Transforming Indian Dairy Sector: Operation Flood-I Challenges and Responses

R K Nagar,

Former General Manager

National Dairy Development Board

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India has continued to be the world’s largest milk producer since 1996. It is no mean achievement considering how disorganised Indian dairying  was in the 1960s. A turnaround of this magnitude, in an extremely challenging environment can be attributed solely to an exemplary farsighted leadership and exceptional management of Operation Flood project that ushered in the ‘White revolution’.

Successful implementation of Operation Flood had more than initially envisaged impact. It’s success as the world’s largest empowerment program didn’t come easily. Program success can be best appreciated in light of the challenging circumstances and operating environment that prevailed in the 1960’s.

1. Production and marketing scenario in the 1960s.

In 1960’s the urban milk markets were totally dominated by unorganised sector selling unprocessed, often highly diluted milk produced within the city limits,  procured from peri-urban areas and villages easily accessible from them. Even the four metro dairies that the Governments owned and managed had limited reach to procure adequate fresh milk due to techno- logistical problems that became a bottleneck in capturing a significant share of fluid milk markets. Commercially imported Skimmed Milk Powder (SMP) only partially helped extend the milk supply but didn’t enable them to retain their market share across seasons.

The situation in smaller cities and towns was even worse. State government run City Milk Schemes were too small in capacity to meaningfully serve the markets where they were located.  Their  procurement network hardly extended beyond 20-25 kms radius wherein they were unable to compete with local vendors who collected milk without the risk of spoilage even during summers.  These Milk Schemes without operational flexibility, high operating costs and mounting operating losses year after year became liabilities on the state governments.

No wonder, milk from organised dairies was rationed through milk cards resulting in large scale corruption. One had to be influential to get a milk card but it didn’t guarantee full quota for which the card was issued, especially in summers.

Besides bureaucratic approach to run the dairies, failure can also be attributed to a host of external factors that adversely affected supply side- limited and poor rural road network, unreliable power and water supply in villages to operate chilling centres, feed and fodder shortages and, virtual total dependence on imported milk processing equipment under severe foreign exchange constraints. Even imports of spares for processing equipment received as gifts was very difficult and time consuming.

As a result milk production stagnated. Farmers kept bovines primarily for farm power and milk production became almost secondary, especially in hinterlands that didn’t have easy access to milk markets. Farmers outside the procurement ambit of vendors didn’t view milch animals as an asset for milk production. Milk that couldn’t be sold was converted into Ghee and sold to traders.

So far literature published on the Indian dairy sector’s achievement have, to my knowledge, focused on the growth in numerological terms. None have dwelled into ‘ behind the scene’ challenges faced by NDDB in implementing “Operation Flood”- project that laid the foundation for this phenomenal growth. In this paper, I have focused on the difficult path that the NDDB had to traverse to make the success story that made such unprecedented impact on Indian rural economy. ~~

Author

 

Thus boundaries naturally developed between the demand and supply centres. Both suffered- demand centres due to short supply and supply centres due to limited access to markets. Isolated pockets of higher milk production and procurement potential couldn’t be easily linked to major demand centres.

• Amul- a different organisation:

In the midst of this scenario, there was an exception- Amul in Kheda district of Gujarat. What started in pre independence period -1946 had by 1964, emerged as a unique model of a “farmers owned, professionally managed, self sustaining and commercially viable business”. By forward integration of  procurement, processing and marketing under the ownership of the cooperative of small farmers spread over 900 odd villages, it created a value chain that assured besides a basic price, a significant share in the profits of the enterprise. By this time Amul had become a powerful brand. Amul butter and baby food nearly displaced established imported brands in these two product segments.

And, to ensure continued growth in milk production to strengthen supply side, it created an equally powerful backward linkages. Qualified professionals provided technical inputs support-veterinary aid, artificial insemination, fodder production kits and extension services to increase milk production. The most significant of it that created a major impact was the emergency veterinary services at the farmer’s door step- 24×7 and that too at a fraction of the cost.

Although, Amul’s peak procurement by this time had barely reached 100,000 litres a day, it was a commendable achievement.  Besides stabilising its operational features and systems Amul, after meeting urban demand within the milkshed, regularly supplied a fixed contracted quantity of pasteurised milk to Bombay milk scheme. Amul also supplied milk to Baroda dairy to expand its market and strengthen Baroda union’s milk procurement by organising milk producers’ cooperative societies in far off villages of the milkshed that were out of reach for vendors.

Amul, therefore successfully demonstrated that:

• A farmers’ owned cooperative institution with integrated processing and marketing can provide handsome returns so that farmers view their milch animals primarily as milk production assets and adopt livestock management practices to increase milk production.
• That milk producers of distant villages can access lucrative urban markets hundreds of miles away.
• A supply support to expand marketing in lean season can help strengthen another cooperative’s procurement operations.

