A note on the achievements of the dairy

cooperatives
A note on the achievements of the dairy cooperatives, challenges being faced by them and policy
/ legislative changes required to ensure democratic, autonomous and professional functioning of
the dairy cooperatives
Achievements of the dairy cooperatives during the last 100
years
During the pre-independence era, public and private agencies dominated the dairy industry,
although government policy did not favour any one organizational form. Early efforts to organize
dairying along cooperative lines were made immediately after the enactment of the Cooperative
Societies Act, 1912. The present day Anand Pattern dairy cooperatives trace its origin to the
establishment of a dairy cooperative at Anand in 1946 under the direction and guidance of Sardar
Vallabhbhai Patel. The dairy farmers of the then Kheda District of Gujarat organized themselves
to form a dairy cooperative in order to directly undertake sale and processing of milk collected
from member dairy farmers of the district.
The government of India took some steps to improve the quality of milch animals and their
productivity through the Key Village Scheme, launched as part of the First Five-Year Plan
(1951-56) and the Intensive Cattle Development Plan, launched under the Third Five-Year plan
(1961-66). However, in the absence of a stable and remunerative market for milk, production
remained more or less stagnant. During the two decades between 1951 and 1970, milk
production grew by barely 1 per cent annually, while per capita milk availability declined by an
equivalent amount.
During the 1960s, various state governments tried different strategies to develop dairying,
including establishing dairies run by their own departments, setting up cattle colonies in urban
areas, and organizing milk schemes. Almost invariably, dairy processing plants were built in
cities rather than in the milk sheds where milk was produced. This urban orientation to milk
production led to the establishment of cattle colonies in Mumbai, Calcutta, and Madras. The
objective was to meet the demand for milk and milk products in big cities through improvements
in milk collection, processing, and distribution.
The Operation Flood (OF) programme implemented by the National Dairy Development Board
(NDDB) from 1970 to 1996 played the key role in bringing about the transformation in dairy
development in the country. The OF programme established milk producers cooperatives in
villages and made modern technology available to them. The broad objectives were to increase
milk production ("a flood of milk"), augment rural incomes, and transfer to milk producers the
profits of milk marketing that were hitherto enjoyed by well-to-do middlemen.
The importance of Operation Flood lies in its focus on small rural producers. Lucrative alternate
employment opportunities are often not available in Indian villages, making dairying an
attractive option for many villagers. Low capital intensity, a short operating cycle, and steady
returns make dairying a preferred activity among marginal (less than one hectare ofland holding)
and small farmers (those having 1-2 hectares of land holding), who make up about 57 per cent of
rural households in India. Dairying is feasible even for the landless, who depend for fodder on
common grazing and forest lands. Nearly 70 million Indian households hold a total of 98 million
cows and buffaloes. A majority of milk producers have one or two milch animals, and these
small producers account for some 70 per cent of the milk production. On average, 22.5 percent
of the income of rural households is contributed by milk.
The Operation Flood programme is based on what are known as Anand Pattern dairy
cooperatives, referring to their origin in Anand District in the state of Gujarat. Starting in 1970,
NDDB replicated the Anand Pattern cooperatives through the OF programme all over India.
Under the Anand Pattern structure, individual farmers are joined in village-level dairy
cooperative societies (DCS), which are joined to form district-level unions, which in turn are
joined in state-level marketing federations. In each state, the Anand Pattern features:
decentralized milk production by the small milk producers;
milk procurement by the village-level dairy cooperative societies;
centralized milk processing by the district-level unions; and
marketing of milk and milk products by the state-level federation.
The primary milk producers democratically govern this entire federal cooperative structure to
ensure that the higher-tier organizations serve the purpose of the lower levels and that the gains
at all levels flow back to the milk producers in significant measure. The core feature of the
Anand Pattern model is farmer control of the three stages following production, that is,
procurement, processing, and marketing of milk and milk products.The value added at the
procurement and processing stages can be realized by the cooperatives only through control over
marketing, which is therefore an essential requirement for success. In contrast, many dairy
cooperatives worldwide end up as suppliers of raw material to private companies that own the
brands and control marketing. By cutting out the need for middlemen in procuring and selling
milk, the Anand Pattern cooperatives have helped to reduce seasonal price variations and have
enabled the farmers to enjoy the fruits of their labour instead of surrendering most of the profit to
corrupt and exploitative middlemen.
