become a secondary source of income and employment. Co-
operatives play an important role in animal husbandry and dairying sector, which
contributes about one-fourth of agricultural GDP of the country. In India as of 2004,
there are 1.07 lakh cooperative societies, spread all over the country with a
membership of 119 lacks.
Dairy development along the cooperative lines was considered to be the most
effective strategy for helping the rural poor without altering the village social
structure and providing guaranteed market for milk at fixed prices, supply of cattle
feed at a reasonable cost and efficient veterinary and extension servicesDairy co-
operatives all over India help small and marginal farmers to take initiatives in shaping
their destiny, as land-less; marginal and small farmers constitute 75% of the total
farmers engaged in this occupation. They serve more than 10 million farmers in over
1.30 lakh villages, covering 326 districts.
Role of dairy co-operatives is increasing day by day. During the year 2003-04,
average daily marketing of milk by cooperatives was 148.75 lakh litres. Dairy co-
operatives could also generate employment opportunity for some 12 million farm
families. Processing of liquid milk is also undertaken in co-operative sector. Milk is
processed and marketed by 170 milk producers’ co-operative unions (with a capacity
of 298 LLPD) and 15 state Cooperative Marketing federations.
Milk production generally takes place in rural areas, whereas the profitable
market exists in urban areas. Lack of transport facility, organized system of
processing and marketing as well as farmer’s margin in this occupation is very small.
In view of these and several other constraints, dairy co-operatives provide an answer
for proper marketing of fluid milk. Dairy co-operatives have succeeded simply
because the farmers own and manage them. The core feature of these co-operatives is
farmer control at all three stages i.e. procurement, processing and marketing of milk.
The structure of dairy co-operatives consists of primary milk producer
societies at the primary level and milk supply unions at the district level. The primary
milk societies are federated into unions, while state federations are functioning in
some states. At the national level, there is a National Co-operative Dairy Federation
(NCDFI), which co-ordinates the marketing efforts of all the state level co-operatives.
National Dairy Development Board (NDDB) is the national level body involved in
promoting, financing and supporting milk-distribution organizations that are owned
and controlled by producers themselves.

NDDB was established with the objective of replicating the 'Anand Model' of
dairy development. The board, founded in 1965 has undertaken the challenging task
of organizing the illiterate farmers into a large co-operative network.NDDB supports
the development of dairy cooperatives by providing them financial assistance and
technical expertise. Over the years, brands in milk products created by cooperatives
have become synonymous with quality and value. Brands like Amul (GCMMF),
Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini (Karnataka), Milma (Kerala)
and Gokul (Kolhapur) are among those that have earned customer confidence. The
Dairy Cooperative Network includes 170 milk unions, operates in over 338 districts,
covers nearly 1,08574 village level societies, and is owned by nearly 12 million
farmer members.

Dairy Co-operative Development in India :

The number of dairy co-operative societies was more in Uttar-Pradesh
(18104). The second highest was in Gujarat. The states in the eastern part of the
country had relatively smaller number of such societies. The states of Karnataka,
Tamil Nadu, Maharashtra, Punjab and Rajasthan showed good growth of societies. In
terms of membership of these societies, the state of Gujarat ranked first. This was
followed by Tamil Nadu, Karnataka and Mahrashtra. The membership was very less
in all states located in eastern India. As for the procurement of milk was concerned,
about one-third of total milk procured by these co-operatives comes from Gujarat. It
was followed by Maharshtra, Karnataka and Tamil Nadu. The detailed figures are
presented in Table No. 1.
 Table No. 1
Components of Dairy Development under Co-operative sector (2003-04)
Sl. Name of State DCS ∗ Farmer Rural Milk Milk
No. Organised Members Procurement Marketing
(No.) (‘000) (‘000 kg./Day) (000 L/day)
1 Andhra Pradesh 5072 756 950 898
2 Assam 65 3 4 8
3 Bihar 4737 241 402 451
4 Goa 169 19 43 89
5 Gujarat 11400 2360 5102 2101
6 Haryana 4219 230 331 153
7 Himachal Pradesh 283 21 25 15
8 Karnataka 9293 1737 2243 1518
9 Kerala 2578 706 614 738
10 Madhya Pradesh 5132 250 312 324
11 Maharashtra 18349 1582 2680 1421
12 Nagaland 76 3 2 4
13 Orissa 1654 122 127 132
14 Pondicherry 96 32 54 53
15 Punjab 6892 402 744 496
16 Rajasthan 9643 534 1036 855
17 Sikkim 189 7 9 7
18 Tamil Nadu 7578 1988 1664 511
19 Tripura 84 4 2 9
20 Uttar-Pradesh 18104 824 814 436
21 West-Bengal 2287 172 324 30
Total 107891 11993 17482 10249
Source : NABARD ,Statistical Statement Relating to the co-operative movement in
India.
Note : * Dairy Cooperative Societies

