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Dairying systems in India

An instrument of social and economic change
Dairying prior to operation flood
Amul and the evolution of the Anand model
Operation flood
National dairy development board

A. Banerjee

The author is Executive Director of the National Dairy Development Board, PO Box 4906, Safdarjang Enclave, New Delhi 110029, India.

Today much of the South faces the implications of sharply altered economic policies, many of which focus on capital-intensive investment that largely serves urban-sector requirements. In this context, it is imperative to find ways in which to advance South-South technology transfer, particularly technologies that directly improve the economic welfare and quality of life in rural areas. In this respect, India was fortunate to have been the first country to gain independence from colonial rule. In more than 40 years of independence, experiments have been made with a number of approaches towards developing the dairy industry and, as a consequence, it is possible that the Indian experience may hold lessons of interest and use to many of those concerned with balanced and sustainable development. It should be made clear that India's experience is by no means the only one possible. While there is definitely something to share, much can also be learned from the experience of others. One lesson is mandatory, however: success in dairying, or in any other agricultural field, depends on ensuring that control of the resources created remains with the producers.

An instrument of social and economic change

In India, dairying is recognized as an instrument for social and economic development. The nation's milk supply comes from millions of small producers, dispersed throughout the rural areas. These farmers maintain an average herd of one or two milch animals, comprising cows and/or buffaloes. The animals' nutritional requirements are largely met by agricultural waste and byproducts (Gupta, 1987). Ample labour and a small land base encourage farmers to practice dairying as an occupation subsidiary to agriculture. While income from crop production is seasonal, dairying provides a stable, year-round income, which is an important economic incentive for the small farmer to take to dairying.

Milk production in India is dominated by small and marginal landholding farmers and by landless labourers who, in aggregate, own about 70 percent of the national milch animal herd (Gupta, 1983). As crop production on 78 percent of the agricultural land still depends on rain, it is prone to both drought and floods, rendering agricultural income uncertain for most farmers. Shackled to subsistence production as a result of a shortage of finance and credit facilities, these farmers become entangled in a strangling debt cycle. The combination of an unfavourable land: person ratio and fragmented landholdings makes it difficult to support large families on crop income alone. It is not surprising that the small farmer and the landless labourer are more often than not victims of moneylenders (Zuvakis, 1979) and of natural calamities. Dairying, as a subsidiary source of income, is a real relief to most of these weaker groups in society. Often one or two milch animals enable these farmers to generate sufficient additional income to break the vicious subsistence agricultural-debt cycle.

The successful Indian dairy development programme Operation Flood has shown how food aid can be used as an investment in building the type of institutional infrastructure that can bring about national dairy development. Programmes like Operation Flood, with similar policy orientations, may prove to be appropriate to dairy development in other Asian as well as African countries since the conditions that prevail in dairying today in a number of developing countries are comparable to those that once were found in India. In the early 1950s, India was commercially importing around 55000 tonnes of milk powder annually to meet the urban milk demand. Currently, many developing countries either commercially import dairy products on a large scale or rely on donations to meet the gap between demand and supply of milk products. Together, developing-country imports account for over 70 percent of total world trade in milk products (FAO, 1993)

As in India, the reliance on low-cost and often-subsidized commercial imports as well as gifts seriously affects the development of dairying systems in many developing countries as they increase domestic demand for milk products and erode domestic-price incentives. As low-cost imports from advanced dairying nations depress domestic milk prices, it becomes uneconomical for local milk producers to invest in dairying, causing stagnation in production. This hampers breed improvement efforts, fodder production programmes, the manufacture of quality feed and other endeavours to improve productivity. For any country seriously interested in exploiting the potential of dairying, therefore, it becomes imperative to review and seriously consider policies that would promote dairy development activities by helping to establish independent and self-sustaining dairying systems.

Undoubtedly, the major challenge for the dairy sector in any developing nation is to increase milk production in order to meet the increasing demand resulting from the almost inevitable expansion of population and, presumably, growth of income. To meet this challenge, policies must become more market-oriented. The adoption of appropriate technologies for production, procurement, processing and marketing - after the unique environmental, social, economic, political and cultural environment of the individual country has been considered - is an important aspect of dairy development. Those national governments and international institutions for whom the dairy sector is a major concern should accept the challenge and formulate policies that integrate and buttress the major functions of dairy development.

Most of the significant developments in dairying in India have taken root in this century. The history of the dairy development can be broadly classified into two distinct phases: pre- and post-Operation Flood. On examining the developments made during both phases, it can be concluded that the difference lies in the basic approach to solving the problems facing the dairy sector.