Consumers too have benefited. In 2003, dairy cooperatives accounted for the major share of
processed liquid milk marketed in India. Milk reaches consumers in 750 towns and cities through
the National Milk Grid network. Over the years, brands of dairy products created by the
cooperatives have become known for quality and value.
The achievements of the dairy cooperatives are summarized in the box below.
Achievements of the Dairy Cooperatives in India till 2003-04
Reach
The dairy cooperative network is owned by nearly 12 million farmer members.
These producers are grouped in nearly 1,08,574 village-level dairy cooperative societies.
The societies are grouped in 170 district-level unions spanning 338 districts.
The unions make up 22 state-level marketing federations.
Milk production
Indias milk production increased from 21.2 million metric tons in 1968-69 to 88.1 million
metric tons in 2003-04.
Per capita availability of milk increased from 112 grams per day in 1968-69 to 231 grams
per day in 2003-04.
Indias 3.8 percent annual growth of milk production surpasses the 2 per cent growth in
population; the net increase in availability is around 2 per cent per year.
Marketing
In 2003-04, average daily cooperative milk marketing stood at 14.87 million litres;
annual growth has averaged about 4.2 per cent compounded over the last five years.
Dairy cooperatives now market milk in about 200 class I cities including metros and
some 550 smaller towns.
During the last decade, the daily milk supply has increased from 17.5 to 52 litres per
1,000 urban consumers.
Innovation
Bulk vending saves money and conserves the environment.
Milk travels as far as 2,200 kilometres to areas of shortage, carried by rail and road milk
tankers.
India produces 95 per cent of its own dairy equipment, saving valuable foreign exchange.
Macro impact
The annual value of Indias milk production amounts to about Rs.880 billion.
Dairy cooperatives generate employment opportunities for about 12 million farm
families.

The table below presents select data on the growth of the dairy cooperatives during the three OF
phases and after the programme.
Achievements of Operation Flood, 1970-2002
Indicator
OF phases
Post-OF
phase
Phase I> Phase II Phase III
Date started July 1970
October
1979
April
1985
April 1996
Date concluded
March
1981
March 1985
March
1996
March 2002
Investments (Rs. million) 1,165 2,772 13,031
No. of federations/apex milk unions
operating
10 18 22 22
No. of milk sheds covered 39 136 170 170
No. of dairy cooperative societies set up
(thousands)
13.3 34.5 72.5 74.3
No. of members (millions) 1.75 3.63 9.26 11.06
Average milk procurement (million
kg/day)
2.56 5.78 10.99 17.60
Liquid milk marketing (million litres/day) 2.79 5.01 10.02 12.67
Processing capacity
Rural dairies (million litres/day) 3.59 8.78 18.09 26.47
Metro dairies (million litres/day) 2.9 3.5 3.88 NA
Milk drying capacity (mt/day) 261.0 507.5 842.0 990.0
Technical inputs
No. of Artificial Insemination centres
(thousands)
4.9 7.5 16.8 22.0
No. of AIs done (million/year) 0.82 1.33 3.94 6.00
Cattle feed capacity (thousand mt/day) 1.7 3.3 4.9 5.2
Growth in womens dairy cooperatives
Milch cattle in India are mainly tended by women. Amul realized this and built womens
empowerment activities as an important component of its dairy development programme. In the
early phases of OF, the strategy was to train women in modern animal husbandry practices, and a
large number of training programmes were specifically organized for them. Special incentives
were given to all women dairy cooperative societies in order to encourage participation of
women in governance of the cooperatives. According to NDDB annual report, 2001-02, the
number of women who are members of dairy cooperatives has increased to 2.47 million in 2001-
2002 from 0.62 million in 1986-87.
Growth in milk production and availability
Milk production in 1968-69, before the launching of Operation Flood, was only 21.2 million
metric tones. It increased to 31.6 million metric tones by 1980-81, 53.9 million by 1990-91, and
84.6 million by 2001-2. The annual growth rate was 4.08 per cent during the first phase of
Operation Flood. It was much higher (7.85 per cent) during the second phase, and production
continued to grow at 5.05 per cent per year during the third phase.
As a result of substantial increase in milk production, milk consumption in India has risen from a
low of 112 grams per day in 1968-69 to over 226 grams per day in 2002.
