A Note on the Achievements of the Dairy Cooperatives

8/3/2019 A Note on the Achievements of the Dairy Cooperatives

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A note on the achievements of the dairy cooperatives, challenges beingfaced by them and policy / legislative changes required to ensuredemocratic, autonomous and professional functioning of the dairycooperatives

Achievements of the dairy cooperatives during the last 100 years

During the pre-independence era, public and private agencies dominated thedairy industry, although government policy did not favour any oneorganizational form. Early efforts to organize dairying along cooperative lineswere made immediately after the enactment of the Cooperative SocietiesAct, 1912. The present day Anand Pattern dairy cooperatives trace its originto the establishment of a dairy cooperative at Anand in 1946 under thedirection and guidance of Sardar Vallabhbhai Patel. The dairy farmers of thethen Kheda District of Gujarat organized themselves to form a dairy

cooperative in order to directly undertake sale and processing of milkcollected from member dairy farmers of the district.

The government of India took some steps to improve the quality of milchanimals and their productivity through the Key Village Scheme, launched aspart of the First Five-Year Plan (1951-56) and the Intensive CattleDevelopment 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 decadesbetween 1951 and 1970, milk production grew by barely 1 per centannually, while per capita milk availability declined by an equivalent amount.

During the 1960s, various state governments tried different strategies todevelop dairying, including establishing dairies run by their owndepartments, setting up cattle colonies in urban areas, and organizing milkschemes. Almost invariably, dairy processing plants were built in citiesrather than in the milk sheds where milk was produced. This urbanorientation to milk production led to the establishment of cattle colonies inMumbai, Calcutta, and Madras. The objective was to meet the demand formilk and milk products in big cities through improvements in milk collection,processing, and distribution.

The Operation Flood (OF) programme implemented by the National DairyDevelopment Board (NDDB) from 1970 to 1996 played the key role inbringing about the transformation in dairy development in the country. TheOF programme established milk producers cooperatives in villages and mademodern technology available to them. The broad objectives were to increasemilk production ("a flood of milk"), augment rural incomes, and transfer to



milk producers the profits of milk marketing that were hitherto enjoyed bywell-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. Lowcapital intensity, a short operating cycle, and steady returns make dairying apreferred activity among marginal (less than one hectare of

land 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 isfeasible even for the landless, who depend for fodder on common grazingand forest lands. Nearly 70 million Indian households hold a total of 98million cows and buffaloes. A majority of milk producers have one or twomilch animals, and these small producers account for some 70 per cent of the milk production. On average, 22.5 percent of the income of ruralhouseholds is contributed by milk.

The Operation Flood programme is based on what are known as AnandPattern dairy cooperatives, referring to their origin in Anand District in thestate of Gujarat. Starting in 1970, NDDB replicated the Anand Patterncooperatives through the OF programme all over India. Under the AnandPattern structure, individual farmers are joined in village-level dairycooperative 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 federalcooperative structure to ensure that the higher-tier organizations serve thepurpose of the lower levels and that the gains at all levels flow back to themilk producers in significant measure. The core feature of the Anand Patternmodel is farmer control of the three stages following production, that is,procurement, processing, and marketing of milk and milk products.The valueadded at the procurement and processing stages can be realized by thecooperatives only through control over marketing, which is therefore anessential requirement for success. In contrast, many dairy cooperativesworldwide end up as suppliers of raw material to private companies that ownthe brands and control marketing. By cutting out the need for middlemen in



procuring and selling milk, the Anand Pattern cooperatives have helped toreduce seasonal price variations and have enabled the farmers to enjoy thefruits of their labour instead of surrendering most of the profit to corrupt andexploitative middlemen.

Consumers too have benefited. In 2003, dairy cooperatives accounted forthe major share of processed liquid milk marketed in India. Milk reachesconsumers in 750 towns and cities through the National Milk Grid network.Over the years, brands of dairy products created by the cooperatives havebecome known for quality and value.

The achievements of the dairy cooperatives are summarized in the boxbelow.

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 in2003-04.

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 netincrease 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 hasaveraged 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 smallertowns.

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 cooperativesduring the three OF phases and after the programme.