And these achievements of Amul became the cornerstone of ‘Operation Flood’- world’s largest, most successful dairy development and farmers’ empowerment program. 

• The National Dairy Development Board:

The ‘Amul’ success story, personally witnessed by the then Prime Minister of India late Lal Bahadur Shastri led him to establish the National Dairy Development Board of India in 1965, with Dr. V Kurien as its first chairman and the principle mandate to “Develop dairying on cooperative lines (Amul pattern) throughout India”.

Though established in 1965, NDDB had no funding to fulfil its mandate as following Shastri ji demise few months thereafter,  the successor government did not allocate budget to fund the newly established NDDB. NDDB between 1965-70 therefore carried out some limited consulting activity with the support of Amul  in response to requests by some states. It however didn’t have a program to fulfil its principle mandate- Replicate Amul model (herein after referred to as ANAND PATTERN) across India.

Amul’s success story however attracted attention of farmer leaders from other districts of Gujarat. They sought Amul’s help in organising milk producers cooperatives in their districts. Late Tribhuvan Das Patel, Amul’s founder chairman and a magnanimous leader took his board along to support other nascent cooperatives in other districts of Gujarat. A firm believer in cooperation among cooperatives. He viewed them as partners in development and not emerging rivals. Under his patronage ,Amul  provided technical assistance to Mehsana, Surat, Vadodara, Sabarkantha, Banaskantha to organise village level primary cooperatives and the second tier- a district union. But the growth of these new unions was constrained due to lack of funding.

• Operation Flood-I: Converting a threat into an opportunity.

Towards the end of 1960’s, the European Union was looking at ways to reduce its huge surplus of Skim Milk Powder (SMP) and Butter oil (BO) that affected it’s price support program and threatened to become unsustainable. It therefore decided to gift away a considerable stock to milk deficit countries.

India was high on EEC’s priority for two reasons: one- its large milk consuming population and two, its near stagnant production resulting in declining per capita availability year after year. Covertly, it appeared that India is a future market that needs to be nurtured- initially through a free gift.

India’s leaders were too willing to accept the free gift without realising its long term implications. Dr. Kurien, Chairman NDDB, entrusted with the responsibility to replicate Anand pattern throughout India immediately realised that the gift would be the death nail for indigenous milk production and the first to take the hit will be farmers members of Amul as the free gift will snatch away the lucrative Bombay (Mumbai) milk market from them.

Since refusing the gift would have been politically unwise, he proposed that:

• India officially asks for a gift of SMP and BO.
• That the NDDB should be recipient of the gifts.
• NDDB to generate funds by selling these commodities to the four metro dairies
• Expand and build new dairies in the metros
• Invest the generated funds to build institutions and infrastructure for increased production, procurement, processing and marketing in hinterland milksheds of the four metros
• Create a National Milk Grid for long distance movement of milk.

The project’s ultimate objective was to ‘Create a Flood of rurally produced milk’ through voluntary participation of rural milk producers and gradually replace imported dairy commodities by indigenous products. The project was therefore appropriately named ‘Operation Flood’.

His proposal was accepted by both the Government of India and the EEC. The EEC made commodity gifts through the World Food Program of the FAO. In one go Dr. Kurien found a way to fund a program to fulfil NDDB’s primary mandate and saved the Indian dairying from an eminent collapse. In short, He converted a looming threat into an opportunity.

• Challenges faced and the responses:

The initial years of NDDB, following approval of Operation Flood-I were very challenging. Challenges were both internal and external. Successful implementation of the project needed simultaneously working on many fronts and a synchronised response. Here is a quick look at the project achievements- first 18 ‘Anands’ linked to the four metropolitan cities.

 

• Many reports show 29 milksheds created under OF-I as they take into account all the milksheds where village dairy cooperatives organisation was undertaken alongside setting up of dairies and chilling Center’s, but they were still not linked to the metro markets. They can therefore be considered as ‘work in progress’ projects.

Internal challenges:

Management of gift commodities:

The first challenge was receiving, storage, quality control and sale of gifted SMP and BO to metro dairies. It required a team experienced in port operations and commodities management. NDDB had no expertise in this area. And, it had all to be done before the first shipment arrived at an Indian port.

To complicate things further, legal pundits deemed receipt and onward sale of the commodities as a commercial activity and erroneously opined that NDDB’s charter doesn’t allow commercial operations. Since the program implementation critically depended upon speedy monetisation of these commodities, the Government of India set up a fully owned company- the ‘Indian Dairy Corporation’ in 1970 with a mandate to receive the gift commodities, monetise them and fund the projects as recommended by NDDB, The Government, very wisely kept a common board for these two institutions to ensure smooth coordination. Thus, whereas IDC became the official funding agency, the NDDB became its technical consultant.