Annual milk production in India has more than tripled in the last three
decades, rising from 21 million tons in 1968 to 80 million metric tons in 2001. This
rapid growth and modernisation is largely credited to the contribution of dairy co-
operatives under the Operation Flood (OF) Project, assisted by many multi-lateral
agencies including the European Union, the World Bank, Food and Agriculture
Organization (FAO), and World Food Program (WFP).

Operation Flood
'Operation Flood ' was launched by the National Dairy Development Board
(NDDB), an institution constituted as a body corporate in 1965, which was declared
as an 'institution of national importance' by an Act of Parliament, in 1965. Operation
Flood, launched in 1970, introduced co-operatives into the dairy sector with the
objectives of increasing milk production, augmenting rural income, and providing fair
prices for consumers.
The objectives of Operation Flood can be summarized as follows:
1. To enable each city’s liquid-milk scheme to restructure and capture a
commanding share of its market;
2. To identify and satisfy the needs of milk consumers and producers, so that
consumers’ preferences can be fulfilled economically and producers can
obtain a larger share of the price paid by consumers for their milk;
3. To facilitate long-term productive investment in dairying and cattle
development; and
4. To ensure a sufficient supply of personnel to handle each facet of the project.
The three phases of Operation Flood succeeded in fulfilling a major part of
their objectives. During its first phase,
Operation Flood’s Phase I (1970-1980) linked 18 of India’s premier milk
sheds with consumers in India’s four major metropolitan cities: Delhi, Mumbai,
Calcutta, and Chennai.
Operation Flood’s Phase II (1981–1985) increased the milk sheds (collection
centers) from 18 to 136; 290 urban markets expanded the outlets for milk. By the end
of 1985 there was a self-sustaining system of 43,000 village co-operatives covering
4.25 million milk producers. Domestic milk-powder production increased from
22,000 tons in the pre-project year to 140,000 tons by 1985, all of the increase coming
from dairies set up under Operation Flood. Producers’ co-operatives increased direct
marketing of milk by several million liters a day.
Phase III (1985–1996) enabled dairy co-operatives to expand and strengthen
the infrastructure required to procure and market increasing volumes of milk.
Veterinary health-care services, feed, and artificial-insemination services for
cooperative members were extended, and member education intensified. Phase III
consolidated India’s dairy cooperative movement, adding 30,000 new dairy co-
operatives to the 42,000 existing societies organized during Phase II. Milk sheds
peaked to 173 in 1988-89 with the numbers of women members and Women’s Dairy
Cooperative Societies increasing significantly. From the outset, Operation Flood was
conceived and implemented as much more than a dairy programme. Rather, dairying
was seen as an instrument of development, generating employment and regular
incomes for millions of rural people.
Most of the dairy co-operatives in India are based on the principle of
maximization of farmers’ profit and productivity through cooperative effort. This
pattern, known as the Anand Pattern, is an integrated cooperative structure that
procures, processes, and markets produce. Supported by professional management,
producers decide their own business policies, adopt modern production and marketing
techniques, and receive services that individually they can neither afford nor manage.
The Anand Pattern succeeds because it involves people in their own development
through co-operatives where professionals are accountable to leaders elected by
producers. The Anand model co-operatives have progressively eliminated middlemen,
bringing the producers in direct contact with consumers.

