milk-story

India: World leader in milkcover storyOperation Flood:A Billion-Litre IdeaWith more than 70 per cent of itspeople residing in its villages, India hada special agenda in strengthening itsdairy economy. Dairy farming effectivelyputs the controls in the hands of themilk producers eliminating the middlemen,cutting down their dependencyon crop cultivation, subject to vagariesof nature. Milk production becomesa subsidiary source of dependableincome even for the marginal farmerwith one or two milch cows/buffalos.As such, the founding fathers of thedairy movement in India envisaged itas an instrument of rural developmentand prosperity. This vision has led tothe establishment of the largest milkindustry in the world with its uniquecharacteristics. It comprises largelymarginal and small farmers who own70 per cent of the country’s bovineherds. It is a strange peculiarity that theIndian milk industry which accountsfor the world’s largest bovine herd,comprises the typical dairy farmer whomilks fewer than five milch animals athis home. (Source: GAIN).In 2013, most of the milk in thecountry is still being produced by itssmall, marginal farmers and landlesslabourers. However, the movement hadwidened to include more than 14.78million farmers under its ambit of1,48,965 village level dairy corporativesocieties by March 2012 (Annual Report,Department of Animal Husbandry,Dairying and Fisheries, Ministry ofAgriculture, Government of India).The government’s interest in thedairy industry dates back to the firstFive Year Plan when modernisationof the sector became a burning necessityto bridge the demand-supply gapfor hygienic milk in the country’sexpanding urban pockets.Thus, dairydevelopment as a priority, though ona small scale, was initiated during1951–55. Despite introduction of someschemes and incentives like the milkUp to 31st October2012, plans of about100dairycooperatives,with a total outlay of`2,745crore (US$ 452.3million), had beenapproved byNDDB under thePerspective PlanSource: Annual Report 2012-13, Department ofAnimal Husbandry, Dairying & Fisheries, Ministryof Agriculture, Government of Indiaschemes in city centres and Key VillageScemes (KVS), the dairy sectorremained almost a non-starter withtotal milk production reaching 18 MTduring the period. It was during the2nd Plan period that the governmentimplemented focussed programmestargeting production, marketing andconsumption of milk. The focus alsoshifted to the establishment of villagelevel milk producers’ cooperatives andby the end of the Plan period the countryhad made much progress. Therewere 2,257 milk cooperative societiesoperational and 77 milk supply unions.The 3rd Plan finally saw the urbanorientation of the dairy movement givingway to a more realistic rural model.The rural production centres wereconnected with the urban marketingcentres through procurement links viaa network of producers’ cooperatives.The states were brought into the networkwith the establishment of DairyDevelopment Department in each state.In 1965, towards the end of the 3rdFive Year Plan, the National DairyDevelopment Board (NDDB) wasinstituted at Anand in Gujarat, markinga landmark moment in the historyof dairying in India. This provided amajor fillip to the dairy movement, asthe nodal agency would embark ona reorientation journey of the dairysector which would change the courseof dairying in India by the next decade(See box for NDDB Chairman’s Perspectiveon page 24).In 1970, India was to witness thelaunch of the revolutionary OperationFlood or the White Revolutionmodelled on the successful KairaDistrict Cooperative Milk Producers’Union Limited (Amul) of Anand, inKaira District of Gujarat. Kaira DistrictCooperative Milk Producers’ Unionbecame the first formally registeredmilk producers’ union of India in 1946,and was later made famous by thevisionary, late Dr Verghese Kurien, themilkman of India. The Anand model,which linked the milkshed of Gujarat tothe marketing centres of Mumbai, providedthe pilot for the establishment ofeffective supply chain networks aroundthe country. Operation Flood was alsoconceptualised by Dr Kurien, who wasthe honorary chairman of the NDDBand the Indian Dairy Corporation(IDC), the funding and executing bodyof the various programmes launched bythe former.Operation Flood makes an interestingslice of history and reveals much aboutthe legendary vision of Dr Kurien. The1970s were a time when any fledglingdairy industry would have quailedunder the threat of the dairy surplusesbuilding in the much more advanceddairy economies like Europe, as itposed the threat of cheap imports. Thiswould have spelt a premature deathfor the Indian dairy sector, which wasjust about finding its feet. But not sofor Dr Kurien, who saw a million-dollaropportunity in this threat. Thus, with126,000 tonnes of skim milk powderand 42,000 tonnes of butter oil tofinance it, post an agreement withWorld Food Programme, OperationFlood was flagged off. In 20 years ofwww.ibef.org june-july 201321