Dairying prior to operation flood

The earliest attempts at dairy development can be traced back to British rule, when the Defence Department established military dairy farms to ensure the supply of milk and butter to the colonial army. The first of these farms was set up in Allahabad in 1913; subsequent facilities were established at Bangalore, Ootacamund and Karnal. These farms were well maintained and, even in the early stages, improved milch animals were raised. As animals were reared under farm conditions, some herd improvement was made using artificial insemination. This approach did not have any impact on the supply of milk to urban consumers, which was of major concern to civilian authorities but less important to the military.

With the growth of the population in urban areas, consumers had to depend on milk vendors who kept cattle in these areas and sold their milk, often door-to-door. As a result, several cattle sheds came into existence in different cities. This was not an environmentally sound approach. As the main objective of the milk vendors was to maximize profit, they started increasing the lactation period by using the focus system. In the process, these high-yielding cattle developed sterility problems, which considerably reduced the number of carvings. Once the cattle became unproductive, they were sold to slaughterhouses. This practice systematically drained the country of its genetically superior breeds.

To some extent, the Second World War gave impetus to private dairies with modestly modernized processing facilities. In the cities of Bombay, Calcutta, Madras and Delhi, and even in some large townships, processed milk, table butter and ice-cream were available, though not on a large scale. Polsons, Keventers and the Express Dairy were some of the pioneer urban processing dairies. These dairies were not concerned with improving the breed of milch animals reared in rural pockets but instead were content with contracting milk supplies through middlemen or their own staff. Milk producers as well as consumers were exploited. These early modern systems did not bring about significant shifts in milk production, nor did they develop quality milch animals. To a large extent, despite modernized processing facilities, dairying remained unorganized.

With the initiation of India's first Five-Year Plan in 1951, modernization of the dairy industry became a priority for the government. The goal was to provide hygienic milk to the country's growing urban population. Initial government action in this regard consisted of organizing "milk schemes" in large cities. To stimulate milk production, the government implemented the Integrated Cattle Development Project (ICDP) and the Key Village Scheme (KVS), among other similar programmes. In the absence of a stable and remunerative market for milk producers, however, milk production remained more or less stagnant. During the two decades between 1951 and 1970, the growth rate in milk production was barely 1 percent per annum, while per caput milk consumption declined by an equivalent amount.

During the 1960s, various state governments tried out 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 milksheds where milk was produced. This urban orientation to milk production led to the establishment of cattle colonies in Bombay, Calcutta and Madras. These government projects had extreme difficulties in organizing rural milk procurement and running milk schemes economically, yet none concentrated on creating an organized system for procurement of milk, which was left to contractors and middlemen. Milk's perishable nature and relative scarcity gave the milk vendors leverage, which they used to considerable advantage. This left government-run dairy plants to use large quantities of relatively cheap, commercially imported milk powder. The daily per caput availability of milk dropped to a mere 107 g during this time. High-fat buffalo milk was extended with imported milk powder to bring down the milk price, which resulted in a decline in domestic milk production. As the government dairies were meeting barely one-third of the urban demand, the queues of consumers became longer while the rural milk producer was left in the clutches of the trader and the moneylender.

All these factors combined left Indian dairying in a most unsatisfactory low-level equilibrium. The establishment and prevalence of cattle colonies emerged as a curse for dairying in the rural hinterland as it resulted in a major genetic drain on the rural milch animal population, which would never be replaced. City dairy colonies also contributed to environmental degradation, while the rural producer saw little reason to increase production.

Amul and the evolution of the Anand model

Milk procurement from the rural areas and its marketing in the urban areas was the major problem in Indian dairying at the time India gained independence. In one of the earliest urban milk supply schemes, Polsons - a private dairy at Anand - procured milk from milk producers through middlemen, processed it and then sent the milk to Bombay, some 425 km away (Korten, 1981). Bombay was a good market for milk and Polsons profited immensely. In the mid-1940s, when the milk producers in Kaira asked for a proportionate share of the trade margins, they were denied even a modest increase. The milk producers went on strike, refusing to supply milk to Polsons. On the advice of Sardar Vallabhbhai Patel, a leader in India's independence movement, the milk producers registered the Kaira District Cooperative Milk Producers' Union, now popularly known as AMUL, in 1946. The Kaira union procured milk from affiliated village-level milk societies. This was the genesis of organized milk marketing in India, a pioneering effort that opened a new vista for dairy development in the country (see Box).

