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Significance of the Dairy Industry

Milk and the making of India

Milk as a consumption item has never failed to excite India. But it was Dr. Kurien who give a new impetus to the supply side of milk as well.  He did this through the NDDB (National Dairy Development Board) and the GCMMF (Gujarat Cooperative Milk Marketing Federation). And he created the Indian version of the milk cooperative movement which has transformed this country.

The results are visible – India is the premier producer as well as the largest consumer worldwide. That, too, with small farmers – each having between 2-10 heads of cattle as a backyard dairy farming. More significantly, this industry grew with practically no subsidy from the government.

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What makes the Indian milk movement unique is its ability to pay 80% of the market price to the farmer.  Kurien ensured that everything else – milk collection, processing, packaging, distribution and marketing – was managed within 20% of the marketing cost. That made the farmer earn more, which incentivized him to produce more. For Kurien the small farmer was crucial.  He believed in production by the masses, not mass production.

Milk thus provides income for farmers, nutrition for Indians, and rural prosperity for the economy. With Modi’s vision of doubling rural incomes, milk is bound to play a bigger role.

Dairy Industry Forum

(From left to right: T Nanda Kumar, R S Sodhi, Dilip Piramal, R N Bhaskar, Mahesh Pathak and Madan Sabnavis)

To discuss this, the FPJ-IMC Forum organized a panel discussion with experts at the Indian Merchants Chamber, Mumbai.  The panel comprised T. Nanda Kumar, Chairman, NDDB; R.S. Sodhi, Managing Director, GCMMF; (popularly referred to as Amul); Mahesh Pathak, Principal Secretary Animal Husbandry, Dairy Development & Fisheries, Government of Maharashtra; and Madan Sabnavis, Chief Economist, CARE.  The event was moderated by R.N.Bhaskar of FPJ with editorial support from Pankaj Joshi, and Lalit Wadhwani.

The welcome address was given by Dilip Piramal, president, Indian Merchants’ Chamber (IMC, and the Vote of thanks by G.Chandrashekhar, Economics Advisor, IMC.

Dilip PiramalDilip Piramal, president, IMC: Welcome to the FPJ-IMC Forum on the subject of Indian Dairy Industry and its Relevance to the Economy.

I sincerely thank you all for sparing your valuable time to participate in today’s discussion.

A few words now about the Indian Merchants’ Chamber. Set up in 1907, it is a century old chamber of trade, commerce and industry in the country with headquarters in Mumbai.

It has around 2,700 direct members, comprising a diverse cross-section of the business community, including public and private limited companies and over 220 trade and industry associations. It has a vibrant ladies wing of around 2,000 members, an Economic Research and Training Foundation, The Ramkrishna Bajaj Quality Award Trust and a Young Leaders Forum. Overall, it reaches out to around 250,000 diverse businesses in the country.

We believe in broad-basing economy growth to make it truly more inclusive and socially distributive for every Indian. Our current theme is job creation through skilled development, which reflects our concern for ensuring that our unique demographic dividend does not morph into a demographic disaster, but leads our nation to a double-digit growth path.

About the panel discussion on Indian Dairy Industry and its Relevance to the Economy.

Today we have a very, very eminent panel and some of the leading figures in the diary industry in the country, and I am sure we will get to learn a lot today. They will discuss the dairy scenario in the state and its growth prospective.

I once again thank our eminent guests for being here with us today. Before inviting them to enlightened the audience, I would like to present a memento as a mark of our appreciation and gratitude. Thank you.

FPJ: Good evening, everybody. The FPJ IMC Forum tries to deal with one industry segment every month, and we’re glad to have the third in the series. We wanted to have this discussion on the subject of milk for several reasons. First, it is one of the few products where India is the number one producer in the world, and it’s still going strong. What its strengths are, will be evident once the speakers talk about this industry.

The second reason why we thought milk was very relevant was the budget announcement, where the finance minister talked about doubling rural incomes before 2022. We think milk is going to play a crucial part towards doubling of this income. I would request the panel to give their thoughts on these.

T Nanda Kumar, NDDBNanda Kumar: I’ll try and give you a small snapshot of the dairy industry, as it stands today and my view on where is it going. Of course one cannot start any discussion on Indian dairy industry without referring to the great vision of Dr. Kurien, a vision which is unparalleled in Indian history and also in Indian economic development.

Many people would argue that agriculture’s contribution to GDP itself is so low, so why dairy is important? Yet it is true that about 33% of agri-GDP is dairy, and more importantly, we still have about 50% of people in agriculture and I think that’s where the challenge comes.

Therefore in Dr. Kurien’s words and this is what I tell my people in NDDB, we are not in the business of dairying, we are in the business of rural prosperity and that I think is the underlying philosophy under which most of us work.

Now some context – the Budget announcement that the government wants to double farmers’ income by 2022, I would say that it is impossible to do it without dairy. There are many reasons why dairy will be an integral and probably a key player in that achievement.

First, we’ve always been worried about the unacceptable levels of under nutrition. When I was Secretary Agriculture and Food in Government of India and would go to international seminars, they would always throw up this “number of hungry and undernourished people in your country while you’re sending something to Mars or moon or wherever”, and we really had no credible answers, even now we have a problem with that.