The increase in milk production and availability helped stabilizing milk prices over the years.
Today most of our cities and towns receive adequate supply of hygienic milk, and the small
farmers and landless labourers who make up the majority of dairy cooperative members now
have a regular source of income.
Market dominance of the dairy cooperatives
Today milk is processed and marketed by 170 district-level unions, which are federated to 22
state-level marketing federations. Over the years, cooperative brands have earned the reputation
of being known for quality and value. Some of the brands that have earned consumer confidence
are Amul (in Gujarat), Vijaya (Andhra Pradesh), Verka (Punjab), Saras (Rajasthan), Nandini
(Karnataka), Milma (Kerala) etc. Each of these brands has become market leader in its own state
or traditional area of operation and gradually expanding its presence in other states. Presently,
the Gujarat Cooperative Milk Marketing Federation (of Amul brand) is the largest food company
in India. The success of Amul proves that cooperatives can successfully compete with even
multinational companies.
Empowerment Elements
Empowerment is a multidimensional construct. As suggested by the World Bank for assessing
the Operation Flood programme on three dimensions: social empowerment, economic
empowerment, and political empowerment.
Social Empowerment
Social empowerment deals with issues of exclusion and inclusion. They become important in a
religiously diverse, multicultural, and highly stratified society like India where rural poor face
many forms of exclusion. While Operation Flood is not an all-purpose development program and
cannot hope to sweep away economic and social inequalities that existed in rural India for
centuries, it has nonetheless had a profound impact on the social landscape of the countryside.
In its 1976 report on rural employment, the National Commission on Agriculture observed:
Next to crops, animal husbandry programmes have the largest employment potential. The most
important features of these programmes are that they provide subsidiary occupation, offer gainful
employment at the location itself, and make better utilization of female and child labour. . .Most
of these programmes are particularly suitable for weaker sections of the rural community and
have re-distributive effect on rural income in favour of them.
Renowned Sociologist BS Baviskar explains that Operation Flood was considered a means of
overcoming the barriers of caste, class, and power, something earlier rural development
programs had been unable to do.
Since milk production does not require much land, but family labour which the poor have amply,
the landless poor can easily and profitably participate in the white revolution, deriving
employment and additional income from it. Since milk is not a polluting substance in the Hindu
religious ideology, people belonging to any caste, even the lowest, can and do participate in
producing milk. . . . Also cooperatives which organize only milk producers can successfully
bypass the constraint of village power structure.
Furthermore, although OF was not designed to eradicate the problems of poverty and
unemployment, it is true that millions of landless, marginal, and small farmers who were
engaged in milk production benefited greatly from the increased income and employment
opportunities generated by OF. Of the farm families covered under OF, 21 per cent had no land
and another 66 per cent were marginal and small farmers owning less than two hectares of land.
Over 70 percent of the participating households had just one or two milch animals. Thus, OF
turned out in practice to be a pro-poor programme that made the distribution of incremental
income from milk among rural milk-producing households more equitable.
As far as empowerment of women is concerned, this took place mainly through the women dairy
cooperative societies (WDC). In the WDCs women find themselves empowered, as they are
authorised to make their own decisions in meetings held outside the home. Income from WDCs
enables the women to make most household expenditures without being dependent on their
husbands. OF has also played an important role in generating employment for women. With 3.5
million milk suppliers, "it is reasonable to assume that 5 percent represented women who were
able to stay at home rather than go out for work. This withdrawal of women from the labour
force will have created an additional 175,000 labouring jobs, predominantly for the very poor,"
reveals the assessment report of the World Bank in 1998.
Cooperative dairying also empowers people at another level. The village dairy cooperative is a
clean, well-lit, and orderly place. The villages have gone through a similar transformation ever
since the cooperatives began to operate. When the people of a village see cleanliness, sanitation,
hard work, and discipline in the cooperative, and when they know that the cooperative serves
them well, it probably inspires them to bring more of these qualities into their own lives.
The women members of dairy cooperatives visit dairy cooperative unions and are shown the
mysteries of artificial insemination under a microscope. The knowledge of conception in animals
helps them to better understand their own lives and to begin to control what was simply assumed
as a matter of fate.