Between 1946 and 1952, AMUL's policy was directed towards obtaining monopoly rights for the sale of milk to the Bombay milk scheme. In 1952, it succeeded in achieving its purpose after the Government of Bombay cancelled the contract with Polsons and handed over the entire business of supplying milk from the Kaira district to AMUL. However, as the Bombay milk scheme was committed to purchasing all the milk produced by the Aarey Milk Colony in Bombay, it would not take AMUL's milk during the peak winter months. The disposal of this surplus milk posed difficulties for AMUL, forcing it to cut down on purchases from its member societies, which affected members' confidence. The answer was the production of milk products: in 1955, a new dairy plant was set up at Anand to produce butter, ghee and milk powder.

A second dairy was built in 1965, and a product manufacturing unit was established in 1971 to cope with increasing milk procurement. In 1993, a fully automatic modern dairy was constructed adjacent to the original AMUL dairy plant at Anand.

AMUL formed the basis for the Anand Model of dairying. The basic unit in this model is the milk producers' cooperative society at the village level. These cooperatives are organizations of milk producers who wish to market their milk collectively. Membership is open to all who need the cooperative's services and who are willing to accept the responsibilities of being a member. Decisions are taken on the basis of one member exercising one vote. No privilege accrues to capital, and the economic returns, whether profit or loss, are divided among the members in proportion to patronage. Each cooperative is expected to carry out the continuing education of its members, elected leaders and employees. All the milk cooperatives in a district form a union that, ideally, has its own processing facilities.

All the unions in a state are normally members of a federation whose prime responsibility is the marketing of milk and milk products outside the state. There is also a fourth tier, the National Cooperative Dairy Federation of India (NCDFI), which is a national-level body that formulates policies and programmes designed to safeguard the interests of all milk producers. Each tier of the Anand organizational structure performs a unique function: procurement and services by the cooperative; processing by the union; marketing by the state federation; and advancing the interests of the cooperative dairy industry by the national federation. Thus, the Anand Model has evolved into an integrated approach to systematic dairy development.

Facts about the Kaira District Cooperative Milk Producers' Union (AMUL)

· Established in 1946 - two societies collected 250 lures of milk

· Competed with Persons to supply milk to Bombay

· 1952 - Bombay Government terminated Persons contract and signed with AMUL

· 1955 - dairy and milk powder plant was established with aid from the United Nations Children's Fund (UNICEF)

· 1960 - AMUL pioneered production of milk powder and baby food from buffalo milk

· AMUL - meets producer demand for critical inputs, veterinary services, artificial insemination and feed

· Today AMUL members supply more than 1 million lures of milk per day

· AMUL sells 400 tonnes of cattle feed every month

Operation flood

The strategy for organized dairy development in India was actually conceived in the late 1960s, within a few years after the National Dairy Development Board (NDDB) was founded in 1965. It rested on the Operation Flood programme, which was conceived by the NDDB and endorsed by the government.

Operation Flood is a unique approach to dairy development. During the 1970s, dairy commodity surpluses were building up in Europe, and Dr Verghese Kurien, the founding chairman of NDDB, saw in those surpluses both a threat and an opportunity. The threat was massive exports of low-cost dairy products to India, which, had it occurred, would have tolled the death-knell for India's staggering dairy industry. The large quantities that India was already importing had eroded domestic markets to the point where dairying was not viable. The opportunity, on the other hand, was built into the Operation Flood strategy. Designed basically as a marketing project, Operation Flood recognized the potential of the European surpluses as an investment in the modernization of India's dairy industry. With the assistance of the World Food Programme, food aid - in the form of milk powder and butter oil - was obtained from the countries of the European Economic Community (EEC) to finance the programme. It was the first time in the history of economic development that food aid was seen as an important investment resource. Use of food aid in this way is anti-inflationary, it provides a buffer stock to stabilize market fluctuations and it can be used to prime the pump of markets that will later be supplied by domestic production. The overriding objective of all aid is, or rather should be, the elimination of the need for aid. The use of food aid as an investment is the most effective way of achieving this objective.

Operation Flood is a programme designed to develop dairying by replicating the Anand Model for dairy development, which has stood the test of time for almost half a century. The first phase of Operation Flood was launched in 1970 following an agreement with the World Food Programme, which undertook to provide as aid 126000 tonnes of skim milk powder and 42000 tonnes of butter oil to finance the programme.

The programme involved organizing dairy cooperatives at the village level; creating the physical and institutional infrastructure for milk procurement, processing, marketing and production enhancement services at the union level; and establishing dairies in India's major metropolitan centres. The main thrust was to set up dairy cooperatives in India's best milksheds, linking them with the four main cities of Bombay, Calcutta, Delhi and Madras, in which a commanding share of the milk market was to be captured. In achieving that goal, the first phase of Operation Flood laid the foundation for India's modern dairy industry, an industry that would ultimately meet the country's need for milk and milk products.