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And in a country which is predominately vegetarian how do you handle children between six months and five years without dairy? So these are the kind of contexts we need to look at dairy from.

Dairy also a more equitable agri-occupation. 85% of the small and marginal farmers in India own 45% of the land, but 75% of the bovine. For a landless person, dairying is one of the best occupations you can talk about.

The story of milk production growth is well known, from 22 million tons in 1970 to 146 million tons of milk in 2015 accounting for 18% of global production is no mean achievement, considering that we have so many small farmers.

And the monetary value of this is more than the current combined value of rice and wheat put together. So that’s the impact of milk production on the rural economy. And this was achieved without subsidy and without incentives.

The most important element in this was the farmer institutions, which worked on three basic principles of trust, transparency and technology. Now where do we look at the market from today? I have looked at something internationally done and what they are looking at is a growth of about 19.6% CAGR till 2020 in terms of the value of the dairy market.

fpj-imc-march-2016And in the Indian context, half of (the output) will be liquid milk at any point of time. And if we are only processing about 20% to 22% then where are we? So that’s one challenge.

Another interesting statistic from National Sample Survey Organisation (NSSO) shows that expenditure on food is shifting. Spend on cereals has come down to about 39% in urban areas and 49% in rural, whereas milk has been going up and touching 20% in urban and about 19% in rural, which means that the demand for milk in rural India is growing much faster.

The food expenditure today is on high value agriculture, which includes horticulture (fruits). The nature of the Indian thali today is 25% cereal in terms of value and 75% other things, which shows a prosperous or/and an aspirational India.

The data further indicates that rural milk purchases are about twice the number of rural milk producers in some of the states, and these states are interestingly the faster urbanizing states. So, again, there is a pattern which we can look at.

Now where do you think dairy will go? I know there is this huge debate on what should be a GDP growth rate, everybody has a number. But nobody is talking about less than seven points, seven or less than eight. So if we are growing at about 8% or more, what will be the kind of demand that we should look at?

Combined with this is our rate of urbanization, if in another 8-9 years 50% of India is going to live in cities, and a hundred of them are going to be smart cities, where is the demand for milk and dairy products going to be met?

From a pure economic geographical urban living growth, a great increase in demand in dairy and dairy products, 19.6% CAGR is reasonably correct.

Now let us look at challenges. We have serious issues of low productivity, which emerge from some of our indigenous breeds and also from some of the feeding challenges that we have.

Of the 118 million milch animals that we have in the country, around 19 million are crossbreeds, about 48 million are indigenous and 51 million are buffaloes. While the crossbreeds give you an average of 0.7 kg (milk) per day, the indigenous one give you somewhere close to 2.3 to 2.4 kg, and buffaloes, of course, give you about 4.8 kg with much higher fat content.

The other challenge that we will have to face will be climate change, and consequently pressure on feed, fodder and water. Processing infrastructure is still a far cry from where we (need) if we are going to grow at 19.6%.

And we have the institutions, strong institutions but do we have them all over India? Many parts of India are woefully short of veterinary services. And unlike agriculture, there is no extension on the feed and such support side in animal husbandry, dairy.

There is also a new issue from the consumer side, which is the newer definition of food safety and the newer challenges that our food safety law has brought onto the market. Milk is collected, processed and probably sold twice a day. Maintaining quality is the biggest challenge. And, of course, our strong institutions and cooperatives are also facing a serious governance challenge.

Another issue is the increasing feminization of agriculture. More and more women are into dairy, because the men are going into other work areas.

Where I think the opportunities would come is we are working on selected indigenous breeds, keeping in mind climate driven conditions. We have to work very seriously on the technology front both in terms of creating a center for genomics, and we need to work on selected breeds. We also need, for economic and the other reasons, a serious inroad into semen and also a massive effective artificial insemination.

On the fodder and feed front, in NDDB we have worked to create something called a rational balancing program, which we run through a central server in Anand. You can get the best formula for the animal that you have in your backyard. This has not only improved the yields, but also reduce the cost of the farmer to somewhere between Rs. 15 and 25 per animal per day, which we think is a major contribution.

Strengthening institutions is probably something that we have to focus on. And of course, the demand for new products will need new technology and investments.

Another opportunity is that Eastern India has been not really looked at seriously. When we looked at it in 2010 with a view to bringing green revolution to the East, many people thought it was not a good idea. Eastern India has adequate natural resources. What they lack is good breeds, good institutions and probably a good marketing infrastructure, all of which can be built.

The last question is will private sector grow or will public sector grow? I think both will grow. Typically, in the dairy sector, it’s how transparent you are, how much trust the farmer has in you, which will ultimately determine whether you can work with the farmers, because if the farmers give up milk there is no industry which can survive.

So, while you may have access to technology and finance I think it’s the most important part is, how do you connect to farmers, because, ultimately, the farmer has to be making money.

FPJ: The biggest player in India in the collection, procession and distribution of milk, is GCMMF. We would like to hear from R.S.Sodhi to talk about what the milk industry means for him and for the country.

R S Sodhi, AmulSodhi: Good evening ladies and gentlemen, talking about the dairy industry I’d like to present it by focusing on its past, present and future.

