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Dairy development through cooperative structure

Rural producers' cooperatives
Dairy cooperatives
Sri Lanka
Development of dairy cooperatives in other Asian countries
General conclusions

M. Uotila and S.B. Dhanapala

The authors are Regional Animal Production Officer and Consultant, respectively, at the FAO Regional Office for Asia and the Pacific, Maliwan Mansion, Phra Atit Road, Bangkok 10200, Thailand.

As a result of the perishable nature of milk and the range of skills involved in its production and marketing, dairying requires a number of services that can best be provided by cooperative action. It is not surprising therefore that the cooperative movement has featured prominently in the development of the dairy industry worldwide. This paper reviews the role of producer cooperation in the dairy sectors of a number of countries in Asia.

Rural producers' cooperatives

The aim of a producers' cooperative is to provide services either free of charge or at a reasonable cost to its members. In addition, cooperative ownership emphasizes participation and control by member producers. Individual members can influence policy and management matters through registered membership bodies that are regulated by laws or rules of a community or state.

The cooperative principles as enunciated by the International Cooperative Alliance are voluntary and open membership; democratic control; limited interest on credit; equitable division of surplus; training of members; and cooperation among cooperatives.

Cooperative organizations are aware of the importance of member involvement and, through training programmes, try to increase participation in the affairs of the society. The fact that each member has only one vote is particularly important; in the case of public companies, individual shareholders find it difficult to effectively control the management of a company unless they have a controlling interest through ownership of a large number of shares.

Dairy cooperatives

As is generally well known, land is perhaps the most important income-generating asset in the rural economies of Asia. Yet, scarcity of land and its skewed distribution are two of the major constraints of the rural Asian landscape. Close to 60 percent of the world's agricultural population lives in the villages of Asia, but its share of the world's agricultural land is only about 28 percent. This is much lower than in other developing regions. Furthermore, of this limited available land, a very large portion is comprised of holdings other than small farmers' holdings. While the conditions vary from country to country, small farmers in Asia, although accounting for more than two-thirds of the rural households, have access to only about 20 percent of the arable land. Against this background, economic activities that are not essentially land-based, such as dairying, have become crucial for small farmers and landless labourers.

Small rural milk collection centre - Petit centre rural de collecte du fait - Pequeños centros de recogida de leche en el medio rural

A one-cow milking parlour equipped with appropriate technology - Abri équipé pour la traite d'une vache - Sala de ordeño pare una vaca, equipada con tecnología apropiada

Milk reception and quality control - Réception et contrôle de la qualité du fait - Recepción y control de calidad de la leche

While farmers' cooperatives of various types play a useful role in promoting rural development, dairy cooperatives have special attributes that make them particularly suitable. Among these, they can facilitate the development of remote rural economies, thus upgrading the standard of living of the poor.

The main constraint that milk producers seek to overcome by acting collectively is the marketing of their product. The need to be assured of a secure market is a real one. It can be met by dairy farmers cooperatively establishing their own collection system and milk treatment facility in order to convert their perishable primary produce, which requires special and timely attention, into products with longer-keeping quality for marketing purposes.

Most dairy cooperatives adopt either a two - or three - tier system. One village or a group of two or three villages forms the basic unit of the primary cooperative. Only dairy farmers are allowed to enrol as members and they must commit to supplying milk exclusively to the cooperative. While the day-to-day functioning of the cooperative is managed by full-time salaried employees, the committee or board of the cooperative, consisting of only elected members, makes the decisions on the affairs of the cooperative. Primary-level cooperatives bring together members with similar interests at village level to work towards common goals. This system can also identify good leadership talent that would be given a chance to develop through interaction with other community leaders.

A group of primary-level cooperatives forms a union, which can be for a district, region or milkshed area. This is the second tier. The third tier is the unions joining up to form a federation at state or national level, depending on the size and system of administration in the country. The federation has the power to act on such issues as pricing policies, extension, training, control of milk and milk product imports, subsidies and credit.