Achievements of Operation Flood, 1970-2002

IndicatorOF phases Post-OF

phasePhase I> Phase II Phase III

Date started July 1970

October

1979 April 1985 April 1996

Date concludedMarch1981

March 1985March1996

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 andbuilt womens empowerment activities as an important component of its



dairy development programme. In the early phases of OF, the strategy wasto train women in modern animal husbandry practices, and a large numberof training programmes were specifically organized for them. Specialincentives were given to all women dairy cooperative societies in order toencourage participation of women in governance of the cooperatives.

According to NDDB annual report, 2001-02, the number of women who aremembers of dairy cooperatives has increased to 2.47 million in 2001-2002from 0.62 million in 1986-87.

Growth in milk production and availability

Milk production in 1968-69, before the launching of Operation Flood, wasonly 21.2 million metric tones. It increased to 31.6 million metric tones by1980-81, 53.9 million by 1990-91, and 84.6 million by 2001-2. The annualgrowth 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 productioncontinued to grow at 5.05 per cent per year during the third phase.

As a result of substantial increase in milk production, milk consumption inIndia has risen from a low of 112 grams per day in 1968-69 to over 226grams per day in 2002.

The increase in milk production and availability helped stabilizing milk pricesover the years. Today most of our cities and towns receive adequate supplyof hygienic milk, and the small farmers and landless labourers who make upthe 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, whichare federated to 22 state-level marketing federations. Over the years,cooperative brands have earned the reputation of being known for qualityand value. Some of the brands that have earned consumer confidence areAmul (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 operationand gradually expanding its presence in other states. Presently, the GujaratCooperative Milk Marketing Federation (of Amul brand) is the largest foodcompany in India. The success of Amul proves that cooperatives cansuccessfully compete with even multinational companies.

Empowerment Elements



Empowerment is a multidimensional construct. As suggested by the WorldBank 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. Theybecome important in a religiously diverse, multicultural, and highly stratifiedsociety like India where rural poor face many forms of exclusion. WhileOperation Flood is not an all-purpose development program and cannot hopeto sweep away economic and social inequalities that existed in rural India forcenturies, it has nonetheless had a profound impact on the social landscapeof the countryside.

In its 1976 report on rural employment, the National Commission on

Agriculture observed:Next to crops, animal husbandry programmes have the largest employmentpotential. The most important features of these programmes are that theyprovide subsidiary occupation, offer gainful employment at the locationitself, and make better utilization of female and child labour. . .Most of theseprogrammes are particularly suitable for weaker sections of the ruralcommunity and have re-distributive effect on rural income in favour of them.

Renowned Sociologist BS Baviskar explains that Operation Flood wasconsidered 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 whichthe poor have amply, the landless poor can easily and profitably participatein the white revolution, deriving employment and additional income from it.Since milk is not a polluting substance in the Hindu religious ideology, peoplebelonging to any caste, even the lowest, can and do participate in producingmilk. . . . Also cooperatives which organize only milk producers cansuccessfully 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, andsmall farmers who were engaged in milk production benefited greatly fromthe increased income and employment opportunities generated by OF. Of the farm families covered under OF, 21 per cent had no land and another 66per cent were marginal and small farmers owning less than two hectares of land. Over 70 percent of the participating households had just one or twomilch animals. Thus, OF turned out in practice to be a pro-poor programme



that made the distribution of incremental income from milk among ruralmilk-producing households more equitable.

As far as empowerment of women is concerned, this took place mainlythrough the women dairy cooperative societies (WDC). In the WDCs women

find themselves empowered, as they are authorised to make their owndecisions in meetings held outside the home. Income from WDCs enablesthe women to make most household expenditures without being dependenton their husbands. OF has also played an important role in generatingemployment for women. With 3.5 million milk suppliers, "it is reasonable toassume that 5 percent represented women who were able to stay at homerather than go out for work. This withdrawal of women from the labour forcewill have created an additional 175,000 labouring jobs, predominantly forthe very poor," reveals the assessment report of the World Bank in 1998.

Cooperative dairying also empowers people at another level. The villagedairy cooperative is a clean, well-lit, and orderly place. The villages havegone through a similar transformation ever since the cooperatives began tooperate. When the people of a village see cleanliness, sanitation, hard work,and discipline in the cooperative, and when they know that the cooperativeserves them well, it probably inspires them to bring more of these qualitiesinto their own lives.

The women members of dairy cooperatives visit dairy cooperative unionsand 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 matterof fate.