When our village people see a veterinarian cure an animal that would otherwise have died, they
learn about the efficacy of modern medicine. They see that with feed and care better milk is
produced and as their animals improve their income from milk increases and they become
hopeful of better housing and future. And they learn that fate does not determine their future
that they can take control of their own destinies.
Economic Empowerment
The economic empowerment aspects of OF deal with connecting people and their institutions
with markets.
In the pre-OF era, milk pricing was not used as an instrument of dairy development. No effort
was made by any government to ensure a remunerative price to the producer, but the consumer
price of milk supplied through government-run city milk schemes was invariably subsidized.
This had two adverse effects on dairy development. First, in the absence of a year-round
remunerative price for milk, the producer did not have any incentive to increase milk production
through better breeding, feeding, and management of animals. Therefore, milk production
increased at a miserably low rate of 1 per cent per year in the pre-OF era. Second, by selling milk
for less than its cost and less than the open market price, city milk schemes incurred huge losses
year after year, and as a result were not able to save and plough back any money into
modernizing and expanding their activities. Thus, the milk pricing policy followed before 1970
was both anti-producer and anti-dairy development.
For the first time, OF accorded the highest priority to ensuring a year-round and dependable
market at remunerative prices for rurally produced milk. Indeed, OF was originally conceived as
a marketing project. The producer price of milk in most OF areas is determined by the state
government concerned and is set at a level that is considered remunerative to the milk producers.
Although the cost of milk production is not explicitly considered in setting the producer price,
there is evidence to show that the terms of trade over the last decade or so have been favourable
to the milk producers. The time-series data on the producer price of milk and the wholesale price
of oilcakes, which account for nearly three-fourths of the total cost of milk production, confirm
this. Over the period 1987 to 1996, the compound annual rate of growth in the producer price of
milk was 10.9 per cent as compared to 5.8 per cent in the wholesale price of oilcakes.
The strategy evolved by early dairy cooperatives in Gujarat proved decidedly superior to
alternative ones being tested in the 1960s, such as the Key Village Scheme or the system under
which government-owned milk plants collected and processed milk produced by contractors. The
Anand Pattern emphasized keeping cattle in the hinterland and transporting milk to cities by
farmer cooperatives, rather than transporting cattle as well as fodder to cities. Thus the system
had strong comparative advantage. As a result, the early dairy unions in Gujaratsuch as
Kaira, Mehsana, Sabarkantha, Banaskantha, and othersrapidly emerged as large and
successful farmer organizations, with hundreds of thousands of members dominating the
economies of their domains.
Operation Flood was not conceived as an all-purpose poverty eradication program. It cannot be,
because it focuses on a single productive activity, dairying, while the ranks of the rural poor
include many different categories of the disenfranchised: the old, the infirm, tribals, the landless,
small farmers, artisans, and so forth. Nonetheless, it is notable that the increased income from
milk under OF encouraged a process of change in other activities of the milk-producing
households and contributed to their overall socio-economic development.
Political Empowerment
The political empowerment aspect of the milk revolution deals with connecting poor people with
the government. The OF programme was able to connect the grassroots-level dairy cooperatives
not only with the state and central governments, but also with international agencies. On the first
International Day of Cooperatives on 1 July 1995, United Nations Secretary-General Boutros
Boutros-Ghali observed:
Cooperative enterprises provide the organizational means whereby a significant proportion of
humanity is able to take into its own hands the tasks of creating productive employment,
overcoming poverty and achieving social integration. They constitute a model for a people-
centred and sustainable form of societal organization, based on equity, justice and solidarity.
As "schools of democracy," cooperative enterprises also contribute to the promotion of social
stability. It is clear that governments, although they may create an enabling environment, cannot
achieve or maintain sustainable development without an interactive social partnership, actively
involving all of civil society in an empowered, democratic manner. Thus, with its globe-spanning
dimensions and diversity and its insistence on social partnership, participatory democracy,
empowerment, and "people-centred sustainable development," the cooperative movement
reflects a strong, deep current of humanism that forms the bedrock of social development.
Challenges being faced by the dairy cooperatives and interventions required to strengthen them
With the opening up of the economy preferential treatments of yesteryears are no more available
to the dairy cooperatives. They are now required to compete in the open market. The terms of the
World Trade dictates removal of all safeguards put in place earlier to protect the dairy industry
from unfair outside competition. As a result, gradually internationalization of our dairy business
is taking place. This transformation demands the dairy cooperatives to improve their
performance; be it in marketing or quality of products or governance. A few dairy cooperatives
like Amul have done well in the past in these areas. There are others who are catching up albeit
in slow pace and there are many who need to substantially improve to come to the terms of open
market competition.