The second phase of the programme was implemented between 1981 and 1985. Designed to build on the foundation laid in the first phase, it integrated the Indian Dairy Association-assisted dairy development projects being implemented in some Indian states into the overall programme. About US$150 million was provided by the World Bank, with the balance of project financing obtained in the form of commodity assistance from the EEC.

The current, third phase of Operation Flood aims at ensuring that the cooperative institutions become self-sustaining. With an investment of US$360 million from the World Bank, commodity and cash assistance from the EEC and NDDB's own internal resources, the programme envisages substantial expansion of the dairy processing and marketing facilities; an extended milk procurement infrastructure; increased outreach of production enhancement activities; and professionalization of management in the dairy institutions.

National dairy development board

In October 1964, on the occasion of the inauguration of AMUL's cattle feed plant, the then Prime Minister of India, Lal Bahadur Shastri, spent the night as the guest of a village milk cooperative society near Anand. Impressed by the socio-economic changes brought about by the milk cooperatives, he expressed the desire for a national-level organization to replicate Anand Model dairy cooperatives throughout the country and to make available multidisciplinary, professional dairy expertise to dairies in the public and cooperative sectors. Thus, in 1965, NDDB was registered under the Societies Registration Act, the Charitable Trust Act and the Public Trust Act. Consistent with its model and mandate, NDDB headquarters were established at Anand.

1 Operation Flood: Anand Model milk cooperative societies - Opération abondance: soclétés laltlères coopératives du Modèle Anand - Operación abundancia: sistema Anand de sociedades cooperativas lecheras

2 Operation Flood: milksheds - Opération abondance: bassins laitiers - Operación abundancia: regiones abastecedoras de leche

3 Operation Flood: farmer members - Opération abondance: agriculteurs membres - Operación abundancia: agricultores miembros

During its initial stages, NDDB was assisted financially by the Government of India, the Danish Government and by AMUL. It also received aid from the United Nations Children's Fund (UNICEF) in the form of teaching material and equipment.

In 1969, when the Government of India approved the Operation Flood programme and its financing through the monetization of World Food Programme-gifted commodities, it was found that the statutes under which NDDB was registered did not provide for handling of government funds. Therefore, in 1970 the government established a public-sector company, the Indian Dairy Corporation. The IDC was given responsibility for receiving the project's donated commodities; testing their quality; their storage and transfer to user dairies; and receiving the dairies' payments. Thus, it served as a finance-cum-promotion entity while the entire Operation Flood technical support was provided by NDDB.

To avoid-any duplication in their activities or overlap of functions, the IDC and NDDB were eventually merged into a newly constituted NDDB by an Act of Parliament passed in October 1987. The Act designated the NDDB as an institution of national importance and accorded it the same autonomy of operation that it had enjoyed and which had been a major factor in its success.


Operation Flood may be considered the central event of twentieth-century dairying in India. An analysis of the lessons learned through the implementation of the programme should be useful for those involved in formulating dairy development policies and programmes for the developing nations of Asia and Africa.

The network of cooperative institutions created through the Operation Flood programme now comprises 70000 dairy cooperative societies in 170 milksheds, encompassing 8.4 million milk-producer families (Figures 1 to 3). Average milk procurement by these cooperatives has now reached some 12.3 million kg per day (Figure 4), of which 8.2 million litres are marketed as liquid milk, while the remainder is converted into products such as milk powder, butter, cheese, ghee and a wide range of traditional milk products. Milk-processing capacity of approximately 15.6 million litres per day, chilling capacity of 6.5 million litres per day and milk powder production capacity of 726 tonnes per day have been established through the programme.

One of the challenging aspects of dairy development in a tropical or subtropical country is the movement of milk over long distances. In Operation Flood, this has been made possible through the operation of about 140 insulated rail milk tankers, each with a capacity of 40000 litres, supplemented by another 25 rail tankers of 21000-litre capacity. Approximately 1000 other insulated road milk tankers operate throughout the country as well. This has enabled the operation of a national milk grid, balancing regional fluctuations in milk procurement and demand-and-supply gaps resulting from concentrated production of liquid milk in selected milksheds. To balance seasonal variations in milk supply and demand caused by low milk production during the summer months, a large milk powder storage capacity has been created for buffer stocking.