Although A. Banerjee's article in this issue (p. 8) describes in full the successful development of dairy cooperatives in India, it is worthwhile to note that from a humble beginning this country's dairy cooperative programme has grown into the largest in the world and is owned by millions of rural-producer cooperative members. It is all the more impressive considering that it was accomplished with the minimum of state intervention and assistance.


Background to the dairy industry and dairy cooperatives

Dairy farming was first introduced in Indonesia on the island of Java during the Dutch colonial era, when small herds of Holstein-Friesian cattle were kept close to the cities of Jakarta and Surabaya and in the highlands where the climate suited this temperate breed. After this nation gained independence, the herds were broken up and smallholder dairying emerged. Each farmer owned one or two cows and raw milk was sold in urban areas through a system of private collectors who acted as middlemen; the farmers were paid about 25 percent of the retail price.

A serious attempt to develop the dairy industry along modern lines was made by the government, commencing with the first Five-Year Development Plan (1969-1974). A separate Department of Cooperatives, which had a strong influence on rural development including dairying, was formed at this time. During the next Five-Year Development Plan (1974-1979), attention given to dairy development was intensified. Milk consumption was increasing yet local production was still below 20 percent of the national requirements. In 1979 the National Union of Dairy Cooperatives of Indonesia was established. This was to be a significant event as it brought under one umbrella all the existing dairy cooperatives in the rural are-as. The union provided assistance to small farmers by way of imported cattle (with help from the Department of Livestock Services), credit for the purchase of cattle and equipment for milk collection and milk chilling, as well as vehicles for transport.

During the subsequent Five-Year Development Plan (1979-1984), higher priority was given to dairy development with the objective of improving the living standards of smallholder farmer families through creating new rural job opportunities as well as reducing import subsidies. Marked development in the dairy sector attributable to substantial government inputs and strong leadership occurred during this period.

As a result of the increased volume of milk produced locally, the government had to strengthen facilities for milk handling and chilling, efficient milk collection, road transport and marketing. Foreign assistance and expertise were obtained by the government to assist in these activities. The primary-level dairy cooperatives, the National Union of Dairy Cooperatives and the private-sector milk-processing industries participated jointly in the measures taken to absorb the steadily increasing quantities of milk. The milk-processing plants were directed to accept these increasing amounts on a quota system to be reviewed every six months. The quota established was the ratio of the quantity of locally produced milk to be purchased against milk powder imported by the processing factories in liquid equivalent.

Dairy farming in Indonesia still remains a small farmers' operation with an average of three to six cows per farmer, who traditionally has also kept cattle for manure. More than 85 percent of the dairy farmers are members of dairy cooperatives that handle the collection, chilling and distribution of milk to milk-processing plants.

The government gave even greater emphasis to dairy development in the fourth Five-Year Development Plan (1984-1989), and the current Five-Year Development Plan (1989-1994) has as its target an increase in milk production to arrive at a 1:1 ratio of domestic milk purchased by milk-processing factories to imported milk.

The first dairy producers' cooperative in Indonesia was established in Pujon, Malang, East Java in 1962. Thereafter, similar primary dairy cooperatives were established in Nongkojajar (1967), Pangalengan (1969) and Bogor (1970), as well as in other dairy centres at Grati, Ungaran, Boyolali and Garut. By 1978 there were 11 such dairy cooperatives in operation, yet these were faced with serious problems in that they had to compete with the uncontrolled importation of cheap milk powder by the private-sector milk-processing factories. The period between 1960 and 1968 was a dark one for the dairy cooperatives. Because of the activities of middlemen who collected milk and exploited the dairy farmers, they became less active and some were forced to dissolve.

The government's attempts to revive the flagging dairy cooperatives through the various development plans were to little avail. They continued to face serious problems caused by the rapidly growing private sector, which thrived on processing cheap imported milk powder from Europe and Oceania. As a result, only the cooperatives of Pujon and Pangalengan survived, although with difficulty.