While trying hard to improve their performance and professionalising their functions and
governance, the biggest obstacle that the dairy cooperatives face today is political and
bureaucratic interference. Business decisions are often guided by other than business
considerations. The cooperative laws are unable to provide the protection the dairy cooperatives
require to function as independent business entities. To end this dismal state of affairs, the most
important intervention needed to professionalise the functioning of the dairy cooperatives is to
liberate them from the clutches of the archaic cooperative laws enacted to establish State control
over the affairs of the cooperatives. Additionally, in line with the developed countries, there
should be minimum laws to control the affairs of the cooperatives. Registrars of cooperatives
should be responsible only for registration of cooperatives, their byelaws and arbitration as and
when required. Routine management and governance should totally be left to the wisdom of the
owners (i.e. members) of the cooperatives. It is heartening to note that some States have already
taken some positive steps in this regard by enacting liberal cooperative laws; there are others
who are also in the process of doing so.
Currently, the management in majority of the dairy cooperatives carries some or the other
political leanings. As a result, it has become a common practice that the management of dairy
cooperatives, irrespective of performance, gets superseded or suspended as and when opponent
political parties come to power. In consequence, to ensure continuity of and protection to good
management, depoliticalising cooperative institutions is a must. As business institutions, the
dairy cooperatives from time to time are bound to take hard decisions. Irresponsible outside
interference in the affairs of the dairy cooperatives is sure to deteriorate performance, eventually
making them unfit for competition. To arrest the trend, the members need to be educated on
governance matters. Adopting standard management practices to restrict arbitrary decision-
making in a way could also be helpful. Also, a few restrictions in the cooperative laws could be
introduced such as limiting term of members of governing bodies, setting up independent bodies
to hold free, fair and timely election and audit in cooperatives.
Improving quality of products poses a big challenge to the dairy cooperatives. In todays highly
competitive market demand for superior quality products is on the rise. The dairy cooperatives
are aware of this trend. They know that there is enormous scope to enhance their share in the
world market too, given that India is the highest producer of milk and that too at the lowest cost.
But to capture the world market the necessary prerequisite is product quality needs to match
international standards. Improvements in product quality are required to enhance and retain their
share in domestic market also. As quality upgradation is a long process, it calls for, besides
commitment of the management, substantial investment in hygienic milk production, upgrading
plants and machinery, upgrading manpower skills and setting up facilities for cold-chain storage
and distribution of milk and milk products starting from the farm level. Presently, the dairy
cooperatives do not have the capacity to make such huge investments requiring the Government
support to create institutional facilities for research and development, credit, training and
education etc.
Poor productivity of milch animals constrains rapid development of the dairy industry.
Systematic planning and integrated policies and programmes for animal breeding, genetic
upgradation and feed and fodder management could only improve the situation. For all these to
happen, the Government has to intervene and create funds (may be called Dairy Development
Fund) for such programmes to be implemented on mission mode integrating various schemes.
Excess manpower and low skill level of employees are areas of great concern for the dairy
cooperatives. The dairy cooperatives need to shed excess flab in manpower in order to match
manpower productivity as per market demand. Skill sets of the employees need to improve to
benchmark desired performance. Since the dairy cooperatives generally do not have capacity to
hire high-calibre professionals, the only out is to invest in extensive training and education to
upgrade the skills of the existing manpower. The employees need to be educated about the merits
of scientific and modern management practices and processes.
Securing members participation in the affairs of the cooperatives is another area where the dairy
cooperatives need to work hard. To earn allegiance of the members, cooperatives need to be
responsive to their needs. The dairy cooperatives have to work out suitable strategies so that they
can satisfactorily meet the requirement of the members. They can do so by providing required
support services to their members for veterinary care, input supply and selling their milk and all
these have to be done at reasonable cost. Members need to be encouraged to participate in the
business affairs of their cooperatives and they could no longer be treated as mere suppliers of
milk. Deputation of government officers to head the affairs of cooperatives has to stop to secure
members participation. Legal provisions to hold free, fair and timely election are must and have
to be ensured by the Government.