I don’t know how many of you have had your childhood in Delhi. In the 1970s in Delhi, the most precious thing (someone could have) was is the aluminum card of ‘Delhi Milk Scheme’ to buy two bottles of milk – that too also, if you have stood in the queue two hours before the booth opened.

Those were the days (when) India was producing only 20 million metric tonnes (of milk) and this was static – we were dependent more on imports from the developed countries and Australia, New Zealand.

Thanks to Dr. Verghese Kurien, the model of Amul Pattern and ‘National Dairy Development Board’ was created, they replicated this model across India. In the seventies we had 21 million tonnes, today we are around 145-150 million tonnes, that is how the milk industry has grown in India. Most of our neighboring countries are still importing from the same nations.

Today we have become not only the world’s largest producer, but also self sufficient. The main reason is all stakeholders had a win-win situation. First are farmers, who are producing milk with two or three animals, then the processors and marketing bodies which are mainly the cooperatives, and third the consumers because everybody consumes.

This Amul pattern model made it a win-win. Farmers got very good prices for the milk, so they were encouraged to produce more. India is the only country where farmers get 80% to 85% of what consumer pays. In most of the world, farmers get only one-third of what consumer pays, so here all the stakeholders are happy.

Processors accessed a good system to procure from millions of farmers, process it and market it and consumers are very happy to get very hygienically packed nutritious milk at a very, very reasonable cost vis-à-vis other countries.

At present, the dairy industry worldwide, like other commodities, is going through stressful conditions. In Australia and New Zealand, farmers are getting prices 60% lower that what they used to get two years back. European prices are 30-40% lower.

There are four reasons behind this slump. China who used to import a lot, has reduced imports. Russia has started to reduce or totally ban import of dairy products from Europe. Third is the in-tandem production rise in the European Union nations who abolished their quotas on milk production in 2015, and started competing with Australia and New Zealand. The last is the crash in crude oil prices. Crude oil exporter nations are all importers of dairy products.


Worldwide and in India, farmers are getting 20% to 60% lower price of milk, except Gujarat. There farmers are getting 2-5% more prices compared to last year. The reason is, in Gujarat – where we procure 20 million litres of milk daily – 93% is converted into value-added products and marketed. With a commodity market of just 5% to 7%, farmers are not exposed to price volatility.

Now the future. We are in a country where population is growing, as is per capita consumption. In 1970s per capita consumption was 110 gm per person, and today it is 340 gm. Along with increase in population, consumption is growing, because of prosperity and disposable incomes. From today’s population of 1.25 billion, it is expected that by 2050 it will be around 1.7 billion. With growing consumption, if today we are consuming say 150 million metric tons, by 2050 we will be consuming 540 million metric tons, three times more.

Today value wise, the dairy industry is Rs.5 lac crore. Today only around 20% is organized producers, which is the segment growing at the rate of more than double-digit in all product categories. Consumption is growing at 4-5%, but organized sector branded products are growing in double-digit rates in all products, like butter, cheese, paneer or others. Our new products are growing 20%, 30%, 40%. With value-added products increasing, the industry growth will be beyond three times in value terms.

With Indians earning and spending more, there is tremendous potential, because 50% (population) is vegetarian. We traditionally eat or drink milk right from early morning to late night, not like other Asian countries where they have learnt milk drinking recently.

Summing up, people involved in the dairy industry, whether in production, processing or marketing, are very fortunate, because it is definitely going to grow.

What is the way forward? Urbanisation, migration, Make in India all these mean that if today if 70% is in rural India, by 2050 there will be only 45-50%. Gradually we will be having more mouths to feed, and lesser hands to produce. So how can we encourage people in rural India to produce more food?

Today’s younger generation farmers or milk producers are not interested to stay back in villages, get up in the morning, milk the bovine, handle the urine and dung, take them for the wash, and again do all of that in the afternoon. So how do we attract the younger generation to the dairy industry? That can happen if, first they find it commercially remunerative, and secondly slightly more glamorous via use of modern dairy industry techniques.

Second is policy. Government policies till now have been very favorable for dairy industry growth. They have protected Indian dairy industry from cheap imports from day one. This is vital because India is the world’s largest market, there is a worldwide slump and the whole world will be happy to dump their products here.

We still have to continue to protect the Indian farmers, else the situation will go the same way what our edible industry has gone. There till the 1990s we were self sufficient, importing only 8-9%, but once it opened up we are today importing 65% of our needs.

In summation, we have the best production in the world and growing, the best consumption in the world and growing. Our milk products are value for the consumer, our whole supply chain is very efficient. We have to see how we can continue growing such that our farmers continue to get good prices, consumers continue to get good milk at reasonable price, and we can encourage tomorrow’s younger generation to go for this profession.

We can imagine how dairy can help in the rural ‘Make In India’. For an urban Make in India lot of things are there, but in the rural area where most of the population lives, dairy is the only industry where you can do Make in India where you do not require land, and which can provide a livelihood source to maximum people in rural India.

FPJ: Thank you. The Amul brand is perhaps the most valuable agricultural brand in Asia. In the coming years, both NDDB and Amul will have a big role to play. On the other hand in Maharashtra cooperatives took a different turn, where instead of one brand, you have over 80 different brands. I will now request the Secretary of Animal Husbandry, Mahesh Pathak, to talk about the milk industry and Maharashtra.