India: World leader in milkcover storyeratives to enable them to expand and growtheir operations. Today more than 149 lakhdairy farmers are members of about 1.5 lakhvillage dairy cooperatives and receive about`21,500 crore (US$ 3.57 billion) annuallyfor their milk. NDDB has been encouragingparticipation of women in dairy cooperativesand nearly a third of the members in villagedairy cooperatives are women.Showing the Way AheadNDDB is a statutory body set up by anAct of Parliament (NDDB Act of 1987). Itssupport to the dairy farmers’ community islargely through the dairy cooperative network.The body assists cooperatives to prepareinvestment plans and provides financialassistance to dairy cooperatives for variousactivities. Developing human resource hasbeen a major activity of NDDB. It also assistsmilk unions in promoting hygienic milk productionprocesses through capacity buildingand infrastructure upgrades.India continues to be the largest producer ofmilk in the world since the last 15 years. Theestimated milk production was about 133.7million tonnes in 2012-13 and 127.9 milliontonnes in 2011-12Source: Ministry of Agriculture, Government of IndiaPer capita availability of milk at the nationallevel increased to 290 gram per day in 2011-12 from 260 gram per day in 2007-08Source: Ministry of Agriculture, Government of IndiaIndia has the largest livestock population inthe world with 57.3 per cent of the buffaloand 14.7 per cent of the cattle populationSource: Annual Report 2012-13, Department of Animal Husbandry, Dairying & Fisheries, Ministry ofAgriculture, Government of IndiaIn Mission mode“Mission Milk–the next revolution” is thesymbol for the National Dairy Plan (NDP)Phase I, to indicate the significance of the effortsrequired to sustain India not only as thelargest milk producer in the world, but also inmeeting the country’s requirements throughdomestic production. The NDP will put inplace a scientific approach and systematicprocesses to take the country on a path toimproving the genetics of milk producing animalsin a consistent and continuous manner.With incomes rising, the demand for milkis also growing much faster and has beenprojected to reach 200–210 million tonnesby 2021-2022. NDP, financed by TheWorld Bank and Government of India, is amulti-state initiative. It will work to increasethe coverage of more milk producers bythe organised sector comprising both thecooperative and private.India, as the largest milk producer in theworld, has demonstrated that it is possibleto be self-sufficient to meet the country’sgrowing requirements. It is now workingtowards sustainable and stable growth.(As told to Sangita Thakur Varma)ing milk from fragmented millions offarmers to augment a sizable volumebecame the model for not only cooperativesbut also to dairy corporates inIndia. The initial model of Kurien wasto avert poverty in rural areas and providenutrition to urban masses. Today,it is working not only to avert povertybut also to bring prosperity to the ruralfarmer.” The company that venturedinto the milk business in the year 1993,physically handles 2.3 million liters aday and is ahead of the next biggestprivate dairy in India by 50 per cent.If Hatsun is working with the farmer“to develop fodder in a scientific mannerto reduce his cost and enhanceprofitability that leads to prosperity,” asChandramogan says, Chitale Dairy inPune prides itself on the technologicalshift it has brought into dairying withcloud computing, mobile technology,business intelligence and RFID. Dairieslike Chitale and Hatsun are goinga step ahead by also venturing intoresearch and development aimed atimproving production performance.Though Chitale’s entry into the dairysector in 1939 is older than the historyof organised dairy farming in India,the credit for its modernisation goesto the second generation family scionVishwas Chitale, CEO and CTO, andgrandson of founder Bhaskar GaneshChitale. Chitale Dairy which processesmore than a billion litres of milk annuallyon its 250-acre farm in Bhilwadi villagein Maharashtra, is also pioneeringthe concept of farmer-owned satellitefarms to whom it provides 25 per centof the cost and the technical knowhow.Hatsun also provides a bouquet ofservices to the small milk producerslike introducing them to banks forfinancing of milch animals, knowledgesharing on modern methods throughtraining camps, seminars and discussionsand regular veterinary services.www.ibef.org june-july 201325

