The Hindu Business Line : The curdled controversy

IT IS now almost a year since the simmering tensions between Gujarat Cooperative Milk Marketing Federation (GCMMF or Amul) Chairman, Dr Verghese Kurien, and his counterpart at the National Dairy Development Board (NDDB), Dr Amrita Patel, came out in the open.

While most commentators have found it expedient to view the spat in largely personal terms — of a mentor turning tormentor, of a shishya going against her guru, of an 80-plus patriarch refusing to let go off the institution he fathered and nurtured for 33-odd years, of an incumbent seeking to assert her independence, and so on — nothing could be farther from the truth. The present conflict has little to do with a clash of egos; the divide is fundamentally ideological, concerning the role of the NDDB and its relationship to the country's cooperative dairy movement.

First, a little background. The NDDB, unlike Amul or other State dairy federations in Kerala (Milma), Punjab (Verka) or Tamil Nadu (Aavin), is not a cooperative. Originally a registered society, it is a statutory corporation set up by an Act of Parliament, with the intention of being some sort of a venture capital fund and techno-financial-managerial consultancy for dairy and other agro-processing cooperatives.

The NDDB Act, 1987 declares it as "an institution of national importance", with Section 16 (1) (b) stating "it shall be the responsibility of the NDDB to adopt the cooperative strategy in a more effective manner on an intensive and nation-wide basis and to take such steps as may be necessary for the purposes aforesaid".

The preamble specifically refers to "cooperative strategy'' as being "a strategy evolved at Anand (Gujarat)". This, in turn, connotes a three-tier structure of cooperatives, in which the milk produced by farmers is procured by a village society, processed at a district union dairy and marketed by a State-level federation. Since the boards of these bodies are elected by the farmers or their representatives, the Anand or Amul model gives farmers effective control not just on production, but also processing and marketing of their produce, enabling them to realise the maximum share in the consumer rupee.

The NDDB's catalytic role vis-à-vis cooperatives is further underlined in Section 16 (2), listing various measures it may take to fulfil its objectives. These include "financing, in such manner as the Board may deem appropriate (including contribution to capital), of cooperative federations, cooperative unions or cooperative enterprises or of any scheme in the cooperative or public sector intended to stimulate the production, preservation, distribution and consumption of milk and milk products nation-wide" and "promoting and encouraging cooperative effort among those engaged in the production of milk and milk products and other foodstuffs".

What it has been doing on the ground in recent years though is quite different. In a presentation made to the Agriculture Ministry on March 12, the NDDB conceded that while its cumulative financing of dairy cooperatives during the Operation Flood period of 1970-96 totalled Rs 1,772 crore, the same over the post-OF phase (1996-2001) amounted to just Rs 156 crore.

The NDDB's Annual Report for 2001-02 shows that its total assistance to cooperatives stood at Rs 1,227.58 crore as on March 31, 2002, comprising a mere Rs 0.1 crore of investment in shares, and loans and advances of Rs 1,227.48 crore. The latter included Rs 1,005.93 crore to milk and Rs 221.55 crore to oilseeds cooperatives. Against this, the NDDB's outstanding funding of its own subsidiaries aggregated Rs 685.85 crore, consisting of equity contribution of Rs 219.88 crore, loans and advances of Rs 435.95 crore, and grants of Rs 30.01crore.

Therein lies the real source of discord. Dr Kurien's contention has been that the NDDB was established mainly to provide financial and technical support to farmer-owned cooperatives, whereas what it is doing now is to increasingly divert funds to its own subsidiaries. The Mother Dairy in Delhi was initially a subsidiary unit of the NDDB, set up to market the products of various cooperative federations in the national capital. Being a predominantly urban centre, Delhi's huge milk market could only be serviced by neighbouring State federations, which, in fact, were envisaged to ultimately take over Mother Dairy's management from the NDDB.

What has happened, instead, is that both Mother Dairy and the Fruit and Vegetable project (which marketed horticultural produce in Delhi under the `Safal' brand) were, in April 2000, converted from `subsidiary units' of NDDB to a 100 per cent owned `subsidiary company', Mother Dairy Fruit and Vegetable Ltd (MDFVL). Similarly, NDDB's oil project (which sought to do an Amul in oilseeds) was, from April 2001, hived off into a new company, Dhara Vegetable Oil and Foods Company Ltd (DOFCO).