Policy and legislative framework and changes required in cooperative legislation to keep
pace with the changing socio-economic environment
Revamping the cooperative laws
As stated earlier, cooperative laws are mostly outdated. They need to be tuned with changing
time. Governance and management of cooperatives are best to be left to the wisdom of their
owners i.e. the members. Ideally, there should be minimum provisions in laws to control the
affairs of cooperatives. Registrars role needs to be cut short to registration and arbitration. On the
other hand, the Government should set up independent bodies for cooperative audit and holding
elections. The Multi-state Cooperative Societies Act, 2002 is a good piece of legislation in this
direction and may be made a model while revamping the cooperative laws of our country. For all
these to happen, the first requirement is - there should be minimum laws, and thereby minimum
interference by Government functionaries including registrars. Where the Governments stake is
less than 50 per cent, the Government should not have any control over the management and
governance of those cooperatives.
Recognising federalism in cooperatives
Presently, the dairy cooperatives in all the States have three-tier structure. At the bottom of the
structure, there are village-level dairy cooperative societies as primary members. The second tier
consists of district-level milk processing unions and at the top of the structure, there are state-
level milk marketing federations. They have also formed a national-level cooperative federation
as their apex representative body. Each one of these tiers has their own distinct functions to
contribute to the federal structure. Though these cooperatives are different entities by law, they
function as parts (or business subunits) of a single structure. Thus, it becomes extremely unfair to
the primary members to tax their income at each tier of the structure.
Moreover, such multiple taxes sharply inhibit capital formation and consequently investment
required to be made by the dairy cooperatives. It also places them at disadvantage when
compared with their competitors in private trade.
Hence, it is proposed that the Government may consider exempting the dairy cooperatives from
payment of income tax at each tier of their pyramid. If implemented, this would be in line with
the relaxation offered to the Banking cooperatives. There is also a need to bring down the
income tax applicable to the dairy cooperatives to a level of 20 per cent as being followed in the
advanced dairying countries such as the USA, the EU, Australia and New Zealand.
Revising VAT rates applicable to dairy products
Today, most of our dairy products including UHT milk, Flavoured Milk, Milk Powders, Infant
Milk Food, White Milk Food, Butter, Ghee, Cheese, Ice cream etc. are products of mass
consumption. These products are manufactured from the milk supplied by millions of rural milk
producers, majority of who are small and marginal farmers and landless labourers. Almost one
forth of them is women. To these milk producer families, income from milk supplied to the
cooperatives constitutes a major source of their daily income. Levying high VAT rate would
increase the prices of dairy products adversely impacting their consumption. Thus, we have a
situation where on one hand there is increase in the prices of dairy products and on the other
there is no input credit on milk available, which constitutes 80% of total input cost of dairy
products. This would definitely adversely affect the income flow to these millions of milk
producers.
The present VAT rate structure has only three categories of rate, i.e. exemption, 4% and 12.5%.
This has resulted in shifting of majority of dairy products to a very high rate of 12.5%. In the
pre-VAT scenario these products were attracting average 8% local sale tax. The input credit
benefit is not available to dairy products as milk constitutes the more than 80% input cost,
therefore, the benefit of input credit will not reduce the tax burden as anticipated but will
increase in the effective tax rates on consumers. This will ultimately lead to increase in the
consumer prices of dairy products and also adversely affect the common man. In view of this, we
strongly recommend to introduce 8% VAT rate category for value added dairy products to avoid
any steep increase in the consumer prices of dairy products.
We wish to draw kind attention to the following:
While the products like fresh milk and pasteurized milk are judicially exempted from VAT,
Flavoured Milk, Fresh Cream and Sweetened Condensed Milk are classified under 12.5% VAT.
Other milk powders like Whole Milk Powder, Infant Milk Food Powder and Dairy Whitener etc.
are also classified under 12.5%.
Flavoured milk is fresh milk with sugar, flavor and colour. Children and young adults generally
prefer Flavoured milk. It is nutritious and healthy product. In fact, the Government should
encourage such healthy products. Thus, we strongly recommend that Flavoured milk should also
be treated as fresh milk only and should be exempted from VAT.