When our village people see a veterinarian cure an animal that wouldotherwise have died, they learn about the efficacy of modern medicine. Theysee that with feed and care better milk is produced and as their animalsimprove their income from milk increases and they become hopeful of betterhousing and future. And they learn that fate does not determine theirfutureÂ—that they can take control of their own destinies.

Economic EmpowermentThe economic empowerment aspects of OF deal with connecting people andtheir institutions with markets.

In the pre-OF era, milk pricing was not used as an instrument of dairydevelopment. No effort was made by any government to ensure aremunerative price to the producer, but the consumer price of milk supplied



through government-run city milk schemes was invariably subsidized. Thishad two adverse effects on dairy development. First, in the absence of ayear-round remunerative price for milk, the producer did not have anyincentive to increase milk production through better breeding, feeding, andmanagement 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 forless than its cost and less than the open market price, city milk schemesincurred huge losses year after year, and as a result were not able to saveand plough back any money into modernizing and expanding their activities.Thus, the milk pricing policy followed before 1970 was both anti-producerand anti-dairy development.

For the first time, OF accorded the highest priority to ensuring a year-roundand dependable market at remunerative prices for rurally produced milk.Indeed, OF was originally conceived as a marketing project. The producerprice of milk in most OF areas is determined by the state governmentconcerned and is set at a level that is considered remunerative to the milkproducers. Although the cost of milk production is not explicitly considered insetting the producer price, there is evidence to show that the terms of tradeover the last decade or so have been favourable to the milk producers. Thetime-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 milkproduction, confirm this. Over the period 1987 to 1996, the compoundannual rate of growth in the producer price of milk was 10.9 per cent ascompared to 5.8 per cent in the wholesale price of oilcakes.

The strategy evolved by early dairy cooperatives in Gujarat proved decidedlysuperior to alternative ones being tested in the 1960s, such as the KeyVillage Scheme or the system under which government-owned milk plantscollected and processed milk produced by contractors. The Anand Patternemphasized keeping cattle in the hinterland and transporting milk to citiesby farmer cooperatives, rather than transporting cattle as well as fodder tocities. Thus the system had strong comparative advantage. As a result, theearly dairy unions in GujaratÂ—such as Kaira, Mehsana, Sabarkantha,Banaskantha, and othersÂ—rapidly emerged as large and successful farmerorganizations, with hundreds of thousands of members dominating theeconomies of their domains.

Operation Flood was not conceived as an all-purpose poverty eradicationprogram. It cannot be, because it focuses on a single productive activity,dairying, while the ranks of the rural poor include many different categoriesof the disenfranchised: the old, the infirm, tribals, the landless, smallfarmers, artisans, and so forth. Nonetheless, it is notable that the increasedincome from milk under OF encouraged a process of change in other



activities of the milk-producing households and contributed to their overallsocio-economic development.

Political Empowerment

The political empowerment aspect of the milk revolution deals withconnecting poor people with the government. The OF programme was ableto connect the grassroots-level dairy cooperatives not only with the stateand central governments, but also with international agencies. On the firstInternational Day of Cooperatives on 1 July 1995, United Nations Secretary-General Boutros Boutros-Ghali observed:

Cooperative enterprises provide the organizational means whereby asignificant proportion of humanity is able to take into its own hands thetasks of creating productive employment, overcoming poverty and achieving

social integration. They constitute a model for a people-centred andsustainable form of societal organization, based on equity, justice andsolidarity.

As "schools of democracy," cooperative enterprises also contribute to thepromotion of social stability. It is clear that governments, although they maycreate an enabling environment, cannot achieve or maintain sustainabledevelopment without an interactive social partnership, actively involving allof 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 requiredto strengthen them

With the opening up of the economy preferential treatments of yesteryearsare no more available to the dairy cooperatives. They are now required tocompete in the open market. The terms of the World Trade dictates removalof all safeguards put in place earlier to protect the dairy industry from unfairoutside competition. As a result, gradually internationalization of our dairybusiness is taking place. This transformation demands the dairy cooperativesto improve their performance; be it in marketing or quality of products orgovernance. A few dairy cooperatives like Amul have done well in the past inthese areas. There are others who are catching up albeit in slow pace andthere 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 theirfunctions and governance, the biggest obstacle that the dairy cooperativesface today is political and bureaucratic interference. Business decisions areoften guided by other than business considerations. The cooperative lawsare 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 archaiccooperative laws enacted to establish State control over the affairs of thecooperatives. Additionally, in line with the developed countries, there shouldbe minimum laws to control the affairs of the cooperatives. Registrars of cooperatives should be responsible only for registration of cooperatives, theirbyelaws and arbitration as and when required. Routine management andgovernance should totally be left to the wisdom of the owners (i.e.members) of the cooperatives. It is heartening to note that some Stateshave already taken some positive steps in this regard by enacting liberalcooperative laws; there are others who are also in the process of doing so.