Mahesh PathakPathak: The previous speakers have covered most of the issues that are plaguing the milk industry, both nationally as well as some internationally. I would start by giving a perspective from the state government point of view.

The population growth, the demography, as well as the rising income, will keep dairy industry in a very comfortable position.

The target is to produce some 220 million tonnes by 2020. Doubling rural income is another key objective. The Prime Minister has already pointed out in the Krishi Unnati Mela, a couple of days ago, that animal husbandry, dairy and poultry are important for increasing the income of the farmer.

Our aim is that the income of the farmers comes throughout the year and not seasonally as happens in agriculture. Animal husbandry, dairy, poultry, fishery — these reduce the farmer’s risk, mitigate the strain when rains are not good, keep income flowing.

If this production growth happens, it puts a strain on the animal husbandry infrastructure, and on the feed and fodder situation. Government schemes to improve fodder availability are being put in place. A lot of help, like NDDB’s Fodder Balancing Program, is also available.

The main issue in fodder is farmer preference for cash crops like cotton or soyabean, where there is no plant residue after harvest. We have to promote jowar, bajra, corn, which generates animal feed. Sugarcane residue is another feed option but is unhealthy in large quantities because that too leads to increase in sugar level.

Private sector has a much bigger role now. Today nearly three-fourths of the industry is unorganized. Co-operatisation is important but I believe that, especially in processing and in distribution, private sector has a big role to play. It will also have to enter production, which today is substantially in the unorganized sector, and hence has lot of inefficiencies.

So, private sector will have to enter into production also. It cannot remain merely in the processing and distribution part and do brand-building. It will also have to enter into farms and integrated dairy farms is the need of the hour and there that is where the next opportunity will drive for the private sector.

Even for co-operatisation, there is opportunity because of regional imbalance. In the eastern, north eastern, extreme northern regions co- operatives have not taken root.


(From right to left: R S Sodhi, R N Bhaskar and Mashesh Pathak)

Even in Maharashtra there is regional imbalance. Northern and western Maharashtra are relatively better in cooperatives, but if you see Konkan, or Vidarbha and Marathwada, there is a problem. There, if cooperatives are there, either they have become defunct or there are villages which don’t have cooperatives.

Where today co-operatives are present, it also is leading to too much of politics. Every five years elections are there in co-operatives. There is a concept of ‘ek gaon, ek Ganpati’(one village one Ganpati). Similarly in cooperative, ‘ek gaon ek sanstha’ (one village one organization) that kind of concept, wherever the new co-operatives are coming up, wherever the government is promoting cooperative, this kind of concept should be promoted, and that is only possible if there is legislation or if the politics has a vision. But that is very difficult to see at the village level.

So there has to be legislation otherwise the elections and its dynamics, every party would like to have a society at the village level. These breeds inefficiency, with 4-5 societies Maharashtra has become multipolar. Five societies, affiliated to five political parties, is that much inefficiency. Private sector producer companies coming up is the need to bypass this election practice and better efficiencies of scale.

The move from unorganised to organised is also led by the security and safety issues which are coming up with milk. Recently there was a report that almost three-fourths of the (milk) samples are failing the test, even for pouched milk. With strong demand, every day adulteration attempts will happen.

Most of milk sale is non-standardized. The unorganized sector sells the milk either from open cans, or in plastic pouches tied up with string. And most of the test-checking is done on the organized sector. Unorganised sector supplies are local and the move to organised sector is important from the point of safety, from the point of security and also from the point of better prices to the farmers.

Then there are three different departments, which is a problem, because testing is not under the animal husbandry or dairy department. Some ten years ago it was moved from dairy department for milk testing to the Food and Drug Administration which is under a different ministry. The weights and measure is under Food and Civil Supplies. Each one has its own departmental aims, goals and their own agenda and seldom is there is the same minister for all three of them.

For integrated animal husbandry development, there is also the need for having better infrastructure of hospitals, as also better extension services. We have almost 5,000 rural hospitals and in those we have to cater to this entire vaccination programs, curative programs, artificial insemination, animal camps, and fodder development. There is a plethora of activities happening in these rural hospital and there is a need to strengthen this infrastructure.

Animals don’t talk, they are silent, and hence they don’t demand much. In times of financial stress like we have now, the feed is reduced or they are not cared for properly. If you are getting Rs.18 or Rs.17 for a liter of milk, the first thing that you’ll try to do is try to reduce costs and then the animal nutrition is affected. This should be avoided. For farmer income to double, you have to go into allied agriculture; focus on dairy, fishery, poultry, the entire gamut.

Departmental allocations need to go up, because there has to be some element of subsidy, or incentive. We have to promote the idea of more people owning animals, small ruminants, poultry, and get engaged in fisheries. For that purpose promotion, regulation, and also budgetary support is very necessary. I would like to share that this year the first time allocations have almost doubled for animal husbandry, dairy, fishery.

These are supposed to be for development of farms, for increasing the quality of semen and artificial insemination, for improving the producer companies, for providing dairy infrastructure, and also in the areas of fisheries and also for Rashtriya Krishi Vikas Yojana schemes. It is very rare that you get such kind of allocations with emphasis on social sector spending.