We would like to submit that all Milk Powder (Skim milk powder, Whole milk powder, Baby
food (Infant Milk Food Powder, fortified with vitamins) is merely dried milk. It is basically a
product containing less than 2 percent moisture and with suitable packaging can have a shelf life
of twelve months. Furthermore, milk powders are not normally consumed as such but
transported over long distances area that are perennially short on milk supply. Milk powders are
reconverted in to liquid milk by adding water. Milk is balanced source of nutrition to infants,
lactating mothers and whiten tea and coffee. Since dairy cooperatives uses the milk powder for
recombination during the lean season, the cost of milk so produced goes up significantly due to
high rate of VAT. Thus, we strongly recommend all milk powder should be classified under 4%
VAT.
Further, the essential commodities like Ghee and Butter have been classified under 12.5% VAT
category. Ghee and Butter are items of mass consumption. Ghee and Butter are used as a cooking
medium since ages in India; therefore these products should attract the same rate of VAT as do
Vanaspati and Edible oils, i.e., 4% only. High incidence of VAT (12.5%) on Ghee and Butter
would also put the organized sector at direct disadvantage vis--vis the unorganized sector since
the cooperative faithfully pay the tax where as the same is not the case for private traders.
Indigenous dairy products like, Shrikhand, Paneer, Gulabjamun etc. are common mens sweets.
Such products are by and large produced and sold by unorganized sector. To provide hygienic
and nutritious products to consumers at affordable prices, the dairy cooperatives has started
marketing these products of late. Any high incidence of VAT on these products will inhibit the
scope of market expansion for these products by organized sector at this initial stage. Therefore
all indigenous sweets produced and marketed by the dairy sector should be classified under 4%
VAT category.
Taxes on other Dairy Products like Cheese, Ice cream etc. needs to be rationalized by classifying
these products under proposed 8% category. Especially Ice cream manufactured by honest tax
paying organized sector provides nutritious and healthy food option to children and young adults
of all classes of society. The current price of Ice cream has brought down by vigorous and
painstaking efforts of players like Amul. Due to these efforts Ice cream, which was considered a
luxury, only a few years back has been brought within the reach of a common man. The
classification of ice cream under 12.5% category will undo the work put in by players like Amul
and most other cooperative unions in last few years to make ice cream affordable to masses and
again push this product to a category of luxury item available to only a few.
In the present VAT scenario, CST is not going to be abolished and no input credit is available for
inter state purchase. In view of this, increase in tax will lead to increase in price to customers At
this point, it should also be noted that dairy products have shown a very high price elasticity,
therefore any such increase in prices is likely to depress the consumption of these healthy
products and therefore adversely affect the remuneration available to milk producer farmers for
their milk production.
To summarize, the following area to be looked into:
To expand the existing category of fresh and pasteurized milk to include all types of milk
whether pasteurized, Concentrated with or without sugar, Flavoured milk and packed cream
under exempted VAT Category.
To put all types of milk powders whether skimmed milk powder, whole milk powder,
Vitaminised milk powder, Dairy Whitener, White Milk Food and Infant Milk Food Powder
under the 4% VAT category.
To include all indigenous dairy products like Shrikhand, Amrakhand, Paneer, Gulabjamun etc.
under 4% VAT category.
To include Butter and Ghee in 4% VAT category like Vanaspati and Edible oils instead of 12.5%
VAT category.
To include all other remaining dairy products like Cheese, Cheese Spread, Ice Cream etc. under
8% VAT category.
To include all categories of cattle feed and molasses, being inputs of milk production, under 0%
VAT category.
In the interest of the consumers from all sections of society, the Government should reconsider
the decision regarding dairy product classification in the VAT regime. We firmly believe that,
this will increase consumer demand, boost milk production volumes and improve rural milk
producers incomes resulting into overall social development.
Increasing the import duty applicable to milk powder and butter oil to prevent subsidized
import
Currently, the world trade is highly distorted. Most of the advanced dairying countries subsidise
whole or a major portion of their domestic milk production. They also impose several restrictions
to stop import of dairy products. Many of these countries offer high support price to stimulate
milk production. Through various policies and facilities they frequently subsidise exports.