Currently, the management in majority of the dairy cooperatives carriessome or the other political leanings. As a result, it has become a commonpractice that the management of dairy cooperatives, irrespective of performance, gets superseded or suspended as and when opponent politicalparties come to power. In consequence, to ensure continuity of andprotection to good management, depoliticalising cooperative institutions is amust. As business institutions, the dairy cooperatives from time to time arebound to take hard decisions. Irresponsible outside interference in the affairs

of the dairy cooperatives is sure to deteriorate performance, eventuallymaking them unfit for competition. To arrest the trend, the members needto be educated on governance matters. Adopting standard managementpractices to restrict arbitrary decision-making in a way could also be helpful.Also, a few restrictions in the cooperative laws could be introduced such aslimiting term of members of governing bodies, setting up independentbodies to hold free, fair and timely election and audit in cooperatives.

Improving quality of products poses a big challenge to the dairycooperatives. In todays highly competitive market demand for superiorquality products is on the rise. The dairy cooperatives are aware of thistrend. They know that there is enormous scope to enhance their share in theworld market too, given that India is the highest producer of milk and thattoo at the lowest cost. But to capture the world market the necessaryprerequisite is product quality needs to match international standards.Improvements in product quality are required to enhance and retain theirshare in domestic market also. As quality upgradation is a long process, itcalls for, besides commitment of the management, substantial investment in



hygienic milk production, upgrading plants and machinery, upgradingmanpower skills and setting up facilities for cold-chain storage anddistribution of milk and milk products starting from the farm level. Presently,the dairy cooperatives do not have the capacity to make such hugeinvestments 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 dairyindustry. Systematic planning and integrated policies and programmes foranimal breeding, genetic upgradation and feed and fodder managementcould only improve the situation. For all these to happen, the Governmenthas to intervene and create funds (may be called Dairy Development Fund)for such programmes to be implemented on mission mode integratingvarious schemes.

Excess manpower and low skill level of employees are areas of great concernfor the dairy cooperatives. The dairy cooperatives need to shed excess flabin manpower in order to match manpower productivity as per marketdemand. Skill sets of the employees need to improve to benchmark desiredperformance. Since the dairy cooperatives generally do not have capacity tohire high-calibre professionals, the only out is to invest in extensive trainingand education to upgrade the skills of the existing manpower. Theemployees need to be educated about the merits of scientific and modernmanagement 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 dairycooperatives have to work out suitable strategies so that they cansatisfactorily meet the requirement of the members. They can do so byproviding required support services to their members for veterinary care,input supply and selling their milk and all these have to be done atreasonable cost. Members need to be encouraged to participate in thebusiness affairs of their cooperatives and they could no longer be treated asmere suppliers of milk. Deputation of government officers to head the affairsof cooperatives has to stop to secure members participation. Legalprovisions to hold free, fair and timely election are must and have to beensured by the Government.

Policy and legislative framework and changes required incooperative 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 betuned with changing time. Governance and management of cooperatives arebest to be left to the wisdom of their owners i.e. the members. Ideally, thereshould 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 forcooperative audit and holding elections. The Multi-state CooperativeSocieties Act, 2002 is a good piece of legislation in this direction and may bemade a model while revamping the cooperative laws of our country. For allthese to happen, the first requirement is - there should be minimum laws,and thereby minimum interference by Government functionaries includingregistrars. Where the Governments stake is less than 50 per cent, theGovernment should not have any control over the management andgovernance 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 cooperativesocieties as primary members. The second tier consists of district-level milkprocessing unions and at the top of the structure, there are state-level milkmarketing federations. They have also formed a national-level cooperativefederation as their apex representative body. Each one of these tiers hastheir own distinct functions to contribute to the federal structure. Thoughthese cooperatives are different entities by law, they function as parts (orbusiness 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 andconsequently investment required to be made by the dairy cooperatives. Italso places them at disadvantage when compared with their competitors inprivate trade.