Structure and Services of the Anand Pattern

The basic unit in the Anand Pattern is the village milk-producers’ co-
operative, a voluntary association of milk producers in a village who wish to market
their milk collectively. Every milk producer can become a member of the co-
operative society by buying a share and committing to sell milk only to the society.
Each producer’s milk is tested for fat percentage (many also measure solids-not-fat)
and is paid on the basis of the quality of the milk. In addition to milk collection, other
services such as cattle feed, artificial insemination, and veterinary services are also
provided by the societies.
Village milk producers’ co-operatives in a district are members of their district
co-operative milk-producers’ union. The Union buys all the societies’ milk, then
processes and markets fluid milk and products. Most Unions also provide a range of
inputs and services to the village societies — feed, veterinary services, artificial
insemination, and other services and have milk-processing plants to convert seasonal
surpluses of liquid milk into milk powder and other conserved products. This allows
the Union to ensure better returns to its members. The farmers had realized that
marketing was the key to the success of the Anand Pattern and to their success, when
they had control over the marketing system.

Achievements of the Dairy Cooperatives in India till 2003-04

Reach

• The dairy cooperative network is owned by nearly 12 million farmer members.

• These producers are grouped in nearly 1,08,574 village-level dairy cooperative
societies.
• The societies are grouped in 170 district-level unions spanning 338 districts.
• The unions make up 22 state-level marketing federations.

Milk Production
• India's milk production increased from 21.2 million MT in 1968 to 88.1 million MT
in 2003-04.
• Per capita availability of milk in 2003-04 is 231 grams per day, up from 112 grams
per day in 1968-69.
• India's 3.8 percent annual growth of milk production surpasses the 2 per cent growth
in population; the net increase in availability is around 2 per cent per year.

Marketing
• In 2003-04, average daily cooperative milk marketing stood at 148.75 lakh litres;
annual growth has averaged about 4.2 per cent compounded over the last five
years.
• Dairy Cooperatives now market milk in about 200 cities including metros and some
550 smaller towns..
• During the last decade, the daily milk supply per 1,000 urban consumers has
increased from 17.5 to 52.0 litres.

Innovation
• Bulk vending - saving money.
• Milk travels as far as 2,200 kilometers to deficit areas, carried by innovative rail and
road milk tankers.
• Ninety-five percent of dairy equipment is produced in India, saving valuable foreign
exchange.

Macro Impact
• The annual value of India's milk production amounts to about Rs. 880 billion.
• Dairy cooperatives generate employment opportunities for some 12 million farm
families.