The real renaissance of the dairy cooperatives resulted from Presidential Decree No. 2 of 1978, which enhanced the role of the multipurpose village cooperative society Koperasi Unit Desa (KUD), giving members greater participation in rural economic development. This enhanced self-reliance and increased participation of the rural population led the way to fuller development of all cooperatives including those in which dairying was the dominant activity. Indeed, the President of Indonesia remarked at that time: "The primary task of development is to uplift the common people from the abyss of poverty and the principal solution for raising the weak from poverty and destitution is through cooperatives."

Dairy Cooperative Union of Indonesia

Early in 1978, the Junior Minister of Cooperative Affairs sent a team of three officials to study the cooperative milk producers' organization in Anand, India. Based on their findings, a national body called the Indonesian Dairy Cooperative Board was formed at a conference of 14 dairy cooperatives in July 1978. This board was dissolved after a few months, however, and in its place the Dairy Cooperative Union of Indonesia - Gabungan Koperasi Susu Indonesia (GKSI) - was established in March 1979. This has proved to be a very wise move with far-reaching implications for the government's dairy development programme.

One of the important steps taken by the GKSI was negotiations with the private-sector milk-processing industries regarding the price of milk supplied by dairy cooperatives, which is reviewed every six months.

The GKSI is managed by a board of 15 persons who are elected every three years, seven of whom work at headquarters. There are six regional coordinators for the regions of West Java, Central Java, East Java, special area of Jakarta, special area of Yogyakarta and West Sumatra. Routine union activities are carried out by five managers.


The Government of Indonesia has very rightly placed great reliance on the dairy cooperative movement as a vehicle for its ambitious dairy development programme. There are problems to be addressed, however, including: an insufficient number of dairy cattle; inefficient management; low standards of hygiene on farms; inadequate nutrition for cattle; and low consumption of milk by the population. Moreover, the government cannot maintain indefinitely the expensive policy of importing heifers in large numbers and, therefore, it must give attractive incentives for the adoption of heifer-rearing schemes by the cooperatives. At the same time, male calves should be reared for fattening in other localities on a feedlot system for the meat industry. These can be fed on agro-industrial by-products such as molasses from the sugar-cane industry and fruit-cannery waste products. Activities such as these should also be handled by the village cooperatives as they will provide additional income.

The low milk consumption by the public is a matter of concern for the health authorities. As it is not easy to change the dietary habits of adults, a concerted effort should be made with schoolchildren by expanding the current limited milk-feeding programmes in schools. Members of dairy cooperatives must be convinced of the need to retain some of the milk produced on their farms for their children. The present tendency is to sell all the milk produced to the cooperative in order to get the maximum income. The farm families need to be educated so that they understand the important role of milk in the diet of growing children.

Sri Lanka

Background to the dairy industry and dairy cooperatives

According to available records, interest in organizing milk producers into dairy cooperatives has been evident in Sri Lanka as far back as the 1930s. The first cooperative to be formed was the Bomiriya Dairy Cooperative Society in the Colombo district. A few years later, the Jaffna Dairy Cooperative Society was established in the Northern Province. These two societies flourished. Later, a few smaller societies were formed in other parts of the country, and these supplied milk to the government's milk-feeding centres for young children.

Formed in 1952, the Colombo Cooperative Milk Union incorporated some of the existing cooperative societies in the Colombo district. It supplied raw milk to consumers in the Colombo metropolitan area. In 1955, the union was able to obtain a small pasteurizing plant, which was installed on - its premises. Meanwhile, smaller dairy cooperatives were being established, primarily to supply milk to the National Milk Board.

The early dairy cooperative societies were initiated by individuals with the assistance of the Department of Cooperative Development. They were primarily established to market milk for their members, who would derive no other benefits nor provide technical inputs.