However, in India, the milk producers do not get any such support. They only want their
government to protect them from the distorted world trade of subsidized commodities to flood
their market. Each year, the Director General of Foreign Trade (DGFT) issues notification for
Tariff Rate Quota (TRQ) for import of Milk Powder including Skimmed and Whole Milk
powder, Milk food for babies etc. at a concessional duty of 15 per cent. It is felt that this
concessional duty of 15 per cent to import milk powders should be raised to 60 per cent to
protect the milk producers from unfair world competition. Similarly, we would like urge our
Government to increase import duty on butter oil to 75 per cent with immediate effect to protect
the dairy farmers.
Amending policy regulations on Import of milk products
Under the liberalized import regime, the Government has allowed import of food products in
consumer packs also. Often these imported products do not meet the Indian standards of quality
and packaging, which is applicable to the domestic manufactures. There is a tendency that
developed countries dump products of inferior quality to India. It is therefore necessary that the
Government enforce the regulation on imports that are violating the laws of the land to protect
the interest of the consumers. Additionally, due considerations on sanitary and phyto-sanitary
measures should be given while approving import of milk and milk products.
Introducing integrated food laws
Presently, manufacture and supply of milk and milk products are governed by a plethora of food
laws such as the Prevention of Food Adulteration Act,1954; the Standard Weights and Measures
(Packaged Commodities) Act, 1976; the Industrial Development and Regulation Act, 1951, the
Agricultural Produce (Grading and Marking) Act, 1937 as amended in 1986 (AGMARK); the
Milk and Milk Product Order, 1992; the Infant Milk Substitutes, Feeding Bottles and Infant
Foods (Regulation of Production, Supply and Distribution) Act, 1992; the Insecticides Act, 1968;
the Consumer Protection Act, 1986 (COPRA); the Water (Prevention and Control of Pollution)
Act, 1974 and the Air (Prevention and Control of Pollution) Act, 1981; the Bureau of Indian
Standards (BIS) Act, 1986; the Export (Quality Control and Inspection) Act, 1963 etc. Moreover,
implementation of these laws comes under the control of a host of ministries including Ministry
of Agriculture, Ministry of Food Processing, Ministry of Consumers Affairs, Ministry of Health,
Ministry of Company Affairs, Ministry of Law etc. Each one of these ministries has their own
departments and systems of administrations requiring numerous clearances and inspections
invariably leading to inefficiency and corruption. Therefore, it is proposed that instead of so
many food laws the Government should come out with an integrated food laws governing the
dairy business under one ministry.
Any other incidental or consequential matter as deemed necessary
Recognition of cooperatives as a distinct sector of economy
In line with the National Policy on Cooperatives, cooperatives are required to be recognized as a
distinct economic sector and integral component of the socio-economic system deserving special
status from our Government. The cooperatives have the potential, if governed properly, to solve
many of our problems especially in rural areas. Hence, the Governments policy initiatives for
cooperatives are extremely important. Since the dairy cooperatives are limited resource farmers
organizations and poor in capital formation, they are vulnerable to open and unfair competition
requiring the Governments policy support to protect them from unfair and unequal competition
whether they are from outside or inside.
Creating obligation for private trade including multi-national companies operating in
dairy business
During the past decades the dairy cooperatives have invested substantially in developing their
individual milk sheds, educating member farmers, etc. Thus, it would be unfair for the
Government to allow private and multinational companies to set up dairy business in milk sheds
already developed by the dairy cooperatives. Companies would be allowed to reap benefits for
which they did not make any prior investment and so, it would be invariably at the cost of the
cooperatives. Further, cooperatives, by law, are required to contribute a portion of their business
surplus towards education fund maintained by the National Cooperative Union of India, New
Delhi. On the other hand, private trade does not have any such obligation, they would continue in
business as long as it is profitable. They would not have any sincere intention to invest in
developing their milk sheds or to create infrastructure facilities in their individual area of
operation. Therefore, it is proposed that the Government should come out with some policy
directives by which private trade and multinational companies would be required to invest a
portion of their business surplus in developing their milk shed or upgrading genetic resources of
milch animals or fodder availability etc. in their area of operation. This would go a long way in
developing the dairy industry of the country as a whole.
Abolishing deputation of Government employees in dairy cooperatives
Past experiences reveal that competent and committed professionals working for cooperatives for
reasonably long period of time, in most cases, holds the key to the success of cooperatives. It is
no wonder that the best performing dairy cooperatives today are headed by professionals and not
by government officers posted on deputation. Therefore the Government needs to discontinue the
practice of deputing