The investment and achievements in modernizing the Indian dairy industry have had a major impact on milk production. Annual production, which had stagnated to between 20 million and 22 million tonnes during the 1960s, has steadily increased to around 59 million tonnes (Figure 5), an annual growth rate of about 7.8 percent. Per caput availability of milk, which had declined consistently during the two decades between 1951 and 1970, dropping to 107 g at the start of Operation Flood, is now 187 g per day (Figure 6), despite a substantial increase in population. Had family-planning programmes achieved the same success as Operation Flood, the per caput consumption rate would be comparable to all but those of the leading dairying nations.

Commercial imports of dairy commodities were a regular feature in the 1950s and 1960s, comprising 50 to 60 percent of the dairy industry's total throughput. Today, imports of dairy commodities are restricted to those donated by the EEC for implementing Operation Flood (Mielke, 1993) and their percentage of the total dairy throughput is negligible. All these developments have helped raise India to the rank of the second-largest producer of milk in the world, next only to the United States.

A number of programmer and policies have played a role in this success. Certainly, the introduction of modern technology, both at the farmer level and in the processing of milk and products, has been important. Similarly, establishing an urban market has provided the stability necessary to encourage farmers to invest in increased milk production. The induction of professional managers to serve farmers has reversed the usual pattern of farmers as supplicants and officials as "benefactors". Perhaps most important, however, is the cooperative structure itself. By giving farmers command over the resources they create, Operation Flood has ensured that they receive the maximum return from each rupee spent by consumers on milk and milk products, and it is this that has provided the incentive on which the growth of the dairy industry has been based.

The success of Operation Flood has resolved many difficult issues relating to development. It has demonstrated how food aid can be used to enhance domestic production if administered with care. It has also shown how technology can be harnessed so that neither the dependence on imported technology nor its capital intensity become counterproductive. Some of the dairy plants set up by NDDB during the implementation of Operation Flood are based on the latest technology and are comparable to those in advanced countries. The unique cooperative infrastructure with which NDDB works makes the adoption of technologies and the dissemination of knowledge relatively easy, and this has enabled Operation Flood to facilitate the application of modern technologies to enhance milk production.

4 Operation Flood: rural milk procurement - Opération abondance: achats de lait en zone rurale - Operación abundancia: compra de leche en el medio rural

2 Milk production In India - Production de lait en Inde - Producción de leche en la India

Source: Ministry of Agriculture, Government of India.

6 Per caput milk consumption In India - Consommation de lait par habitant en Inde - Consumo de leche por habitante en la India

Source: Ministry of Agriculture, Government of India.

After a long struggle, India has overcome a situation that, at least in some respects, may be similar to those prevailing in a number of Asian and African countries and has built a modern dairy sector, responsive to the needs of milk producers. It has had to deal with a stagnant dairy industry in which cheap, subsidized imports were a disincentive to the farmers. It has had to overcome the negative effects of consumer-oriented programmer that managed to keep prices low for the urban élite while depressing the price of milk in rural milksheds. It has had to deal with the lethargy and bureaucratic orientation of state enterprise in dairying. While there are still challenges to be met, the foundation for an even stronger dairy industry is now in place. Therefore, India's experience may offer lessons, as well as some of the elements of a model, for other countries. Early in the last decade, NDDB was asked to explore the possibilities of introducing the Anand Model into a number of countries and has responded by sending investigative teams into those countries. FAO, EEC and the World Bank, having recognized the potential of the Anand Model, are considering financing similar projects in Sri Lanka, Malaysia and Bangladesh. Commodity financing of projects such as Operation Flood by the more advanced countries not only relieves some of their accumulated surplus, but it also strengthens the economies of the countries that receive assistance. And, if we truly believe that the proper objective of aid is to end the need for aid, then this is certainly an important way of achieving that goal.

Most important, Operation Flood has demonstrated that India's rural population possesses enormous energy, initiative and wisdom - all that was needed was an opportunity to control the resources that it had created. With the talent, resources and experience that emerged, what could not be achieved if these were put to work in the service of milk producers in Africa and Asia? +


FAO. 1993. Commodity review and outlook, 1992-93. Rome.

Gupta, P.R., ed. 1983. Dairy India 1983, p. 21. New Delhi, Rekha Printers Pvt. Ltd.

Gupta, P.R., ed. 1987. Dairy India 1987, p. 9. New Delhi, Rekha Printers Pvt. Ltd.

Korten, D.C. 1981. Rural development programming: the learning process approach, p. 1-8. Rural Development Committee, Winter 1981, Rural Development Participation Review 2. Ithaca, NY, USA, Cornell University.

Mielke, T., ed. 1993. Oil world annual. Hamburg, Germany, ISTA Mielke GmbH.

Zuvakis, C., Jr. 1979. Economic development: an introduction, p. 227-228. New York, NY, USA, St Martin's Press.

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