At this stage renting storage capacities at ports and in/around metros assumed top priority since existing storage with metro dairies was inadequate. Since IDC had a hard time getting the privately owned storage capacity on rent, It  became necessary to build on priority commodity storage in milksheds and metros along with expansion and creating new processing capacity in metros.

NDDB’s Manpower resources:

Till approval of Operation Flood, NDDB had a modest strength of just 30 professionals in its two technical divisions- Engineering and Management and Manpower Development (MMD) recruited mainly as the start up teams and trainees between 1967- 1969. NDDB’s first challenge was thus to rapidly build its own core competency- recruit, train and position them to undertake hitherto unknown operational challenges.

Manpower  For project implementation in milksheds:

The most important constraint was the manpower needed to build the Infrastructure and to create the cooperative institutional network from the grassroots. That meant bringing on board a large number of Graduates from disciplines of dairying, engineering, veterinary science, agriculture, accounting, management etc., train and deploy them in milksheds to kick start project implementation and eventually provide the core staff of the new cooperative union. NDDB had to initially heavily depend on Amul’s technical resources to train the new recruits, mostly freshmen from universities.

External challenges:

Agreements with participating states:

The pre requisite for project implementation to commence in a state was the state’s signing an agreement with NDDB/IDC to create a two tier dairy cooperative on Anand pattern by accepting bye- laws wherein the control of the business rests with the farmers through their elected board.

Most states were highly sceptical about a farmers owned cooperative successfully working in their state as a commercially viable ‘business’ in light of experience of generally loss making government sponsored cooperatives and were unwilling even to accept the possibility of a farmers owned cooperative running a successful business. Convincing the state governments to at least try Anand pattern in one milkshed itself proved very difficult and time consuming. Every state had similar reaction, “This is not Gujarat, we don’t have a culture of cooperatives here”. Some states suggested alternative models that were wholly unacceptable as they didn’t add value to the business. Delays in accepting bye-laws was the most common hurdle faced by the NDDB as the state governments feared that they would have no control over Anand Pattern cooperatives.

And without an agreement government support for the project in terms of  land (as its contribution), facilitate power and water supply to build the infrastructure was unthinkable. Even after signing the agreements and deployment of field teams to organise milk producer’s societies, there were considerable delays in providing suitable sites for infrastructure projects.

Equipment for projects:

Operation Flood-I envisaged expansion of existing metro dairies’ processing capacity as the first step towards quick monetisation of SMP and Butter oil. India’s limited indigenous processing equipment manufacture capacity proved inadequate for rapid expansion necessitating imports made difficult by tight foreign exchange situation.

NDDB soon realised that processing equipment supply would be a serious bottleneck in creating processing capacities in metros and milksheds. So would be the case with the cattle feed factories integral to the technical inputs program for increased milk production.

The situation warranted urgent action for indigenous manufacture of equipment for both milk processing and technical inputs programs. NDDB’s response was preemptive- starting with equipment for Cattle Feed Plants and immediately following up with dairy equipment thus greatly reduced the imports component in both milk handling and balanced cattle feed production.

Although Imports of some equipment was inevitable, NDDB’s dealt with this situation by standardised design and capacities permitting modular expansion of-dairies, chilling centres and cattle feed plants, bulk the requirements under one tender, procure the equipment in a central pool and allocate it to projects as per need. In this way, a lot of unnecessary delay in procurement and building infrastructure was averted.

 Projects planning:

 Operation Flood approval by the first FAO-WFP was conditional. It stipulated that the database for demand-supply in respect of potential milksheds and metros be updated and the task completed before a follow up mission’s visit in middle of 1972.

For NDDB itself, it was necessary to have reliable data (available data from secondary sources was grossly inadequate for planning) as it had to zero down on 18 contiguous milksheds that offered the best potential for milk production, procurement and linking with the four metros. At the same time, consumer behaviour data was needed to understand demand and end use pattern across income groups and seasons for the metros. Since none of it was available from any source, no meaningful planning on both rural supply and metro markets could be done. It was hence decided to directly undertake rural and urban surveys. The option to outsource the work wasn’t there either.

But planning of surveys itself needed reliable secondary data. Available cattle census data was scanty,  totally unreliable and unhelpful for generating parameters needed for activity planning in milksheds. NDDB’s three member economist- statistician team therefore undertook a Herculean task of collecting, analysing, interpreting massive survey data for over just ten months with manual tabulation and analysis as computers / electronic devices were hardly available.

To the outside world implementation of OF-I may appear as a smooth sailing, but in reality it was far from it. It demanded unwavered focus, total commitment of everyone involved to lay a solid foundation for the succeeding phases.

 

 

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