cover storyIndia: World leader in milkAll these efforts are directed at keepingthe production pipelines stable.There are smaller farms like VaishnoDevi Dairy Products, Parag Milk Foods,Prabhat Dairy, Dodla Dairy, CreamlineDairy Products, SMC Foods, etc., thatproduce between 5–10 lakh litres ofmilk per day.In 2012, Hatsun’s turnover wasaround `2,200 crore (US$ 400 million).It plans to take two to three of itsmilk products to the national marketsoon. “Efforts have already started,”informs Chandramogan. The companythat ventured into exports seven yearsago has exported its products to around38 countries including Canada andSingapore. “Today in India we are ina position to produce milk productsto match international standards.Response in the international markethas been very good and they continueto patronise us,” he adds.The transition of the Indian consumerto hygienically packaged milk is dueto the efforts of the dairy sector. “Packagedmilk offered a standard productfor the customers and the milkman atthe gate was also becoming extinct,”says Chandramogan. This transition,however, happened gradually over aperiod of 30 years. “The private sectoralso contributed significantly especiallyin South India, taking the packagedmilk to customers in small towns too.“Hatsun played the lead role in thistransition to small towns,” adds Chandramogan.Today, Hatsun is the largestseller of packaged milk with a volumeof 1.3 million liters per day in India.The success story of Parag Milk Foodswas written by its boss’ perspicaciousbusiness vision. In 1992, when the milkcooperative dairies and even the new privateentrants on the dairy horizon werestill grappling with issues like handlingmilk production and establishing supplychains, Parag Shah entered the fray withan investment of `1 crore (US$ 166,334).Not one to succumb to the herd mentality,Shah soon carved out a nichefor himself in the value-added milkproducts segment like skimmed milkpowder and started exporting butter,milk powder and butter oil to 47 destinations.In 2008, he literally said ‘cheese’,venturing into producing it on a largescale, when India was just waking up tothe smell of the hand-tossed pizza withmozzarella topping. The gamble paid offwith private equity funds following thescent of success.In 2008, Motilal Oswal Venture CapitalAdvisors invested `60 crore (US$9.98 million) in private equity funding.In September 2012, IDFC Alternativesinvested `155 crore (US$ 25.78 million)for 22 per cent stake, and Motilal Oswaldiluted 20 per cent of its stake in favourof IDFC making three times the profiton its initial investments in this deal.Last heard (May 2013), InternationalFinance Corporation (IFC) was planningto invest `102.20 crore (US$ 17 million)in Parag Milk Foods’ expansion plans(Source: DealCurry). The total projectcost for expansion of its distribution andprocurement networks and productionof value-added products like cheese,UHT milk and whey is valued at `196.59crore (US$ 32.7 million). IDFC hasalready funded `83.57 crore (US$ 13.9million) through its equity investment.Parag Milk with a processing capacityof two million litres per day and a plantin Manchar, Maharashtra, and a secondplant in Palamner in Andhra Pradesh,is on a high growth trajectory curtseyits diversified product portfolio. It isalso planning to expand its footprintfurther down south with another plantin Andhra Pradesh. Its brand namesGo, Gowardhan and TopUp are fastgaining popularity. There are otherprivate dairies like Prabhat Dairy, arather small Pune player that handles600,000 litres of milk per day collectedfrom 50,000 farmers at its factory atSrirampur that attracted PE investmentto the tune of `100 crore (US$ 16.63million) in 2012 from Rabo PE andAbraaj capital (Source: DealCurry).India’s `33,200 crore (US$ 5.5 billion)dairy business throws up different successfulmodels. Keventer was among thepioneering urban processing dairies inIndia—like Polson and Express Dairy. In1984, Edward Keventer Ltd, the 101-yearoldcompany, changed hands to becomeKeventer Agro Ltd. In 1994, the newentity branched out into the dairy businessas Metro Dairy, India’s first dairy inpublic private partnership (PPP).“Metro Dairy was set up in 1996,Global leadership of the dairy industrywas initiated by Dr Kurien. His model ofcollecting milk...became the model for notonly cooperatives but also corporates.—R G Chandramogan, Chairman & Managing Director, Hatsun Agro26june-july 2013 www.ibef.org