Recently we have seen that more stress was on infrastructure, but this budget, again, the focus has come back on agriculture and allied activities. But much more allocation is required, if you want to have a doubling of the income of farmers.

Thank you very much.

FPJ: We have an economist who always has a last word. Can we request Madan Sabnavis to give his views?

Madan SabnavisSabnavis: The point which Mr. Sodhi made was quite interesting. My schooling was in Delhi and we managed to get that token for getting the DMS milk after 3-4 years and that was after my father, working in the Reserve Bank, managed to pull some strings.

For a family of five, one token gave us one bottle of milk. In my college hostel, once or twice a year we would try and hop over Nirula’s to get a pizza. And in summers we could never get a paneer pizza, because they would say that milk products are banned.

So I think we have come a very long way since the 1970s to now with a surplus of milk and we are really thinking in this particular forum about how we can make milk and the dairy industry one of the leading sectors in the economy.

Now what I am going to present is a macroeconomic model, not getting into the specifics, about why is milk and milk products one of the industries with bright prospects. There are essentially four pillars which we should look at.

The first is output. It has mentioned that in the entire primary sector, the value of output which emanates from the dairy segment is the highest. So intuitively if I really want to grow the economy, I want to grow the primary sector, I need to focus on where the value really lies.

Second is demand. We have realized that the demand for milk will always increase and never decrease. Look at the output, I don’t think output has fallen in the last 15-20 years. It’s been increasing every year (supported by demand).

Maybe the pace of increase could slowdown, but there’s always been an increase, unlike pulses or soyabean or rice or wheat, where production actually falls. So we are looking at a particular product or an industry, where the demand is only going to increase.

The NSSO data shows that as income keeps moving up, households tend to switch more towards dairy products from cereals. So as rural incomes go on increasing, a progressively larger proportion of income is going to be spent on dairy products.

Look at urban India, there is a realization today that we should move away from colas and sodas, preferring milk and milk products. So both in the rural and the urban side, I think there will always be a continuous demand for milk products and that’s another reason why this particular project should be taken up in earnest.

The third is in terms of employment. It has been mentioned that 70-75 million households are dependent on dairy farming. Now again, to provide more employment in the rural areas, we have to look for a factor which has the greatest potential. Given the fact that lots of people are migrating from rural to urban areas, getting into construction work, one way to halt this would be trying to focus on this particular segment.

Fourth, I look at prices. When I shifted to Bombay and started my career in 1988 or 1989, I was paying Rs.2 a litre for milk. Today the prices are around Rs.40, quite clearly a big increase. If I look at the consumer price index ever since the new index came through, there’s been a cumulative increase of 10% per annum. If I look at the WPI, again at dairy products, from 2004-05 and the base year was reckoned, there’s been an increase of 2.5 times.

That means if you are working in this segment there’s a good chance that your income will keep increasing, it will keep pace with inflation and hence it is a remunerative profession. In agricultural products when the prices go up, there’s a huge noise made by everyone, we keep saying that the farmer is getting money, the consumer is paying higher prices, but for the dairy industry nobody has ever complained about paying higher prices.

So, the way rising prices have not come as a jerk, the fact that higher increase in prices does not lead to a commotion, does not lead to a parliament being stalled, gives us the reason to believe that this is a product to focus on.

So based on these four pillars – higher output value, increasing demand, increasing employment and increasing prices – I think the government should really get together to see as to how we make sure that this particular industry grows in the desired manner.

Two ideas out here, in case we are actually self-sufficient, we can think of exports as an avenue. For such a thing to happen, we have to move the industry away from being an unorganized activity to something more organized.

Mr. Pathak spoke about getting corporates into the picture, more cooperatives, so that we have end-to-end solutions. End-to-end solutions means increasing productivity, improving the logistics chain. Make sure that you’re able to convert milk into manufactured products. Make sure that you’re able to market it in the right manner, not just producing for the Indian population.

The second part is what directly can the government do? There are a number of programs, which the government keeps talking about, like the NREGA program, where a wage of Rs.150 is given, which is probably a dole and lots of people are criticizing it saying that it’s not really adding value. I’m not quite sure what the numbers are, but from my Google search I found out that the minimum animal feed required is say Rs.100 to Rs.150 a day. In case a farmer, who has cattle, gets this Rs.150 as a NREGA wage, it’s actually diverted for productive activity.

Second, for purchase of cattle where my Google search showed it will be Rs.30,000 to Rs.40,000. With the Government promoting small banks, which are dedicated towards priority sector landing, why cannot these small banks, located in the rural areas, start financing the purchase of cattle. The risk should also be low, but actually in the 1980s we had this program called IRDP (Integrated Rural Development Program), which was based on giving loans to farmers for buying cattle. It’s another thing that the scheme actually petered out.

But definitely, in case we reintroduce this particular system, small banks do productive work, and infrastructure to look after the feed and ancillary requirements for animals is enhanced, it could be a good model.

Before I conclude, just two thoughts on what are the negatives of having more cattle in the country. I am not an environmentalist, but as I understand, having a lot of cattle in the country could lead to environmental pollution. I think Thomas Friedman has spoken about it, belching and whatever comes out. Now, in a situation in which we’re making dairy farming commercial in which there is going to be more cattle, there could be more environmental issues, we have to prepare for this.