Hence, it is proposed that the Government may consider exempting thedairy cooperatives from payment of income tax at each tier of their pyramid.If implemented, this would be in line with the relaxation offered to theBanking cooperatives. There is also a need to bring down the income taxapplicable to the dairy cooperatives to a level of 20 per cent as beingfollowed 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, MilkPowders, Infant Milk Food, White Milk Food, Butter, Ghee, Cheese, Ice creametc. are products of mass consumption. These products are manufacturedfrom the milk supplied by millions of rural milk producers, majority of whoare small and marginal farmers and landless labourers. Almost one forth of

them is women. To these milk producer families, income from milk suppliedto the cooperatives constitutes a major source of their daily income. Levyinghigh VAT rate would increase the prices of dairy products adverselyimpacting their consumption. Thus, we have a situation where on one handthere is increase in the prices of dairy products and on the other there is noinput credit on milk available, which constitutes 80% of total input cost of dairy products. This would definitely adversely affect the income flow tothese 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 dairyproducts to a very high rate of 12.5%. In the pre-VAT scenario theseproducts were attracting average 8% local sale tax. The input credit benefitis not available to dairy products as milk constitutes the more than 80%input cost, therefore, the benefit of input credit will not reduce the taxburden as anticipated but will increase in the effective tax rates onconsumers. 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 addeddairy products to avoid any steep increase in the consumer prices of dairyproducts.

We wish to draw kind attention to the following:

While the products like fresh milk and pasteurized milk are judiciallyexempted from VAT, Flavoured Milk, Fresh Cream and SweetenedCondensed Milk are classified under 12.5% VAT. Other milk powders likeWhole Milk Powder, Infant Milk Food Powder and Dairy Whitener etc. arealso classified under 12.5%.

Flavoured milk is fresh milk with sugar, flavor and colour. Children andyoung adults generally prefer Flavoured milk. It is nutritious and healthyproduct. In fact, the Government should encourage such healthy products.Thus, we strongly recommend that Flavoured milk should also be treated asfresh milk only and should be exempted from VAT.

We would like to submit that all Milk Powder (Skim milk powder, Whole milkpowder, Baby food (Infant Milk Food Powder, fortified with vitamins) ismerely 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 buttransported over long distances area that are perennially short on milksupply. Milk powders are reconverted in to liquid milk by adding water. Milkis balanced source of nutrition to infants, lactating mothers and whiten tea

and coffee. Since dairy cooperatives uses the milk powder for recombinationduring the lean season, the cost of milk so produced goes up significantlydue to high rate of VAT. Thus, we strongly recommend all milk powdershould be classified under 4% VAT.

Further, the essential commodities like Ghee and Butter have been classifiedunder 12.5% VAT category. Ghee and Butter are items of massconsumption. Ghee and Butter are used as a cooking medium since ages inIndia; therefore these products should attract the same rate of VAT as doVanaspati and Edible oils, i.e., 4% only. High incidence of VAT (12.5%) onGhee and Butter would also put the organized sector at direct disadvantagevis-à-vis the unorganized sector since the cooperative faithfully pay the taxwhere as the same is not the case for private traders.

Indigenous dairy products like, Shrikhand, Paneer, Gulabjamun etc. arecommon mens sweets. Such products are by and large produced and sold byunorganized sector. To provide hygienic and nutritious products toconsumers at affordable prices, the dairy cooperatives has started marketingthese products of late. Any high incidence of VAT on these products willinhibit the scope of market expansion for these products by organized sectorat 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 berationalized by classifying these products under proposed 8% category.Especially Ice cream manufactured by honest tax paying organized sectorprovides nutritious and healthy food option to children and young adults of all classes of society. The current price of Ice cream has brought down byvigorous and painstaking efforts of players like Amul. Due to these effortsIce cream, which was considered a luxury, only a few years back has beenbrought within the reach of a common man. The classification of ice creamunder 12.5% category will undo the work put in by players like Amul andmost other cooperative unions in last few years to make ice creamaffordable to masses and again push this product to a category of luxuryitem available to only a few.

