India’s dairy sector growth in the past two decades has been mainly due to the private sector.

India produced over 127 million tonnes (mt) of milk in 2011-12, as against 58 mt recorded for 1992-93. The base year is important, for that was when the dairy industry was de-licensed and the private sector allowed to freely establish capacities, subject to registration and other regulatory requirements under the Milk and Milk Products Order, 1992.

Till that happened, the country hardly had any large organised private dairies, barring the odd Nestle India or Milkfood Ltd. But after 1992, a host of small and medium corporates entered the business.

The new entrants

Today, apart from the two above-mentioned names, there are at least seven other private sector players — Hatsun Agro, Heritage Foods, Tirumala Milk Products, VRS Foods, Sterling Agro Industries, Dynamix Dairy Industries and Bhole Baba Dairy Industries — each handling 10 lakh litres per day (llpd) or more of milk.

In addition, there are a host of others — including Parag Milk Foods, Prabhat Dairy, Chitale Dairy, Dodla Dairy, Creamline Dairy Products, SMC Foods, Modern Industries and Gopaljee Dairy Foods — doing between 5 and 10 llpd.

In 2011-12, cooperative dairies put together procured an average 280 llpd of milk, whereas the organised private industry, covering those handling 50,000 litres and upwards, would have accounted for 350 llpd or more. That works out to a 55:45 ratio in favour of private dairies.

The private sector having overtaken the cooperatives today is a fact implicitly admitted even by the National Dairy Development Board (NDDB). To quote from its Annual Report of 2010-11 (page 8): “It is estimated that the capacity created by them (private dairies) in the last 15 years equals that set up by cooperatives in over 30 years”.

Without handouts

The remarkable thing about this growth of private dairies is that it has come about without any subsidies or Operation Flood programme support. The processing capacities created have largely been on the strength of risk capital and entrepreneurial initiative — and with hardly any investment from multinationals!

As regards the cooperatives, the NDDB data shows that out of their total average milk procurement of 287.06 lakh kg per day in 2011-12, more than 51 per cent was accounted for by two federations: Gujarat’s Amul (104.5) and Karnataka’s Nandini (42.77).

In 2000-01, their share was only 39 per cent, which points to cooperatives facing virtual extinction or stagnation in most other States, especially the Hindi heartland or ‘Cow Belt’.

Two things emerge from this analysis. The first is that the country’s milk output has more than doubled since 1992-93.

Coming on a higher base, it is a spectacular achievement — no less compared to the increase from 22.2 mt to 58 mt registered between 1970-71 and 1992-93. That, of course, coincided with Operation Flood, launched in 1970. But unlike the Operation Flood programme built around cooperatives, much of the production growth and creation of fresh processing capacities after 1992-93 has been powered by the private sector.

Step-motherly treatment

What is unfortunate, though, is the refusal of our policymakers to acknowledge this fact. The contribution by organised private dairies to the recent growth of India’s dairy sector is yet to be fully recognised, leave alone incorporated into the official policymaking framework.

It is precisely the inability to reconcile to the new reality that explains why the corporate sector has been left out of the National Dairy Plan (NDP) — a Central scheme aimed at increasing the productivity of our milch animals to keep up with rising domestic milk demand.

This plan, being implemented by NDDB, envisages an investment of Rs 2,242 crore during 2011-12 to 2016-17.

The NDP covers only cooperatives or so-called producer companies, and not private dairies wanting to invest in backend extension and development activity — genetic upgradation of the cows or buffaloes being milked, improving fodder and feeding practices, teaching farmers to take better care of the health and nutrition of their animals, and promoting selective mechanisation to save on labour.

There is no logic to exclude the private sector from any plan that seeks to make dairies work closer with their farmer-suppliers.

Some of us already do it: My company today procures 20 llpd of milk, roughly a quarter of which comes from Krishnagiri and Dharmapuri, two backward districts of Tamil Nadu that were once Naxalite-prone as well.

Yet, the official indifference to private dairies extends even to day-to-day policy decision-making. Take the ban on export of milk powder and casein imposed twice in the last five years, alongside permitting import of up to one lakh tonnes of powder at zero duty.

The export ban especially impacted private dairies, who had worked hard to develop export markets only to find this window closing all of a sudden. And what has been the result?

Only the other day, the Government declared that cooperatives alone are saddled with 1.12 lakh tonnes of powder stocks, equivalent to more than 40 days of their total milk procurement.

To bail them out, the Centre is now giving a subsidy of Rs 20/kg for converting the entire surplus powder into milk, which can then be re-processed back into powder to enable longer shelf-life.

Wouldn’t it have made better sense, instead, to extend the same subsidy on exports, so that surplus powder — whether produced by cooperatives or private dairies — goes out of the country?

That would, then, induce dairies to procure more milk rather than turning farmers down. You can’t really blame dairies for resorting to that, when skimmed milk powder prices have collapsed from Rs 180 to Rs 140/kg in the last one year.

A new dairy vision

We desperately need a new vision for Indian dairying today that takes into account all its different stakeholders, including private dairies. All of us will have to work together to develop this sector.

Milk, after all, is one produce that is easily marketable and is a great source of liquidity for meeting the day-to-day consumption needs of rural households. Its price is relatively stable and doesn’t spring surprises compared to the volatility exhibited by most other crops.

Also, it is produced in almost every State, irrespective of the agro-climatic regime, and we have — thanks to the original model developed by Verghese Kurien and tailored to our conditions — systems for collecting milk from millions of fragmented producers.

A new vision for the Indian dairy sector would mean doing away with knee-jerk export bans or skewed policies benefiting only cooperatives, such as doling out a Rs 2/litre subsidy on milk procurement (which the Karnataka Government does) or a Rs 20/kg reprocessing subsidy on powder (as recently announced by the Centre). Neither consumer nor farmers benefit from policies that only protect and preserve inefficient cooperative monopolies.

But is our Government ready to accept that?

(The author is Chairman and Managing Director of Hatsun Agro Product Ltd.)

(This article was published on January 16, 2013)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.