Milking the right opportunities

Why doesn't one hear of farmer suicides in Gujarat? Some would believe it is because Narendra Modi is a good Chief Minister. A less naïve explanation may have to do with Amul. The dairy cooperative procures about 10 million litres of milk daily from its 2.5 million active farmer-members, who cover half of Gujarat's 5 million-odd agricultural households (including those not owning land).

Amul now pays its farmers roughly Rs 380 for every kg of fat. For buffalo milk, typically containing 7 per cent fat, the effective price comes to Rs 26.6 a kg or Rs 27.4 a litre (one litre=1.03 kg). The average Amul farmer supplying four litres, thus, receives over Rs 100 in cash daily, round the year.

For many farmers, this Rs 100 would only supplement their income from regular crop agriculture. But, unlike cotton or wheat, that generates bulk money once or twice a year, milk brings in a steady flow of cash. While not enough to marry off one's daughter or buy new farm equipment, it ensures the farmer does not have to go to the moneylender to meet day-to-day household expenses.

Liquid insurance

It is this role — as a source of liquidity and a hedge against crop failure — that makes milk unique from the farmers' standpoint. But it is also unique from a wider perspective. Few people in the world take to milk the way Indians do. Part of this is linked to its strong association with purity and good health, fitting in with a vegetarian tradition that is more ‘lacto-vegetarian' than pure ‘vegan'.

For a significant section of the country's population — especially spanning the Vaishnav-Jain-Arya Samaj belt of Gujarat, Rajasthan, Punjab and Haryana, and the Hindi heartland of Uttar Pradesh (UP), Bihar and Madhya Pradesh (MP) – milk is the sole source of animal fat and protein. Even for others, it is a coveted food, being the main ingredient of sweet delicacies from rasogollas to shrikhand and payasam.

Milk's special status in Indian diets can be seen from the Table, which gives its share in household food budgets across different consumption (proxy for income) classes. Milk accounts for nearly 15 per cent of an average rural family's food spend, with this ratio at over 18 per cent in urban India. That makes it, next to cereals, the most consumed food. But unlike cereals, milk is a ‘superior' food: As peoples' incomes rise, its share in the food basket goes up, even as they relatively cut back on rice and wheat. Even the humblest of Indian households, given a chance, would choose to spread their chapattis with desi ghee rather than vanaspati.

This kind of appetite for milk has huge implications for demand, more so in a scenario where the country's real per capita income continues to grow at an average six per cent. Given an income elasticity of demand of 1.2-1.3 for milk, it would mean a doubling of consumption requirement to 220 million tonnes (mt) or so by 2020. Meeting this demand poses challenges, but it also presents an unprecedented opportunity for poverty alleviation.

MEETing the challenge

One way to look at it is: Here is one commodity that Indians love to consume and will only increasingly do so. But it is also something that is amenable to production by the most ordinary of rural folk. Take Amul's Valsad union, which today gets 80 per cent of its milk from tribals – who, until a generation ago, had no tradition of rearing milch animals. By introducing them to modern dairying, financing the purchase of cross-bred cows and providing a market for their milk, the cooperative has made these communities less dependent on eking a livelihood from collecting minor forest produce.

There is no reason why what Amul has achieved in Valsad, Panchmahal or parts of Surat cannot be extended to other tribal-dominated areas, notably in Chhattisgarh, Jharkhand, Orissa and West Bengal. There could, arguably, be no better strategy to counter Maoist insurgency than to invest in a sector that can provide daily cash income to millions of people, currently victims of a development approach that only ‘develops' others. All it takes is to create marketing links – for a product with no dearth of consumers and where farmers can claim two-thirds or more of the retail price.

A good example to cite here is Hatsun Agro Product Ltd, which today procures 4.5 lakh litres of milk daily from the Naxalite-prone Dharmapuri and Krishnagiri districts of Tamil Nadu (TN).

Co-operative failure

It is in this context that the National Dairy Development Board's (NDDB) role merits scrutiny. During 2009-10, the total procurement by cooperative dairies, at 258.65 lakh kg per day (lkpd), formed a mere 8.4 per cent of the country's production of 112.54 mt. Moreover, 70 per cent of this 258.65 lkpd was accounted for by four States — Gujarat (90.54), Karnataka (35.65), Maharashtra (31.51) and TN (22.77) – that produce less than a quarter of India's milk. As against this, UP, MP, Punjab, Haryana, Rajasthan, Bihar and West Bengal — together having a 56 per cent share in output — contributed just a fifth of overall co-operative procurement.

The current inflation in milk is, no less, a result of this skewed dairy development pattern. On the one hand, rising incomes are fuelling demand for dairy products. On the other hand, the supply to meet it is coming from the old milk-sheds that are being more intensively drawn on to produce at a higher cost. This, even as there are large swathes of the country, where the lack of remunerative avenues to market their milk is leading farmers to send their buffaloes to the slaughterhouse. NDDB's efforts at redressing the imbalance have borne little fruit so far: Its much-hyped ‘new generation co-operatives' collectively procured a measly 7.85 lkpd in 2009-10 — that too, from nine States.