Challenges Faced by the Dairy Cooperatives and Interventions required to

strengthen them

With the opening up of the economy, preferential treatments of yesteryears are

no more available to the dairy cooperatives. They are now required to compete in the
open market. The terms of the World Trade dictates removal of all safeguards put in
place earlier to protect the dairy industry from unfair outside competition. As a result,
gradually internationalization of our dairy business is taking place. This
transformation demands the dairy cooperatives to improve their performance; be it in
marketing or quality of products or governance.
While trying hard to improve their performance and professionalising their
functions and governance, the biggest obstacle that the dairy cooperatives face today
is political and bureaucratic interference. The cooperative laws are unable to provide
the protection the dairy cooperatives require to function as independent business
entities. To end this dismal state of affairs, the most important intervention needed to
professionalise the functioning of the dairy cooperatives is to liberate them from the
clutches of the archaic cooperative laws enacted to establish State control over the
affairs of the cooperatives. Additionally, in line with the developed countries, there
should be minimum laws to control the affairs of the cooperatives. Registrars of
cooperatives should be responsible only for registration of cooperatives, their byelaws
and arbitration as and when required. Routine management and governance should
totally be left to the wisdom of the owners (i.e. members) of the cooperatives.
The management in majority of the dairy cooperatives carries some or the
other political leanings. As a result, it has become a common practice that the
management of dairy cooperatives, irrespective of performance, gets superseded or
suspended as and when opponent political parties come to power. In consequence, to
ensure continuity of and protection to good management, depoliticalising cooperative
institutions is a must. As business institutions, the dairy cooperatives from time to
time are bound to take hard decisions. Irresponsible outside interference in the affairs
of the dairy cooperatives is sure to deteriorate performance, eventually making them
unfit for competition. To arrest the trend, the members need to be educated on
governance matters. A few restrictions in the cooperative laws could be introduced
such as limiting term of members of governing bodies, setting up independent bodies
to hold free, fair and timely election and audit in cooperatives.
Improving quality of products poses a big challenge to the dairy cooperatives.
In today’s highly competitive market demand for superior quality products is on the
rise. To capture the world market the necessary prerequisite is product quality needs
to match international standards. Improvements in product quality are required to
enhance and retain their share in domestic market also. As quality upgradation is a
long process, it calls for, besides commitment of the management, substantial
investment in hygienic milk production, upgrading plants and machinery, upgrading
manpower skills and setting up facilities for cold-chain storage and distribution of
milk and milk products starting from the farm level. Presently, the dairy cooperatives
do not have the capacity to make such huge investments requiring the Government
support to create institutional facilities for research and development, credit, training
and education etc.
Poor productivity of milch animals constrains rapid development of the dairy
industry. Systematic planning and integrated policies and programmes for animal
breeding, genetic upgradation and feed and fodder management could only improve
the situation. For all these to happen, the Government has to intervene and create
funds (may be called Dairy Development Fund) for such programmes to be
implemented on mission mode integrating various schemes.
Excess manpower and low skill level of employees are areas of great concern
for the dairy cooperatives. The dairy cooperatives need to shed excess flab in
manpower in order to match manpower productivity as per market demand. Skill sets
of the employees need to improve to benchmark desired performance. Since the dairy
cooperatives generally do not have capacity to hire high-calibre professionals, the
only out is to invest in extensive training and education to upgrade the skills of the
existing manpower. The employees need to be educated about the merits of scientific
and modern management practices and processes.

Securing members’ participation in the affairs of the cooperatives is another

area where the dairy cooperatives need to work hard. To earn allegiance of the
members, cooperatives need to be responsive to their needs. The dairy cooperatives
have to work out suitable strategies so that they can satisfactorily meet the
requirement of the members. They can do so by providing required support services to
their members for veterinary care, input supply and selling their milk and all these
have to be done at reasonable cost. Members need to be encouraged to participate in
the business affairs of their cooperatives and they could no longer be treated as mere
suppliers of milk. Deputation of government officers to head the affairs of
cooperatives has to stop to secure members’ participation. Legal provisions to hold
free, fair and timely election are must and have to be ensured by the Government.

Conclusion
The contribution of cooperatives to India’s dairy industry is enormous. The
cooperatives have ushered in milk revolution in the country. The dairy industry has
made India proud in recent times. India is the leading producer of milk in the world.
Dairy cooperatives are the backbone of Indian dairy industry and have excelled in
their areas of cooperatives. The strength of India’s dairy cooperatives lies in the
domestic market. It can easily sustain itself on this for times to come provided the
government provides suitable protection from subsidized imports. Income levels in
urban India are going up and households spend 68 percent of their income on self-
consumption. This is an important source of strength for the domestic dairy
cooperatives. The de-licensing of the dairy industry has not threatened dairy
cooperatives. They seem to march ahead despite the entry of the private sector and
multinationals. The biggest strength of dairy cooperatives is their labour
intensiveness. Cost effectiveness is another important factor.
Dairy cooperatives have effectively used the toil of farmers to develop self
reliance. It is unique. The future is indeed bright for dairy cooperatives. The
government needs to support dairy cooperatives survive in the new economic order by
coming up with policy prescriptions aimed at generating enough surpluses at low cost,
and also maintain due quality standards. Instead of introducing policies that dismantle
cooperative dairying, the government can maximize welfare of millions of farmers by
strengthening the cooperative.

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