Meanwhile, the National Livestock Development Board, a sister organization of the Department of Animal Production and Health in the Ministry of Rural Industries' Development, implemented a World Bank-funded project to establish dairy cooperatives in the coconut plantation area of the Northwestern Province and in the mid-country area of the Central Province. The National Dairy Development Board of India was requested to send a team of senior officials to Sri Lanka to prepare a plan for establishing dairy producers' associations (primary village-level dairy cooperatives) in the project area. These associations commenced operation around the middle of 1979. The provision of such technical inputs as veterinary services, artificial-insemination facilities, fodder planting material and concentrate feeds to the cooperative members was well established.

The next logical step was the formation of the secondary tier. The primary societies in the coconut triangle area joined together to form the Coconut Triangle Milk Producers' Union. Initially dairy producers' associations were formed, but these were subsequently registered as cooperatives. This allowed the prospective members of a cooperative to gain experience in working together and running an organization.

The primary or basic society has a board of directors comprising five dairy farmers and four senior government officers. The dairy farmers are elected at the society's annual general meeting, while the government officials are nominated by the Department of Cooperative Development. The relevant government agent of the district acts as the president of the society, while the veterinary officer of the Department of Animal Production and Health for the area holds the office of vice-president or secretary. The other two government officers are from other government departments in the area. The government officials' function on the board is to guide and advise the members, give them confidence and help them to develop leadership during the cooperative's formative period. Once the cooperative is well established and functioning smoothly, the government officials withdraw and all nine directors are then elected from the membership.


It is evident from the above that the dairy cooperative movement in Sri Lanka has been actively encouraged by the government agencies concerned with livestock development from about 1977 onwards. This enthusiasm was generated by the successful achievements in neighbouring India. The Ministry of Rural Industrial Development, the department responsible for livestock development, has played a significant role in the development of milk producers' cooperatives since September 1978.

One of the weaknesses of the dairy cooperative movement in Sri Lanka, however, is the high degree of dependence on government officials for management and operational control. In the larger cooperative societies and unions, there has been a higher number of nominated government officials although the elected members are in the majority. The presence of government officials on management committees is welcomed by the members, since it leaves them with less responsibility, and undoubtedly the principal factor of the success of dairy cooperatives is their interest, enthusiasm and integrity. However, this in turn has inhibited the development of potential leaders from among the rural dairy farmers.

A fundamental shift in government policy concerning the dairy sector was made in 1985 as a further development of the World Bank-funded dairy project that aimed to privatize the collection, processing and marketing of milk. The policy change was jettisoned in 1986/87, however, and the government once again permitted support to dairy cooperatives and the formation of new ones. In actual fact, privatization of the dairy industry faced opposition and failed to make an impact since no increases in producer prices or milk production were apparent. At present, the establishment and strengthening of dairy cooperatives is being actively encouraged by all parties concerned, including donor agencies.


Background to the dairy industry and dairy cooperatives

Since the consumption of milk has never been a tradition among the Thai people, cattle have been raised for draught, beef and manure rather than for dairy purposes. The earliest dairy-farming activities were started by Indian settlers around Ayutthaya, about 80 km north of Bangkok, in the 1950s. Milk from this region was sold fresh to consumers in Bangkok. This dairy activity still continues.

Fresh milk became more popular during the post-war period. At that time the government established the Milk Authority to promote milk production and consumption. Unfortunately, cheap imports of milk competed with domestic production, and these became more popular because of lower prices and better quality, forcing the Milk Authority to close down. Locally produced milk was not given any special treatment, instead it was sold as raw to be boiled by consumers. As such, it could not compete with the imported product, and inevitably there was a gradual decline in local milk production.

During the fourth Development Plan from 1975 to 1982, the government set clear guidelines for dairy farming by expanding artificial-insemination and immunization services, providing long-term credit facilities and ensuring guaranteed prices for raw milk. Since 1979, several thousand Sahiwal and Friesian cross-bred heifers have been imported from New Zealand and Australia for distribution to dairy farmers. Subsequently, milk-processing factories were directed to use locally produced milk as much as possible. The milk-drinking habit was actively promoted and a significant change in technology was the introduction of sterilized milk in 1975, using the UHT (ultra-high temperature) process.

