The Chronicle of a Takeover Foretold: Why the Amul-Nandini Controversy Is Important

The controversy about Amul coming into Bengaluru to sell liquid milk and curd has opened a new debate on whether it is threatening the local brand Nandini. While this looks like one more fishing expedition by the minister for co-operation after he dropped a hint of Amul and Nandini “working together”, it may be important to put matters in perspective and understand the “chronology”.

There was a logic in how the co-operative structure was organised in India, starting with Amul which fought the monopoly of Polson Dairy, and the later developments that happened through the setting up of the National Dairy Development Board (NDDB) to replicate Amul (or the Anand Pattern Co-operatives, as it was called) across different parts of the country. Milk was seen as an essential commodity that had to be supplied to the public at large. So before NDDB started the Operation Flood programme, most of the dairies were owned and managed by the respective state governments through a wholly owned corporation or a board.

The logic of three tier structure

The original design of the Anand model involved procurement of milk from the village through village co-operatives and allowing for local sale. The surplus was transferred to a processing plant, usually set up at the district level. There could be an intermediate milk chilling centre that preserved the milk if the distance from the village to the processing centre was too long. Each district would have its own marketing set up for liquid milk and some products in its catchment area. The surplus (beyond local sales) would be processed as products, branded and sold in all territories.

Amul was the brand of the Kaira Milk Union (now called Kheda). There were other strong brands in Gujarat – Sagar which was a brand promoted by the Dudhsagar Dairy in Mehsana, Sugam in Vadodara, Sumul from Surat and Vasudhara from Valsad. Each of these would sell milk under their own brands and make products for the local market. (Sugam Gulab Jamoon was famous at one point in time.) Amul and Sagar brands were upscaled to represent the marketing efforts of the Gujarat Cooperative Milk Marketing Federation, which originally restricted itself to selling only processed products.

So liquid milk was sold loose in the village, pasteurised, processed, packaged liquid milk was branded with the local brand and sold in the districts. Milk products were branded and sold globally by the federation. It was localisation first and integration on surpluses.

The belief system in the Amul family was that margins and value addition was in products. It was believed that the economics of transporting liquid milk over long distances did not make sense. While it is true that Anand would supply milk to Kolkata by running a special train of insulated tankers twice a week, that was more to fill in the deficit faced in the Bengal market, and not necessarily to “occupy” the market.

At the apex, there was a fourth tier – the National Cooperative Dairy Federation of India – which managed the co-ordination for defence supplies, and the balanced surplus and deficits of the state federations. Most of this co-ordination was in bulk unbranded milk products – particularly milk powder. So, while competing for long shelf life products was always on, the markets for liquid milk belonged to the local co-operative, honouring the principle of co-operation amongst co-operatives.

Building an umbrella

In addition, the NDDB had its own subsidiary Mother Dairy, which operated largely in the National Capital Region, buying milk in bulk from co-operatives. A territorial divide and a gentleman’s agreement was in place, because all these arms came under the patriarchal leadership of Dr V. Kurien. All these components were a part of a large Hindu undivided family!

This model was mildly challenged long after Kurien stepped down from NDDB and Amrita Patel became the chair. In her second term as the chair of NDDB, there was a proposal to develop an umbrella brand under Mother Dairy. This was for state federations to tag on to a centralised brand and marketing support through a series of Joint Ventures (JV). The state federation and Mother Dairy would have a 49-51 stake in this JV. This quickly ran into rough weather with Kurien objecting, leading to a public fallout between Patel and Kurien. Nothing significant came out of the initiative.

The meteoric rise of the Gujarat Federation (with the brand name Amul) happened after Kurien faded from the scene. Two significant changes happened. Firstly, the Gujarat cooperatives saw a great merit in marketing liquid milk, as it reduced inventory holding period and had a quick turnover and added to the profits by sheer volume, even while the margins were thinner than in products. In the process, the Amul brand gained prominence, and all the local brands within Gujarat died a slow death.

