Despite milk production growing at 6-7 per cent, Amul’s procurement grew by around 22 per cent in the ongoing flush season. In an interaction with BusinessLine , Amul Managing Director RS Sodhi says the largest dairy co-operative had to rush to the rescue of the milk producers by procuring more during the flush season as private dairies played a spoilsport by cutting down on prices as supplies increased. Amul is on an expansion spree and Sodhi spelt-out what it takes to be as a numero uno player in the country’s dairy sector when most foreign giants failed to make a mark. Edited excerpts:

What does it take to be at the top and maintain numero-uno position in India’s dairy sector despite several failed attempts by global giants?

There is a lot of scope for new entrants, be it a multinational or an Indian player. The organised branded products market is roughly one-third and is growing at double digit.

MNCs entering the Indian market face a limitation that they can’t launch a product pan-India with massive volumes, because they face competition from local co-operatives. It hurts them at both ends — procurement and selling.

Efficiency and scale is the key to success in dairy industry. MNCs have struggled for years to taste the success in Indian market but failed because scale won’t come merely from yoghurt or cheese.

Efficiency comes from network and ground presence.

For procurement, they have to pay more to compete with the co-operatives.

And in sales, they have to match the affordability that the diary co-operatives offer.

Does it not hamper the earnings and profitability even for the co-operatives?

Milk and milk products is a big business, but has thin margins primarily because of the co-operatives’ presence. If the MNCs try to match the two ends — procurement and selling — on lines of co-operatives, they fail miserably. Unlike corporate or private dairy investors, who calculate investments based on 20-30 per cent EBITDA (earnings before interest, taxation, depreciation and amortization), co-operatives are satisfied even at 6 per cent EBITDA.

At Amul, both ends of the supply chain — farmers and consumers — are happy with better prices and affordability.

How has been the procurement this winter season, when the flush in milk production is experienced?

Our procurement has touched 260 lakh litres per day, which is 22 per cent higher year-on-year. But the noteworthy aspect is that the production has just grown by 6-7 per cent. This means, a lot of milk from private dairies got diverted to co-operatives. This is primarily because co-operatives give better prices. But, milk being a highly perishable item, we need to go for larger processing capacities.

How do you plan to address the need for more processing capacities?

As milk supplies rise, we are expanding our capacities by 40-50 lakh litres per day (LLPD) on immediate basis. This will come up at Gandhinagar, Sabarkantha, Mumbai and Junagadh, besides Pune and Kolkata.

Our long-term plan is to increase our processing capacities to 400 LLPD in two years from the existing 320 LLPD. This will require an investment of about ₹600 crore.

What are your expansion plans to enter the new territories?

We enter a territory with procurement operations, then gradually move on to setting up processing facilities and marketing our products.

Currently, we are procuring and processing milk at Rajasthan, Madhya Pradesh, Maharashtra, Haryana, Punjab and Uttar Pradesh, besides West Bengal and Chhattisgarh.

Now we are planning to enter Bihar and Assam with our procurement and processing capacities. In Delhi, we are already procuring 31 LLPD.

How does these expansions and addition of new products benefit the milk producers?

Out of the total Amul brand’s turnover of ₹38,000 crore (including incomes of the member unions), nearly 60-65 per cent is sold as liquid milk (including milk, butter milk, etc).

After liquid milk, our second biggest portfolio is baby food and dairy whiteners. The remaining 35-40 per cent is used for value-added products, which get us almost equal realisation as in liquid milk.

The income from these products get equally distributed to the farmers. In our case, liquid milk and value-added products are complementary to each-other. Without liquid milk, we can’t sell other products.

Our average milk fat is 4 per cent, and if we get more milk supplies of 6 per cent fat, then the milk with the extra 2 per cent fat will go to value-added products.

And realisation will be more-or-less the same, irrespective of where we put the milk, be it cheese, butter, ghee or ice cream.

Secondly, because of very high scale, our costs get divided and we end up spending very less on branding vis-a-vis others dairy players. This is the reason why we are affordable.

How are you dealing with grey market exports of Amul products?

Exports are not our focus area but still we get about 3 per cent of our total revenues from exports to about 50 countries.

We are currently exporting value-added products, which is growing at about 20-30 per cent. There are concerns of illegal exports of Amul branded products.

Such exporters circumvent the need of a certificate from government for each batch of products being exported. They misdeclare the goods and also hurt the interest of the importing countries by loss of import duty earnings.

This is a matter of concern because Amul’s brand image and credibility gets hampered in case of expired products exported by this way. We are vigilant about it and keep a track of every dairy product which goes out.

We work in close co-ordination with the Commerce Ministry and agencies like Apeda by giving details of importer, exporters and amount of goods. Much has come under control now.

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