In the present VAT scenario, CST is not going to be abolished and no inputcredit is available for inter state purchase. In view of this, increase in tax willlead 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 anysuch increase in prices is likely to depress the consumption of these healthyproducts and therefore adversely affect the remuneration available to milkproducer 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 alltypes 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 milkpowder, Vitaminised milk powder, Dairy Whitener, White Milk Food andInfant 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 Edibleoils 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 milkproduction, under 0% VAT category.

In the interest of the consumers from all sections of society, the Governmentshould reconsider the decision regarding dairy product classification in theVAT regime. We firmly believe that, this will increase consumer demand,boost milk production volumes and improve rural milk producers incomesresulting into overall social development.

Increasing the import duty applicable to milk powder and butter oilto 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 milkproduction. They also impose several restrictions to stop import of dairyproducts. Many of these countries offer high support price to stimulate milkproduction. Through various policies and facilities they frequently subsidiseexports.



However, in India, the milk producers do not get any such support. Theyonly want their government to protect them from the distorted world tradeof subsidized commodities to flood their market. Each year, the DirectorGeneral 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 thatthis concessional duty of 15 per cent to import milk powders should beraised to 60 per cent to protect the milk producers from unfair worldcompetition. Similarly, we would like urge our Government to increaseimport duty on butter oil to 75 per cent with immediate effect to protect thedairy 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 notmeet the Indian standards of quality and packaging, which is applicable tothe domestic manufactures. There is a tendency that developed countriesdump products of inferior quality to India. It is therefore necessary that theGovernment enforce the regulation on imports that are violating the laws of the land to protect the interest of the consumers. Additionally, dueconsiderations on sanitary and phyto-sanitary measures should be givenwhile approving import of milk and milk products.

Introducing integrated food laws

Presently, manufacture and supply of milk and milk products are governedby a plethora of food laws such as the Prevention of Food AdulterationAct,1954; the Standard Weights and Measures (Packaged Commodities) Act,1976; the Industrial Development and Regulation Act, 1951, the AgriculturalProduce (Grading and Marking) Act, 1937 as amended in 1986 (AGMARK);the Milk and Milk Product Order, 1992; the Infant Milk Substitutes, FeedingBottles 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 theAir (Prevention and Control of Pollution) Act, 1981; the Bureau of IndianStandards (BIS) Act, 1986; the Export (Quality Control and Inspection) Act,1963 etc. Moreover, implementation of these laws comes under the controlof a host of ministries including Ministry of Agriculture, Ministry of FoodProcessing, Ministry of Consumers Affairs, Ministry of Health, Ministry of Company Affairs, Ministry of Law etc. Each one of these ministries has theirown departments and systems of administrations requiring numerousclearances 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 businessunder 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 tobe recognized as a distinct economic sector and integral component of thesocio-economic system deserving special status from our Government. Thecooperatives have the potential, if governed properly, to solve many of ourproblems especially in rural areas. Hence, the Governments policy initiativesfor cooperatives are extremely important. Since the dairy cooperatives arelimited resource farmers organizations and poor in capital formation, theyare vulnerable to open and unfair competition requiring the Governmentspolicy support to protect them from unfair and unequal competition whetherthey 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 substantiallyin developing their individual milk sheds, educating member farmers, etc.Thus, it would be unfair for the Government to allow private andmultinational companies to set up dairy business in milk sheds alreadydeveloped by the dairy cooperatives. Companies would be allowed to reap

benefits for which they did not make any prior investment and so, it wouldbe invariably at the cost of the cooperatives. Further, cooperatives, by law,are required to contribute a portion of their business surplus towardseducation fund maintained by the National Cooperative Union of India, NewDelhi. 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 nothave any sincere intention to invest in developing their milk sheds or tocreate infrastructure facilities in their individual area of operation. Therefore,it is proposed that the Government should come out with some policydirectives by which private trade and multinational companies would berequired to invest a portion of their business surplus in developing their milkshed or upgrading genetic resources of milch animals or fodder availabilityetc. in their area of operation. This would go a long way in developing thedairy industry of the country as a whole.

Abolishing deputation of Government employees in dairycooperatives



Past experiences reveal that competent and committed professionalsworking 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 bestperforming dairy cooperatives today are headed by professionals and not bygovernment officers posted on deputation. Therefore the Government needs

to discontinue the practice of deputing government officers to head the dairycooperatives.

A Note on the Achievements of the Dairy Cooperatives

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Transcript of A Note on the Achievements of the Dairy Cooperatives