In 2001-02, MDFVL reported a turnover of Rs 950 crore, while DOFCO's touched Rs 285 crore. NDDB's other subsidiaryunits-turned- companies include India Dairy Machinery Company Ltd (turnover Rs 43 crore) and Indian Immunologicals Ltd (Rs 37 crore).

NDDB's top brass claims that there is nothing in the Act that prevents it from forming companies or converting its managed units into companies. Although Section 42 provides that Mother Dairy, Delhi, shall be a "subsidiary unit" of NDDB, this is qualified by the phrase "unless otherwise decided by the Board". Section 43 also permits the NDDB to "form one or more companies either by itself or in conjunction with any of its subsidiaries or with any other undertaking", subject to "the previous approval of the Central Government". Further, the NDDB can "contribute capital, transfer such of its assets or render such assistance, as may be required, so as to enable the company so formed to function".

But there is a catch. Subsidiary companies can be established only if "the Board considers it necessary to do so, for the implementation of any of its objectives". In other words, the setting up of subsidiary companies by the NDDB cannot be an independent or stand-alone commercial activity; any such venture has to be subservient to its larger objectives, which pertain to promoting `cooperative effort' in the rural countryside. To that extent, the NDDB investing more and more of its funds in its own subsidiaries, while closing the tap on its real stakeholders, the cooperatives, does not seem to be in with the letter and the spirit of the Act.

The subsidiary companies, on their part, have become pure commercial concerns. Much of the `Dhara' vegetable oil sold in the market today, for instance, consists of imported rapeseed or soya oil. DOFCO hardly sources any oil from oilseed growers' unions/federations, which makes its operations no different from a Cargil or an Adani. The same trading strategy extends to `Safal', where the bulk of fruits and vegetables are bought from mandis rather than from farmer-owned cooperatives.

What is more, NDDB's business zeal has not stopped just at promoting wholly-owned subsidiary companies, but also creating grand-daughter companies or "subsidiaries of subsidiaries''. While MDFVL was, to begin with, a 100 per cent NDDB subsidiary, it has now become a holding company for three other companies — Mother Dairy Foods Processing Ltd (MDFPL), Mother Dairy India Ltd (MDIL) and Mother Dairy Foods Ltd (MDFL). All the manufacturing units of MDFVL (including the dairy in Delhi and the horticultural processing facilities in Delhi and Mumbai) have been transferred to MDFPL, with MDIL responsible for marketing of "Mother Dairy'' brand products on a national scale, covering exports as well.

MDFL, on the other hand, has been mandated to form joint venture companies (JVC) with individual State dairy federations, in which it would hold the majority 51 per cent stake. In the existing Anand model, it is the federations which market the milk, procured from primary societies and processed at district union plants, both within and outside the States concerned.

In the proposed set-up, the federations will surrender their marketing role (including the rights over usage of their brands) to the JVCs, in which they would be minority partners. What this effectively does is to convert the established three-tier cooperative structure into a two-tier arrangement, where the key marketing function is with companies that farmers neither directly nor indirectly control.

The NDDB defends the JV model, saying that it seeks to strengthen the marketing infrastructure of the federations and enables brands such as Verka and Aavin to attain the stature of Amul. The Board's involvement in marketing through MDFL would provide the necessary impetus in this regard. It is a different matter though that the JV agreements signed with federations such as Milma make it clear that the latter's brands would be used exclusively for marketing liquid milk and "identified milk products" within the State.

The Milma brandname will not figure in products sold outside Kerala, which automatically rules out its emergence as another Amul. Considering that Milma already has a 76 per cent share in Kerala's urban liquid milk market — a fact admitted by the NDDB itself — it is not clear how the JVC with MDFL would benefit either the federation or the State's dairy farmers.

That raises the central question: Are NDDB's recent initiatives — involving, among others, creation of a complex pyramidal structure of companies — guided by its original mandate (given by Parliament) to strengthen the country's cooperative movement or are they aimed at securing its own narrow business interests? Prima facie, the latter appears to be the case.

The JV agreements give MDFL full freedom to market milk products "in all the States of the country and for exports" by using the Mother Dairy brand, while denying the federations similar leeway in respect of their brands. The whole focus seems directed more at building up Mother Dairy as a rival `cooperative' brand to take on Amul. Perhaps, the time has come for Parliament to review the entire gamut of the NDDB's activities and clearly define its role in the present milieu.

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