Two important pieces of legislation concerning the dairy industry were enacted in 1983. The Ministry of Industries introduced the skim milk importation law, which requires producers of pasteurized or UHT milk to use at least a 1:1 ratio of raw fresh milk to recombined milk. At the same time, the Ministry of Commerce introduced the Import and Export Products Act, which brought in a permit system for imports of milk to the same effect. According to the latest regulation, imports are only allowed on the guarantee that 21 kg of fresh milk will be purchased for each kilogram of imported powder (equivalent to 8 kg of liquid milk).

The ministries of Agriculture and of Cooperatives and Industries further projected that from 1988 onwards there would be a deficit of locally produced fresh milk and that by 1995 approximately 25 to 30 percent of total needs would be met by local production, thus reducing the spending of foreign exchange for milk imports.


The government's interest in supporting the dairy cooperative movement is only of recent origin but a start has been made. While some dairy cooperatives are doing well, several are facing difficulties. One of the reasons for this has been the inability of dairy cooperatives to safeguard their interests in relation to the quantity of milk imported by the private-sector milk factories. The difficulty of disposing local raw milk was also a problem some time ago. Although milk production is currently increasing at the rate of 20 percent per year it is not sufficient to meet consumer requirements.

The absence in Thailand of a well-defined and strong secondary tier, that is a union or federation of dairy cooperatives, is a serious handicap to furthering the interests of dairy cooperative society members. It is the representatives of the dairy cooperative societies, with assistance from state agencies, who must make the decisions regarding their own progress. If such a union/federation sponsored by the government were to be established, it could reflect the voice of the dairy farmers, as well as undertake negotiations with the private sector for better prices and other conditions. Ideally, the board of management of the union/federation should have representatives from the departments of Livestock Development and of Cooperative Promotion and from the ministries of Cooperatives and Industries and of Commerce, with the majority of the members on the board being dairy farmers. The union/federation could provide technical and other support services to its members, facilitating their operations and increasing their prosperity and that of the community as a whole.

Unfortunately, even successful dairy cooperatives have not made an effort to divert part of their profits towards developing the villages where the dairy farms are located. If some of the profits were used to develop roads and to improve the water supply, schools, libraries, clinics, etc., the entire community would benefit from the improved quality of life and consequently give greater encouragement to dairy farming.

In order to further increase the consumption of milk and milk products, the vigorous mass media-directed campaign currently under way to popularize their consumption must be maintained. It should continue to aim particularly at the school-age population and adolescents. Special programmes should be carried out for schoolchildren in the vulnerable rural areas to encourage the milk-drinking habit and thereby improve their nutritional status.

Development of dairy cooperatives in other Asian countries


Farmers have begun to be involved in dairy cooperatives in Malaysia, but the process is still in its infancy. In the decade between the mid-1970s and the mid-1980s, the government organized its dairy programme by establishing milk-collecting centres. A total of 40 centres were set up, but only one of these was formed to function as a dairy cooperative. Established in 1985, this cooperative currently comprises about 25 percent of the total number of dairy farmers in the country and is administered by a 12-member board of directors under the Farmers Organization Authority through the Cooperative Act.

It is the government's aim to gradually introduce the cooperative system throughout the country. Producers must become more involved in value-added activities so that they receive a better return. In line with the privatization policy, dairy cooperatives are viewed to be the choice to take rather than milk-collecting centres, which are currently managed by the government.


The cooperative structure in Myanmar mainly covers the technical activities of milk collection, processing and marketing through livestock enterprises under the Ministry of Livestock Breeding and Fisheries. The cooperatives collect milk from farmers and, in return, supply them with inputs.

The government is currently encouraging farmers to act cooperatively, which, it is hoped, will lead to a farmer-operated and -controlled cooperative network in the future.


