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The role of state sponsored and co-operatively organised support services in milk production, processing and marketing in developing countries

by R. P. Aneja


The success of Operation Flood, the largest dairy development programme in the world, in substantially increasing milk production and rural incomes in India is now recognised as one of the important example of how to alleviating rural poverty in the world. Operation Flood has already provided productive jobs to about 7 million rural families organised into 70,000 village dairy co-operatives, 170 district dairy unions and 25 state level federations.

Milk production is an extremely labour intensive occupation. In many countries of the world, including India, it is the most productive way of converting crop residues and agricultural by-products into valuable food. Dairy development programmes in India are based on the development of indigenous breeds of cattle and buffaloes and local feeds which do not include grains suitable for human consumption. The objective of this paper is to look at the role of dairy co-operatives in increasing productivity, processing and marketing of milk and milk products in the overall context of sustaining dairy development in the developing countries.


Milk is a perishable product. Absence of chilling facilities, high ambient temperatures and lack of hygiene aggravate the problem of marketing milk. Wherever milk production is based on crop residues and agricultural by-products, the availability of milk for the purpose of marketing depends on the availability of crop residues. In India availability of milk in the post-monsoon season is 2–3 times the availability during the pre-monsoon summer periods. This led to a peculiar situation of “surpluses” in winter, even when there were overall shortages of milk in India, and the country was importing as much as 60,000 tonnes of milk powder per annum to meet the local demand. Unfortunately, the fact that there were surpluses during the winter months was completely ignored by the planners of the Indian dairy industry until the beginning of Operation Flood.

The most significant technological development in India's dairy development programme took place as early as 1954 when the Kaira Co-operative put up its first milk powder plant to conserve the seasonal surpluses and market them during the summer months. The powder plant enabled the co-operative to pay its members some 80% of the high “summer price” of milk during the winter months. In the rest of the country the rural milk producers continued to get 50% of the summer price in winter. The bulk of milk in India is produced during the winter months when the crop residues are available for conversion into milk. Since the availability of crop residues is dependent on monsoon rains, the production of milk is also dependent on the previous year's monsoon. The breeding cycle has over the years been tuned into the availability of crop residues and most of the calvings take place immediately after the monsoon rains. The processing of milk is, therefore, an extremely important operation in the dairy development programmes.

One of the criticisms against Operation Flood was that it placed too much emphasis on milk processing. We now do not have adequate processing capacities to process all the rurally produced milk since milk production and procurement efforts have exceeded the processing and marketing capacities. Initially, the processing and marketing facilities may not be fully utilised, however, these facilities should be made available before milk procurement and production are promoted to sustain a large dairy development programme.

Wherever milk production is seasonal, as in India, the marketing of milk should match the procurement of milk in the absence of adequate milk processing and conservation facilities. During the flush season marketing of milk is a problem, while in the lean season there is not enough milk to be marketed. The commodity assistance under Operation Flood primed the pump of dairy development. The imported dairy commodities were largely recombined during the summer months to help the Operation Flood dairies to capture a commanding share of the market, which could then be sustained during the winter months with local procurement. The pump could be started and stopped depending on the local requirements, ensuring that the imported commodities were not used against the local milk producers. The seasonal imbalances in supply and demand for milk and milk products were therefore met with the commodity assistance under the programme and have now been substituted with local milk reconstitution from locally produced milk powder. Before Operation Flood, India used to manufacture about 10,000 tons of milk powder per year. The current annual production of all kinds of milk powder in the country is now of the order of 200,000 tons.


Milk is a highly valued commodity and the income elasticity of demand for milk is over 1.0. With the increase in income it is expected that when the basic requirement of calories have been met, consumers would reach out for better quality foods. Milk is one such important food. The growth of the dairy industry of any country will primarily be determined by the quantity of milk and milk products that can be marketed to the local population and the quantity that can be exported. The export situation for dairy products is extremely competitive with low priced products being dumped into the international markets. The best bet therefore is to concentrate on the domestic markets. Since milk is a perishable product, as much as possible, it should be sold locally in the rural areas. Milk for local sale in the villages need not be processed. The village milk societies under Operation Flood ensure that no milk leaves a village until the demands of the villagers are met, since there are always people in the village who do not produce milk. The district dairy co-operatives ensure that no milk leaves a district until the entire demand of the urban centres in the district has been met. If that was not done the milk procurement operations in the village will be adversely affected creating weak points in its procurement system. Similarly, no milk leaves a state until the requirement of all the cities in the state has been met.

The focal point of dairy development programmes under the Operation Flood project is a district milk union into which the local village societies are federated. The Kaira Co-operative at Anand, which has been successfully replicated under the Operation Flood programme, would not have succeeded had it not been for its access to the rich urban market of Bombay. The urban consumers in Bombay paid for the development of the dairy industry in the Kaira District and in turn helped themselves by having a reliable source of good quality milk and dairy products. This is a classical example of the transfer of resources from the urban rich to the rural poor.

Unfortunately, before the Operation Flood programme the urban markets of India were being provided cheap milk by recombining low priced imported milk powder thus taking away the major incentive for rural dairy development programmes.