Second, we should remember that what happens in India is that once cattle stop giving milk, we destroy the cattle. The current ban which you have on things like beef saying, I can’t kill a cow, I can’t kill a buffalo – do we have the wherewithal to actually look after the cattle once they stop giving milk?

I think this is going to be another challenge for the government. Normally while talking of budgets we don’t look at negatives, but if you are looking in terms of commercializing dairy farming, we also have to address these two issues. Thank you.

R N BhaskarFPJ: The dairy industries is the only industry in the country where 80% of the consumer price goes back to the farmer at least in the cooperative sector, thanks to Verghese Kurien’s vision. Globally only 30% of the market price goes to farmers.

However, barely a quarter of the industry is organized, so the remaining 75% pays a price anywhere between Rs.14 to Rs.20 sometimes Rs.25. The farmer is short changed. If you really want to increase dairy production, there are two possibilities and this is where the question begins. One, promote cooperative farming, so the farmer gets Rs.26 to Rs.30, and that gets the unorganized farmer move into the cooperative world.

Second, promote corporate sector responsible players, the best corporate sector players have adopted the same principles of cooperatives. Hatsun, which is the largest private player has extended services farmers and pays over Rs.28 per liter milk. Nestle in Moga does the same thing. Can we encourage responsible corporate sector?

There is a third mischievous thought to curtail the rapacious unorganized private sector, can we have a minimum support price (MSP) of quarter milk like its done in Tamil Nadu, so that the farmer is not short changed?

Sodhi: There is a lot of potential for cooperatives and corporates. I don’t say that cooperatives can do take care of whole India’s organized sector requirement because in some states they are reasonably good, some states are average, some like Maharashtra are below average.

If 80% farmers get a fair price, the state is going to produce, and corporates can pay good prices to the farmer if a major portion of whatever milk they collect is sold in value-added branded form to consumers. The co-operatives or private players going in for commodity business is why the farmers get lower prices, like in Maharashtra. The commodity business is very easy, you put up a dairy plant, you get loan from banks and then start selling over phone or now on internet, you don’t need people.

And you are doing this business not at your risk, but at the risk of farmers, because in commodity there is volatility. When prices are up, you earn, but the farmer will get average price. When price is down, then you give low price to the farmer like today. The Maharashtra farmer today gets Rs.17 or Rs.18. The corporate or private sector says that if I get low price I will give you low price. Naturally market will not grow.

If more corporates, more transparent big companies come into dairy, they should not aim at huge EBITDA margin of 30-40%. Instead, if they go for a reasonable EBITDA of 5-7%, maybe 10% and try to scale up, there is a lot of opportunity for the private sector to come and expand this category.

Nanda Kumar: I’ve had to do these MSPs four, five years on many commodities in my career. Milk MSP is impossible to do. That’s not the solution. The solution is I think we are struggling with two problems.

One is, milk is not getting processed in the dairies in a manner in which it is acceptable to the consumer and thereby the farmer is losing the money. So the solution is to have a much better hold on unorganized sector. And the route to go there is the Food Safety Act. Pathak referred to some numbers which I don’t agree with. I have serious reservations on the 2011 FSSAI survey, because the numbers that are put there in an aggregate form is a very misleading number. It says roughly 40% of the samples we picked up had water. Since time immemorial, milkman have been adding water.

As long as they add pure water, that shouldn’t be a problem, but that’s again reflection on the loose milk situation. But much more interestingly about 40% of the samples contained SMP  (skimmed milk powder). Now SMP is an internationally accepted practice and calling it hazardous is a little bit of a misnomer, so I would discount that survey. I would think that FSSAI should focus on loose milk and kind of milk that is still sold in packet without branding and the processing.

Next, we have to go back to analyzing the process capability of every company.  Either you use an in-process quality control model or asset model, and work towards ensuring that the customer gets a product which is safe.

What we are trying to do now is to work with all the cooperative federations and create a quality mark based on the processing capabilities of all these unions and federations which will then assure the consumer that look, what we are giving you is a safe product. This is just a typical market intervention kind of thing, without resorting to the legislative part, but FSSAI should focus more on this.

Pathak: The dilemma that Mr. Sodhi mentioned, once you have a decent per capita consumption, you can think of products. When the per capita consumption in Maharashtra is only 215 grams per day, so it is better to sell organized sector milk, loose milk or commodity selling is much more important than products, but the product is actually to balance the market.

Because of international situation – China has reduced its demand, too much of milk from European Union – the international market of SMP has gone down. Else export of SMP or WMP would help the farmers in the flush season so the that producers would go for milk powder, export it, get their money back and the commodity selling would remain as it is.

There is a need to increase the commodity milk sale. If you reduce the price of milk by Rs.1-2, the demand may go up. Out of a sale price of Rs.40 rupees, Rs.20 is the maximum the (Maharashtra) farmer gets. I’m sure that the overheads are not double. So farmers get around 50% not 80%.  Hence there is certainly scope for reducing the price in the lean season so that the demand increases, more commodity sales happen and the international pressure is taken care of on some.

Then the Government of India has given an advisory that SMP may be used in school education program. If The Government of India includes this in the ‘Sarva Shiksha Abhiyan’ or in the act as one day a week even is enough.