Since Gujrat Federation was on a treadmill of growth, it needed more procurement and more presence in the market to preserve its market share. The obvious choice was to then move out of Gujarat even for procurement of milk. This is where the problem starts. The modus operandi for Amul was to first sell liquid milk, establish the brand as a supplier of liquid milk, and then set up a procurement network and a processing plant. Given that Amul is a much larger brand and has a much greater recall, it weakened the local brand and made the local cooperative vulnerable. Amul has been entering markets where the local brands were somewhat weak. Therefore, possibly it may not face resistance. That is not the case with Nandini.

Chronology of anxieties

Should the Karnataka co-operative network be worried? The answer is yes. As of now, it appears harmless, because the competition is ostensibly only in the market place to sell milk. We cannot pick bones with the argument extended by the chief minister of Karnataka: the brands can fight it out and Nandini has the resilience to survive. But what Gujarat Federation brings to the table (which the other private players do not get in the same measure) is the ability to occupy the milk procurement network. That hits the Karnataka Federation at the source.

There are enough examples in multiple states to see that the entry of Amul has weakened the pre-existing brands and local co-operative networks. Since Amul is incorporated under the cooperative legislation in Gujarat, if it procures milk outside of Gujarat, it operates like any other buyer in market. It is accountable only to the farmers of Gujarat and not to farmers outside of Gujarat.

We have had an example of a vibrant milk union in Chittoor district (undivided Andhra Pradesh) nearing bankruptcy because of a private player a couple of decades ago. The modus operandi was to capture the procurement routes, entice the farmers with a greater upfront price, and engineer a working capital problem to the co-operative using political clout. Co-operatives have a transactional relationship with the farmers. If there is a stake, it is more emotional than financial skin in the game. They are vulnerable organisations (evidenced by the disproportionate failures) and are susceptible to easy weakening and takeover. They are precious organisations when they are healthy because they give the best share of the consumer rupee to the farmer.

Creeping control

In this chronology of Amul entering multiple states and occupying the milk market, the minister of co-operation wanting Amul and Nandini to work together at the village level (procurement), and the entry of Amul in the liquid milk market of Karnataka, one significant detail is left out. This is about the recent amendment to the Multi-State Co-operative Societies Act.

The amendments make the merger of two state co-operatives possible and easy. The decision for the merger can be taken by the general body of the respective federations. In the current case, the general body of the federations consist only of the chairmen of the unions, Therefore, not more than 16 in Karnataka and 18 in Gujarat will take a decision. In both the states, almost all of them owe allegiance to the party to which the minister for co-operation belongs. So, merger is a simple operation, if need be.

The amendments do not require the clearance of the state registrar of co-operatives. The registration under the state Act is presumed to be cancelled once the central registrar issues a certificate of registration. The most important change in the Act is the creation of a Co-operative Election Authority, which will be appointed by the Union government and defined as serving officers (additional secretary level officer as chair and joint secretary level officer as vice chair).

The legitimate question one could ask about Amul procuring a disproportionate amount of milk from other states through non-member purchase will become redundant by becoming a multi-state co-operative. Obviously then it moves from market, to procurement, to getting the members on to a centralised co-operative whose elections are controlled by the Union government.

The writing on the wall should be evident. Therefore anybody who is interested in the welfare of farmers of the Karnataka Milk Federation and preserving and growing the brand Nandini should be alert. This move does not look as simple and innocent as it appears to be.

Endgame?

In the meantime, the erstwhile CEO of Amul just got hired by Reliance. What does this mean? That story is for another day. We just need to wait and watch the fun.

(M.S. Sriram is a Professor at the Centre for Public Policy, Indian Institute of Management, Bangalore. Courtesy: The Wire.)

Janata Weekly does not necessarily adhere to all of the views conveyed in articles republished by it. Our goal is to share a variety of democratic socialist perspectives that we think our readers will find interesting or useful. —Eds.

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