The crop residues based milk production systems have a positive bias towards the small farmers and landless agricultural workers. A large farmer will have to hire labour to look after the large number of cattle/buffaloes that can be supported on the home grown crop residues. With hired labourers milk production becomes less viable. Large farmers therefore part with some of their crop residues as wages in kind to the agricultural workers. This enables the landless agricultural workers to become milk producers. Milk production based on small holders can be sustained only if marketing facilities are provided to market milk both in the morning and in the evening. When millions are involved in producing milk, dairying becomes a very competitive business. It cannot be sustained economically if urban wages levels were paid to the rural workers. A harmonious relationship with millions of farmers particularly on the pricing of raw milk and sharing of the business profits is needed. Testing of millions of samples, handling of large number of individual production records and accounts has, therefore, to be a decentralised operation. Co-operatives provide the basic organisational structure for production and procurement of milk throughout the world, primarily because they meet the above mentioned criteria.

Processing milk for the rural producer and the urban consumer is the key to the development of a dairy industry anywhere. If the demand exceeds supply, milk producers could get away with unreasonable prices, but if they are to sustain growth the pricing has to be reasonable. Dairy co-operatives all over the world have proved that they are far more reasonable and less exploitative than the traditional trade.

The traditional milk trade has usually not failed to fully exploit the potential to adulterate milk with water, charge unreasonably high prices during the lean periods and pay unreasonably low prices to the farmers in the flush season. Instead of properly processing milk, all kinds of preservatives were being used to prolong the shelf-life of milk. Milk co-operatives provide safety to the consumers and reasonable returns to the farmers.

Business ethics are under pressure all over the world particularly in the dairy industry. The primary members of dairy co-operatives in India are the ears and eyes of the organisation and seldom would anything unusual go unnoticed. This public audit of the co-operatives has supported and would sustain the dairy industry through thick and thin. The high level of member involvement has enabled dairy co-operatives to plough back profits of their dairy enterprises into the growth of the dairy industry and also into activities that helped in improving the quality of life in the rural areas.


While discussing the role of State sponsored co-operatives, it is also necessary to discuss the role of the State itself in dairy development programmes. Experience all over the world has clearly shown that it is not the business of the Government to run dairies. Governments are generally insensitive to the needs of the rural milk producers since they are not as vocal as the urban consumers. They can get caught in the cross fire between producers and the consumers regarding milk prices. If the State itself is a party to the milk business, it can find itself, at times, in a hopeless situation. Therefore, the state should concentrate on planning, monitoring the implementation of dairy development programmes and with the wider policy matters concerning the organisational issues, use of resources and the strategies to meet local requirements for milk and milk products and external trade.

In India, we find that milk production provides a tremendous opportunity for creating rural employment and increasing rural incomes. Operation Flood has been aptly been described as the world's largest nutrition project since the rural consumption of milk has significantly increased along with rural incomes and milk production.

The Government recognised that the Anand pattern of dairy co-operative, which is being replicated under the Operation Flood project, makes sound economic sense. At the Amul Dairy in Anand nearly a million litres of milk is procured from 400,000 members of the co-operatives. To produce a million litres of milk some 400,000 kgs of balanced cattle feed is required to supplement the crop residues and other natural herbage. The cattle-feed plant/mill of the Amul Dairy markets 4,00,000 kgs of feed every day and virtually all the milk that comes to the dairy has been produced from rations supplemented with concentrates from the plant on a “least cost” basis. Balanced compounded cattlefeed costs 30% less than the traditional feeds which are oil cakes, cotton seed etc. The major expense in milk production is the cost of purchased feeds and the new balanced cattle feeds have significantly improved financial returns.

Looking at the many options that were available to promote dairying in India, the Government decided, as a matter of policy, to encourage dairy development programmes on the Anand Pattern since it encouraged the optimal use of resources.

One important decision that the Government took while implementing Operation Flood was to channel imports of dairy products through the implementing agency of the Operation Flood project. This ensured that cheap imports were not used against the local producers and that the commodities provided under the project were sold at prices consistent with the prevailing prices for rurally produced milk. These are the kinds of policy that are needed from a Government to ensure that local milk producers are not only protected against cheap imports but also given a fair chance to demonstrate their capabilities for efficiently handling the milk economy.


Dairy Co-operatives in India have played a pioneering role in introducing modern technologies that have helped farmers to increase milk production and maximize returns on their output. The adoption of modern technologies for the conservation of milk, transportation and conversion into various dairy products (including indigenous dairy products) have helped the farmers maximise return for their milk. The application of modern technologies for milk collection, testing, recording and accounting at the village level has shown how modern electronics can be used beneficially by the rural milk producers. Once the farmers are assured that they would get good returns for their produce, their capacity to adopt technologies for increasing productivity should not be underestimated. The large scale deployment of mobile veterinary services with radio telephones, application of artificial insemination and frozen semen technology, immunisation of cattle, use of newer fodder plants and the switch over to compounded balanced cattle-feeds are clear examples that demonstrate the farmers' response to beneficial technologies.

If the structures that provide these technologies are owned and operated by the farmers themselves the chances of success are even greater. It also indicates that the farmers will adopt any technology that will help them protect their environment. Efficient conversion of feed materials into milk will help conserve our natural resources and improve farmers' incomes. Co-operatives will serve as the ideal vehicle for the adoption of technologies that will be required to sustain milk production on an ecologically viable basis.

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