I have calculated that one day a week, one crore children are there in the school meal program Mid Day Meal program and one crore children, if you – even if they are given one day of milk, SMP put in hot milk, hot water and with some amount of sugar, it will cost about 5 rupees per child and it will lead to about 20,000 tons of SMP in the year. So that will take care of the entire issue. But against that there is a Supreme Court order for serving cooked milk, which cannot be violated.

We are therefore introducing SMP only in the Ashram Shalas of Social Welfare Department, and also in the Ashram Shalas of Tribal Department, they have captive Ashram Shalas. We have also gone for the Anganwadis, because they don’t have a Supreme Court judgment to meet. So, we are starting at Anganwadi, at least 30 lac students are there in the Anganwadi.

This will lead to a demand of at least 100 tons of SMP in a week, or 5,000 annually. Gradually we try to go into the school program, but we’ll need Government help.

Two points of caution. We know there is a link between too much of milk product consumption and diabetes, and India as a country is the diabetes capital of the world. While we are improving demographically, economically as the population is aging, this is a major problem. So we have to be careful, how much products we promote, because the products that we are promoting also lead to this kind of problem.

The other cautionary note is about too much of extraction or productivity in organized farming. Like mad cow disease, there is sad cow disease and too much of sadness in the cow will lead to a lot of toxics in the milk, and so stall-fed animals will lead to their own problem.

Therefore profit has to be controlled, you should not aim for vulgar profits, you should have profit considering the health aspects, and keeping the cow also happy. Thank you.

FPJ: For the cooperative movement, the maximum wealth generative farmer has been in Western India, whereas the largest milk producing state is Uttar Pradesh and the potentially large milk producing states are the Eastern and North Eastern states. Are you promoting or do you have plans to develop a milk industry there?

Nanda Kumar: Uttar Pradesh is a classic case in point, where about 1% of the total milk production is what they procure in the cooperative. So, it’s ready for large players, for the wisdom that was generated by Amul, and I think Mr. Sodhi has found some open spaces, so he has entered there. Mother Dairy is supporting a large producer company and we intent to support some more.

Bihar is doing well, in spite of the fact that all other cooperatives have failed in Bihar. The milk cooperative is doing exceptionally well, and I think they are probably there in the whole of Bihar. I think they would standup in the first five in the country. The absence is in Jharkhand, where we have just taken over. It’s a very difficult terrain, Naxalites and everything. And we have had tremendous success in about 18 months.

We are trying to look at Eastern India in a manner of productivity – because Eastern India has 27% of the cattle population with about 17% of milk. So, it’s a productivity issue, it’s a breed issue, it’s another set of issues. I think we’ll take a longer time there. But having been agriculture secretary and having looked at the deterioration of ground water in the country, I think Eastern India cannot be ignored either for grains or for milk. They are abundantly endowed with water.

Because we look at the gray satellite map of Punjab and Haryana, Rajasthan, Western UP, you will get a shocker. That’s where the bringing green revolution to Eastern India came as a concept and it has worked. And I think the white revolution concept will work.

I just want to add one little thing, the concept of gift milk. We have set up an NDDB Foundation for nutrition, the idea is to attract CSR funds and provide milk to children in schools. Now, if there are companies and I know there are public sector companies definitely who have told me this that they would invest in the children of India. So, it can be one day, it can be three days, it can be five days and we will work with the cooperatives to give milk to children, but we will not distribute milk powder for obvious reasons.

Sodhi: Further on the East discussion, it’s a myth that Eastern or North Easterner cannot produce milk. We feel that wherever there are two hands, milk can be produced. In Gujarat there is a district called Banaskantha, which is a very semi-arid area on the border of Rajasthan desert. About 45 years when cooperative were formed their people said, when there is no water how can you produce? Today that district gives 45 lakh litres per day, which is the maximum all over India.

4-5 years ago we started in Kolkata and the people said West Bengal has no milk. Actually, when we had launched milk in Kolkata, it was brought from Gujarat in railway milk tankers and processed and packed here. Gradually we started procuring from the areas around Kolkata.

Now whatever milk we are selling in Kolkata is procured locally, and the quality of milk and the quantity of milk per village, is much better than Gujarat. If you ensure remunerative price on continuous basis to the farmer, the farmer will produce milk. So, what is required is stable remunerative prices.

Some perspective on this diabetes matter. India’s milk consumption is 340 gm per person per day, but it varies across states. In the North – Punjab, Haryana – it is 600-700 gm, in the North East, it is 100-120 gm and this region will have 300-400 gm. Against that in Europe it is 850 gm. In India, 1-2% people are vulnerable to diabetes but around 30-40% are malnourished, and milk is the best source of nutrition, with protein and fat. Lactose content is 4-5% only.

Diabetes is substantially because of sugar colas and a lot of other things. Milk gives first protein and then fat and very minimum sugar. I don’t think we should worry about diabetes from the milk. Let us consume more milk and become healthier.