India: World leader in milkcover story“Metro Dairy isIndia’s first dairyin the publicprivate partnershipmode, with theWest Bengal MilkFederation owning47 per cent of theequity shares. Itis funded by TheWorld Bank.”—Mayank JalanManaging Director,Keventer Group“The total urbandemand for milkin Jharkhand is50 lakh litres perday. The totalproduction ofof all dairies...including privateones adds up to20 lakh litres. ”—Mukul Prasad SinghProject Director,Jharkhand DairyProject“The transitionof Indianconsumersto hygenicallypackaged milkis due to theefforts of thedairy sector...over a period of30 years.”—R GChandramoganChairman & ManagingDirector, Hatsun Agro“Milk is the onlycommoditythat has to becollected twicea day, every dayof the year...cooperatives arethe only logicalsystem for thedairy industry.”—Late Dr VergheseKurienFather of IndianDairy Movement“We invitedteachers,doctors, children,women'sclubs, nurses...and organisedplant visits todispel the mythsurrounding thedairy process.”—Sudhir KumarSinghProject Director,Patna Dairy Projectfunded by The World Bank under theOperation Flood programme,” informsMayank Jalan, Managing Director, KeventerGroup, adding “the West BengalMilk Federation holds 47 per cent ofthe equity shares.” With a capacity tochurn out 4,00,000 litres of milk perday, Metro Dairy sells 2.5 lakh litresof milk per day and around 44 lakhlitres of ice cream per annum. It hasa market share of around 22 per centof the liquid milk market in KolkataUrban Agglomeration and 35 to 40 percent of the ice cream retail market inGreater Kolkata. The consumption ofliquid milk in Kolkata is estimated ataround 13.5 lakh litres per day. Of this,11.5 lakh litres per day is catered to bythe organised sector. “This requirementexcludes the requirement of milk forthe sweetmeat industry,” informs Jalan.The mechanical engineer fromUniversity College, London, and analumnus of London School of Economicshas ensured that for the last fewyears “the company has been returningprofits. The accumulated profit currentlystands at `30.4 crore (US$ 5.06million). The net worth of the companyis `41 crore (US$ 6.82 million). Thecompany has paid back to the WestBengal Milk Federation through dividend,commission and service chargesnearly 400 per cent of the initial equityinvested in the company,” Jalan says.The company turnover in 2012-13 wasaround `250 crore (US$ 41.06 million)and Profit after Tax was `9.9 crore(US$ 1.63 million). “The company isnow in the process of setting up an icecream plant in Malda in North Bengalto manufacture ice cream/frozendesserts, with an initial capacity ofproducing 36.5 lakh litres per annum,”says Jalan sharing Metro Dairy’s futureplans. Metro Dairy procures all itsliquid milk from the West Bengal MilkFederation, which is the apex bodyof the district level milk unions. Thedistrict level milk unions have variousvillage level societies of cooperativemilk producers, who have animalsproducing the milk, he says, explainingthe cooperative structure that is thebulwark of this PPP company.Dairies like the Jharkhand DairyProject (JDP), late comers on the dairyscenario, are determined not to missthe bus. Mukul Prasad Singh, ProjectDirector, JDP, says, “The total urbandemand for milk in Jharkhand is 50lakh litres per day.” The total productionof all dairies in the state, includingprivate ones, adds up to 20 lakh litres,and JDP produces a fraction of itscapacity, a mere 3 lakh litres. With 8plants, JDP has a capacity to produce20 lakh litres per day, informs Singh.The state dairy markets its productsunder the brand name Medha. Giventhe demand, it can be concluded thatJharkhand is thirsting for milk. Opportunitiessuch as these are waiting to bemilked in India, with the governmentproviding the right impetus.With inputs from Kumar Vikash and S Ojha(Based on Secondary Research and Interviews)www.ibef.org june-july 201327