The principal organization for dairy development in Nepal has been the Dairy Development Corporation (DDC) established under the Corporation Act in 1969. Most milk-producing farmers are small landholders who have been organized to form producers' associations, which channel milk to DDC-run cooling centres. Today there are 600 milk producers associations (MPAs) assisting approximately 60000 farmers in supplying milk to the DDC. Twenty MPAs have been structured to function as cooperatives through the initiative of the DDC, which has legally recognized them as being operated by farmer members. Under the new Cooperative Act, passed in 1992, the National Cooperative Development Board has been established to strengthen the cooperative movement in the country.

In order to coordinate private - and public-sector dairy development, the National Dairy Development Board (NDDB) has recently been constituted. The board will initiate intensive training of MPA farmers and committee members at the field level so that they fully understand their rights, obligations and management discipline. A progressive transfer of MPAs to cooperatives will be encouraged through necessary activities coordinated by the NDDB, which will facilitate the participation of individual milk-producing farmers in the ownership of milk-processing plants.


Since the mid-1970s attempts have been made to establish dairy cooperative societies in different parts of Pakistan, however, these attempts have not resulted in a comprehensive network of cooperatives as expected. Reasons for this are considered to be private-sector intervention and the poor infrastructure in many milkshed areas. The same problems have also hampered the formation of village livestock associations.

So-called "farmers' committees" are currently being established in all provinces in Pakistan. These committees offer input services to farmers and collect milk from them, delivering it to the chilling centres managed by the Pakistan Dairy Association for further distribution to various milk processors. It is hoped that Pakistan's newly organized dairy industry will reduce the dominance of the traditional milk traders (middlemen) so as to increase farmers' incomes and provide urban consumers with better quality dairy products.

The Philippines

Even though local fresh-milk production in the Philippines accounts for only 2 to 3 percent of milk requirements, isolated dairy farmers' cooperatives have been set up in various locations of the country in the past, and once again government authorities are supporting the cooperative structure by assisting smallholder milk producers. In this connection it must be noted that it was the women at all levels who took the initiative and proceeded to assist in reestablishing and reorienting dairy farmers and cooperatives.

A milestone in this reorientation process occurred early in 1993 when five dairy federations in the country organized themselves into the Dairy Confederation of the Philippines. This is the first national organization of cooperative dairy farmers in the country.

Japan, the Republic of Korea and New Zealand

Dairy producers' cooperatives have been adopted successfully in Japan, the Republic of Korea and New Zealand, resulting in well-established dairy industries. The respective governments have firmly supported this development through legislation as well as through technical and financial schemes.

General conclusions

In developing countries in Asia and the Pacific Region, the dairy cooperative has been recognized as an important means of organizing the supply of agricultural inputs, processing and marketing agricultural produce and providing agricultural credit, among other related activities. It has proved to be a strong economic institution and a vehicle for improving the condition of the impoverished rural population. Cooperatives provide farmers with an organizational arrangement at the grassroots level to assist them in planning, decision-making and implementing schemes that involve them and their families and that are designed to raise their socioeconomic standards.

The common need of milk producers is to obtain a fair price for their milk and this is fulfilled through collective marketing. Milk is considered to be one of the most sensitive agricultural commodities, requiring special and timely care, and this can be provided conveniently as well through the collective operation of cooperative dairy societies. Apart from the collection and marketing of milk, other services, such as dairy inputs, extension services, veterinary health care, artificial-insemination services, provision of animal feed, fodder seed, planting material, fertilizers and credit, and training and education, can also be provided through cooperatives. These would act as business associations owned and operated by members for their entire benefit.

Many countries are attempting to increase livestock and especially milk production by assisting small-scale farmers, since they are the most numerous and poorest of the population, and very often also landless. Such a policy has a social as well as a commercial purpose since while it provides rural employment, more cash income and diversification away from traditional crop production (by-products), it also enhances the utilization of potential family labour. The farmer cooperative system has proved to be an effective vehicle for livestock development in general and for dairy development in particular in rural areas.

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