FPJ: As was rightly mentioned, there is a constant urbanization taking place. When I go to farm and I talk to young boys, kya karoge school ke baad?(what will you do after completing  school) And the boy tells me, “mark acche hua to main, sheher jaunga.” (if I get good marks, I will go and work in the city)“Arey sheher jaoge to khet kaun dekhega?” (if you go to the city, who will care for the fields?)“Mama ka ladka hai na woh napass hai, woh khet dekhega.”(my cousin brother is there, he is a failure, he can take care of the fields). With the best boys and the best brains leaving villages, how will you improve the quality of milk and dairy with lesser intelligent people left in the villages?

Sodhi: You are right, if you are educated, you cannot live in a village. Nobody wants to give their daughter to the fellow, who is having 4-5 bovines at home, because at the morning you have to milk by hand. We have realized this, we are now working on making dairy farming very glamorous, contemporary and commercially viable. Then only it will happen.

If we don’t ensure this, problem of food security will emerge. If we don’t encourage farmers, we don’t pay them good price of their produce, our next generation may not get the type of food we are getting. We have to pay good prices for any agriculture produce in the cities, if we want the next generation to get it.

Sabnavis: I would support what Mr. Sodhi is saying I think we need to provide incentives to people in the rural areas to stick on to dairy farming. When I spoke of providing a loan, providing a certain kind of income for looking after a cow, definitely it should be a case of saying that, I’d rather be the proud owner of something rather than go as a construction laborer to the urban areas. When made commercial-oriented, attractive, with incentives, there’s no reason why this particular profession should be any less enchanting than any other agriculture profession.

NREGA can be harnessed for this. The farmer gets paid for tending to his well, for repairing of related structures. From viewpoint of water conservation, this is productive work.

The National Rural Livelihood Mission (NRLM) can also be a tool. Therein we give subsidy for animals, which goes up for SC/ST and below poverty line categories. The subsidies go up to 75% for purchasing of animals, including dairy and poultry. It is the Integrated Rural Development Programme (IRDP) in a new form, with subsidy being back-ended in the form of waiver of the last few loan instalments after the initial part has been paid off.

Pathak: To mention technology and its use, just two comments. First, we can do with less male animals within the system if we have more insemination. That will improve productivity and commercial viability of the individual sites. Second, we are working on a milking machine for a single cow, which means you don’t have to really do this for two, three hours. It would be an inducement for small farms and younger people.

Lastly, the whole thing about IRDP, unless you are able to buy that milk at a fixed price day-in and day-out, that giving a cow by itself will not lift him out of poverty. He has to be able to sell the milk and make money.

FPJ: There are always issues of transparency in the dairy industry, what are your comments on that?

Nanda Kumar: At the purchasing centre, you need a technology that demonstrates that the farmer is getting paid for what he is supplying in terms of weight, in terms of quality. So fat content measurement, solids-not-at (snf) measurement, payment systems which are open and transparent is an extremely important element of that end.

And then, of course, how do you have your balance sheet monitored and how the AGM take place, how the cooperatives layout their balance sheet etc. And as Sodhi said, in most of the good cooperatives across the country, 70-80% goes back to the farmer through the system and these are audited figures. But the most important element is in the village where you collect the milk, do you have a reliable machine which gives them a little receipt which says okay, you gave 1.5 liters of milk which had 5% fat, 8.5 snf and therefore at 39 rupees is your due payment.

G ChandrashekarG Chandrashekhar, Economics Advisor, IMC: I have one issue which I want to speak about, and that is the cost of protein that the milk contains. My analysis shows milk is the most expensive protein that is available in India today, followed by poultry meat, then comes egg, then you have three kinds of vegetable protein, the pulses, peanut and soyabean. Peanut and Soyabean are the cheapest sources of vegetable protein. Obviously 60% to 70% of the population is vegetarian, whether — by force most likely. And therefore we are talking about a milk producer having to get remunerative prices. Yes, he must get remunerative prices, there is no doubt at all.

But how would 1.25 billion people or at least 80% of the population of this country which suffers from protein deficiency get to consume more milk? The top 30% of the population gets to consume 600 gm per day; the bottom 30% probably consumes 150 gm  or  less. That needs to be bridged. The consumption of the bottom 30% will have to be lifted up, which means milk must become cheaper.

The second point I want to make is this issue of the Sustainable Development Goals of the United Nation. There are 17 goals to be achieved. And I found out of the 17 goals, as many as two-thirds, 12 or 13 goals, the dairy industry can directly contribute.

And therefore I would ask what are we doing to ensure that that will leverage our strengths in the dairy industry and then try and demonstrate to the world that here is just one industry in India which is contributing to meeting 12 or 13 out of the 17 goals of SDG?

Sodhi: The answer to the second question is that there is work in progress. For this first part, no doubt vegetable protein is much cheaper. But average Indian farmer cannot afford even that protein. So, what he does is sell expensive protein to buy cheaper protein.

The Complete List of Videos

Welcome speech of Dilip Piramal, President, IMC at the FPJ-IMC Forum on the dairy industry

T Nanda Kumar, chariman, NDDB talks on the challenges in the dairy industry

R S Sodhi, MD, Amul on how milk can help double rural income

Madan Sabnavis, chief economist, CARE speaks on the dairy industry

Mahesh Pathak, Principal Secretary, Animal Husbandry, Dairy Development & Fisheries, Govt of Maharashtra, was an Panelist at the dairy event

RN Bhaskar, Consulting Editor of Free Press Journal as Moderator at the Forum


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